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by Ben Horowitz, via Wall Street Cheat Sheet

In all my years in busi­ness, I have yet to hear some­one say: “I love cor­po­rate pol­i­tics.” On the other hand, I meet plenty of peo­ple who com­plain bit­terly about cor­po­rate politics—sometimes even in the com­pa­nies they run. So, if nobody loves pol­i­tics, why all the politics?

Polit­i­cal behav­ior almost always starts with the CEO. Now you may be think­ing: “I hate pol­i­tics, I’m not polit­i­cal, but my orga­ni­za­tion is very polit­i­cal. I clearly didn’t cause this.” Sadly, you needn’t be polit­i­cal to cre­ate extreme polit­i­cal behav­ior in your orga­ni­za­tion. In fact, it’s often the least polit­i­cal CEOs who run the most fero­ciously polit­i­cal orga­ni­za­tions. Apo­lit­i­cal CEOs fre­quently acci­den­tally encour­age intense polit­i­cal behavior.

What do I mean by pol­i­tics? I mean peo­ple advanc­ing their careers or agen­das by means other than merit and con­tri­bu­tion. There may be other types of pol­i­tics, but pol­i­tics of this form seem to be the ones that really bother people.

How it happens

A CEO cre­ates pol­i­tics by encour­ag­ing and some­times incent­ing polit­i­cal behavior—often acci­den­tally. For a very sim­ple exam­ple, let’s con­sider exec­u­tive com­pen­sa­tion. As CEO, senior employ­ees will come to you from time to time and ask for an increase in com­pen­sa­tion. They may sug­gest that you are pay­ing them far less than their cur­rent mar­ket value. They may even have a com­pet­i­tive offer in hand. Faced with this con­fronta­tion, if the request is rea­son­able, you might inves­ti­gate the sit­u­a­tion. You might even give the employee a raise. This may sound inno­cent, but you have just cre­ated a strong incen­tive for polit­i­cal behavior.

Specif­i­cally, you will be reward­ing behav­ior that has noth­ing to do with advanc­ing your busi­ness. The employee will earn a raise by ask­ing for one rather than you auto­mat­i­cally reward­ing them for out­stand­ing per­for­mance. Why is this bad? Let me count the ways:

1. The other ambi­tious mem­bers of your staff will imme­di­ately agi­tate for raises as well. Note that nei­ther this cam­paign nor the prior one need be cor­re­lated with actual per­for­mance. You will now spend time deal­ing with the polit­i­cal issues rather than actual per­for­mance issues. Impor­tantly, if you have a com­pe­tent board, you will not be able to give them all out-of-cycle raises, so your com­pany exec­u­tive raises will occur on a first-come, first-serve basis.
2. The less aggres­sive (but per­haps more com­pe­tent) mem­bers of your team will be denied off-cycle raises sim­ply by being apolitical.
3. The object les­son for your staff and the com­pany will be the squeaky wheel gets the grease and the polit­i­cal employee gets the raise. Get ready for a whole lot of squeaky wheels.

Now let’s move on to a more com­pli­cated exam­ple. Your CFO comes to you and says that he wants to con­tinue devel­op­ing as a man­ager. He says that he would like to even­tu­ally become a COO and would like to know what skills he must demon­strate in order to earn that posi­tion in your com­pany. Being a pos­i­tive leader, you would like to encour­age him to pur­sue his dream. You tell him that you think that he’d be a fine COO some day and that he should work to develop a few more skills. In addi­tion, you tell him that he’ll need to be a strong enough leader, such that other exec­u­tives in the com­pany will want to work for him. A week later, one of your other exec­u­tives comes to you in a panic. She says that the CFO just asked her if she’d work for him. She says that he said that you are groom­ing him to be the COO and that’s his final step. Did that just hap­pen? Wel­come to the big time.

How to min­i­mize politics

Pro­fes­sion­als vs. Amateurs

Min­i­miz­ing pol­i­tics often feels totally unnat­ural. It’s counter to excel­lent man­age­ment prac­tices such as being open minded and encour­ag­ing employee development.

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Damien Hoffman, Esq. decided to launch a financial website and exclusive subscription-based newsletter after achieving a 63% return versus a -48% return for the S&P over a nearly two year time frame as a co-founder of popular stock blog SmartGuyStocks (member of the Forbes Business and Finance Blog Network, and certified by Seeking Alpha). Mr Hoffman is currently Editor-in-Chief of Wall St. Cheat Sheet and trades full-time. After graduating early with honors from Duke University, he raised private equity with friends during the late Nineties to launch a successful start-up. Mr. Hoffman went on to work for boutique sports investment bank Inner Circle LLP where he worked on the sale of the NBA franchise New Jersey Nets to Brooklyn real estate development firm Forest City Ratner Companies (NYSE: FCE-A). Mr. Hoffman also graduated with honors from the University of Miami School of Law as a Dean’s Merit Scholar. He clerked at the Florida Supreme Court for the Honorable Justice Kenneth Bell and Central Staff. In 2006 at Harvard Law School he gave a guest lecture entitled, “Business and Law in the New Independent Music Industry.” Read more from the author/contributor here.

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