Effective Enterprise Leadership: Counsel for enterprise leaders from enterprise leaders — CHAPTER 5
Manage for performance
The topic of management evokes strongly-held views that diverge based on personal experience. Some academics, consultants, and functional leaders hold dim views of management in favor of leadership, entrepreneurship, or even “evangelism.” In contrast, experienced enterprise leaders advocate for the power of disciplined management. Most executives admit that their enterprises can — and need to — do better on the basics.
Management need not feel like bureaucracy; in fact, management, in its highest form, features clarity, alignment, problem-solving, and support. Effective leaders gear their enterprise for execution. Beyond setting up the system for success, they model their desired approach to decision-making and performance management.
Contributors shared their ideas for leaders to:
- embed your operating model through management system design;
- mobilize your agenda by assigning measures, goals, and accountability;
- reinforce with actions through performance management; and
- engage the owners to provide context and set expectations.
Insights from Enterprise Leaders
Effective leaders bring talent, organization design, decision-making, goal-setting, and performance management together to drive their agenda and involve the owners in the performance journey.
Manage for performance
Effective leaders bring talent, organization design, decision-making, goal-setting, and performance management together to propel their agenda.
“The last thing IBM needs right now is a vision.”
Lou Gerstner
Gerstner made it clear that his top priority was returning IBM to profitability. At the time, the legendary company had swelling costs, decision-making gridlock, and spiraling complexity. The new CEO didn’t start by resetting the company’s mission, vision, or aspirations — he started by managing the enterprise for performance.
Effective leaders take control of the enterprise to instill accountability, drive decision-making, and motivate people to execute their agenda. Doing so requires aligning many elements: organization design, decision-making processes, measures, incentives… especially if there isn’t a legacy of strong execution or the discipline has been lost over time. Effective leaders reinforce the values they want through the way they manage performance.
Peer counsel
“If you don’t join an organization that has a legacy of discipline in execution, following through with discipline is really difficult.”
“We had no cadence; we had nothing that forced decisions or progress. It was critical to get disciplined about results.”
“Our roots did not include performance discipline — meetings were used to inform, not to inspect.”
“Effective performance management is not separable from culture or any of the other elements of the business.”
WORKING DEFINITION
“Management System”
One of the world’s largest businesses operates in 180 countries with over 350,000 employees — effectively. Within their enterprise, “management system” means the sum of:
- organization design;
- decision-making responsibilities and processes
- escalation options and paths for conflicts;
- performance metrics and goals; and
- individual and team incentives.
High-functioning management systems make decisions with speed, relative ease of collaboration, and confidence. They provide succinct answers for “who is responsible for what” and “how I make my views known.” They prescribe where and how the organization comes together to tailor its offerings, allocate its resources, and close its books. While not everyone agrees with all decisions, everyone knows the appropriate forums for discussion and dissent.
Incomplete management systems result in de facto choices for how things get done up and down the line. Devolved designs may produce efficient and effective organizations that operate in alignment with their intended cultures; however, they are more likely to provide footholds for confusion and waste.
A high-functioning management system provides a foundation for positive enterprise culture; by contrast, a poor management system undermines culture-building efforts. Transparency, clarity of accountability, and respect for decision rights build trust across the organization. Opacity and uncertainty regarding responsibilities and decision-making undermine confidence in the enterprise and its leaders. Incomplete or poorly-designed management systems may seem disingenuous or unfair regarding compensation, promotions, or career opportunities. Well-designed and clearly communicated management systems help inform and foster respect for decisions that affect professional development.
Manage for performance -
embed your operating model
To enable performance management, the management system must be well-designed, with alignment of roles, responsibilities, decision rights, measures, and incentives. To enable changes in strategy and/or operating model, the management system must be well-designed and fit the intended changes.
The leader’s agenda can be stymied or stalled by an entrenched management system. The list of encumbrances can seem endless: employees treat roles as rungs on their ladder to the top; executives accumulate responsibilities and form empires; incentive and compensation schemes become entitlements; decision forums become rubber stamps or burial grounds for new ideas.
Effective leaders make changes to their management systems that align the organization to their agenda. Of equal — or even, greater — importance, they break the vestiges of the old system that may reinforce or reward ingrained behaviors. Like Conquistador Captain Hernán Cortés in 1519, effective leaders “burn the ships” to make it clear that going back is not an option.
Insights from Enterprise Leaders
An enterprise’s operating model will thrive only when the management system is designed to capture its potential.
Effective leaders align the critical roles with their operating model and get the right people in them.
Effective leaders differentiate between optimizing roles and maximizing roles and manage them accordingly.
Effective leaders make decision rights explicit and allocate resources with accountability for their effective use.
Effective leaders ensure that all the components of decision processes are defined — especially for collective decisions.
Effective leaders hold members of decision-making forums accountable with the same rigor they apply to holding individuals accountable.
Embed your operating model — start with the management system
An enterprise’s operating model will thrive only when the management system is designed to capture its potential.
“Well done is better than well said.”
Benjamin Franklin
Leaders of large companies lament their lack of agility. Rarely do they lack awareness of the shift or desire to pivot; more often, they are simply entrenched in their existing management system.
Compelling strategies and agendas mean nothing until they are embedded in the management system. Declaring a change in strategy or operating model without making changes in roles, responsibilities, decision rights, measures, and incentives is a waste of energy. If you want change, align the management system to the change you want.
Peer counsel
“Why are small companies inherently fast and large companies inherently slow?”
“For many companies, their offerings reflect their organization design, not the market. Their customers can see it.”
“The most talented people want a role in a winning model; they want to win and become excited when they see a path to winning.”
“Our operating model hinges on releasing and testing new features every two weeks. The product development team is now organized to make the fast iteration operating model work.”
“The firm’s engagement model had not changed in over 60 years; we reinvented it and energized the field with completely new tools. They had to change but were energized by the change.”
Embed your operating model — focus on the critical roles
Effective leaders align the critical roles with their operating model and get the right people in them.
The U.S. Space Program involved thousands of people and, at its peak, consumed 4% of U.S. Federal spending; yet, success or failure came down to the people in the cockpit. In 1959, NASA sent the final 31 candidates, selected from amongst 508 military test pilots, to Dayton, Ohio, for their final battery of tests. They had already passed intelligence and psychological exams. In Dayton, their resilience was tested in a chamber that simulated 65,000 feet of elevation and another that maintained a 130-degree Fahrenheit environment. The “Mercury Seven” rose to the top and became the first astronauts.
By contrast, fewer than 14% of enterprise leaders believe that they excel at getting the right people in the critical roles of their organization. When former CEOs comment on failures or disappointments, many pointed directly to this issue. Effective leaders understand the needs of their operating model, design the critical roles to drive it, and find the people with the right stuff to fill them — without compromise.
Peer counsel
“You must fortify your strategy with hiring — create new roles, set goals, and assign responsibility.”
“The branch manager is our critical role. Everything we do and every capability we build either comes together, right there, or we fail.”
“You have to have the right people in the critical roles; they should be the very best you can get in the particular field.”
Embed your operating model — set the right mandates
Effective leaders differentiate between optimizing roles and maximizing roles and manage them accordingly.
Mandates for critical roles in any operation take two forms: optimizing and maximizing. Optimizing roles pursue multi-faceted objectives (e.g., increase total shareholder value), make immediate tradeoffs (e.g., volume versus margin), and weigh long- and short-term options (e.g., rebuild versus maintain infrastructure). Maximizing roles pursue more narrow objectives (e.g., increase sales), operate within constraints (e.g., discounting limits), and focus on in-period measures (e.g., quarterly revenues).
Enterprise leaders need strength in both roles. They position optimizing roles in the best places in their management system to make tradeoffs and manage risks. They set up maximizing roles to drive results and catalyze the team. Effective leaders differentiate the metrics, goals, and approach to performance management based on the differences in mandate and mindset that go with these roles.
Peer counsel
“You need some roles to integrate the business and make the calls on tradeoffs. This is the essence of a general manager.”
“Your general managers must be able to make tough decisions in the best interest of the business as a whole.”
“Every organization has hard-driving types. You have to get them in the right role with the right guidance… and guardrails.”
Embed your operating model — clarify rights and responsibilities
Effective leaders make decision rights explicit and allocate resources with accountability for their effective use.
The Constitution does not have a provision that permits the use of executive orders; however, it does use the term “executive power” in Article II. To this date, the limits of executive power are not entirely clear. In the first 110 years of the U.S. — a period that included the formation of the country, the Westward Expansion, the War of 1812, the Mexican-American War, the Civil War, and the early Industrial Revolution — presidents averaged less than 10 executive orders per year. In the post-World War Two era, they have averaged well over 50.
If getting things done requires top-down intervention, the management system is not working. Lack of clarity in decision-making leads to stalemates, inaction, and top-down overrides. It handcuffs those who seek accountability and provides easy excuses to those who avoid it. Effective leaders make resource ownership, decision rights, and accountability clear to all and eliminate ambiguity all the way to the front line.
Peer counsel
“We need clarity around accountability and decision rights.”
“You must have clarity on the decision-maker for every significant decision.”
“The system cannot have second-guessing; if I come in over the top and second-guess the decision-maker, it is absolutely corrosive.”
“Empowerment means that you are accountable to deliver, not granted splendid isolation.”
“Clarity in decision-making IS empowerment.”
Embed your operating model — align collective decision-making
Effective leaders ensure that all the components of decision processes are defined — especially for collective decisions.
Yale researcher, Irving Janis, used the Bay of Pigs Invasion of 1961 to illustrate the dangers of “groupthink.” President Kennedy’s planning team accepted an implied mandate from the Eisenhower administration, failed to challenge assumptions in intelligence reports, ignored objections from team members, and allowed the biases of the majority to serve as substitutes for facts. As Janis observed, none of the team felt individual accountability for the failed decision-making and many, including Kennedy, blamed other participants for the outcome.
Well-designed management systems distinguish between collective input to decision-making and collective decision-making. To minimize weak compromises and wasted time, effective leaders clarify the purpose of committees or forums. Participants may provide expertise, discuss, and debate options without voting. If used, voting can be based on majority, super-majority, or require consensus. Decision forum leaders can set expectations for pre-work, conciseness of inputs, and discipline in execution. Clarifying the process details helps a group make better decisions, efficiently.
Peer counsel
“Finding the right balance is hard — solo decision-makers are fast but can be reckless; group decisions are better informed but slower.”
“We have a weekly huddle that goes straight to where we are stuck; we can resolve any tough decision within a week.”
“The purpose of meetings is to get a decision at the end of the meeting; if you’ve already made the decision, don’t have a meeting.”
Embed your operating model — hold decision forums accountable
Effective leaders hold members of decision-making forums accountable with the same rigor they apply to holding individuals accountable.
“A patron goes into a library and asks for a copy of the French Constitution. The librarian replies that they no longer stock periodicals.”
Source unknown
Since 1789, the mean lifespan of written constitutions has been 17 years. While France’s constitutions have lasted an average of 13 years, the current version — with amendments — has been in place since 1958.
Decision-making forums within enterprises have two paths to failure — lack of authority and lack of accountability. If a forum’s role becomes form, not substance, it should be disbanded. If a forum is needed, the leader must hold its members accountable, collectively and individually, for its decisions. Engagement and impact in collective decision forums should affect participants’ performance reviews and progress within the firm. Effective leaders make collective decision-making work by making it matter. They don’t hesitate to change forum design, membership, or even “wreck and rebuild” them to get the decision-making results they need.
Peer counsel
“We are working hard, and getting better, at holding teams accountable beyond the decision-making roles of individuals.”
“Watch for decision forums that become a rubber stamp — it’s an easy trap for most organizations. When the committee doesn’t dig in, the people who appeal to it for decisions won’t do rigorous work — it is learned behavior.”
Manage for performance -
mobilize your agenda
In his 2002 book on execution, Larry Bossidy, former CEO of Allied Signal, states that “leading these processes is the real job of running a business, not formulating a vision and leaving the work of carrying it out to others.” Several contributors agree. “I am a COO in CEO’s clothing,” one highly successful veteran leader stated.
If aligning the enterprise management system is the equivalent of designing and building the racing car, performance management equates to driving it on the track. Enterprise leaders set the pace with the goals they define for their people, keep the pace through a cadence of reviews, and get the car in and out of the pit by infusing execution with candor, problem-solving, and co-commitment.
Insights from Enterprise Leaders
Effective leaders translate overall objectives and goals into measures of appropriate scope for critical roles and continue the cascade to the front line.
Experienced leaders distinguish between measures to watch, metrics to track, and goals for which individuals will be held accountable.
Effective leaders align the interests of key employees and make appropriate compromises without sacrificing their objectives.
Effective leaders balance in-period measures that motivate execution with longer-term measures that monitor enterprise health.
To mobilize the organization, effective leaders establish a cadence of performance reviews and problem-solving.
Effective leaders create a “crucible” for problem-solving at the center of their performance management system.
Effective leaders foster an environment of constructive candor.
Effective leaders emphasize co-commitment, cross-organization engagement, and teamwork.
WORKING DEFINITION
“Performance management”
This term seems self-explanatory; yet, these words have been hijacked to serve as a euphemism for layoffs, a license for blame-placing, and a label for financial statement recitations.
Effective performance management consists of proactive problem-solving and intervention that leads to better outcomes. For enterprise leaders, performance management drives execution. The best applications feature:
- cadence of inspection matched to the urgency of the initiatives and nature of execution;
- transparency for all involved of agreed-upon contextual measures and performance metrics;
- open involvement of all relevant contributors;
- emphasis on problem-solving and improvement — not blame;
- meritocracy of ideas to ensure the best available solutions come forward;
- rigorous follow-up on ideas, decisions, and commitments made; and
- top-down intervention, when necessary, usually after the interaction.
Effective performance management demands rigor and discipline. The leader of the interactions must maintain a high bar for preparation and candor — they must not allow precious time to be wasted with either discovery or diplomacy. The leader must also adopt a zero-tolerance policy for participants who veer from problem-solving into blame and excuses. Delving into performance gaps creates a knife-edge with effective execution on one side and organization dysfunction on the other.
Mobilize your agenda — cascade goals and measures
Effective leaders translate overall objectives and goals into measures of appropriate scope for critical roles and continue the cascade to the front line.
“For want of a nail the shoe was lost; for want of a shoe the horse was lost; and for want of a horse the rider was lost; being overtaken and slain by the enemy, all for want of care about a horse-shoe nail.”
Benjamin Franklin
Peter Drucker used the acronym SMART to guide goal-setting (Specific, Measurable, Acceptable, Realistic, and Time-bound). Out of respect for execution risk, enterprise leaders should consider another S when devising the full cascade of goals through their organizations — Sufficient.
Effective leaders see the goals of their direct reports as a system. Success for each contributes lock-step to success of the whole. Experienced leaders create buffers for the magnitude and timing of expectations they set to minimize the impact of isolated shortfalls — and avoid getting caught one nail short.
Peer counsel
“Our goals are too high-level; they don’t translate down the line.”
“Performance management and accountability start by putting the right measures into the right hands.”
“People believe that they didn’t hit a home run because something is wrong with the ballpark — you need the right scoreboard.”
“The goals cascade up and down — my personal objectives are reflected by the sum of my direct reports and on down the line.”Mobilize your agenda — measure pragmatically
Experienced leaders distinguish between measures to watch, metrics to track, and goals for which individuals will be held accountable.
“God, grant me serenity to accept the things I cannot change,
Courage to change the things I can,
And wisdom to know the difference.”
Reinhold Niebuhr
No metric or combination of metrics will ever isolate individual or team contributions perfectly. External factors will tip the scales in favor of the undeserving and diminish the success of the most diligent. Experienced leaders do the best they can to distinguish between informing measures from performance metrics, set goals accordingly, and apply judgment to the imperfection that lies between.
Peer counsel
“We used to measure everything imaginable and got very little return; too many measures lead to losing track of what is important.”
“You must distinguish between operational performance and environmental change — both can move the numbers.”
“We eventually recognized that so much is outside the control of the critical job holders; measuring people on things they can’t control leads to mixed messages on real performance.”
“We watch everything that can affect results, but we measure things that managers can actually control.”
Mobilize your agenda — align key employees
Effective leaders align the interests of key employees and make appropriate compromises without sacrificing their objectives.
Almost every large organization evolves to include a set of “key employees” — individuals and roles that can intermediate the enterprise from its customers, take outsized risks, or exert extreme internal or external influence. In many cases, these employees are the highest-paid individuals in the firm. Key employees often resist changes that affect their goals, measures, and methods. They are vested in the status quo — for good reason!
Effective leaders align key employees with their agendas and the changes required to deliver it. Where possible, they make necessary changes palatable. When reaching the objectives of the business makes change for key employees unavoidable, experienced leaders invest the time and energy to negotiate a new deal with these players that will re-align their interests with those of the enterprise.
Peer counsel
“The pace of our transformation was limited by the willingness of [key employees] to change; in the end, they called our bluff and we blinked.”
“In this industry, everything is influenced by powerful personalities.”
“Change management came down to managing through the egos of the field team.”
“Every business has a set of roles with the power to make or break it. You need to know who they are, what they want, and how to work with them.”
Mobilize your agenda — balance performance and health
Effective leaders balance in-period measures that motivate execution with longer-term measures that monitor enterprise health.
Tim Koller’s popular text on business valuation suggests practical measures of enterprise health. He asserts that measures that assess commercial leading indicators, cost structure, and asset development predict medium-term performance and those that assess people, capabilities, and culture offer insight on long-term sustainability.
Effective leaders blend short-, medium-, and long-term measures to assess their most senior leaders, particularly those in optimizing roles who they trust to make tradeoffs. They invest the effort to understand the drivers of medium- and long-term health specific to their business model and hold their leaders accountable for them.
Peer counsel
“The desire to oversimplify measures can lead to measuring the wrong things, especially considering longer-term impacts.”
“There is no sustained performance if the business compromises health in the short term. At a minimum, the enterprise’s general managers must own its long-term health.”
“We look through episodes of commercial activity to the drivers of success over time; we don’t trust in-the-moment metrics to inform our assessments of real performance.”
“We have no formulaic payouts — those lead to short-term behavior and would be the end of good client service.”
Mobilize your agenda — set a cadence for reviews
To mobilize the organization, effective leaders establish a cadence of performance reviews and problem-solving.
“Sound off; 1–2; Sound off; 3–4; Cadence call; 1–2… 3–4”
The Duckworth Chant, United States Army
Boy Scouts and Girl Scouts, marching bands, and military units worldwide know the “Duckworth Chant.” Credited to Private Willie Lee Duckworth of Sandersville, Georgia, and first recorded in 1944, its contagious rhythm refocused weary soldiers, coordinated the troops, and created esprit-des-corps for the task that helped ward off fatigue.
Leaders that send their management off to pursue their goals and rely on individual initiative to sustain them are likely to be disappointed. Without a cadence to keep the troops on pace, progress becomes erratic, and stragglers may get left behind. Without transparency and intervention from the enterprise leader, managers may evolve their mandates as they see fit. Effective leaders create transparency, pace, coordination, and unity by calling cadence to execution.
Peer counsel
“We have no cadence; our [key employees] work autonomously and have semi-annual reviews. There is no regular inspection of progress. This is next on my agenda.”
“Annual and semi-annual performance reviews are the thing of the past. Clarity on performance and feedback must be constant.”
“We finally got the leading indicators of performance figured out. Our cadence is now monthly for financials, weekly for operating measures, and daily for leading indicators and input measures.”
Mobilize your agenda — build a constructive crucible
Effective leaders create a “crucible” for problem-solving at the center of their performance management system.
The Merriam-Webster Dictionary offers three definitions for “crucible.” One is “a place or situation in which concentrated forces interact to cause or influence change and development.” An alternative definition is “a severe test.”
Effective leaders make real-time, tactical problem-solving the centerpiece of their performance management approach. The cadence of review keeps the pace of execution steady and creates opportunities for intervention. Without problem-solving, reviews create pressure and lead to blame. By insisting that the content of reviews contain the information needed for meaningful problem-solving and providing a constructive framing of the issues, leaders turn their cadence into a resource for participants. They aggregate the forces of different perspectives against execution problems and create change and development. Effective leaders make performance management an opportunity to solve problems, not just a severe test to expose shortfalls.
Peer counsel
“You have to create a crucible for the contest of ideas; it must be transparent for everyone involved; it must not be about egos or position — everyone should have transparency and a voice.”
“Inspection drives pressure to perform, but the system is designed around solving problems and making decisions.”
“The leader is responsible for framing the discussion; you must get the right frame for the problem-solving to be productive.”
Mobilize your agenda — model and expect candor
Effective leaders foster an environment of constructive candor.
“Candor is the brightest gem of criticism.”
Benjamin Disraeli
“Candor is a compliment; it implies equality. It’s how true friends talk.”
Peggy Noonan
Few things in business are as universally agreed upon and poorly practiced as candor. Effective leaders model constructive candor — frank, accurate, and actionable feedback on actions and ideas, without personal judgements and ad hominem arguments. They combine personal care with direct, honest challenge.
Peer counsel
“In our system, we appraise results, not people; you must be able to make the discussions rigorous and intellectually honest.”
“We don’t always agree, but we find a way to ‘bicker with love’.”
“Real transparency means calling it like it is — you cannot have diplomacy during performance management.”
“New mistakes are fine; in fact, they are good; they are how we learn.”
“I am a big believer in stack ranks and transparency; people cringe over seeing themselves toward the bottom, but it is a good cringe.”
“You MUST get all the bull**** out of the room.”
“You need to create an environment where challenging each other on aspects of the business isn’t perceived as a personal challenge.”
Mobilize your agenda — commit to succeed together
Effectives leaders emphasize co-commitment, cross-organization engagement, and teamwork.
In a sweltering conference room, a division leader gave his commitment to his team. He had been assigned to fix a failing operation — a manufacturing facility upon which an entire rural Georgia town depended for its livelihood. They had set their turnaround plan and were preparing for execution. “I will not fail you,” he told those gathered, “and I will not let any of you fail us.” Those words became a credo for the team as they gave each other unfiltered feedback, made hard decisions, and pushed themselves to new levels of performance.
In their highest state of practice, cadenced reviews foster co-commitment to capture the value of problem-solving. By engaging one another to find solutions, leaders offer and extract commitments from one another to follow through. They don’t let each other fail.
Peer counsel
“We keep progress against all goals public; everyone can see our objectives and our measurable progress against them.”
“By working together on the problem-solving, we brought down some of the barriers that had formed in the organization.”
“Our performance management system put all the critical job holders in the same room. If someone felt tempted to blame others for their shortfall, they had to do it right in front of them. If someone needed support from another part of the organization, they asked for it, then and there, and got the commitment they needed. We made it clear — in the most practical way — that no one could succeed in isolation.”
Manage for performance -
reinforce with actions
Enterprise leaders affect performance management through their people. Their attention, feedback, support, and intervention all influence how their people execute. Every action — or lack thereof — from the leader is noticed, interpreted, and internalized.
Effective enterprise leaders make time to engage through the performance management process. They celebrate when leaders succeed and intervene, as needed, when they struggle. Effective leaders learn that their approach to handling each situation sends a signal to everyone involved and influences future actions up and down the organization.
Insights from Enterprise Leaders
Effective leaders engage with rigor when shortfalls become apparent.
Effective leaders assign meaningful and appropriate consequences for both performance and engagement.
Effective leaders participate personally and intentionally to ensure integrity and reinforce cultural messages.
When necessary, effective leaders move quickly on those unable or unwilling to deliver in their roles.
With equal or greater emphasis, effective leaders celebrate those who succeed in the right way and contribute to the success of others.
Reinforce with actions — swarm performance problems
Effective leaders engage with rigor when shortfalls become apparent.
The metaphor behind the phrase “helicopter parent” first appeared in 1969 in Dr. Haim Ginott’s bestselling book Between Parent & Teenager. Little could the author have imagined what widespread adoption of the smartphone would unleash 40 years later.
Managing performance is not helicopter parenting, although it may elicit similar discomfort from those being managed. Effective leaders avoid telling their people what to do; however, they do not leave them in splendid isolation and hope that they get it done.
Peer counsel
“I empower people AND I am all over them about getting it done and done right — that’s my job. I want my people all over their people in the same way — that’s their job.”
“If my direct reports are failing against their objectives, I will be getting [into the details] to sort it out.”
“Being tough on performance doesn’t mean being unfair, inequitable, or an ass; treat everyone with the same respect.”
“If I see something that appears high risk, I drill down; if my direct report doesn’t know the details, I drill to the next level, and so on.”
“The performance management system is the place for the CEO to exercise their ‘edge’, especially with the most senior managers.”
“High expectations and frankness are not a tradeoff against values.”
Reinforce with actions — underscore the agenda
Effective leaders assign meaningful and appropriate consequences for both performance and engagement.
“The reward of a good deed is in having done it.”
Seneca the Younger
The business world is full of rewards and consequences. Leaders should expect their people to have neither the high-mindedness of a stoic philosopher nor a coin-operated ethos. They should expect that people want rewards and recognition aligned with their objectives. They should expect that asking one thing while rewarding something different — the outcome when leaders change strategy but not compensation schemes — will be seen as disingenuous. Effective leaders underscore their agenda with both positive and negative consequences.
Peer counsel
“Our approach to defining incentives is a complete mess; firm performance sets the bonus pool then it is qualitative from there.”
“If you want to change the culture, change performance management and how people are rewarded.”
“Your performance-related compensation must send the right signal to employees.”
“Threat of a negative year-end review is the weakest lever you have.”
“You must distinguish between what you do with bonuses and what you do with careers.”
“It is critical to recognize the ‘un-measurables’ and their long-term impact on the business; you can’t just acknowledge it; you must reward it.”
Reinforce with actions — don’t confine your engagement
Effective leaders participate personally and intentionally to ensure integrity and reinforce cultural messages.
The college basketball “coaching box” is an area 14 feet wide and 2 feet deep, immediately in front of each team’s bench. The rules state that coaches may stand during play but must stay within the confines of the box. They don’t. Some of the winningest coaches in the game routinely roam in front of the scoring table, the opponent’s bench, even on the court itself.
Effective leaders participate actively in performance management. Some chair reviews. Others frame issues for problem-solving. Some observe and interject when the sessions get off-track. Many follow up after the review to ensure that follow-up and follow-through takes place. The most effective enterprise leaders don’t confine themselves to the box.
Peer counsel
“When I call someone to explain an out-of-line T&E amount, you would be surprised how quickly that gets around; T&E dropped 5% overall without any other actions on my part.”
“I dig into the financials before I review a business unit; I do my homework so we can really problem-solve. It is powerful to talk about performance when you are specific.”
“Managing performance is a 365 day per year job for the CEO.”
“Your approach to performance management defines your culture.”
Reinforce with actions — intervene decisively
When necessary, effective leaders move quickly on those unable or unwilling to deliver in their roles.
Firing an employee, especially a senior manager with years of experience and prior success, should be a last resort. They may have been given a poorly-fit assignment. They may be suffering personal problems. They may simply have found their limit and fulfilled the “Peter Principle” prediction.
If the performance shortfall is neither temporary nor correctable through coaching, effective leaders move quickly to get the employee in a role where they can be successful — inside or outside the enterprise. The interests of the leadership team, those being managed by the struggling executive, the enterprise and all its stakeholders, and the employee themselves are all better served. Effective leaders ensure that those unable to deliver receive appropriate feedback, coaching, and counseling so that they aren’t surprised when intervention is required.
Peer counsel
“I have found that some people can handle being evaluated on results and others can’t — I have never changed anyone on this dimension.”
“I have never been able to take someone who finds the source of their shortfalls externally to shift to accepting responsibility.”
“Letting the bottom 10% go doesn’t affect your capacity — it often increases it by eliminating the re-work that they usually create.”
“‘Anaerobic’ people will never get there — get rid of them fast.”
“You have to replace people who can’t see the vision or deal with the changes needed — and you have to do it fast.”
Reinforce with actions — take time to celebrate
Effective leaders celebrate those who succeed in the right way and contribute to the success of others.
“Celebrate” is a word that appears to have primal roots. The Latin word celebrare, meaning “assemble to honor,” provided its western base. The current use of the word, “to commemorate, praise, and glorify” dates from the 16th century. Beyond its appearance in Latin, it seems to lack etymological roots, as do a handful of other words that predate modern languages.
Effective leaders know that celebrating success is essential to forming a team and building strong ties. They recognize those who succeed in delivering the mission, living the enterprise’s values, and helping others do the same. Celebrating taps into something primal within us — something older than language itself. When it is earned and merited, effective enterprise leaders take the time to commemorate, praise, and glorify their people.
Peer counsel
“I dip way down into the organization to celebrate success — to call out the people who are performing.”
“Good people are more motivated by recognition and the opportunity to perform and grow professionally than they are by compensation.”
“My happiest moments have been celebrating success with my team.”
Manage for performance -
engage the owners
“In the short-run, the market is a voting machine — reflecting a voter-registration test that requires only money, not intelligence or emotional stability –
but in the long-run, the market is a weighing machine.”
Benjamin Graham
While it is true that results matter in the long-run, ten years from now, most of the enterprise’s value will still be based on expectations of future performance. Whether public or private, the owners’ confidence in the leader’s agenda defines the value of the enterprise.
In the world of professional equity investing, information has commoditized. From the most sophisticated hedge funds to the one-room startups, the same data becomes available everywhere, simultaneously, and — mostly — affordably. The most prized information has become direct interaction with company executives — particularly, CEOs. Whether right or wrong, professional equity investors believe that they can better handicap strategies and execution ability from the confidence and consistency of the CEO’s communication.
Insights from Enterprise Leaders
Effective leaders ensure that their owners — and their proxies — understand their agenda and its implications for them.
Effective leaders build a foundation for two-way communication by engaging owners personally and exercising rigor when speaking and listening.
Effective leaders tailor their messages to the interests of their owners.
Engage the owners — don’t surprise your shareholders
Effective leaders ensure that their owners — and their proxies — understand their agenda and its implications for them.
Xerox Corporation’s share price fell from its $160+ peak in January 1999 to $28 by October 6, 2000. To redirect $400 million in cash flow to transformation, management and the Board cut the dividend by 75%. Despite supportive comments from sell-side analysts, the shares fell to $10.44 by October 9, 2000. As Xerox’s share price fell, its stock became extremely attractive as a dividend yield investment. Dividend seekers replaced growth and value investors. When Xerox cut its payout, the majority of its owners had purchased the stock for the dividend, not the promise of a transformation.
Experienced leaders understand the interests and expectations of their owners before committing to course changes. They monitor share ownership and make certain they understand the motivations of those who are buying, selling, holding, and shorting their stock. When change is necessary, they make certain that owners understand the context for change and the timeframe in which to expect positive results.
Peer counsel
“Our strategy changed the investor thesis. I made sure to communicate it thoroughly when our new direction became clear.”
“The financial goals and constraints of [the private equity owners] influenced both organic actions and acquisitions.”
“It was hard to move from a PE-style shareholder to open market shareholders.”
“Market expectations influence the pace of our growth investments.”
Engage the owners — speak and listen with rigor
Effective leaders build a foundation for two-way communication by engaging owners personally and exercising rigor when speaking and listening.
“Most people do not listen with the intent to understand;
they listen with the intent to reply.”
Stephen R. Covey
Communication breakdowns often occur when the listener hears what they want or fear, rather than what is actually said. Experienced leaders become expert listeners with the owners, whether private individuals, private institutions, or open market shareholders. They listen for the concerns behind questions and the expectations in investment theses. Similarly, they invest the time to ensure that their messages are clear and complete. Effective leaders treat communications with the owners as a critical step for shaping and executing their agendas.
Peer counsel
“I have learned a lot from our private equity owners and the experienced executives they had review our plan.”
“If your share price moves significantly, it can affect your conviction in your direction and your agenda — you need to listen to the investors to understand why it is happening.”
“I kept the message on context-setting until the outcomes of our actions began to flow. For the changes we were making, we needed to be able to tie them to specific results.”
“When communicating with shareholders and other stakeholders, the burden is on you to make sure that your message gets through; you can’t let yourself be a victim of ‘I didn’t understand’.”
Engage the owners — understand the audience
Effective leaders tailor their messages to the interests of their owners.
At the end of 2015, the number of public companies targeted by activists had risen by nearly 50% over the last 5 years, a period during which the value of the S&P 500 had increased by 40%. While there may be many reasons for an activist to target a company, shareholders that do not understand the enterprise’s strategy to create value and/or feel their voices are not being heard are surely among the leading catalysts.
Effective enterprise leaders understand the investment strategies, duration, and risk profile of the owners. For privately-held companies, knowledge comes from direct and open conversation. For publicly-held businesses, leaders must understand the categories of shareholders that own their stock. They recognize that short-term traders have a different set of motivations than long-term holders. They appreciate that long-term holders can have a wide range of reasons for owning the stock. Effective leaders insist on a complete understanding of the owner audiences before communicating.
Peer counsel
“Managing multiple bosses along the way in your career is good practice for dealing with different classes of shareholders.”
“Our brand is long-term value creation. That appeals to some types of shareholders more than others.”
“These days, you need to determine how many of your outstanding shares are owned by ETFs and index funds; you need to focus on the investors who own your stock ‘on purpose’, not because you fit into some category or represent a risk factor.”
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Revisit Chapter 4.
Read Chapter 6 here.
