Trading Off Long and Short Term

August 25, 2013

360 DegreeA conundrum for most leaders is the issue of long term versus short term results. Most western cultures reward executives based on the short term result. Eastern cultures tend to have a longer view of performance, but even there, patience for short term problems wears thin.

It is easy to say, “Well, you need to do both,” which is a kind of cop out statement. Of course both are needed. If you fail to do right by the long term there is no future for the entity, but if you fail in the short term, there may be no future for you.

Compensation plans for most senior leaders have tended to favor the short term focus. Ethical or legal problems crop up when the pressure for quarterly numbers becomes too great. There are hundreds of stories where companies have pulled material from inventory and called them “sales.” This is an example of an unethical behavior that ultimately causes a crash. Reason: When accounts are juggled in an effort to maximize the short term, the organization is already on a slippery slope. The difference has to be made up sometime, so the long term is in jeopardy.

When you recognize the temptation to “shade” earnings to look most favorable is like a drug, it is easy to see how large corporations get caught in a whirlpool that eventually pulls them under. The Sarbanes Oxley Act was one attempt to make it more difficult to cheat on short term results. In fact, SOX worked! It is more difficult to cheat, but it is also much more expensive to operate, and cheating is still possible. It simply requires more creativity. We should not depend on legislative band-aids to save our corporations.

There is ample evidence that doing business in an ethical manner with a balance of emphasis between long and short term goals is not only more comfortable, it is much more profitable. The Conscious Capitalism Movement is one example of how organizations are finding ways to become more secure, more profitable, and more ethical at the same time. By working to satisfy the needs of all stakeholders rather than just the shareholders, a kind of self-balancing situation arises that is clearly good for business both short term and long term.

John Mackey and Raj Sisodia wrote a book entitled Conscious Capitalism that has started an entire movement. They stress the balance of having all decisions work to satisfy all six stakeholders: 1) Stockholders, 2) Customers, 3) Employees, 4) Suppliers, 5) Community, and 6) Environment. Balancing the needs of all stakeholders gives a better chance at making rational decisions that balance the short and long term benefits to not only the corporation but to society as a whole.

The entire Conscious Capitalism model includes much more than just considering the six stakeholders in decision making. The full model includes:

1. Developing core values and a higher purpose
2. Instilling higher leadership
3. Integrating the needs of all stakeholders
4. Developing a conscious culture of management

The Conscious Capitalism Model is a great way to view business, and I recommend the book to any leader who feels habitually caught between the long term and short term decisions that drive them crazy. It is a very good read that makes a convincing case that doing things the right way from the start is not only less stressful, but far more profitable and sustainable.


Making Values Have More Value

May 25, 2013

square dealA vital function of leadership is to instill a coherent set of values in the organization. Notice I did not say the function is to “articulate” good values. Too many leaders believe the job is done when there is a set of values hanging on the wall. Unfortunately, that attitude does more harm than good because any hypocrisy in living the values ends up undermining the whole concept.

Leaders need to exemplify the values and talk about them at every opportunity for them to become firmly planted into the hearts of the organization’s people. Here are some tips that can make your values shine and create a foundational bedrock for the work of your business.

Create the values together

Values do not come from one person. They are aggregated into being through a process of creation and selection. There are literally thousands of values one could choose. Words like integrity, loyalty, respect, trust, and flexibility are frequent choices. Less often used, but equally effective are words like honor, dependability, family, innovation, and transparency. It is important for people in the organization to participate in the crafting of a master brainstorm list and the voting on how to winnow the list to a vital few.

Don’t have too many values

To be most helpful, values must reside in the hearts of the population and be simple enough to remember. It is a mistake to have a dozen or more values for an organization. Few people will be able to remember the entire set. I recommend five values, or six at the most. These will form the core of why we do what we do. Then it is a simple matter of doing a pareto vote to cull out the less important candidates from the longer list.

Talk about the values

Make sure everyone knows the values by communicating them at every possible opportunity. Say things like, “We have decided to admit our mistake because one of our core values is transparency.” As people hear a value reinforced every time it is modeled by leaders in the organization, it becomes stronger and more useful to the business.

Reinforce people who point out inconsistencies

If an action or decision does not appear to be consistent with a stated value, it is important to encourage and reinforce employees who point out the apparent contradiction. If employees are stifled or punished when they voice concern over a possible lapse, then they will clam up, and the values will quickly lose their potency for the organization. If people are rewarded for bringing up concerns, then the values will spring to life and remain vibrant.

Allow infrequent changes

Values form a bedrock for the actions of a community. It is important that these statements of intent have stability, and yet it is a mistake to be totally rigid. If an additional value to the current list would help clarify some common activities, feel free to add a new value with great ceremony. Beyond some number, it is wise to retire a less relevant value when adding a new one. This can be tricky because no value is totally useless. If you retire a value, make sure to state it is still important, just less frequently called upon in the current environment.

Reinforce actions consistent with the values

The easiest way to perpetuate actions consistent with the values is to reinforce people when the follow them. A simple thank you is not sufficient reinforcement here. The conversation should sound more like this, “That was a great point Martha. When you recognized Ed for not backing down in the face of pressure from the angry employee, you demonstrated consistency, which is one of our key values.”

The magic in having values is teaching all people to model them every day, but that is only half of the job. You must make the connection between actions and values highly visible at every opportunity to ensure the values drive the right behaviors far into the future.