Property Rights and Decision Rights

Property Rights are a fundamental human right. As economist Alberto Benegas Lynch observed, property rights go far beyond ownership of land, buildings, or other physical assets: “Every individual freedom depends on private property.” He realized that property rights are the “basis of civilization” and secure every individual’s freedom of expression and the right to choose how they will use their time and talents.

The concept of Property Rights has been around for centuries, but only recently has it been recognized as essential to a civil, peaceful, and prosperous society. Clear and protected property rights stimulate beneficial investment. Thus, more resources flow to those who produce the products, services, and innovations that people value, and away from those who do not — making possible the benefits of specialization and exchange through well-functioning markets. When the government respects these rights, disputes are solved peacefully and beneficially rather than in ways that are destructive. To the extent property rights are not defined and secure, we lose the capability and efforts of many who would be the greatest contributors to general well-being.

As Aristotle observed: “[People] pay most attention to what is their own; they care less for what is common . . . [they] are more prone to neglect their duty when they think that another is attending to it.” The incentive to be good stewards comes about as owners benefit from the value they create and bear costs from value they destroy. If owners are liable for injuries to people or property, they are motivated to prevent such injuries. When a business is losing money, its owners have a strong incentive to improve the business or sell it to someone who can make it profitable.

 At Koch, we attempt to replicate some of the beneficial aspects of Property Rights using clear responsibilities, expectations, and decision rights. Decision rights define the degree of freedom an employee possesses to act or to make and implement decisions without approval. Rather than being centralized or decentralized, these rights need to follow the Division of Labor by Comparative Advantage. They flow to and from individuals based on whether and how they use them to create “good profit” for the company. In other words, they are earned and can expand or contract. Having decision rights does not mean you can do whatever you want; you have the obligation to seek input from those with beneficial knowledge and perspectives before deciding on a course of action.  

In a completely free society, individuals can use their property as they choose, so long as they do not violate the rights of others. Decision rights in a company are different because it is the company, rather than individual employees, that owns the property and benefits or suffers most from its profits or losses.

To encourage a strong sense of ownership and entrepreneurship, employees are held accountable for a set of responsibilities and their results. (See Accountability.) Being responsible for something does not mean you have all the associated decision rights. For example, if you do not have full authority on a project, you are required to obtain the needed approvals, just as entrepreneurs without sufficient capital need to do. (See Principled Entrepreneurship.)

The allocation of private property in a market economy is continually changing, as should the allocation of responsibilities and decision rights within an organization. At Koch, supervisors work with employees to foster a clear, shared understanding of responsibilities, expectations, and decision rights. They regularly review and adjust them as needed, set standards for the appropriate use of property, and hold employees accountable for results and behavior consistent with Our Values. When all this is done well, employees are motivated to be good stewards and maximize their contributions to the company’s long-term success. (See Alignment of Incentives.)