He was recently awarded the Nobel Prize three economists who demonstrated the importance of social institutions for the prosperity of a country. They found that freer, more open societies with “inclusive” institutions were more likely to prosper than societies with “extractive” institutions designed to benefit the few in power.

Their conclusion is not surprising, but it raises a deeper question. Why?

By examining this question, we will discover some universal principles that apply to the management of businesses, including financial advisory firms.

What drives the behavior?

The results of the research by Daron Acemoglu, Simon Johnson and James Robinson were clear. Institutions designed to exploit the masses are bad for long-term growth, while those that establish basic economic freedoms and the rule of law are good for it. What are the mechanisms at work here? Here are some possibilities:

• Incentives work. If you have a reasonable chance of making more money and building a comfortable life for yourself, you're more likely to bring your A-game to whatever you do. A whole society of motivated workers produces prosperity.
• Landlords are more motivated to take care of their property than tenants. Citizens of societies with strong property rights have an interest in building and maintaining thriving neighborhoods and strong infrastructure. This translates into growth.
• Freedom is exalting. If you feel empowered to take action, make decisions and control your destiny, you become a more productive force. Otherwise, living under someone else's thumb feels demoralizing and undermines productivity.
• Openness unleashes creativity. Encouraging and rewarding new perspectives leads to innovation and innovation leads to progress. Repressive environments stifle creativity, innovation, and ultimately progress and prosperity.
• Having a voice drives engagement. People who have a role in shaping their future are more personally involved in what is happening. Getting the best opinions from a diverse group of individuals benefits the collective group.
• Communication produces positive results. Open societies have a free press and encourage open public debate. People know what's going on and feel involved. This allows people to allocate their resources and efforts in the most productive way.
• Being part of something bigger than yourself increases motivation and spurs action. All prosperous societies are steeped in history about their history, purpose, and values. History shows that people work hard and sacrifice for these ideals.

How does this apply to consulting firms?

It doesn't take much imagination to see how these principles can translate into pillars of success for businesses just as they do for societies. And in my experience, they do.

An incentive program can benefit a business in many ways. Of course, generous compensation can help you attract top talent. A program that includes an element of success-based compensation can encourage action designed to achieve success. But justice is also important. Equal distribution of monetary rewards motivates everyone.

Equity ownership is an incentive that deserves special attention. No matter how well team members are paid, there is always a gap between owners and non-owners. The upper part belongs to the owners. This is not a theoretical issue for advisory firms – they are bought and sold frequently these days.

There are two benefits to widely distributing capital among team members. Owners tend to work harder and see the business in a different light than non-owners. In addition, equity ownership tends to tie team members more closely to the organization.

There are types of equity ownership programs that currently do not require team members to contribute money to participate. Founders would be well advised to at least consider programs that give team members an ownership or near-ownership stake.

Giving team members the freedom to make decisions, experiment with new ideas, and exercise control over their respective areas is energizing. This does not mean that you abandon tried and true processes and procedures. But it means respecting each person's individuality as much as possible and acknowledging that there is often more than one way to accomplish a task. Experimentation can lead to breakthroughs or process improvements.

Creating an environment that encourages brainstorming and the sharing of new ideas can also lead to creative approaches to solving problems and discovering new opportunities. This should be done deliberately with a relatively open agenda. Bring people together who might not otherwise interact. Sit back and let the ideas fly.

Gathering the widest possible group when making decisions has two benefits. First, it helps to avoid problems that might not have been identified by a smaller group. The involvement of frontline team members provides a hands-on perspective that would otherwise be missing. Also, the sense of inclusion elevates them at all levels of the organization.

A regular program of communication about what is happening in the business can do magic. First, it makes people feel included and respected. Second, it gives everyone context for the decisions they make and the actions they take. This improves the quality of even small decisions and produces more coordinated actions by team members.

Simon Sinek's book Start with Why discusses the importance of understanding and articulating why a business does what it does. Building a culture that emphasizes the mission or shared purpose that drives an organization gives each team member something bigger than themselves to be a part of. If you haven't already, it pays to create a “why statement” for your business. A sense of purpose can be very motivating.

Common behavioral topics

The success of societies and businesses depends on the behavior of people. The three Nobel laureates mentioned above identified several common themes that determine the prosperity of society. I believe these topics are very important in determining how to structure and run a successful consulting practice. They are certainly worth considering.

Scott MacKillop is a strategic advisor to GeoWealth and a 48-year veteran of the financial services industry. He also serves as an ambassador for the Fiduciary Standards Institute. He can be reached at (email protected).