The Fictional Semantics of Organizations without an Active Principal
NOTE: The views expressed here are those of the authors and do not represent or reflect the views of the author’s current or previous employers.
Literature defines organizations in several ways. From being “a place where all individuals perform towards the same goal” to “ a social unit of people that is structured and managed to meet a need or to pursue collective goals”, semantics of organizations have mostly been well established across time. However, given the principal-agent situations and the heavily dynamic millennial base that forms a significant chunk of today’s work setups, organisations are becoming namesake. Motives are becoming more hidden, and commitments more asymmetric. The imbalance gets more compounded because of the shared role of agents as principals and those of principals as agents. Newer forms of organisation structures are being more celebrated (and, cursed) as they have unlocked newer dynamics that extend beyond the usual. These dynamics are simple enough to go unnoticed, but complex enough to be understood. The math of such multi-objective, multi-role organisational systems extends beyond the standard Principal-Agent paradigm proposed by Jensen and Meckling.
In my experience, I have seen a lot of companies, especially the small and medium sized ones, adopting more distributed decision making and creating cohorts of people as standardized functions that are encouraged to do what they do best. Softly termed as ‘Holacracy’, this operational formation started picking traction after Zappos popularized the model. In typical, realistic and active holacratic structures, cohorts (and not individuals, necessarily) are given authority (theoretical, not always realistic) to devise their own policies, but are restricted to execute those without an approval from outside the cohort, from someone (higher up) in the flattened (yet hierarchical) organization. In such tiered setups, people play different roles in space time depending upon their cohort, their level of engagement, their tenure and their outcome (assigned, delegated and taken). Such roles can also take different forms depending upon the person, the level of engagement and influence in the organization, and the position (within the cohort as designated leaders or participants, and also outside, as leaders or participants of the subtle hierarchy).
Even though culturally, this acts as a fantastic way to create multiple packs of wolves in the organisations where each pack is governed by a similar set of incentives as a whole, the incentives offered at an individual level vary significantly, amplifying the agency problems in an ecosystem.
The first set of issues, and the most obvious one, is the flexibility of comparing salary baselines, non-negotiable contracts, incompetent cohorts, dysfunctional managers and the teams they drive, and finally the volume of opportunities available outside the organisation. This set leads to a very quick misalignment between the agent and the principal, leading to significant conflicts of interest over time, as we will discuss later.
The second set of issues, again a pretty explicit one, is the the inter-cohort and intra-cohort dynamics that cause the agent-agent mismatch. This primarily is driven by the fact that in a cohort, cross-domain competencies are encouraged, which means that people who might be good at domain expertise are put together with a set that excels at strategic management. These dynamics complicate the everyday well-being of agents, and more so because of different incentives offered to agents, which are theoretically hidden, but get uncovered amidst the peer play. So, even though the tasks are equally delegated (measured by the performance of cohort, and rated through a peer-peer framework at an individual level), the incentives sever the overall dynamics.
Such dynamics, very quickly, lead to the agent acting in his or her own interest rather the principal’s or the cohort’s. And, then it gets worse because there is a horizontal conflict of interest between the agents. A good agent, who started with an alignment with the principal and the cohort, starts bearing the full cost of putting effort into the task delegated by the principal, but does not receive the full benefit that results from these efforts.This creates an incentive for the agent to put in less effort into the task than he or she would do if acting on his or her own behalf. Since the agents within a cohort are driven by shared and common interests (same sales or growth target, for example), other agents within the cohort do not risk speaking up about such issues, and instead get tempted to put lesser effort themselves. Slowly, subtle Dividing Territories start forming where agents form the code of conduct to bother only about their individual roles (broken down equally as a function of overall cohort responsibilities) and not tamper with the agent-agent coordination that was initially defined by the principal, but now starts operating through the cohort’s modus operandi. Such distributed incentives, structural conflicts and shared interests lead to further disharmony and the cohort starts breaking, disorganizing, becoming more and more under-performing, initiating a coercive monopoly formed through a collective agreement within the cohort that deters other agents (new, mostly) from performing, leading to asymmetry within as well as across the cohorts. These moral hazards slowly percolate across all cohorts because of movement of people and cross-cohort peer communique and becoms more complex as none of this ‘shared moral hazard’ is publicly observable.
These intertwined lines of work lead to an emotional confusion among the agents where they are stuck between clarity of what they need and ambiguity of their responsibilities. Moreover, since all of them have a fixed psycho-physical constitution, they fall at varying points across the risk spectrum when it comes to their shared roles. Now we have different risk profiles, different incentives, but same agent cost. Disaster. Add to that the fact that people never know what they need unless its given to them, the lines between maintaining individual roles as agents (to people up and outside the cohort), and as principals (to people down further within the cohort) get blurred. They become self-indulgent, get absorbed with what Dunning-Krugger said, build their own biases to manage their risks and incentives, start caring lesser about cohort, about the principal they bear the contract with, and start looking for a new agent-principal relationship outside the system. Agents (and people, alike) never know what they need unless its given to them. And by the time they get things, they are left inept, and the more inept they are, the more smarter, they think they are. Krugger sucks them more, and they reach a point where the marginal utility of them belonging within the system falls sub-par. Hayek rightly commented that the argument for liberty is not an argument against organization, which is one of the most powerful tools human reason can employ, but an argument against all exclusive, privileged, monopolistic organization, against the use of coercion to prevent others from doing better.
With time, these agents just float with the organization — with other cohorts doing the same. They start driving their cohorts with friction, staying within cohorts in angst, communicating outside cohorts in rebellion and making themselves purpose-less. No incentives, no interests. In the end, every agent in the organization becomes objectively driven, subjectively constrained — each one driven towards the same goal, forming the organization of dictionaries — “a place where all individuals perform towards the same goal” — of no-goal.
