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Think Simple

January 21, 2022

As the Corona woes continue to unfold, my thoughts are occasionally drawn to the Enron scandal of 20 years ago. The bankruptcy of Enron, which had engaged in highly questionable accounting practices, inspired the passage of the SOX Act that mandated much stricter internal control structures. The idea was that corporations cannot function properly without a clear set of internal company controls. And Regulations that employees were required to abide by proliferated. Even now, after the dust has pretty much settled, listed companies bear an average of about $1 million each year for the cost of compliance with internal controls.


At the time I was engaged in US SOX and JSOX consulting, and there was something that always bothered me. I wondered, “As we designate ever more specific rules and as people follow them more carefully, does that actually increase a company’s productivity?” That vague doubt was lodged in a corner of my mind for many years, and although I sometimes had opportunities to discuss it with other accountants and managers, I never met anyone who could give me a clear answer.


When I decided to restructure TOPC, I looked over the internal control documentation that I had produced in the past with various engagements; it stated with great precision who was to do what, as well as who was to check what had been done and in what manner. However, it didn’t seem to me that this could be used to regenerate a company. The material was tens of pages of dense text and matrices which would have been impossible for me to understand and remember.


The more complex things appear, the more one has to take a step back and look at the bigger picture. I wanted to look for the highest common factor that distinguishes those companies seen as “successful.” The realization that I came to was that there are two absolutely essential elements that successful companies have in common: 1) the leaders have a clear vision and a proper philosophy, and 2) the leaders and their employees are aligned along the same vector. In the case of our organization, as I described previously, we used the company-wide Beer Bash to formulate our TOPC Axis, based on input from our staff.


What a company really needs in order to function well is not detailed rules, but rather “building relationships of trust within the organization” and “sharing the president’s vision and philosophy throughout the organization.” If the president is not trustworthy, the company will not function well no matter how excellent its rules and code of conduct may be. Conversely, if the employees have a solid understanding of the president’s thinking, and if the president is someone about whom the employees believe, “we can definitely trust this person,” there will be no real need for detailed rules. In our own case, we have a handbook and detailed rules as required by law, but in a practical sense, the only thing that our staff refers to is the list of 30 or so items comprising our TOPC Axis.


The president possesses a proper philosophy, creates a vision for the future, continuously behaves in a manner consistent with that philosophy and vision, and communicates to employees so that they genuinely understand. So long as that philosophy and vision are perceived to be fundamentally right, the employees will do their best to act in pursuit of the best possible outcomes. The essence of management is really just that simple.


The biggest mistake made by people who have trouble managing companies is that, prior to safeguarding this simple principle, they delve into business plans, market analysis, internal controls, and other sorts of technical issues first, and only later do they concern themselves with building relationships of trust with their employees. Such companies are shaky, built as they are on fragile foundations. I am in the accounting business; my expertise is in numerical planning and analysis, so I fully appreciate the importance of that area. Nevertheless, as an accountant who has worked with hundreds of companies, I can say without reservation that a company president’s most important job is to “create a clear vision and continually communicate their philosophy,” and that the essence of management is to “build relationships of trust with their employees.” In fact, this applies not only to the company president.


A leader of people at any level, a boss if you will, is someone who has a firm philosophy and vision, and who continually communicates this to the people who work with them until understanding takes place. How many leaders would be able to state that definitively?


The reason that I include “Think Simple” into our axis is based on the realization that even when things appear complicated, there are only a small number of essentials. At the same time, the simpler something is, the more one tends to “understand with the head while failing to translate into action.” This is why the president must be someone who embodies the company’s management philosophy in action, and who continues to communicate their vision to the employees.

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