Reimagine excellence: manage performance to free sustainable value
New expectations for corporate performance are emerging. Astute executives are seeking ways to make money whilst lessening the climate and societal threats we all face. New thinking is required if performance management is to keep pace with leaders’ ambitions for sustainable business.
Shareholder value has a long history as the yardstick of corporate performance. The underlying legal principle dates back to a 100-year-old ruling by the Michigan Supreme Court, in the case of Dodge v Ford.
Henry Ford learned that the Dodge brothers, who were investors in Ford Motor Co., planned a rival firm. This prompted Ford to announce his intention to position his company to ‘benefit mankind’ – cutting stock dividends so he had money to lower vehicle prices and increase wages.
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Change will only happen at the corporate level when day-to-day work takes on a new direction. Fresh thinking and culture are required to align performance with sustainable strategies.
The Dodge brothers needed cash for their own venture and sued Ford for lost earnings. On passing judgment in 1919, the Michigan court stated that a business corporation was organised and ‘carried on primarily for the profit of the stockholders’.
(Later interpretations of the case exaggerated the ruling’s emphasis on shareholder value. Through the 'business judgment rule’ the board had leeway in running the company and Ford was able to pursue most of his ideas.)
Money also guides day-to-day performance
Fifty years after Dodge v Ford, the economist Milton Friedman reinforced shareholder primacy when he argued that the social responsibility of business was to increase profits. His thinking inspired the economics of Thatcher and Reagan. Policy, markets and culture came to endorse businesses that put money before anything else.
Performance within the workplace is rightly aligned with the aims of the company. Clearly, when a corporate is judged on shareholder return, the profit motive has to guide day-to-day work.
We have all seen chances to create non-financial value abandoned or downsized for fear of squeezing the bottom line. To improve the numbers, firms routinely cut corners in areas such as supply chains, work practice, employee wellbeing, product safety, innovation and the environment.
Business needs to rethink ‘excellence’
The world now recognises an urgent need for strategies that serve society and the planet as well as shareholders.
Unfortunately, it is easier to make money than it is to make money and to have a positive impact on society and the planet.
With corporate targets and performance evaluation, companies can look to (for example) the Task Force on Climate-related Financial Disclosures (TCFD) and the International Integrated Reporting Council (IIRC) for guidance on satisfying new demands.
Still, change will only happen at the corporate level when day-to-day work takes on a new direction. Fresh thinking and culture are required to align performance with sustainable strategies. Human Resources teams have a chance – and duty – to reimagine excellence in the workplace.
Complexity threatens old standards
All companies in global markets know complexity. However, many teams are equally familiar with the ad hoc, ‘fire-fighting’ approach to resolving complex issues. Skilled at ‘business as usual’, companies rarely have the culture and systems to grapple with relentless, shifting complexity.
Unfortunately, it is easier to make money than it is to make money and to have a positive impact on society and the planet. Making matters worse, the needs of society and the planet are moving targets. Demands for new forms of value render business both harder and more complex.
The following paragraphs set out four simple, yet not easy, shifts required in how we think about performance. The aim is to help companies deal with the complexity of society’s new demands.
1. Pay individuals to think
In his book Deep Work, Cal Newport explains the value of directing intense mental energy to an issue. This means shutting out distractions and spending real time, alone, thinking through a question. (Carl Jung built a tower in the woods so he might concentrate on his work.)
The skill is a way to master complicated information and produce better results in a short time. With constant meetings and especially e-mail, people in modern organisations rarely have chance to reach sound conclusions on truly complex questions.
No one will solve global warming whilst chained to Microsoft Outlook: writing e-mails is not performance that any firm should encourage. Likewise, businesses must give permission for deep work, and compensate people for such efforts (which do not bring immediate financial value).
2. Reward a stroll in the park
Solving complex problems requires bouts of intense concentration, often in solitude. Still, people also need to exchange ideas if they are to examine their own thinking. When people talk (talk; not text or e-mail), a space emerges between them where new ideas form that neither had imagined.
This creative process rarely happens in typical business meetings. Attendees plough through an agenda, focused on ‘the task in hand’, or otherwise wondering what to eat for lunch. Similarly, while ‘brainstorming’ sessions have a place, something can be lost in the structure and process.
Cooperation is more crucial than ever to commercial success – opportunities before us call for the attention of diverse minds. The rush to ‘do business’ or tick items off a task-list cannot get in the way. Companies are advised not to over-engineer processes of collaboration and teamwork.
3. Permit failure
The internet has not decided whether Thomas Alva Edison failed 1,000, 5,000 or 10,000 times before he invented the incandescent lightbulb. However, in 84 years he did hold a world record 1,093 US patents. Clearly, Edison did ‘try and try again’.
For every CEO who says the company is committed to innovation, 100 employees argue that the drive for profits stops new ideas. Of course, businesses have to make money to survive. Taking a long-term view, however, companies must always find a way to champion processes of discovery.
Experimentation is a powerful way to solve complex problems. Beyond thinking and talking, people need freedom to try new ideas. Failure is integral to progress. Imagination is required to reward not just the person who takes the final step, but all those who came before him or her.
4. Finally, stop counting everything
Money is easy to count; other forms of value are harder to quantify. In business the obsession with counting sees bar charts across every PowerPoint presentation. Executives clutch to ‘data points’ as if they were universal truths, using them to justify all manner of decisions.
People (despite what economists say) are not rational. We cannot predict human or social outcomes in the way we know the speed of light or the result of a chemical reaction. Numbers direct our attention to helpful questions; they rarely reveal the complexity of answers.
In seeking more ‘human’ forms of value, managers must resist the temptation to boil everything down to an often meaningless data point. (Think about the leadership energy typically spent to crank an employee engagement index up by 4.72%.)
Open up new possibilities
Sustainable business demands an imaginative approach to performance management. Now is the chance for Human Resources teams to free up their organisations: to think more, talk more and experiment more.
Companies that prosper in the future will abandon the reductionist legacy of ‘the numbers’. They will adopt a performance culture that is more Henry Ford than it is Horace Dodge. In doing so these businesses will discover ways to make money and benefit mankind.
In the next and third article in this series, I shall look at what reimagining business value means for leadership, in particular for the executives who run the company.
Interested in this topic? Read Time to rediscover your values.
I am optimistic about a world where business stands for both prosperity and well-being. Through Marble Brook my work challenges executive teams to reimagine the value their companies create. My clients want to make money over the long term and also lessen the climate and...