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Some Lessons from the Engine Room

Some Lessons from the Engine Room

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Published by: atlasnetwork on Dec 15, 2009
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07/28/2010

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10
Winter 2006/07
atlas
highlights
By Michael Walker, Senior Fellow,The Fraser Institute (Canada)
I
am very pleasedto have the oppor-tunity to share withthe Atlas networksome of the lessons Ilearned about man-aging an instituteduring my thirty-oneyears in the engineroom of the
FraserInstitute
(Canada).I think the firstthing that needs tobe said is that the management stylewhich is appropriate to a newly formedinstitute is very different than the mod-el which can be applied when it hasfifty or more employees with threeregional offices and extensive interna-tional connections.In their early stages, most smallenterprises are “cults of personality,”since the organization is closely identi-fied with one individual. This earlyphase is the “Mike’s Grill” stage.Everybody knows Mike and eitherlikes Mike’s food or hates Mike’s foodand patronizes the business according-ly. Of course there may be an equallywell-known Millie or Moe at the till,but it’s the Mike at the grill that drawspeople in.The inside workings of the“Mike’s Grill” stage is essentially thatof a hierarchical autocracy. Everybodyexpects the decisions to be made at thetop and for the most part that is wherethey are made. Communications upand down the line of command keepthe organization on mission and oneor a few people at the top drive theorganization.The real strength of such an orga-nization structure is that it is relativelycheap to operate. Transaction costs interms of meetings, consultations, etc.are minimized and the organizationcan respond quickly to changes in theperception of the CEO as to the oppor-tunities and threats that theorganization faces. There are, howev-er, distinct weaknesses.The first is that it is often difficultfor the person at the top of such a hier-archy to encourage within theorganization the development of indi-viduals who could potentially replacethe CEO. Often the personality sur-rounded by the cult won’t toleratepotential successors, but even if theydo, good people leave because of thelack of upper mobility in such a hierar-chy. Therefore this sort of organizationis vulnerable to succession difficulties.How will “Mike’s Grill” do whenMaurice is at the grill and nobodyknows Maurice?In the think tank world, “difficultleadership transition” has been the rulerather than the exception. In myassessment of the record of think tanksuccession, I concluded that the prob-lem was the nature of theorganizational structure used by theorganizations. That inference, whethercorrect or not, greatly influenced mythinking about how the structure of theFraser Institute should evolve. As a side note, it is also the casethat a small organization may not haveany choice but to stick with the cult of personality model. If the organizationonly has enough resources to pay onehigher-priced individual, then it is alsogoing to have to face the “Mike’s Grill”transition problems. Happily, there aresome spin-offs of a positive sort thatemerge from this situation.For example, at the FraserInstitute, my colleague for seventeenyears, Sally Pipes, grew in ability,capacity, and appetite for indepen-dence to an extent that the Institutecould not afford to retain her. Shecould have run the Fraser Institute byherself. She knew that and eventuallyleft to become the president of the
Pacific Research Institute
(California), where she has been oneof the most successful think tankCEOs in the business.The second weakness of the singlepersonality model is that it is not welladapted for expansions that mayrequire different kinds of centers of excellence or different geographiclocations. As the Fraser Institute has grown,its organizational structure has beenchanged to accommodate the chal-lenges posed by increased size and toactively encourage further growth.One of the earliest changes was theadoption of a collegial model for thedetermination of programs and pro-jects. In such a model the strategicplan in general terms and over a five-year horizon is determined by theCEO while the project detail, includ-ing the development of new programideas, is evolved collaboratively by theresearchers. Collegiality encouragesownership, and ownership induceshigher productivity and more reliableinnovation. While the collegial model allowsmore individual initiative in the selec-tion and execution of projects, its
Some Lessons from the Engine Roomabout Managing an Institute
Michael Walker
This market-basedmanagement system...simultaneously makesthe Institute less vulnerable to the loss of the CEO and gives theCEO more opportunityto develop newdepartments and newactivities within theinstitution instead of simply doing the fundraising or micro-managing the activitiesat the departmentallevel.
 
essential structure is “socialist” in nature. While decisions are made collaboratively,and researchers have control over the pro-ject agenda, the consequences areexperienced collectively. In such a situa-tion individuals don’t benefit when theymake good choices and don’t bear costswhen they make poor decisions.Not surprisingly, in the collaborativemodel some of the problems of socialistorganization are experienced. The mostimportant of these is that people are notincentivized to make good choices andavoid poor choices. A related issue is thatit is more difficult as a practical matter tostructure an efficient compensation pro-gram when inputs and outputs arecollectivized.In 1995 I began a program to restruc-ture the Institute to place more power andresponsibility in the hands of departmentheads. The bookkeeping system in theInstitute was disaggregated so that costsand income could be tracked by depart-ment. Department heads were given thetask of devising their own operating plantogether with the financial implications.By 1998 this organizational structurehad evolved into a decentralized planningand management system involving a com-pensation program under which everyemployee in the Institute received a por-tion of their pay as a performance-relatedbonus. The coupling of compensation tothe performance monitoring programtransformed the collective, collegialmodel into a market-like incentive pro-gram which guides participants’behavior. At the same time, depart-ment heads were made responsible forraising funds for the research projectswithin their department, as well as tocontribute toward the general operat-ing expenses of the Institute. Theservice departments, like publicationsand communications, but also theinfrastructure departments, likeaccounting, are dependent on the oth-er departments for their budgets for themost part. This ensures that the pro-gram departments have a keen interestin the efficiency of the service depart-ments and the service andinfrastructure departments are asresponsive as they can be to the needsof the program departments.In effect the “Mike’s Grill” modelhas been transformed into the “Mike’sShopping Mall” model, where each of the stores (departments) can grow at itsown pace as long as it contributes its“rent” to the mall. Each of the depart-ments within the Institute is like a miniInstitute, with each of the departmen-tal directors setting out and achievingtheir own performance targets. TheFraser Institute’s CEO acts like theconductor in an orchestra to ensure
Newsletter for the Atlas Network 
11
atlas
highlights
 Walker’s Laws for Creatingand Working with a Boardof Directors
The selection of a Board of Directors isa crucial step for a new think tank. The newCEO needs a board which is active enough toprovide advice and guidance based on busi-ness experience but not so active as tointerfere with the independence of theresearchers and the research agenda of theorganization. If the think tank is to be suc-cessful it must be independent of its sourcesof financing and the CEO must be the princi-pal shield that guards the researchers fromany influence. Ideally the Board of Directorswould only be involved in an oversight func-tion regarding the financial affairs of theinstitute and not at all involved in setting theresearch agenda.While I realize that frequently the Boardof Directors are involved in the creation of aninstitute and in the provision of its initialfunding, it is very important that the newCEO work diligently to build a funding basewhich is not reliant on the Board of Directors. Walker’s Law is that, “the inde-pendence of the researchers and theresearch agenda is inversely proportional tothe percentage of the budget raised by theBoard of Directors.” Directors who raise alot of money for an organization will want tohave influence over the projects on which themoney is spent and may have firm opinionsabout what the studies should conclude.I have never subscribed to the rule thatis often applied to directors of not-for-profitorganizations that they should “give, get, orget off.” Directors should be chosen on thebasis of their experience, their track record of success, and their knowledge that gooddirectors advise, not manage. It is alsoimportant to pick directors who have a dayjob so that their hobby doesn’t become aninclination to meddle in the internal affairs of the institute.During my thirty years of experience atthe Fraser Institute, I was very fortunate tohave directors who clearly understood theforegoing. They were very helpful with busi-ness advice, often very helpful withfundraising advice, and in providing somefunding. But once the rules of engagementwere settled, they never interfered with theprojects or the research work of theInstitute.
Continues on page 20
 
In their early stages, most enterprises are “cults of personality,” since the organization isclosely identified with one individual.This early phase is the “Mike’s Grill’ stage.
Drawing by Kara Dyble

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