Setting “challenging” performance targets may be behind many of today’s ethical problems

It’s become conventional management wisdom to use performance targets as the primary means of managing, often combined with “empowerment.”

People do like to know what’s expected of them — no doubt about that — and there’s nothing unethical about rewarding those who meet set goals, so long as the means used are ethical. Yet something seems to be wrong, especially when organizations and managers become obsessed with short-term performance.

Like much of conventional, commonsense thinking, the notion of setting goals and empowering people to reach them has an immediate attractiveness. However, I believe that the process, as it is typically applied, is causing difficult problems for both bosses and subordinates.

Objective setting is harder than it looks

The proponents of using performance targets as a management tool usually suggest that the targets should be “challenging;” a word that’s open to many interpretations. Something may be challenging because it’s a little harder than the normal run of demands; or because it’s beyond your capability. A new task may be challenging; but so may an old one transformed by allowing insufficient time to do it, and insufficient resources to get help. And what happens when goals are so “challenging” that the people concerned can’t reach them by legitimate means; and they’re afraid failure may cost them their job or their bonus?

The standard answer is that objectives need to be “achievable” as well. But that’s another word that may interpreted in different ways. What the corporation decides is achievable may be more wishful thinking (and greed) than practicality. What the boss says is achievable depends on how well he or she understands a subordinate’s work and situation. It’s not unknown for bosses to claim they could easily do what they are asking, although they have never tried it.

The first problem with the “Objectives/Empowerment” approach, then, is that the terms used are too imprecise — and thus wide open to misinterpretation for short-term gain.

Setting objectives that stretch people close to breaking point is a poor idea

When proponents of using performance targets as a management tool suggest that the targets should be “challenging,” I suspect they are reasoning from sports, where challenging targets are seen as prime motivators for championship performance. But if athletes can win fame and fortune by reaching standards of performance that are near impossible to attain by normal means, many will be tempted to cheat — especially if someone slyly encourages them by providing the necessary drugs. Besides, there will always be new compounds that offer performance enhancement and are too novel to be listed amongst prohibited substances. Complying with the letter of the regulations is not the same as complying with the spirit.

That’s exactly what has happened to cause the current financial mess. Clever people, driven by financial incentives and performance goals impossible by normal standards, created novel ways to do business, took unprecedented risks, and sometimes cheated to get those results. What they did wasn’t prohibited because it was too new; but that didn’t make it right either.

That’s the second problem with “Objectives/Empowerment.” Ambitious people, pushed just a little too hard, will strive harder get the results anyway, even if it means running terrible risks. Maybe the objectives they were set were formally “achievable;” but if this is true only at the price of risking their own health and careers, compromising their ethics, and putting the long-term future of the business as a whole in jeopardy, does that make sense? Might does not make right either.

Empowerment rarely means true freedom of choice

It ought to be obvious that people cannot really choose any route they wish, as long as they achieve the desired results. Some approaches are clearly illegal (blackmail, theft); others may cause the business considerable embarrassment or provoke law suits. Yet excessive pressure from above will always tempt some people to stray across the line into the foolish, the unethical, and the borderline legal.

Recent events should to wake us all up to the possibility that setting over-ambitious targets, then adding financial incentives to encourage people to reach them, opens the door to a culture where any means are justified to meet otherwise impossible management targets. Empowerment, in these cases, simply comes to mean: “Get the results I want and I won’t ask how you did it.”

Unless corporations give up all greed and swear never again to set aside their scruples in pursuit of profit — which is about as likely as all politicians telling the plain truth in every circumstance — the third problem with the “Objectives/Empowerment” approach is that it grants an illusory freedom: to use any means to achieve someone else’s ends, so long as you don’t do it openly.

What is reasonable all depends on who sets the standards

Those who defend objective-setting may well say that, of course, objectives need to be reasonable. Anything else is, well . . . lacking in reason.

My concern about this idea is that businesses can value achieving performance targets so highly that their leaders become insensitive to anything else. Companies are in business to make profits; and strong profit performance reflects well on top management. From the point of view of institutional stockholders, profit is what drives up share prices, so these investors have little other interest in the companies whose stock they buy. What drives them is the return their investment can produce: the bigger and quicker the better.

Add bonuses and salary incentives and you have created almost the perfect environment to push individual performance targets to astronomical heights — and encourage every kind of pressure to match or exceed them.

My fourth concern is that expecting companies to set only “reasonable” targets is pie in the sky. The “Objectives/Empowerment” approach encourages them to demand whatever they think they can get away with.

Regulation is too slow to be much immediate help in curbing greedy or unscrupulous bosses

So what can be done? Must we accept that greed, and its tendency to smother all ethical concerns, is the only way; that, in pursuit of global competitive success, scruples are excess baggage?

In the real world, regulation always lags behind events. Blocking loopholes, curbing excessive risk-taking, and banning novel kinds of dishonesty is possible only after scandal has brought them to light. Besides, it’s unlikely that businesses will willingly walk away from any opportunities for profit they can rationalize as legitimate.

Even a superficial knowledge of history will show that sharp business practices and greedy managers have been around as long as business itself. There has to be a better way.

That’s why we need a stronger commitment to business ethics

Yet there is one, vital difference. The vast bulk of businesses are, I believe, still run by people who are fundamentally honest. They do not want to resort to business practices the public finds abhorrent. Sure there are some crooks, but they’re a tiny minority. What lays most companies open to the risk of ethical embarrassment is not criminal intent but a kind of sleepwalking into whatever is fashionable, or seen as industry-standard business practice. They behave unethically, even while staying convinced that they don’t, because they’re only doing what everyone else does.

A strong sense of ethics helps people see right from wrong, even in entirely novel situations, and when everyone else is going down the wrong track. But because it takes time and effort to distinguish between acceptable and unacceptable ways of doing things, too few people are prepared to do it — especially in periods of frenzied “boom” or terrified “bust.”

It’s time to see superhuman goals as the fantasy they are

Human societies have to make a choice. Do you want to grab whatever you want and trust to raw power and cunning, like the Huns and Vandals crashing into the dying Roman Empire? Or is it more important to live well — free from the threats, violence, and constant anxiety of a barbarian approach to life? Only the terrorist and the dictator will thrive in situations where ends justify any means. For most people, it pays to be content with what is possible within a civilized way of life.

It’s time to accept that the stress and misery caused by going too far in pursuit of super-human performance objectives aren’t worth the results, whether that’s in sport or in business.

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