Over 40 years ago, the legendary management consultant Peter F. Drucker observed growing numbers of "knowledge workers" in the labor market, which he defined as "the man or woman who applies to productive work ideas, concepts, and information rather than manual skill or brawn." As it turned out, the ubiquitous use of computers and the Internet to gather and communicate information has created a market where the majority of employees are knowledge workers. Yet, as Drucker foresaw decades ago, one of management’s greatest challenges continues to be finding the right tools to make knowledge work productive. One particular management decision — establishing an office of the ombuds — is very effective in enabling knowledge workers to perform better and the organization to function smarter.

Research into the nature of knowledge work conducted by Thomas H. Davenport has shown that knowledge workers, generally, are collaborators: they are interdependent across physical locations and time zones, and must communicate with one another, many times across functional areas, in order to accomplish their tasks. For example, they use social networking to exchange information and gain knowledge that will help them to invent new products and services, design marketing programs, create strategies for distribution and manage customer relationships. Knowledge workers enjoy autonomy and as such tend to work independent of management. As a result, they are subject to much less observation than the workers of decades past, and are to a large degree free from a supervisor’s daily instructions. This creates special challenges for management for two main reasons:

(1) Interpersonal conflicts between knowledge workers can dramatically affect their performance. A conflict between two or more persons whose duties require collaboration on tasks and projects will have a ripple effect on the work of colleagues who rely on them. Relatedly, an unresolved conflict between leaders of functional areas can give rise to significant productivity issues for the organization.

(2) In order to protect the organization from exposure to liability, leadership must be made aware of potentially harmful problems when they develop. In the past, supervisors could be relied upon to observe potential problems at the ground level and report their findings through formal channels to Human Resources or the legal department — but no longer. Due to the autonomy of knowledge workers in performing their tasks, supervisors will generally not have direct knowledge of how their work was produced. It is within this area of not-knowing that potential liability for the organization exists. This means that knowledge-intensive organizations, rather than relying on supervisors for information, must learn of potential risks from knowledge workers themselves.

An ombuds can help. The role of a corporate ombuds is essentially that of an in-house mediator with the ability to intervene in workplace disputes and relay news of problematic developments personally to the board of directors. There is one key limitation: the ombuds cannot act directly in response to information provided by employees without their express consent. The ombuds’s duty to keep confidentiality is also the position’s enabling strength — as it encourages employees to step forward, without fear of retaliation, to disclose information that might otherwise not see the light of day.

Once the ombuds understands the concerns raised during an employee’s visit, the ombuds functions as a router for ways to address the situation: sometimes, an employee receives coaching from the ombuds and leaves satisfied; or, the ombuds may advise an employee of the availability of formal channels for reporting a problem; in other cases, the employee may authorize the ombuds to act as an impartial facilitator between affected groups in order to resolve interpersonal tensions and encourage collaboration; and in others, the employee may authorize the ombuds to use discrete, indirect means to notify the organization of areas of risk without revealing the employee’s identity. One way an ombuds may accomplish that latter task is by presenting a report, consisting of data compiled from anonymous sources, to the board of directors or similar leadership within the organization. With the ombuds’s information, the organization may act to preclude or mitigate the worst kind of damage.

Take, for instance, the bankruptcy of MF Global — a knowledge-based company that could have benefited from an ombuds’s early notice of potential liability. Recall what happened in that case: In September 2010, Chief Risk Officer Michael Roseman warned Chief Executive Officer Jon Corzine that the company’s bets on European sovereign debt, which at that time stood between $1.5 billion and $2 billion in exposure, presented a significant liquidity risk. Corzine disagreed with that assessment — and in October 2010, he asked Roseman to seek permission from the board of directors to raise the stakes to $4.75 billion. Instead, Roseman repeated his concerns to the board — but the scenarios he presented were rejected as implausible. In January 2011, the company replaced Roseman as CRO and continued on the course recommended by Corzine.

However, by the summer of 2011, when the company’s exposure to European sovereign debt had grown to more than $6 billion, Roseman’s replacement advised the company to take steps to mitigate the financial risks. It was too late. In early October 2011, news reports surfaced that MF Global had been required in August to put additional capital into reserve. Its stock price plunged. By the end of October, MF Global had declared bankruptcy.

These facts suggest that MF Global’s collapse could have been avoided if the board had followed Roseman’s advice in 2010. Although Corzine’s contrary opinion was clearly deemed persuasive, an ombuds’s contribution, had it existed, would have added weight to Roseman’s position. Indeed, we now know that more than one senior manager shared Roseman’s concerns in 2010, but they were afraid to confront such an imposing figure as the CEO. If an ombuds had been available to assimilate and relay the anonymous fears of multiple employees, MF Global’s board might have perceived the situation as more dangerous than simply a conflict between a risk-averse CRO and an aggressive CEO — but, rather, as a potential crisis involving exposure to an unacceptable level of liability should the trades result in damage to the value of the company.

Although the many benefits of an ombuds cannot be fully detailed in an article discussing a single example, the potential value of having someone in the position to ameliorate discord within knowledge-based organizations should be clear from this one case history. Ombuds are a potentially valuable early-warning mechanism for averting risk, and one that organizational leaders should give consideration as a worthy investment of company resources.•