Energize Employees Through Principles, Not Exhaustive Rules

This article originally appeared on Forbes.com.

Which document does more to advance the well-being of ordinary Americans: the Constitution or the Internal Revenue Code? We realize it’s not a completely fair comparison, as the documents serve different purposes. But as a thought exercise, which would you prefer to govern your working life?

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Given how the complexity of the modern tax code has spread like a virus—instructions for the Form 1040 alone have grown from one page in 1913 to 104 pages today—few people would cite it as a high-functioning system for collecting taxes. And the Constitution? It has proved to be a practical, resilient credo for more than two centuries.

High-performing companies take care to design an operating model that can adapt to changes in their environment, just as the Constitution has done for its nation. Companies cannot rely on the proliferation of rules within a rigid framework like the US tax code. That would limit employees’ problem-solving abilities and couldn’t possibly account for every situation they encounter.

It’s far more effective to define clear principles for how people work together so that a company can stay agile with minimal bureaucracy. Principles liberate people to do the right thing by providing a framework for making the right choices. Rules remain important in some areas, such as defining safety practices in mines, but companies can limit where such detailed guidance is necessary.

Principles clarify expectations around ways of working, serving as a compass to guide day-to-day behavior. One of semiconductor-maker Intel’s strongest, most enduring principles is to “disagree and commit.” Former senior leaders Robert Noyce, Gordon Moore and Andy Grove put the principle in place to rein in the tendency of employees to reopen and escalate decisions they disagreed with. The principle encourages debating proposals openly. But once a decision is made, Intel leaders are expected to play their part in executing the decision and bringing their teams with them.

Other principles focus on accountabilities, or the roles and responsibilities of various departments or functions. They clarify the mission of each organizational unit and where ownership for different types of decisions should lie.

When The Hartford, an insurance company, redesigned its operating model a few years ago, it put in place a structure of multiple business units supported by several central functions. Historically, corporate functions had operated largely within each autonomous business unit, so the new model initially left unclear how decisions involving HR, finance, marketing and shared areas such as claims would be made.

Rather than map out roles for every decision, then-CEO Liam McGee articulated that the “center of gravity” rested with the businesses, not the functions. A set of principles clarified the respective roles of each. For example, one principle stated that functions would establish policies and guidelines, and the business units would have authority for making decisions within those guidelines. They would need to defer to central functions only if they felt the need to go outside the framework.

As a result, decisions such as offer packages for senior hires no longer had to involve time-consuming debates between HR and the business unit; the business leader could move quickly as long as the offer was within compensation guidelines determined by HR. Applying these principles across dozens of decisions helped The Hartford speed up and improve the quality of decision making. That helped to fuel better earnings, return on equity and a 68% share price increase (versus 38% for the S&P index) over the subsequent two-and-a-half years.

Does your operating model reinforce a culture of accountability? Can you make decisions at the pace required by the market? Defining a small set of principles that clarify accountabilities and expected behaviors can help organizations to improve performance and become more agile.

Written by Marcia Blenko, an advisory partner in Bain & Company’s Organization practice; and Julie Coffman, a partner in the practice.