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atlas highlights

Some Lessons from the Engine Room

about Managing an Institute
By Michael Walker, Senior Fellow, organization faces. There are, howev- correct or not, greatly influenced my
The Fraser Institute (Canada) er, distinct weaknesses. thinking about how the structure of the
The first is that it is often difficult Fraser Institute should evolve.
am very pleased for the person at the top of such a hier- As a side note, it is also the case
I to have the oppor-
tunity to share with
archy to encourage within the
organization the development of indi-
that a small organization may not have
any choice but to stick with the cult of
the Atlas network viduals who could potentially replace personality model. If the organization
some of the lessons I the CEO. Often the personality sur- only has enough resources to pay one
learned about man- rounded by the cult won’t tolerate higher-priced individual, then it is also
aging an institute going to have to face the “Mike’s Grill”
during my thirty-one transition problems. Happily, there are
This market-based some spin-offs of a positive sort that
years in the engine
management system... emerge from this situation.
room of the Fraser
For example, at the Fraser
Institute (Canada). simultaneously makes Institute, my colleague for seventeen
Michael Walker I think the first
years, Sally Pipes, grew in ability,
thing that needs to the Institute less capacity, and appetite for indepen-
be said is that the management style
which is appropriate to a newly formed
vulnerable to the loss of dence to an extent that the Institute
could not afford to retain her. She
institute is very different than the mod- the CEO and gives the could have run the Fraser Institute by
el which can be applied when it has
fifty or more employees with three CEO more opportunity herself. She knew that and eventually
left to become the president of the
regional offices and extensive interna- to develop new Pacific Research Institute
tional connections.
departments and new (California), where she has been one
In their early stages, most small
of the most successful think tank
enterprises are “cults of personality,” activities within the CEOs in the business.
since the organization is closely identi-
The second weakness of the single
fied with one individual. This early institution instead of personality model is that it is not well
phase is the “Mike’s Grill” stage.
Everybody knows Mike and either
simply doing the adapted for expansions that may
require different kinds of centers of
likes Mike’s food or hates Mike’s food fundraising or micro- excellence or different geographic
and patronizes the business according-
ly. Of course there may be an equally managing the activities locations.
As the Fraser Institute has grown,
well-known Millie or Moe at the till, at the departmental its organizational structure has been
but it’s the Mike at the grill that draws
level. changed to accommodate the chal-
people in.
lenges posed by increased size and to
The inside workings of the
actively encourage further growth.
“Mike’s Grill” stage is essentially that
potential successors, but even if they One of the earliest changes was the
of a hierarchical autocracy. Everybody
do, good people leave because of the adoption of a collegial model for the
expects the decisions to be made at the
lack of upper mobility in such a hierar- determination of programs and pro-
top and for the most part that is where
chy. Therefore this sort of organization jects. In such a model the strategic
they are made. Communications up
is vulnerable to succession difficulties. plan in general terms and over a five-
and down the line of command keep
How will “Mike’s Grill” do when year horizon is determined by the
the organization on mission and one
Maurice is at the grill and nobody CEO while the project detail, includ-
or a few people at the top drive the
knows Maurice? ing the development of new program
In the think tank world, “difficult ideas, is evolved collaboratively by the
The real strength of such an orga-
leadership transition” has been the rule researchers. Collegiality encourages
nization structure is that it is relatively
rather than the exception. In my ownership, and ownership induces
cheap to operate. Transaction costs in
assessment of the record of think tank higher productivity and more reliable
terms of meetings, consultations, etc.
succession, I concluded that the prob- innovation.
are minimized and the organization
lem was the nature of the While the collegial model allows
can respond quickly to changes in the
organizational structure used by the more individual initiative in the selec-
perception of the CEO as to the oppor-
organizations. That inference, whether tion and execution of projects, its
tunities and threats that the

10 Winter 2006/07
atlas highlights

Walker’s Laws for Creating

and Working with a Board
of Directors
The selection of a Board of Directors is
a crucial step for a new think tank. The new
CEO needs a board which is active enough to
provide advice and guidance based on busi-
ness experience but not so active as to
interfere with the independence of the
researchers and the research agenda of the
organization. If the think tank is to be suc-
cessful it must be independent of its sources
of financing and the CEO must be the princi-
pal shield that guards the researchers from
any influence. Ideally the Board of Directors
would only be involved in an oversight func-
tion regarding the financial affairs of the
Drawing by Kara Dyble
institute and not at all involved in setting the
In their early stages, most enterprises are “cults of personality,” since the organization is research agenda.
closely identified with one individual. This early phase is the “Mike’s Grill’ stage. While I realize that frequently the Board
of Directors are involved in the creation of an
essential structure is “socialist” in nature. transformed the collective, collegial institute and in the provision of its initial
While decisions are made collaboratively, model into a market-like incentive pro- funding, it is very important that the new
and researchers have control over the pro- gram which guides participants’ CEO work diligently to build a funding base
ject agenda, the consequences are behavior. At the same time, depart- which is not reliant on the Board of
experienced collectively. In such a situa- ment heads were made responsible for Directors. Walker’s Law is that, “the inde-
tion individuals don’t benefit when they raising funds for the research projects pendence of the researchers and the
make good choices and don’t bear costs within their department, as well as to research agenda is inversely proportional to
when they make poor decisions. contribute toward the general operat- the percentage of the budget raised by the
Not surprisingly, in the collaborative ing expenses of the Institute. The Board of Directors.” Directors who raise a
model some of the problems of socialist service departments, like publications lot of money for an organization will want to
organization are experienced. The most and communications, but also the have influence over the projects on which the
important of these is that people are not infrastructure departments, like money is spent and may have firm opinions
incentivized to make good choices and accounting, are dependent on the oth- about what the studies should conclude.
avoid poor choices. A related issue is that er departments for their budgets for the I have never subscribed to the rule that
it is more difficult as a practical matter to most part. This ensures that the pro- is often applied to directors of not-for-profit
structure an efficient compensation pro- gram departments have a keen interest organizations that they should “give, get, or
gram when inputs and outputs are in the efficiency of the service depart- get off.” Directors should be chosen on the
collectivized. ments and the service and basis of their experience, their track record of
In 1995 I began a program to restruc- infrastructure departments are as success, and their knowledge that good
ture the Institute to place more power and responsive as they can be to the needs directors advise, not manage. It is also
responsibility in the hands of department of the program departments. important to pick directors who have a day
heads. The bookkeeping system in the In effect the “Mike’s Grill” model job so that their hobby doesn’t become an
Institute was disaggregated so that costs has been transformed into the “Mike’s inclination to meddle in the internal affairs of
and income could be tracked by depart- Shopping Mall” model, where each of the institute.
ment. Department heads were given the the stores (departments) can grow at its During my thirty years of experience at
task of devising their own operating plan own pace as long as it contributes its the Fraser Institute, I was very fortunate to
together with the financial implications. “rent” to the mall. Each of the depart- have directors who clearly understood the
By 1998 this organizational structure ments within the Institute is like a mini foregoing. They were very helpful with busi-
had evolved into a decentralized planning Institute, with each of the departmen- ness advice, often very helpful with
and management system involving a com- tal directors setting out and achieving fundraising advice, and in providing some
pensation program under which every their own performance targets. The funding. But once the rules of engagement
employee in the Institute received a por- Fraser Institute’s CEO acts like the were settled, they never interfered with the
tion of their pay as a performance-related conductor in an orchestra to ensure projects or the research work of the
bonus. The coupling of compensation to Institute. ●
the performance monitoring program Continues on page 20

Newsletter for the Atlas Network 11

atlas highlights

Lessons on... (continued from page 11)

that the performance targets of the dif- ty and growth. The peer review pro- The main challenge posed by this
ferent departments are mutually cess maintained by the Institute guards decentralized power structure is the
compatible and appropriately support- against such an eventuality. Every transition to it from the status quo. It
ed by the Institute’s infrastructure. research output is subject to a peer is my experience that the only human
Each of the departmental directors review by external as well as internal being who likes change is a wet baby.
is a member of the Institute’s manage- reviewers. In the event that reviewers The change we must engender in our
ment committee, which meets find what they regard as a crucial flaw institutes is not very different than the
monthly to consider the individual in a paper, an Institute author may challenge of the change that we try to
budget performances of the divisions as only proceed to publication after the encourage in the political system – in
well as the overall budget performance flaw has been corrected or if the each case there is a well-entrenched
of the Institute. The management Editorial Advisory Board of the set of interest groups which will try to
committee serves to internalize exter- Institute overrides the external review- stop it.
nalities which might be produced by ers objection – something which has The way we overcame the status
one department and affect other yet to happen in the thirty-two-year his- quo was by linking the change in
departments. The committee also tory of the Institute. responsibility with the change in the
serves as a sounding board for the In addition to creating a more effi- compensation program. By introduc-
CEO and a venue in which Institute- cient and effective organization, the ing a bonus arrangement linked to the
wide problems can be solved. approach now used at the Institute pro- performance assessment program, at
Of course in a think tank the issue duces some additional benefits. Since the same time as we made the depart-
of quality control is all-important, and each of the department heads within ment directors responsible for their
where departmental directors are the Institute are in effect running a budgeting, we provided an opportunity
incentivized to grow their divisions, mini Institute, they can grow their for the change to improve the financial
there may be a trade-off between quali- activity and their compensation as position of each department director.
much as they want. Of course there were still those who
Departmental growth preferred the status quo and wanted
finances itself and con- neither the increased compensation
tributes to the operating nor the responsibility for the perfor-
expenses of the Fraser mance that would produce it.
Institute, so there really is As they say, the proof of the pud-
no limit to what a depart- ding is in the eating, and the Fraser
ment head can achieve. Institute has now transitioned from a
Correspondingly, each of CEO who had essentially been in that
the department heads is a position for thirty years to a new CEO
potential Executive who is doing very well. The Institute
Director for the Institute has continued to grow at double-digit
since each has to master rates and it is possible that during the
all of the skills that are current year the Institute will enjoy its
required in running their best year ever. Of course this is a trib-
own departments. ute to the great skills and abilities of
Of course the other my successor, Mark Mullins, but it also
great benefit of this mar- reflects the fact that all of the depart-
ket-based management ments within the Institute are pulling
system is that it simultane- together as they strive to achieve their
ously makes the Institute own objectives, both institutionally and
less vulnerable to the loss personally.
of the CEO and gives the Of course the biggest bonus is that
Drawing by Kara Dyble CEO more opportunity to the transition has provided me with
develop new departments free time to do things like write essays
As an institute grows, the “Mike’s Grill” model and new activities within for the Atlas Economic Research
transforms into the “Mike’s Shopping Mall” model,
the institution instead of Foundation! ●
where each of the departments (or stores) within the
institute is like a mini Institute. The departmental simply doing the fundrais- Please contact Michael Walker at
directors set out and achieve their own performance ing or micro-managing with ques-
targets and contribute to the overall success of the the activities at the depart- tions or comments about this article.
organization. mental level.

20 Winter 2006/07