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.

Share:

6 thoughts on “When Skin In The Game Works Against The Business

  • Well Chris as I approach the end of my business career I have been reflecting on the ups and downs and have come to precisely the opposite conclusion to the one you have expressed above.

    I have been involved in sales for all of my working life and my experience is that only those who have something to lose really make things happen in business and in life.

    It so happens that our industry these days is a showcase for my own position on having ” skin in the game ” being infested by amongst others, consultants, academics, economists, journalists and of course regulators.

    These commentators on our industry have absolutely nothing to lose from the advice they sprinkle liberally upon the only people actually producing anything in our industry who are of course the advisers.

    Over the years as the numbers of advisers has dropped we have seen a huge rise in those without ” skin in the game ” telling people how to do what they clearly haven’t been able to do themselves.

    The same problem exists in most fields of activity – the NHS being overrun with administrators and short on doctors and nurses, the infrastructure of our country falling apart whilst the Civil Service has grown and grown.

    Our job has always been quite simple but people without ” skin in our game ” have managed in their own self interest to make it so very complicated .

    Progress and success in life and business generally come from committed minorities who take calculated risks to clear the path for others to follow .

    Your ideal world would be nice Chris but reality is something quite different.

    Reply
    • Thanks for your comment Phil. Just one from me in response.

      My piece gave specific, real examples (not an ideal world) of share ownership (‘skin the the game’) for employees proving to be de-motivating, and therefore working against the best interests of the business (hence the title).

      Your response seems to be criticising regulators and consultants who haven’t done the thing they regulate and consult on (although I have).

      You may or may not have a valid point, but it is different to the one that I am making in this article.

      Reply
  • Well Chris as I approach the end of my business career I have been reflecting on the ups and downs and have come to precisely the opposite conclusion to the one you have expressed above.

    I have been involved in sales for all of my working life and my experience is that only those who have something to lose really make things happen in business and in life.

    It so happens that our industry these days is a showcase for my own position on having ” skin in the game ” being infested by amongst others, consultants, academics, economists, journalists and of course regulators.

    These commentators on our industry have absolutely nothing to lose from the advice they sprinkle liberally upon the only people actually producing anything in our industry who are of course the advisers.

    Over the years as the numbers of advisers has dropped we have seen a huge rise in those without ” skin in the game ” telling people how to do what they clearly haven’t been able to do themselves.

    The same problem exists in most fields of activity – the NHS being overrun with administrators and short on doctors and nurses, the infrastructure of our country falling apart whilst the Civil Service has grown and grown.

    Our job has always been quite simple but people without ” skin in our game ” have managed in their own self interest to make it so very complicated .

    Progress and success in life and business generally come from committed minorities who take calculated risks to clear the path for others to follow .

    Your ideal world would be nice Chris but reality is something quite different.

    Reply
    • Thanks for your comment Phil. Just one from me in response.

      My piece gave specific, real examples (not an ideal world) of share ownership (‘skin the the game’) for employees proving to be de-motivating, and therefore working against the best interests of the business (hence the title).

      Your response seems to be criticising regulators and consultants who haven’t done the thing they regulate and consult on (although I have).

      You may or may not have a valid point, but it is different to the one that I am making in this article.

      Reply
  • Chris,

    The expression ” skin in the game ” has a much broader meaning than share ownership and sad though your
    personal illustrations are they are certainly not simply a consequence of having ” skin in the game “.

    In any field some people fail and some people succeed with many reasons for either outcome.

    My own career has had it’s share of failures but they were largely because of actions I did or didn’t take, but my recoveries , if they can be called that, were down to my having ” skin in the game ” in the form of commitments to myself and others.

    I chose certain occupations from our industry to make my point as they will be familiar to anyone involved in financial services. The same rationale applies to many others – media talking heads for instance and many academic observers of life – economists forecasting the future. People without ” skin in the game ” who have nothing to lose by their actions or comments.

    As I said progress in life comes from the determined actions of a small part of the population whose ” skin in the game ” is taking risks as they open up pathways for the rest to follow .

    If having part ownership in an enterprise is not a motivating factor for an employee perhaps they are in the wrong job or perhaps the business is not being run in a manner which will motivate it’s shareholders . Capitalism is about sharing risk and like it or not it is the process under which we all live.

    I joined in this subject to give my own opinion not to criticise you or your opinion but to try and show that there is a very real benefit from having skin in any game.

    Reply
  • Chris,

    The expression ” skin in the game ” has a much broader meaning than share ownership and sad though your
    personal illustrations are they are certainly not simply a consequence of having ” skin in the game “.

    In any field some people fail and some people succeed with many reasons for either outcome.

    My own career has had it’s share of failures but they were largely because of actions I did or didn’t take, but my recoveries , if they can be called that, were down to my having ” skin in the game ” in the form of commitments to myself and others.

    I chose certain occupations from our industry to make my point as they will be familiar to anyone involved in financial services. The same rationale applies to many others – media talking heads for instance and many academic observers of life – economists forecasting the future. People without ” skin in the game ” who have nothing to lose by their actions or comments.

    As I said progress in life comes from the determined actions of a small part of the population whose ” skin in the game ” is taking risks as they open up pathways for the rest to follow .

    If having part ownership in an enterprise is not a motivating factor for an employee perhaps they are in the wrong job or perhaps the business is not being run in a manner which will motivate it’s shareholders . Capitalism is about sharing risk and like it or not it is the process under which we all live.

    I joined in this subject to give my own opinion not to criticise you or your opinion but to try and show that there is a very real benefit from having skin in any game.

    Reply

Leave a Reply