Millennials and the 21st Century Principal-Agent Problem

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Jun 12, 2017

The Principal – Agent Problem is alive and well. It is getting more and more difficult to inspire employees to act in the best interest of the company – and not themselves. Over the past 100 years, business schools have approached this problem in the following ways (in order).

Approach 1: Militaristic rank and file. Do this because I’m your boss and I said so.

Problem: People don’t like being told what to do.

Approach 2: Incentive-based programs. Do this and I’ll pay you.

Problem: Research shows that people are not economically-driven robots.

Approach 3: Alignment. You care about puppies and so do we.

Problem: We all care about puppies, just not enough to ignore everything else.

The truth is, all three approaches work at different times and a healthy mix of each is appropriate. This is the essence of leadership. An educated manager (with respect to leadership that is) will know how to use these methods, but not just how but when.

I’m often asked how to approach the next generation of workers – affectionately known as millennials. Millennials catch a lot of slack. However, I find very little evidence that they’re any different from any other generation. They’re ambitious, they want purpose in their work, they want to be paid proportionately to the value they add, and they want the flexibility and responsibility of a 35-year consultant. Who doesn’t want those things?

Our core problem starts in the early 1900s. Business management schools began focusing on management as a science (not an art), i.e. something definable, measurable, and manageable. Unfortunately, this sort of curriculum revolves around “strategic planning” and “data-driven decisions” and “metrics and models” and not around inspiring the people needed to perform those data-driven strategies.

So it isn’t that millennials are asking for too much – it’s that for the first time in decades our middle managers are lacking the foundational training to articulate and inspire their ambitious workforce appropriately (exacerbating the problem). A perfect storm of Principal – Agent Problem.

Baby Boomers have much to teach

One of the best ways to transfer this sort of tacit knowledge is by learning from those who have had to inspire in the past – Baby Boomers. For whatever reason, we ignore the wisdom of our most experienced professionals. We no longer seek out mentors. We assume, because we have access to unlimited information, that we can just look it up and understand, but there is a big difference between “information” and “understanding.”

We seem to dismiss the baby boom generation as “old hat” or “technologically incapable” or “slow moving,” but in doing so we miss their most important teachings. They understand that the answer isn’t always in the data. They seem to hesitate because real life isn’t black and white (it’s almost completely gray) and they have to compare the nuance of this current situation to their real-life past experiences. They understand relationships. They’re as close as we will ever get to the inspirational forces of yesteryear because they have a lifetime of experience learning from those before them.

If your company isn’t already working on the leadership soft skill of inspiring your workforce then you are in for some very tough years ahead. The Principal – Agent Problem of our time is just getting started. Our future knowledge gap won’t be in information but in our inability to inspire the workforce to do what’s necessary to succeed and, often times, impossible to plan.

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