Do Good Leaders Matter? Analyzing leadership through game theory

Yesterday, news broke that my university’s president plans on resigning. Despite being new to the job, having started in 2019, Katsouleas started by outlining a vision for the future of the university. Regardless of whether one thinks Katsouleas’s plans are good ideas, I’d bet other sources of power at the University prevented him from achieving those goals.

Over the last year, UConn’s Undergraduate Student Government has been privy to three (four if you include the newly elected Mason) student body presidents. I’ve only known one well, and I’ve seen first-hand the manner in which the institution is hostile to change, leaders, and distinct perspectives. My friend and former student body president Michael Hernandez told me about how senators who dissented from the “defund-the-police” motion were going to be anonymously bias-reported and treated with the utmost contempt. USG belches out resignations and accusations of toxicity left and right, and I know from other organizations that Hernandez is a capable leader, having worked besides him on a major advocacy project.

My other friend’s father was on the board of education for the city of Stamford. He is a vice-president of a huge re-insurance firm and is amply capable of managing resources. After a year, he was removed because of opposition to his proposed budget cuts. Now, he’s on the board of finance and works to keep the city under budget. One would assume that the board of finance would be more contentious than the board of education when it comes to achieving its goals, but for some reason it seems to work.

These three examples all seem to demonstrate to me that in a bad environment, it is not clear that good leaders are able to much good, at least by themselves. I read this haunting article talking about police culture and the futility of reform from within. At a first glance, that seems to suggest to me that leaders, absent tools and a capable culture do not have clear ways to address structural problems of a power center. If there are not clear tools for leaders to reform failing institutions, it seems important that tools need to be in place to allow more competent institutions to take their place.

It would seem that this can be explained by game theory. A leader has to rely on limited information because they must rely on advisors to convey accurate information. Sometimes subordinates and other members fail to share the same interests as the leader. As a result, the information transmitted to the leader may be incomplete or misleading. This can be understood as a formulation of the principal-agent problem. In short, asymmetric information creates a challenge associated with keeping employees honest. For instance, if a worker enjoys slacking off, there needs to be incentives in place to keep the worker honest.

The principal-agent problem can demonstrate in some ways how social entities are structured. Often, to reward good decision making, workers are given reward. However, the strategy can differ depending on the costs of monitoring. For instance, in order to motivate sales representatives, bosses base part of pay upon sales made. Rather than waste time interrogating employees, providing them direct benefits for better work results in good outcomes. Though, cashiers in the same establishment, because of the standardized nature of their job, are able to be more easily and cheaply monitored. Corporate power structures are especially interesting because rewards for good behavior do not come only in cash. Instead, power itself is often traded.

If good decisions today means more power later, which is expected to be abused, it can explain how many entities crumble under the weight of their previous successes. Organizations relying upon increasing discretion for employees run into a problem when the employee is unable to be punished. As a result, good ideas are often quashed, and bad ideas are able to survive, even when it is apparent that it would be better to change their behavior.

As organizations become increasingly “captured” by their employees and other interests, they become less able to function. So, an appearance of good leadership, without strong challenges to incumbent power, is unable to change the trajectory of an institution. As a result, institutions that fail will probably not be changed much by a good leader.

One thing that limits bad behavior is when a company is no longer able to turn a profit, it often liquidates and disbands as less restrained opposition are able to achieve many of the gains with less effort spent on “discovery” of efficient means of production. However, institutions not limited by profit motives are able to survive regardless of whether they are useful. This can explain in large part why there are so many redundant government offices whereas charities and businesses often aim at producing efficient goods.

Overall, this seems to suggest strong limits on even the best of leaders’ capabilities. If a leader is only able to slightly change the trajectory of an organization, perhaps seeing them as the center of power may make it harder to understand how organizations work.