Right now, the political landscapes in the USA, Germany, and Austria are being reshaped, while the economic outlook—especially for Europe—remains grim.

Digitalization and AI adoption are still low, and Europe faces challenging conditions: stagnant demand, high energy and labor costs, and heavy-handed regulations and bureaucracy. These pressures weigh companies down, pushing many to consider relocating. In contrast, Silicon Valley pulses with a dynamic energy and seismic shifts in artificial intelligence—anything that can be automated, is being automated. Productivity is much higher there, along with a relentless drive to move things forward .

• One main difference i noticed the last two months being in the Silicon Valley is the kind of accountability, that is lived in everday business - or so called principal-agent problem. What that means, i am happy to share in this blog.

The Reality Check

In many large organizations, employees often lack the incentive to go “all in.” Courage and a willingness to take risks are minimal, because people aren’t tied to the results.

• A fixed salary creates a comfort zone where there’s little distinction between those who push hard and those who don’t.

• I remember friends who became teachers—dedicated and hardworking, yet trapped in rigid structures that rarely reward performance. In Silicon Valley, I often saw it handled differently, and I want to share some of those approaches and experiences.

Skin in the Game

Nassim Taleb’s concept of "Skin in the Game" describes whether someone bears the consequences of their decisions. Do I have a stake in my business, and do I take ownership for it? Without personal accountability, I’m just a caretaker preserving the status quo.

In the business world, there are people who merely do what’s expected of them - often found in bigger organizations, where playing status and political games are imortant. And then there are those who think differently—the mavericks and rebels who courageously explore new paths and drive innovation.

• The question is: Am I accountable for what I do? Am I measured by the outcome, or does my performance even matter?

Fixed Salaries are addictiv

In Silicon Valley, I frequently see managers with stakes in their companies—through stock options or other ownership models. This encourages a higher level of accountability, directly tied to the success or failure of the business. And when you're founding a startup, it’s even more intense, because you usually go all in:

• no comfort zone, every day counts, and resources are limited. You need a lot of resilience and, most of all, accountability.

Accountability

Accountability is about responsibility and ownership. It describes how someone within an organization takes responsibility for their actions and decisions and can be held accountable for them. Who owns the outcomes of their work, and is this clearly and transparently assigned?

Example: It’s remarkable how many meetings could be canceled without any noticeable impact, because often nothing gets decided, or decisions carry no real consequences. Everything remains vague and ineffective.

Founder vs. Manager Modus

Paul Graham, founder of Y Combinator, has reshaped Silicon Valley with his blog posts. In one of his recent articles from September 2024, he distinguishes between the founder mindset and the manager mindset. The founder mode questions the status quo and drives innovation, while the manager mode focuses on maintaining and optimizing structures.

Example: A fascinating case is Airbnb, which grew from a startup to a company with over 5,000 employees. When the pandemic hit, the company faced a crisis. The CEO returned to a founder mindset, stripping away unnecessary structures to get the business back on track.

The Principal-Agent Problem

The principal-agent problem describes the relationship between a “principal” (owner) and an “agent” (the person acting on behalf of the principal).

When the incentives of the two parties don’t align, conflicts can arise. An agent may exploit the system to their advantage, without considering the principal’s interests.

Examples of the principal-agent problem:

1. Shareholders and Management: Shareholders want to maximize company value, while managers might prefer investing in prestigious but inefficient projects to boost their own reputations.

2. Employers and Employees: Employers expect productive work, but employees may reduce their efforts if not closely monitored.

3. Clients and Consultants: Clients hire consultants hoping for the best advice, yet consultants might make recommendations that benefit them more than the client.

Personal Experiences

Small teams often work best. The smallest companies are frequently the most effective, as larger structures tend to breed bureaucracy and reduce flexibility. An ideal tax advisor or lawyer acts like a partner and takes direct responsibility, which often leads to greater commitment and honesty.

Example: In large law or accounting firms, a principal sells the services of an agent. These larger structures often lead to higher costs and lower performance. This is why many prefer smaller boutiques—solo bankers and solo lawyers—who embody high accountability.

How to adress the principal- agent problem?

In my experience, cultural change is only possible when you adapt the structure in the organization. Everybody knows, that we as human beings are very reluctant to change, so i suggest the following:

1. Align Incentives with Performance-Based Compensation
   Specially middle-sized companies still follow the fixed salary path. But you could easily offer performance-based incentives, such as profit-sharing or bonuses tied to measurable outcomes. This approach ensures that employees (agents) have a financial stake in the company’s success, aligning their goals with those of the owners (principals).

2. Enhance Transparency and Communication
   Regularly share performance metrics, project progress, and strategic goals with all team members. Clear, transparent communication in form from weekly one-to-one meetings, transparent monitoring like OKR oder other tools.

3. Implement Clear Accountability Structures
   Establish clear roles, responsibilities, and decision-making authority within the organization. Clearly define roles and ecpectations who is responsible for outcomes at each level, which encourages agents to take ownership of their work and minimizes the likelihood of misaligned actions.

4. Encourage "Skin in the Game" through Ownership Opportunities
   Provide opportunities for employees to gain ownership stakes in the company, whether through employee stock ownership plans (ESOPs) or other equity programs. When agents have “skin in the game,” they’re more likely to act in the organization’s best interest, reducing the Principal-Agent divide.

The Path Forward

For companies, especially in Europe, it could be crucial to create more “Skin in the Game” and structures that promote accountability and transparency. Only in this way can innovation flourish, and employees feel motivated to step outside their comfort zones.

This topic is especially important to me right now because our outlook for the coming years in Austria e.g. isn’t exactly optimistic. The economic research institute predicts that growth will remain low over the next few years.

At the same time, we also have a productivity problem that has stagnated in recent years, while at the same time, our world is changing fundamentally and radically by Artificial intelligence, that is currently transforming everything at a profound level.

Again and again, i experience in so many - most of all - large companies that no one feels responsible or accountable. But we need people who are courageous enough to develop new ideas, who are "naughty"—willing to break the rules, question the status quo, and take responsibility for their actions.

In a time of disruption and rapid technological acceleration, we must ask ourselves: Are we the principals, shaping the outcomes of our work, or merely agents pursuing someone else’s goals?

Author: Werner Sattlegger, Founder and CEO Art of Life

Sources:

Nassim Taleb: “Skin in the Game”

Werner Sattlegger: “Die Kunst reifer Führung”

Paul Graham Blog

Events:

Silicon Valley Learning Journey - 02. -06. Juni, 2024

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