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CHECKS AND BALANCES

February 5, 2009

A strong system of checks and balances is not only the foundation of our democracy but also a well run organization. Confident leaders demand honest, direct debate among team members. Everyone is accountable-including the leader.While extreme conflict and animosity has no place in an organization a certain amount of tension is healthy. A company without tension has a weak system of checks and balances. These organizations tend to be more autocratic or be overly dominated by a particular functional area. While this can certainly work for a short period of time it rarely works long term.

Sales and operations; accounting and marketing; human resources and remote managers are all examples where tension naturally occurs. The wise leader encourages spirited interchange between departments because this results in better decisions. Forums for lively discussions among the organization’s leadership not only keep key players informed but also provide internal oversight. Encouraging cross functional debate proactively identifies and addresses issues. Yes, this requires adept leadership skills to manage the process but when there is mutual respect and no hidden agendas companies benefit.

While an internal system of checks and balances is critical qualified external voices are also indispensable. An independent accountant, a competent board of directors or an informed advisor provides an objective perspective. Most companies are so absorbed in dealing with the issues of the day that little time is spent assessing whether the right things are being done. External oversight increases the likelihood that decisions are being made in the proper context.

We have all witnessed what happens when oversight is lax-we need look no further than the banking crisis of 2008 and 2009. Apparent success is not an adequate check on the health of the company. When strong internal and external voices are absent or muted tough questions are not asked or answered. Without proper oversight most systems tend to overshoot. A strong system of checks and balances helps keep the company in control and prepared for change.

Properly executed oversight holds people and processes accountable. It aids in the identification of miscast leaders, unproductive and self-serving power bases, broken systems and flawed strategies. The confident leader empowers those around them to question decisions and direction. The friction this creates is seen as productive and value added.

No matter how good the person or company some degree of oversight is needed. Astute leaders know and welcome this. They do not see it as a threat but rather as a way to improve performance. A vigorous system of checks and balances minimizes unpleasant surprises and takes better advantage of opportunities.

A little tension today can prevent significant turmoil tomorrow.