Roger Martin wrote an article titled The Impossibility Theorem: When There is No Overlap Between Required Capability and Willing Candidate.

« The Impossibility Theorem. You have a case of the Impossibility Theorem in action when decision rights are assigned in a way that makes it impossible to fill the chair with a person who is capable of carrying out those decision rights as specified and assumed. That is to say, there is no overlap between the universe of people who are capable of fulfilling the requirements of the role and the universe of people who would accept the job of fulfilling the role.  »

«  Financial Accounting and Standards Board… FASB 142 which completely changed the treatment of intangible assets/goodwill. Rather than being placed on the balance sheet at cost and amortized over a fixed schedule … each firm’s audit provider would declare, as part of its annual audit, whether or not the intangible assets/goodwill were impaired. If impaired, the auditor would force the company to write them down to their impaired value — which could be as low as zero »

«  if you are demonstrably capable of this task, you won’t be working as an audit partner earning a tiny fraction of the remuneration of a talented principal investor.  »

«  The same holds for bond raters … if they were actually good at rating bonds, they would be working at or running a bond fund… We counted on bond raters but in the lead up to the Global Financial Crisis …  they were rating tranches of derivatives as AAA that should have been rating DWH (Disaster Waiting to Happen). »

«  I would argue that transparency and clarity of public financial statements has taken a big hit thanks to FASB violating the Impossibility Theorem. »

The takeaway: «  When assigning responsibility for capabilities that are important to your organization, remember that it is a two-part exercise. One part is to figure out how to divvy up the decision rights. The other part is to determine whether there are people out in the world that are capable of doing the job so-designed and that are also willing to take the job so-designed.  »

Roger Martin is author of Playing to Win and When More Is Not Better.

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