Leadership Lesson 5: Skin in the Game

(Inspired by Nassim Taleb’s book, “Skin in the Game”)

One of the most difficult things for a leader is to command the respect and trust of people. Expertise in their domain(s) coupled with experience helps build respect, but trust is slightly more complicated and takes longer — maybe because it requires a deeper commitment (respect is intellectual while trust is emotional and therefore closer to the real us).

Does it necessarily have to be a long affair though? There is the incremental way (consistent behaviour over a long period) and then there are the radical ways to demonstrate trustworthiness.

Skin in the game (SITG) belongs to the latter category. It is not about incentives (that’s corporatization of virtue). It’s about risking and losing much more — a yakuza member chopping off his own finger as sign of remorse, or a more extreme example is the samurai committing harikiri (disemboweling themselves) when defeated. The samurai gets a place of honour in society / history because of the price they paid (or were willing to) and not due to their fancy swordsmanship. And that’s the key word “they”, it wasn’t the front line soldiers or anyone else in the society who lost their lives first — it was the warrior.

I used to wonder why captains stepped down when their teams lost, but now I realise that they intuitively obeyed an ancient moral code. Ironically it was at the moment that they relinquished their leadership positions that they most displayed the trait of a leader.

What destroys trust is when leaders pass on the risks to the people, ie they make money by hiding the risks or by not paying the price when things go tragically wrong (eg, post 2008 crisis, the US government bailed out Citi group but not the common citizens who lost their life savings. Bob Rubin who was the chairman did not pay back the $100M+ he earned the previous year — aka Bob Rubin Trade).

SITG calls for a radical level of ethical responsibility, putting your money and reputation on the line more often than is good for your heart. It is less about talk than it is about putting your neck on the block — every single time!