According to the new research from KRW International, leading with character and long term business results go hand in hand. I will discuss this research in greater detail later in this paper; however I first want to express why it is so critical in today’s societies.
Lawrence “Larry” Summers, an American economist who is President Emeritus and Charles W. Eliot, University Professor at Harvard University, recently said,
”America risks becoming a Downton Abbey economy”.
Larry, like many of us, is very concerned about the impact of the growing social and financial polarization in our developed world. We have all heard about the extreme wealth and privilege accruing to the top 1% of society, while many of those in the middle and working classes are losing ground and not benefiting from the fruits of their labour. Larry adds, “The share of income going to the top 1 per cent of earners has increased sharply. A rising share of output is going to profits. Real wages are stagnant. Family incomes have not risen as fast as productivity. The cumulative effect of all these developments is that the US may well be on the way to becoming a Downton Abbey economy.”
I believe there is a parallel between this broader societal problem and a micro version occurring in some of our business organizations. The same growing spread between the elites and the rest occurring in global society is frequently being replicated on a smaller scale in business organizations. We have seen many businesses being led in a manner that benefits a few people at the top, without a regard and integrated approach to recognizing and satisfying the other stakeholders; namely the employees, customers, and suppliers. This patriarchal, self-absorbed, and insular view observed in the C-suite has proven to be detrimental in the longer term for the organization and the communities it serves. Consider the dramatic examples of Enron and WorldCom. These two are the extremes on a spectrum, of organizations being led without character, however there are many businesses suffering from being governed and managed with a warped sense of privilege, entitlement and senior leadership collusion in a “mutual admiration society”. This individual and collective senior leadership behaviour breeds “us and them” corporate cultures characterized by fearful and emotionally unengaged workers.
What I find peculiar about this sense of entitlement is that it is driven by a false assumption or belief that this privilege is earned through superior merit and personal grit. In actual fact those at the top have won both nature’s and nurture’s lottery. Many have been born blessed with the physical, psychological, motivational, and intellectual advantages of good genes (nature’s lottery) as well as landing and nurturing those good
genes in communities where the benefits of social and environmental factors such as access to education, a strong social network, as well as family wealth all contribute to our inborn and early childhood advantages (nurture’s lottery).
This early good fortune (shall I say luck?) contributes greatly to whether you fall into the ‘haves’ or ‘have- nots’ of this new economic reality. Yes, it took hard work to get there, but even that motivation to persevere and work hard is largely epigenetic, or a result of the interplay between those genes and your early childhood environment. I would hope this good fortune bestowed upon the elites would create a social desire in them to share and support those within the community that don’t share their inherent good fortune. Being aware of this good fortune, you would think that those that naturally “have” would see it as a moral responsibility
to figure out a better and fairer way to distribute the benefits that naturally come their way, in order to maintain social cohesion and peace, within the community or organization, that sustains them. I for one do not want to live in a gated community. For me to grow, develop, and thrive I need to interact, walk, and talk freely with many different kinds of people. My identity is formed by, and matures through, a multitude of heterogeneous social interactions.
There has always been a tension in business between short term financial results and longer term growth and development. The latter requires investment, innovation, employee engagement, and collaboration. My observation is that when you have leadership with character, this tension is kept in balance. In my consulting practice, I have often seen the former (short term profitability) being overemphasized to the detriment of the latter (long term sustainability of the business and the environment it operates in). When this imbalance occurs, there has usually been an element of privilege, blind ambition, power, and self-service coming from the top. I remember interviewing a CEO of one of my client organizations regarding how he saw his
leadership role. He somewhat facetiously responded, “To ensure I put $200,000,000 into the pockets of our major shareholder’s every year.” This same company suffered financially and culturally years later as a result of many years of neglecting to reinvest in its future. This imbalance tends to result in a reality where a few benefit (for a while) to the detriment of many of the other organizational stakeholders, both inside and outside the company.
Like the communities in our larger society, a sense of entitlement and self-service of the top 1% in a business can cause a breakdown in the organizational community. Senior leadership operates as a kind of insular patriarchy. All the power, decision making, and most of the material benefits concentrate at the top. Trust breaks down. People feel denigrated and even de-humanized, and we begin to create our own Downton Abbey culture, or class system, inside our organization. People at work tend to thrive and produce in a sustainable way when they feel connected, valued, and enabled; to be creative and make their own choices and decisions when appropriate. When employees are regarded and enabled this way by their leadership, they feel they are contributing to something bigger than just them, as opposed to only working for the privileged class at the top. This also extends to the broader community. Business organizations can only continue to create and sustain long term value if the communities they interact with benefit as well. Everybody needs and wants to come along for the ride.
Changing our organizations requires changing how we develop our leaders
The leadership challenge of transforming our polarized society and business organizations into communities that keep the basic principles of capitalism (voluntary exchange, entrepreneurialism, innovation, competition, free trade, and the rule of law) while incorporating the values and mind-set of mutual trust and respect, compassion, collaboration, and community building for long term sustainable value creation for all, will require a very different kind of development in leaders from what most of us are familiar with.
Historically, our development philosophies and strategies for leaders have been driven by a need to solve technical problems within the existing business model and macro-economic conditions. We have needed to acquire, develop, and execute our skilled knowledge and behavioural competencies required to solve the problem. We refer to this as horizontal development and it is really about having and/or building the required competencies and skilled knowledge to perform the role well, within the existing or known circumstances.
What we need in order to transform our work communities into entities that benefit all stakeholders, rather than a few individuals at the top, is a vertical development strategy. We need leaders who are willing to look deep inside, challenge their mind-sets, beliefs, and biases; and then shift (vertically) how they think about, make sense of, and respond to, situations that represent new territory for which they do not have an existing roadmap. We need leaders who see themselves as part of a larger system that they must identify and interact with. As individual leaders, regardless of the level, our problems are too complex to deal with on our own. Cooperation and collaboration are essential to get our arms around these transformational challenges. No one of us can, but perhaps many of us, together, can. We need leaders working together using not just their heads, but their hearts as well.
Leading with Character
Succeeding in a transformational change initiative will require transformational change of the individual as well as collective leadership group. This is new territory and an adaptive challenge for all of us in the profession of advising and designing the frameworks to build leadership capability and capacity. KRW International has effectively shown the impact of vertical development in leaders on business results and has designed a methodology to help leaders develop in a more comprehensive or vertical way.
As mentioned in my opening, KRW International recently released some very compelling research on the relationship between “leadership character” and sustainable business results. Fred’s research has codified this notion of character as four key elements that make the difference: Integrity, Responsibility, Compassion, and Forgiveness. Helping develop leaders in these four dimensions is part of vertical development. These values or leadership qualities can be personally accessed and developed, but probably not taught in the traditional way we generally teach skills and knowledge. In other words, these leadership qualities are not skills and competencies (horizontal leadership) that can be taught through learning about them.
These elements of character come to be real through a mind-set maturation or transformation of the individual leader. The successful taking on of these qualities requires a deep sense of self-reflection, vulnerability and courage to look at oneself, as well as one’s team mates, and reflect on what personal changes are required from all of us to best impact our immediate work environments.
KRW helps senior teams begin the transformational process of enhancing the “leadership effect” of their organization, addressing both horizontal and vertical leadership development issues through a two day workshop called the Business Value Accelerator. Building up to, and during, these two days a CEO and his / her senior team will work to understand their personal leadership issues and gaps. This knowledge will allow them to commit to the necessary organizational changes and roadmap that they will have to implement in order to impact the “leadership effect” of their organization and get the business results they want. After all…leading with character means business.