Market-Based Management®

The Trouble with Blind Loyalty

In last Saturday's Wall Street Journal Weekend Edition, on p18, Peggy Noonan had the following anecdote in an interesting essay titled, "The Trouble with Loyalty":

"There is the story of the politician who accused a follower of never being loyal.  The follower was nonplussed.  'But I always support you when I think you're right,' he said.  'Anyone can do that,' said the politician.  'I want people who support me when I'm wrong.'"

Loyalty, rightly understood, is a virtue.  It is a form of faith.  The latin word for faith is fides and there is a certain fidelity, a truthful connection, that needs to be present between the one who desires loyalty and the one who gives it. 

If we understand truth as "an agreement with fact or reality," then we begin to see that the politician in Ms. Noonan's anecdote was not asking for true loyalty -- he was asking for blind loyalty.  He was asking for unthinking, uncritical subservience.   

Ever had a manager like that?

Loyalty demands that we see things as they are and not as we (or those to whom we are loyal) wish them to be.  It requires us to speak the truth as we understand it.  And those who are deserving of our loyalty will want to hear what we have to say.  They will encourage us to speak our mind without fear of reprisal.

True loyalty is earned over time through the integrity of our actions.  It cannot be coerced through favors or threats.  As a manager, the worst time to try and build loyalty with your team is at the time when you actually need it.

Profit and Ethics

Koch Industries CFO Steve Feilmeier was the guest speaker in our MBM class at Wichita State University yesterday, and he had some interesting things to say about ethics in business. While widely-publicized recent corporate scandals have fostered in many people's minds the notion that the pursuit of profit by its very nature leads to poor behavior, Feilmeier has a very different perspective. Profit, in a system of free exchange, is an indication that someone has created value for others. When companies fall into ethical lapses, more often than not it is because they have failed to discover how to create real value. As Feilmeier noted, "At the root of many of these  scandals is a business model that isn't working."

When companies have discovered how to deliver sustainably superior value to customers, in other words, they don't need to engage in creative accounting, or political efforts to restrict competition. Their successful pursuit of profit is one of the key things that distinguishes them from unethical companies. It's an inability to legitimately turn a profit that leads some corporate actors to behave poorly.

With this in mind we can begin to see one of the ways that the concepts embodied in the term "Principled Entrepreneurship" fit together. Effective entrepreneurial action produces profit, making unethical behavior a waste of time. A culture infused with strong principles, meanwhile, makes unethical behavior a non-starter. One of the advantages of building a company based on principled entrepreneurship, then, is that it will be filled with people who, most importantly, will not tolerate any violation of law or integrity, but also who would never need to do such a thing, because they are focused on creating genuine value for customers.

The Entrepreneurship/Culture Connection

Why are some nations, cities, and companies more entrepreneurial than others? Interesting question, don't you think? A fellow employee passed on an article that summarized research conducted at the Stockholm School of Economics which studied the differences in levels of entrepreneurship across Swedish municipalities.

When faced with the above question, free market advocates automatically point to "system" issues such as tax structure, level of government intervention in the form of price controls, and the like. These policies and practices certainly make a difference on the whole and Sweden is no exception. What this study found, however, is a broad variance in entrepreneurial activity from one municipality to another within Sweden.

Why the variance? Culture. Aside from political and religious beliefs, municipalities with higher levels of entrepreneurial activity cultivate a feedback mechanism, meaning cities with more entrepreneurs tend to beget even more entrepreneurs. That is, once an entrepreneurial culture takes root, it typically spreads locally.

Economists tend to look at countries as a whole and emphasize national policies and attitudes when analyzing productivity or entrepreneurship. This study concludes that national success in entrepreneurship depends on the evolution of local cultures and their interaction with national policies.

What struck me as I read the article is our own company efforts to develop a culture of principled entrepreneurship.  Here are a few semi-random thoughts...

• It's not enough for top-level leaders to understand what they want/expect the culture to be.  All "regions" (departments, units) of the company need to embrace principled entrepreneurship as well.
• Leaders can talk about a culture of entrepreneurship, but can stifle it by micromanaging their employees, failing to delegate appropriately, and using poorly designed and/or implemented incentives.
• Company culture is obviously a combination of several things, but it is visibly displayed in the attitudes, behaviors, and actions of people.

A parting thought...Do the actions, attitudes, and behaviors of the all employees (front line, supervisors, middle managers, etc.) match those described by leaders as being "our culture"? A potential trap for any large entity is this: when the nation/company's overall results are positive, there is a false sense that the culture throughout is positive as well. Something to ponder...

Leading Change

Recently, McKinsey Quarterly (membership required) interviewed Corrado Passera, CEO of two successful corporate transformations.  He led revitalization efforts at Italy's state-owned postal service, Poste Italiane, and Banca Intesa, a bank/financial institution. 

A number of Passera's tactics for leading change should sound familiar, as they are closely aligned with some key components of market-based management.  Here are a few words from Passera describing his approach. 

...at the beginning you really have to understand where you are, what happened in the past, and why it happened.  You have to identify the remaining strengths and assets you can use to build for the future.  You have to appreciate the main constraints on developing the organization.

You need to propose a mission that is, at one level, a dream but is also achievable. Too much of a dream and people will not believe in it.  Too much emphasis on survival and they will not accept the sacrifices. I personally wrote what amounted to a short book -- not like an analyst's presentation, with figures and graphs, but a book written in human language, telling people where we were, where we wanted to go, and how we were going to get there.

Each person in the organization has to find a credible reason for making an effort and supporting the project.  I call this the 'return on sacrifice.' If you fail to get the right mix of sacrifices and benefits, the process will either start with various components moving in different directions or it will not get under way at all.

Change initiatives only take root through a well-functioning top team and committed leadership across the organization....And in each of the big boxes of the organizational chart, you must have people...who not only support your business but share your values.

Obviously, there are healthy tensions...If necessary, you have to get rid of individuals -- even the talented ones -- who quarrel and cannot work together.  If you choose the right people, everything else is a lot easier.

You also have to be clear about which responsibilities are individual and which are collective....That calls for a compensation mechanism that simultaneously rewards personal results, groups results, short-term results, and long-term results.

Finally, Passera says that you have to manage restructuring AND growth at the same time.  Efficiency/cost initiatives alone won't likely save a dying company and focusing on growth without getting expenses in line will not work either.

Employee selection - reducing the gamble

Why should a company do background checks when evaluating potential hires?

A recent survey reported in an Australian national newspaper (available here) found that of 1000 respondents 21% had deceived their employer to get the job. You might think that lying to get a job is problematic - people are simply putting a huge 'spin' on their past in order to get the job.

Unfortunately for the hiring firm, the candidate who lied to get a job is more likely to lie to keep the job, lie to secure a bonus or pay-raise. Background checks help minimize, but certainly don't eliminate a firm making a very costly hiring mistake.   

What Makes MBM So Great?

Reading this book review ought to get you thinking about things... I especially like the letter to management (hat tip to Arnold Kling over at econlog):

"Dear current Management-Generation of Cublicle Land, please understand that:

1. My generation was misinformed -- by elders and fortune -- about the value of our college degrees.  $120,000 of your / our money now buys, career-wise, just a hair more than your free high-school diploma used to.  As many of my peers now lament, 'A law degree is the new B.A.'  We're the best-educated generation in American History, yet the job requirements haven't changed. [...]"

If you read this review, and the rest of the letter in it partially quoted above, you might ask yourself, "How are things different from the MBM perspective?"  Would a college grad hitting the ground with an organization or team that embraces the Guiding Principles and practices the five dimensions of MBM have the same persepective? 

As a practioner of MBM, what letter would you write?  Hit the "Comment" link and let us know.

Book Review: Winners Never Cheat

Jon Huntsman articulates in a short, easy reading book what it means to conduct business with integrity.  One of my favorite quotes is:

“One might even be tempted to believe that the near-sacred American Dream is unobtainable without resorting to moral mischief and malfeasance.  Nonsense.  Cutting ethical corners is the antithesis of the American Dream.”

He articulates that what’s needed in today’s business environment is a booster shot of commonly held moral principles from the playgrounds of youth:  be fair, don’t cheat, play nicely, and tell the truth. 

Much of Jon’s message is in line with our company principles:  surround yourself with people who have the courage to say no; treat others with respect; leadership requires risk and responsibility; and compete fiercely, but no cutting in line.

There is one chapter that I didn't fully agree with.  It is titled “The Obligation to Give Back.”  I don’t like the term “give back,” as it implies that a successful business must have conned its customers and communities in order to make a profit.

Philanthropy is great and Jon Huntsman is a very generous man.  In his situation (private, family-owned company), donating company profits to charities and other philanthropic endeavors is fine.  I’d be cautious about making the statement that all businesses have the obligation to do this.  A publicly-traded company (which is what Huntsman Chemical is now) is obligated to be profitable for its shareholders.

Overall, worth a read. It contains some great quotes!