I’ve been incredibly fortunate in my social sector career.
Over the course of about 15 years, I’ve climbed the professional ladder, gaining more power and resources with each role.
But along the way, I stumbled upon an intriguing observation.
It seemed that the amount of power and influence someone had was often inversely proportional to their understanding of the problems we were trying to solve.
The higher one’s position in government or philanthropy, the less they knew.
Even I, looking back, can admit that I wasn’t immune to this effect, despite being unaware of it at the time.
Maybe there’s something to the Peter Principle, which suggests that everyone in the social sector bureaucracy rises to their level of incompetence.
But what bothered me most wasn’t the lack of knowledge.
We all have room to learn and grow.
It was the lack of self-awareness.
Many of us, myself included, spoke eloquently about problems and solutions without recognizing that we weren’t true experts.
We were trapped in echo chambers of think tank wisdom, spending so much time listening to the same voices that we lost touch with the raw reality of the issues on the ground.
The luxury of ignorance
How could this happen, you might wonder?
Shouldn’t it be obvious if powerful leaders are out of touch with reality?
Unfortunately, the social sector, in particular, lacks natural consequences and direct feedback loops.
This creates a luxury of ignorance.
Let me explain.
At national organizations with the broadest reach, the staff often lack firsthand experience in the communities they advise.
If their prescriptions for reducing poverty or addressing other issues fail, they face no direct consequences.
They enjoy job security regardless of outcomes, receive credit for successes, and happily move on to the next trendy issue when things don’t go as planned.
I, too, operated in such an environment for years.
The pay was good, but I grew tired of being disconnected from the realities on the ground.
As I delved deeper into this problem, I discovered its historical precedent.
The principal-agent problem
It’s what we call the principal-agent problem, where one party delegates decision-making authority to another.
Think of foundations acting on behalf of the community, politicians representing the people, or bureaucrats making decisions for the disenfranchised.
This problem arises when the agent’s interests diverge from those of the principal, resulting in conflicts of interest.
Historically, there have been many attempts to mitigate these inevitable conflicts.
Some of the more effective attempts include laws that hold agents directly accountable (e.g. Hammurabi’s Code), economic systems that build in direct feedback loops (e.g. capitalism), and separation of powers in government (e.g. democracy) to prevent any one agent from gaining too much power.
At present there’s no widely accepted way of dealing with this issue in the social sector.
But fear not, I think there is an antidote:
Having “skin in the game.”
Embedding direct consequences for decisions
“Skin in the game” refers to having a personal stake or consequence in the outcome of a decision or action.
It means being directly affected by the results, whether positive or negative, and having a vested interest in the consequences.
When social sector leaders have personal stakes and face consequences for their decisions, their interests align more closely with those they serve.
With “skin in the game,” agents are incentivized to make choices that benefit the principal, as their own well-being and reputation are at stake.
This alignment of interests fosters greater accountability, responsibility, and commitment to achieving positive outcomes.
Further, the principal gains confidence in the agent’s decision-making, knowing that their own interests are on the line.
“Skin in the game” creates a feedback loop where the agent’s actions directly impact their own well-being, providing clear signals of their competence and alignment with desired outcomes.
Finally “skin in the game” mitigates moral hazards, as agents are less likely to take excessive risks or act opportunistically when they bear the potential costs and consequences.
It instills a sense of responsibility and deepens their understanding of the challenges involved in decision-making.
What you can do
To improve decision making and effectiveness in the social sector, it’s paramount that all players have “skin in the game.”
Here are 3 practical ways to start embedding this kind of direct accountability:
- Establish Outcome-Based Incentives: One effective approach is to create outcome-based incentives that tie the rewards and consequences of individuals to the actual results they achieve. This can involve performance-based contracts, bonuses, or recognition based on measurable outcomes. By aligning incentives with desired results, individuals become more motivated to actively contribute to positive outcomes and avoid negative consequences.
- Foster Meaningful Engagement and Participation: It is essential to actively involve all stakeholders, including those directly affected by social problems, in the decision-making processes. This includes community members, beneficiaries, and grassroots organizations. By including diverse perspectives and ensuring meaningful participation, the decision-making process becomes more inclusive, transparent, and accountable. This engagement creates a sense of ownership and personal investment in finding effective solutions.
- Emphasize Transparent Reporting and Feedback Mechanisms: Transparency and open communication are vital for creating a culture of accountability. Implementing robust reporting mechanisms that track progress, outcomes, and the impact of interventions can provide valuable feedback. This information should be shared widely and made accessible to all stakeholders, enabling them to assess the effectiveness of strategies and hold decision-makers accountable. Regular feedback loops ensure that adjustments can be made based on real-time information and promote a continuous learning and improvement process.
By having a direct stake, just like those affected by our choices, we can break free from bad decisions and increase our likelihood of making a meaningful impact in the communities we serve.
Let’s make it happen.
See you next week.
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Whenever you’re ready, there are two ways I can help you:
→ I’m a strategic advisor for the toughest societal problems like poverty, crime and homelessness. People come to me when they want to stop spinning their wheels and get transformative, systems-level change.
→ I’m a coach for emerging and executive leaders in the social and public sectors who want to make progress on their biggest goals and challenges.
Let’s find out how I can help you become transformational.
