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When Skin In The Game Works Against The Business

One of the expressions that I would like to consign to the dustbin of macho corporate history is ‘Skin in the game’.

This expression generally refers to an employee who owns a shareholding in a business, often paid for by taking on personal debt. It means they have something to lose, that if they lose ‘the game’ then it will hurt them, financially. It might also refer to personal guarantees, again meaning that there will be financial pain if this goes wrong.

In this way, the theory goes, the employee will be motivated to work harder.

I have written before about the book Drive by Daniel Pink. People who are driven by a strong sense of purpose and who perform a problem solving job (surely the very definition of many people who want to buy into businesses) are less motivated by targets and financial rewards. Indeed, the ‘threat’ of pain if things go wrong is much more likely to demotivate.

Back in the early 1990s, my father, a self employed IFA, went bankrupt. Towards the end, the stress and pressure, the threat of losing his house (which he did) was not a motivation. Instead it paralysed him, left him unable to take the action that was so important. He failed to inform the mortgage company of the reason for the late payments. He didn’t tell my mother, who could have given him support. None of us found out until it was far too late.

Phil Bray had a similar experience when his business went into liquidation ten years ago following the financial crisis. Having ‘skin in the game’ became an almighty distraction for him. Rather than motivating him to work harder, the threats that personal guarantees were going to be invoked meant that he was worrying about those issues rather than concentrating on how he could rescue his business.

No one prepares you for the complexities of trying to save a business, with its financial implication of both being an owner and having your own neck on the line. As Phil puts it, “The first and, hopefully, last time you will have to do this is also the time when you are learning how to do this. It taught me valuable lessons, which ultimately I’m putting in to practice as we build The Yardstick Agency; I just wish they’d been a little less painful at the time!”

We need to be inspired to succeed, not scared to fail. My own experience of setting up Ovation in the late 90s was deeply traumatic for me. A maxed out credit card failing at a till, meaning I had to leave the shopping and walk out. A drive to London knowing that if the client didn’t sign a piece of paper I was finished. Dry toast for lunch because I had no money to buy anything to go on it. This didn’t motivate me. It left me feeling powerless and deeply stressed.

I was driven by a vision of a fee based financial planning business, and it was this that drove me through those stressful times. Imagine how much more could be achieved if we ditched the stress and pressure, and instead inspired people to achieve amazing things?

Instead of forcing employees to accept ‘skin in the game’, therefore, focus on the vision of the business – the Flag. If there is financial reward to be shared do so in the form of profit share or employee ownership.

A group of motivated and excited people working towards a shared sense of purpose will achieve more than a group of people who are looking over their shoulder, worried about failing.

Chris has established The Eternal Business Consultancy to work with companies interested in succession planning into an Employee Ownership Trust. His book, The Eternal Business, will be out on 10th September. The Eternal Business Programme is also available to help companies transition to employee ownership.

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