Do You Have Skin in the Game?

Photo by Kal Loftus on Unsplash

Over the last month or so, I have been reading a book titled “Skin in the game” by Taleb. He doesn’t like academics very much and scientists get roasted quite severely in several chapters. Being a professor myself, that stings a little but the problem is that I agree with him. His main point, severely abbreviated, is that there are two groups of people. Those that operate with skin in the game and those that don’t. Operating with skin in the game means that your decisions and prioritizations have real implications in the world and affect you, potentially causing you harm of some kind, e.g. financially, physically, etc.

Those operating without skin in the game can take all kinds of decisions, make recommendations, propose theories and frameworks, but the consequences of these decisions, recommendations and models do not affect them but rather others get hurt. For those operating without skin in the game, the validation of what they do is not measured in real-world impact, but by the opinion of their peers. Of course, academia is the prototypical “lack of skin in the game” industry in that literally everything is based on evaluation by peers. Journal and conference papers are peer reviewed. Promotions are decided by evaluation committees. University rankings are based on the opinions by other academics at other universities. And so on.

Although I am far from pleased about the state of practice in academia, I did realize that the lack of skin in the game is by no means limited to academia. We see the same in politics where the persons introducing laws and regulations seldom experience the consequences themselves. We see it in government functions where many hide behind an overly conservative interpretation of rules and regulations in order to avoid bringing any skin of themselves into the game. The “big five consultancies” advising companies on strategies that cause these companies to be caught completely unware of and unprepared for market and technology disruptions.

However, we also see it in industry. Most companies I work with have many decision processes where the individuals making the decisions are in no way affected by the consequences of their decisions. C-suite executives putting new financial targets in place that hurt the most productive and value adding teams. Product managers prioritizing features and functionality that never gets used after deployment. Systems engineers taking decisions that cause the company enormous maintenance and software development cost.

The main reason for this situation is twofold. First, the feedback loop between the decision being taken and the consequences of the decision becoming apparent is often very long. By the time the consequences become obvious, the original decision maker has moved on or has a convincing story as to why the decision was deemed the right one at the time it was taken. Second, when the negative consequences do appear, there is no negative consequence for the decision maker. A financial planner making decisions for his or her customer, causing major harm to the portfolio of the customer, will still charge the fees. C-suite executives mismanaging the company and causing bankruptcy still got paid during their tenure and do not experience (in the vast majority of cases) any negative consequences.

In most companies that I work with, the employees do not operate in the real world, but rather operate in a “virtual” reality that is largely separated from the real world and where actions are judged and planned based on the perception that this will create with peers and bosses. As the old adage says, in management, perception is reality. Ensure you manage the perception and you’re golden.

As a nice anecdote concerning how to bring skin in the game that might otherwise be missing: in some of the old Greek city states, if someone accused a peer of some crime and the accused was found not guilty, the accuser would receive the punishment that would otherwise have gone to the accused. That approach most certainly takes care of all the frivolous lawsuits that exist in some countries. I am not recommending capital punishment for anyone who makes a mistake here, but use this as an example of the fact that there are mechanisms that can be employed to ensure that people have skin in games where it otherwise might be missing.

Concluding, I feel we all have a responsibility to operate as much as possible with skin in the game. To take responsibility for our actions and decisions. To build systems where those that are empowered to make decisions are also experiencing the consequences of these decisions, immediately and over time. So, as you read this, reflect on the following question: Am I living in the real world with skin in the game or am I living in a “make believe” world driven by the opinions of my peers?