Skin in the Game

In 1802, E.I du Pont founded a gunpowder company, which later became the current Fortune 500 company DowDupont. The gunpowder business is a risky business. He was serious about safety, and even went so far as to build his house in the blast radius of the factory. This ensured that he and his family carried the same risks as the factory workers. This is called skin in the game.

Skin in the game is an essential concept for any business leader who wants to improve decision making. It means that no-one should be involved in any decision in which they are shielded from the negative consequences of the decision. For example, a company owner risks going bankrupt in case of a wrong key business decision: Therefore, key business decisions are her to take. Also, a captain will go down with the ship when a catastrophe happens en route: The captain will therefore always take the final decision to leave port.

No skin In the game

Yet, as soon as the concept of skin in the game is abandoned, organizations and even societies rapidly devolve and engage in more and more reckless, greedy, or unintelligent decision making. The financial crisis of 2008 is a fitting example of what happens under these circumstances: Hefty financial profits were a staple for some increasingly reckless financial institutions in the run-up to 2008, yet when the financial system finally collapsed, they actually didn’t have any skin in the game: They kept their profits and in many cases taxpayers were forced to carry all risk by providing a system wide bail-out.

Skin in the game for leaders

Therefore, as a leader, ask yourself the following question: Which type of decision do I routinely take, where I am shielded from the negative consequences of the decision and I actually don’t have enough skin in the game? 

Then decide on one of the following actions:

  • How can I delegate these decisions to those who have skin in the game?
  • How can I increase my own skin in the game to ensure that this is a decision that I should take myself?   

Photo Credit: iStockPhoto/BenMacLeod

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