Corporate lies that support mediocrity: People are motivated by money

I will be the first to declare myself guilty of living corporate lies. I have both received the lies as an employee and passed it on to subordinates. 

The lies are about the concept of work and reward and have not changed much over the last decades despite huge leaps in technology and understanding of human decision making processes.

This series of posts are not about bad companies doing bad things, nor is it a post of lazy employees that cannot handle the truth. Rather it is a series of posts that look at the lies that companies and employees are sharing. Lies that keep businesses and people locked in mediocrity.

It is also a call for a new way of collaboration between humans and corporations that benefits both. A way that is not based on wrong assumptions and that creates value for all parties

Corporate lie: People are motivated by money

The economic theory of the economic man that is rationally trying to maximize utility has been a foundational principle of modern society together with Milton Friedman’s theory of shareholder value: Businesses and people alike only behave in rational and selfish ways and are trying to maximize monetary return. We have accepted this as a fact in business despite the world being full of unselfish and irrational behavior

“We care about you and we are going to reward you with promotions and pay increases”

With the introduction of scanners able to record brain activity, there have been advancements in understanding of how humans are making decisions. This has confirmed that humans are not rational - but we already knew that.

If humans were rational there would be no obesity, smoking or alcohol and drug abuse. There would be no wars, crime, hate and violence. Human decision making are affected by emotions, bodily states, chemistry, social settings and sensory input.

Plenty of research as far back as Maslow motivational models has documented that money is a hygiene factor that needs to be satisfied to prevent demotivation. More money does not create more motivation once that point is reached. As the author Daniel Pink puts it: “Get money out of the way”.

Despite the overwhelming evidence that money does not motivate, companies and employees are conspiring to pretend that it does. Companies pretend they will pay more for more effort and employees pretend they work hard and will work harder for more money. Both are lies.

“What people think they deserve is different from what motivates them”

Gallup has demonstrated that despite high satisfaction rates, only 13% of worldwide employees are engaged – that they give their best at work. Most employees just do enough to not get fired. Gallup has found no link between pay and employee engagement whatsoever.

“You can be satisfied with what you get at the same time as wanting more”

Most employment is firmly within companies in mature industries. They are locked in a fierce commodity battle with similar looking competitors in a race to zero.

They cannot afford to give automatic pay rises, especially when they know they get nothing in return.

At the same time the command and control hierarchy with promotions and pay based on seniority does create not many opportunity for promotions – unless somebody dies.

In the US this is very visible. For 15 years there has been no growth of median household incomes, even though the economy as a whole has grown.

You cannot blame companies for not paying people more when they don’t get anything in return.

“Employees are just plankton for the corporate whale”

The sooner this false assumption is addressed the faster the company and its people in it can rise above mediocrity. When you truly motivate people you also create financial results.

Engagement research shows that employee motivation is created by:

1. Purpose. Not only the purpose of the company but also the department and the employees ability to make a significant contribution. Are we successful and making the world a better place. Are we proud of what we do.
2. Fairness. How the company treats its stakeholders. How fair is the distribution of value. How fair are promotion and pay processes.
3. Culture and leadership. Creating no blame learning environments where mistakes are ok. A non-conformist innovative environment where it is ok to challenge status quo. A low command and control structure.
4. The way work is organised. Can the employee chose, influence and design the job? Does the employee have influence, responsibility and autonomy.
5. Personal Growth. An environment of challenges, honest feedback and opportunities for personal growth.

How are you engaging your customers?

To create satisfied customers doesn’t really make you successful anymore – apart from creating value you also need to engage your customer to grow your revenue.

Customers are not just looking for the same product or service they have only cheaper or with an extra feature – they are looking for something radically useful or something that creates meaning for them.

Every market matures and in every mature market the product/service looks more and more alike. It will be based on the same technology made on the same factory or delivered after the same principles. Not much room for differentiation other than price that shrinks the pie for all market players. All products will eventually satisfy customers but not necessarily engage them.

To engage customers you will need to go beyond the product or service itself. It is not about what you do, it is about why you do it and how you do it.

 "Always start with why" Simon Sinek

Customer engagement is an emotional relation between the customer and one or more actors associated with the company. It is certainly possible to create an emotional relationship between a customer and a product/service brand as is seen with luxury items and cars; however this is not possible in most markets.

Relationship with the product itself

When products and services become more alike it becomes more important how it is made and what the overall purpose of the producing company is. It is not anymore about transactional selling but more about a relationship and eventually being part of a movement.

Relationship with the company

Customers don’t buy from you just because you want a lot of money but they might want to buy from you if your company is trying to support society or making the world a better place. The low priority of CSR in many companies, will not work in the future. It does not inspire customers or employees. The new hyper growth companies predominantly from the US, all has a strong purpose in the centre of their activity. Google, Apple, Tesla, Facebook and similar are not in the business just to make money – they want to make a difference also. This engages not only employees but also customers.

Relationship with touch points

The rise of the internet and social media has made many companies forget that their employees are vital in creating engagement with customers. Unfortunately only 13% of all employees worldwide are engaged and hence capable of creating customer engagement. The service aspect has also been neglected even though there is a higher probability in creating an engaged customer through a service issue than there is through a normal successful delivery.

The massive advertising on social media that looks the same as the old newspaper advertising can create awareness but is not successful in creating engagement. Most companies miss the point of having their senior managers’ active on social media (Only 28% of CEO has social media accounts). CEO’s have an opportunity to engage in conversations about purpose and sustainable production that can catapult engagement. Leaders like Tim Cook (Apple), Elon Musk (Tesla) Eric Schmidt (Google) are all very active in engaging both customers and employees.

Relationship with other stakeholders

The most important consumer buying decisions are heavily impacted by people close to the consumer and different interest groups. You cannot ignore Greenpeace, Amnesty international or trade unions anymore. The company need to include all stakeholders into their strategy formation and make it transparent. A transparent company does not need to hide behind a brand.

The link between Employee and Customer engagement

Gallup has shown that there is a strong relationship from Employee Engagement over customer engagement to financial results. Companies that manage to engage both customers and employees have 240% better results on performance related parameters.

"Companies that engage both customers and employees have 240% better results on performance parameters." Gallup

Are you running your company like an old communist country?

It is generally accepted that the wall fell as a result of the actions of Regan and Gorbachev although it probably would have fallen anyway as a result of the systematic and serious failures that evolved inside the totalitarian system.

You would think that companies most often are managed by principles derived from capitalism and while this might be true there are a large number of companies that have adopted similar vices to those of the former communist countries in the world.

The question is if what is likely to have caused communism to fail is a good foundation for a long term sustainable strategy aimed at creating engagement with both employees and customers.

Test your company against the doctrines below and find out if you are facing obsolescence:

1. Power is concentrated on few hands

A significant issue of the communist countries was the limited number of people that had authority to make real decisions regarding resource allocation in strategic and operational situations. A culture of delegation assumes that the top leadership of the company are better qualified to make all decisions on the corporation’s behalf – in short they know better. This kind of “Politburo” structure fights empowerment like the body attacks a virus – the distribution of power that is at the core of empowerment is a sacrilegious concept that cannot even be discussed. A concentrated power structure isolates the leaders from the organisation and alienates the employees and the customers rather than engaging them. Organisations that successfully engage both employees and customers have 240% better performance according to Gallup.

2. Information access is limited and decision making processes are not transparent

A relic from the industrial age where information was key to competing it is now mainly used by poor managers to cement their power position. Very little information can be considered so proprietary it should be kept from employees. The social revolution is changing the way that information is used inside companies and it is also making it very difficult to keep decision making processes secret when all stakeholders have the possibility to instantly spread uncomfortable secrets immediately.

3. The leadership is not democratically elected.

In principle the board and though them the CEO should be (s)elected by a democratic process that operate by shareholders voting rights. In many companies this process is not as many shareholders don’t exercise their voting rights. The largest stock holders in the world are pension funds managed by professional managers, not by their true owners. This means that rather than owners voting for managers to take care of their best interest, it becomes a case of managers voting for other managers / with that the danger of managers acting in their own best interest rather than the owners. One of the signs of a “Politburo” is a board with members that has not changed for many years and always sides with the CEO.

4. The company has a lack of purpose

If you have a mission of becoming the “Very best company in the x industry” you are probably not the most purpose driven company in the world. Instead you are likely to have a focus on serving “shareholders”, which sounds a lot better that senior management serving themselves. It is important to have a strong purpose that can attract and engage employees, customers and other stakeholders if you don’t want to compete on price alone. If your leadership team are defenders of status quo – they are likely to be a Poliburo:  The society for the preservation of senior management.

5. Doctrine based thinking

The only argument for concentrating power on a few hands is the assumption that they no best and are best equipped to manage the company. When this becomes the case there is no real reason for seeking information or advice outside the power structure. As people are isolated from the real world doctrine based group think starts to kick in. Decisions are based on assumptions that might have been true once but never gets revalidated. It is particularly dangerous if it gets combined with short term financial results that can give the illusion that all is well. Short term results can be made by stealing from long term results.

6.  Strategies that benefit few

If a politburo structure enters a company so does entitlement. As the power circle constantly reinforces their own importance the companys strategy turns to serving the few that matters. In strategy creation the interest of other stakeholders will start to be underserved to give to the few. Starving customers and employees can create short term results and with that the illusion of success. When CEO’s make more than 500 times the pay of ordinary workers, it is a sign that the company has started to serve the few. These strategies are rarely sustainable in the long haul.

7. Central planning structure

The Politburo owns all the money and need to concentrate resource allocation and planning to a central point. The focus turns from investing in new equipment, people and in new business opportunities to a focus on efficiency. More effective P&L or Balance sheet control of business units is replaced with a micromanaged central structure where everybody has to make endless request to just get the minimum for the business survival. It is a great way of starving the business at the same time as being able to blame the individual units of not contributing.

8. Policies are designed to limit people, not enable them

The bureaucracy shows its face once the company’s policies turns from guiding the people to starting to control and limit them. Policies will move from enabling everybody to be a mean to only protect the company interest and money. When the health and safety policy that should be designed to protect the employee turns into a 50 page legal document that describes what will happen to an employee that does not follow the rules – then you know you have turned into an old communist country.

9. Staff functions transform into secret police

When policies change to protect the company, a similar change can take place in the staff functions. Originally designed to support the business with financial, people, legal and IS support the staff functions start to control, check and report behaviour that can be deemed dangerous to status quo. They start to resemble the security police in the old communist states. This has a significant impact on employee engagement and instead of seeking new ways of doing things and creating value, employees gets trained into low profile, low risk behaviour. Don’t spend any money, do make any requests and don’t challenge status quo.

10. Lack of engagement kills productivity, initiative and innovation

When employees understand that they are not encouraged or rewarded for taking initiative, learning and experimentation stops. Productivity growth will start to decline compared to high engagement organisations although it can be hidden by the results created though starving the company. With the concentration of information, a focus on low risk behaviour and low employee engagement – innovation will stop. Innovation can only happen if people are allowed to challenge status quo and the doctrines of the corporation – this is one of the key reasons the old communist countries did not survive.

If your company share some of the characteristics of an old communist country it might be a reason to start looking for healthier doctrines that enable employees and engage customers. 

You cannot run a 21^st century company based on 20^th century management principles.

Why corporations love delegation and are scared of Empowerment

Not only does empowerment of employees take the load of the task away from managers, it also takes the load of the decision away, making the role of the manager much easier. The time the manager does not have to be in the operation, she can work on the operation – improving it.

Having more decision power closer to the customers and the employees create a more agile organisation that can respond to rapid or local changes without HQ being awake.

Decision power and responsibility is a powerful motivator that significantly increases Employee Engagement and through that increases customer engagement and financial results.

Most employees also tend to grow capabilities faster when trusted with decisions rather than being locked in a training room for mandatory compliance training. So how come many companies don’t really deploy empowerment?

So why don’t organisations embrace Empowerment?

Many organisations now see themselves as values based. This should in principle means less rules and higher ability for the individual contributor to have responsibility and decision power over what they do. Often in the same companies there are more rules than ever, often camouflaged as a need to meet governance, compliance or to lower corporate risk. Many of these rules are created to protect the organisation against potential actions of the individual employee - a strange concept indeed. 

Decisions are concentrated around a few select senior managers and delegation trickles down the organisation in a way that often is counterproductive to what individuals and departments are trying to achieve.

In these organisations it looks like control and hierarchy is more important than making the company great and able to create value. There are powerful forces that make it so, as senior management is always benefitting from status quo.

Their operating logic dictates that highly paid individuals knows best and needs to decide. While this might be true it completely disarms the organisation and lowers the engagement of the entire organisation. This can become a threat for the survival of the organisation. People without engagement stay and get their pay check but they are not motivated and do not contribute.

The direct manager

When divine decision does not create the intended greatness the spotlight is on the middle manager responsible for the implementation close to the employees. Creating an environment that punishes only increases the middle managers need for control and somebody to direct the blame to.

At the same time, it has become so popular to coach that managers call everything they do and have always done for coaching. Reality is that most managers are still coaching for compliance: Trying to manipulate the employee into what the corporation thinks is the right behaviour.

Delegation is a great tool if it is more important to stay in power than to create a great company and all stakeholders should analyse if their company has a delegating or an empowering culture. This is likely to determine their fate.

Seek companies with an Empowered Culture

Top 10 dangers in your BIG is BEAUTIFUL Strategy

To want to grow and become a bigger company is a normal objective for most businesses, but in some companies it becomes the main purpose – above and beyond becoming a better company and creating value for the company’s stakeholders. 

Like revenue and profit, size is really an outcome – it is a measure of how much your customers are willing to pay for your services and how inspired your employees are. Both are shaped significantly by the way the company treats its other and often weaker stakeholders.

If customers and employees are just plankton feeding your corporate whale you can use the shortcut of an acquisition strategy.

Unfortunately the BIG is Beautiful thinking has been accepted as a commandment in the corporate religion not to be challenged – only good things comes out pursuing BIG. It is well documented that large companies have scale of economies and can do a lot of things cheaper than smaller companies. 

BIG companies can compete more effectively in traditional markets and squeeze smaller players out of the distribution channels and outspend them. This has worked in the industrial age and to a degree in the knowledge age – but the global business environment is changing:

• The average lifespan of an S&P 500 company has declined from 70 years in the 1920s to 15 years today. 

• More than half the S&P500 companies from year 2000 have disappeared. 

• There are 40% less public companies in the US than in 2000. In UK it is 50% less

If large corporations were a species – we would call it endangered - Lynn Stout, UCLA

If companies manage to get into fortune 50 they are almost guaranteed not to grow. So treating  growth and size as a married couple is wrong – they are not even dating!

Contrary to the BIG is Beautiful thinking it is not the asset builders that have dominated the most recent future – it is time to look at the dangers of being big.

Top 10 dangers in your BIG is BEAUTIFUL Strategy

1. Takeover targets are not just about tangible assets anymore.

To buy acquire a company you have to pay more than it is worth and find synergies (short for axing management and all staff functions, marketing and sales). This worked well when assets mainly where brick, machines, products and other tangibles but this has been overtaken by intangible values like knowledge, brand, engagement and networking capabilities. 

2. Asset hoarding is not the most effective business model anymore

The companies with the most effective business models seen from a revenue and profit perspective is not relying on the traditional logic of buying competitors or squeezing them out of markets. The new network companies like Google, Apple (in its app store driven version), Amazon and their likes are connecting manufacturers and suppliers with consumers and buyers in a massive scale.

The central goal was not to buy their way to big but to create massive value for users with radically useful products. Big was certainly an outcome.

3. Acquisitions are not as profitable as they used to be

 Few in numbers the network companies normally create markets rather than fight the incumbents in their well-defined little market sandboxes with set rules about who own the toys. In the process of creating new markets they destroy old markets. The incumbents in the mobile phone market fell as a result of the appstores – not the smart phones. The newspaper industry lost half its advertising revenue to Google in a few years and Amazon is closing brick and mortar stores. 

Being big in a market that is being disrupted does not protect a company; it just means a larger and more smelly carcass.

It is also well known that acquisitions are a reset button that can mask a company’s true performance. When the balance sheets merge the CEO gets a new lease of his corner office making it impossible to really measure the value of an acquisition.

Asset builders are not the largest animals in the jungle anymore and the networking companies don’t want to buy them or even compete with them. They will be outmaneuvered.

4. When you buy intangibles they might not work in your company.

This became obvious when McDonalds bought Chipotle and although they expanded the chain dramatically the Chipotle sustainability brand grew faster outside McDonalds. From a valuation of 1.5B$ in 2006 when it was sold to 23B$ today – this McDonald could not unlock. As knowledge become more generally available more value is locked in the engagement created with employees and customers. Both can walk out the door at any time.

5. A takeover destroys massive amounts of value

If an acquisition is driven by being “BIG” rather than synergies with the existing organisations the value extraction process becomes painful as cannot buy a company for what it is worth – you have to pay more. The headcount stripping exercise is only seen as impacting cost when in reality it affects all areas of the business – people have a lot of knowledge that is not captured in systems. A long time after the CEO declares the acquisition a success and completed customers and employees are still suffering from lack of knowledgeable people that could have intervened when the poorly integrated systems fail. Before the systems are up running the next acquisition will be lined up.

Synergies are often internally driven not market driven

If an acquisition was treated like a product 

6. Measurement often destroys more value than it creates 

The growth imperative often forces organisations to take a very short sighted approach. Acquisitions and other “getting big” initiatives have to be successful and results demonstrated immediately. Anybody that has been through a merger knows that it often take many years before the merger is settled – not quarters.

Large organisations also tend to measure the wrong things. Typically the focus is on the easy rather than the important measures which lead to a cost centric culture. Creating value and innovation is a long term process that cannot effectively be managed through cost control. Finally large companies tend to use the measurements for the wrong purpose. Measurements are typically used to control people and not to develop and motivate them.

“No measure does less damage than wrong measures or measures used for the wrong purpose” Jeffrey Pfeffer

7. Innovation and creativity declines as corporation grows

Most of the truly innovative companies of our time did not exist a few years ago and they claim to fame is not innovative products it is innovative business models and thinking. This kind of innovation rarely happens in large corporations.

Larger corporations also have difficulty tapping into their people creativity as the executive suite gets isolated from their people, from customers and society at large and frankly they often don’t believe in the organisations value capabilities

In a survey of 400 CFOs 80% stated “they would reduce discretionary spending on potentially value creating activities in order to meet short term earnings targets”   The Boston Consulting Group

8. The illusion of bigger means more diversified and lower risk

The prevailing wisdom is that when companies diversify they also lower risk although the financial crisis should have eradicated that assumption it still lives on. Markets are not safe isolated lakes where the larges fish rule – disruptors empty these lakes fast. 

Many companies rely on some commodities that seriously impact their business either as raw goods or as finished products. These markets used to follow demand and supply models before the derivatives markets started to dominate. Today every $ of commodity traded Is multiplied by hundreds of dollars of derivative contracts that are controlled by algorithms rather than people – perfect bubble economy conditions.

9. Corporate Silence, Effectiveness & Psychological distance

The larger a corporation becomes the more it follows the conventional wisdom it has created. There is no consent and all views are convergent with the logic of the corporation and its industry. This is coined corporate silence. 

In large scale organisations efficiency becomes the focus rather than actually investigating if processes create the desired output. Effective is forgotten and finally the psychological distance between large corporation managers and ordinary customers and customers becomes so large that they really fail to understand each other.

10. Large organisations have lower engagement

As Gallup has demonstrated, companies with a high level of engagement outperform their low engagement peers on all revenue, profit and quality parameters. 

At the same time they can demonstrate that there is a significant correlation between size and engagement levels.

Is it time to rethink your BIG IS BEAUTIFUL strategy?

Interview with Sir Richard Branson Founder of Virgin Group by Christina Lattimer

Interview with Sir Richard Branson Founder of Virgin Group

By Christina Latimer
Full article here: http://peopledevelopmentmagazine.com/2014/09/03/sir-richard-branson/

This is the final interview in this wonderful series about the 6 Challenges identified by CEO’s across the globe, highlighted by the Centre for Creative Leadership in their Report in 2013.  When I turned my attention to who I would want to interview for this important final issue,  the first person who sprang to mind was Sir Richard Branson.  To me Richard epitomises the ultimate combination of brilliant leadership and business skills.  Richard has successfully, transparently and wholeheartedly lived his values which have been demonstrated time and time again both in his unique approach to business and in his attitude to Virgin’s many faceted global success.   So you will no doubt understand how delighted and grateful  I felt when Richard confirmed he was willing to contribute to this month’s magazine.   I hope his wonderful words of wisdom, as always, help you our readers and contributors alike, I think you will,  like me, be delighted!

Here is what Richard had to say:

1) What do you consider is the biggest challenge for CEO’s and leaders in the business world today and what can be done? 

Business leaders and CEO’s have a responsibility to inspire their employees and run their business in a sustainable way.   This is difficult for CEO’s as they are judged on their performance in the short term and any long term initiatives do take time to come through.  Shareholders and stakeholders need to modify their expectations of CEO’s from short-term profits and back the leaders of businesses to create long lasting plans that will grow their businesses and tackle many of the world’s issues at the same time.

2) Can you describe your leadership culture in Virgin and why it works so well? 

When selecting people for leadership roles I believe you should have an open mind and be prepared to look out for talent which others may have over-looked.

It is extremely important to employ business leaders who are passionate about their particular area of expertise and understand that part of being a good leader is having the ability to listen.   Listening to your people and giving them the opportunity to act on any ideas they have helps foster passion in your people and deliver on their ideas, which is beneficial to your business.

3) Given your vast experience in business what is the single biggest piece of advice you would give to leaders and CEO’s reading this? 

If you look back at the most successful businesses of the past 20 years – Microsoft, Google or Apple, they all played a part in shaking up their sector by doing something that hadn’t ever been done and by continually innovating. They are now among the dominant forces.

Not everyone will achieve such great worldwide success but a good start is to create something that everybody who works for you is really proud of. Businesses generally consist of a group of people, and they are your biggest assets.

4) What is the most inspirational event, person or situation you’ve encountered so far in your career?  

I have been fortunate to have had a long and successful career in business, meeting many inspirational people along the way and attending some fantastic events full of fascinating people.

I have long admired Nelson Mandela and was so upset when I heard the news of his passing. He showed amazing courage and conviction overcoming an evil political system. Wherever he went he would make people smile, laugh and feel completely at home. A young friend, Peta-Lynn, found Madiba in the galley on a Virgin plane to New York a while back. He offered to make her a cup of tea. What an extraordinary man.

5) What is the most exciting project you’re involved in you’d like to share? 

Going into space has always been a dream of mine. I could think of nothing more exciting than looking at our planet from space. Virgin Galactic is pioneering the space tourism industry and making great progress. Our spaceship has successfully completed three powered flights, breaking the sound barrier in the process, and our mothership – WhiteKnightTwo – has flown over 150 flights. The project is looking promising and I get so excited every time the Galactic team update me on another milestone the project passes.

6) How can our readers’ best benefit from the work you are doing and how can they best engage with you (and Virgin)? 

I have been fortunate that over the years we have developed an incredibly strong management team to run the Virgin companies. This has allowed me to dedicate the majority of my time to Virgin Unite – the not-for-profit arm of the Virgin Group. Virgin Unite have incubated a number of organisations dedicated to tackling specific issues such as conflict resolution (The Elders), climate change (The Carbon War Room), ocean protection (Ocean Elders) and sustainability (The B Team). I would encourage anyone to try to engage with these organisations and be inspired by what they are trying to achieve. Go out and start something yourself that reflects what they stand for.   Virgin Unite, and Virgin.com, has a very strong digital presence and I update my blog daily at www.virgin.com/richard.

More about Sir Richard Branson

Sir Richard Branson is the Founder of Virgin.  Virgin is one of the world’s most intriquing brands and has a well known diverse and unique portfolio of companies.   There are now more than 100 Virgin companies worldwide, employing approximately 60,000 people in over 50 countries.  Sir Richard’s hallmark has been one of innovation, challenge and bravery.  Click here to read Richard’s full and inspiring biography on Virgin.com

The Virgin Way by Sir Richard Branson

Even though I asked Richard’s team if he wanted to promote or mention anything within the interview, Richard didn’t feel the need to mention or advertise his new book , which  doesn’t surprise me.  But because it looks so fantastic, I wanted to mention it here anyway, so readers were aware of it.  ” The Virgin Way”  is due to be published on the 8th September and you can find out more details by clicking on the image:

Will purpose and transparency kill your business model? Better create a new one fast.

The traditional approach to employee and other stakeholder engagement activities has been addressed predominantly on an operational level  with a focus on what the corporation is doing. By changing practices it is indeed possible to impact engagement but only if your stakeholders believe that you are doing it for the right reasons and in the right way.

Stakeholder engagement  strategies should follow Simon Sinek's golden circle model – always start with the why, followed by the how before you even start thinking about the what.

The Why

Stakeholders will forgive you for mistakes done for the right reasons – not for perfect products created by the exploitation of others. Although most companies have been started to serve a specific purpose or create value for stakeholders, the same companies often over time transform their value focus to a cost focus. A transformation that narrows the value creation to one single stakeholder – the shareholder itself. Many senior managers proudly declare their purpose as serving the shareholder – even when the other stakeholders are listening.

“Problems are just businesses waiting for the right entrepreneur to unlock the value.” Jay Samit         

Assuming that taking from the environment, society, the customers and the employees to give to shareholders is in the best long term interest of the shareholder is not logical. The shareholder will benefit when all other stakeholders benefit in a way that creates long term sustainable competitive advantage.

Most companies start like disruptive wolfs hunting apathetic market sheep busy competing for grass. Over time they themselves become sheep anxiously scanning for disruptive predators while protecting their patch of grass. Not a purpose that is likely to engage stakeholders.

Preserving or recreation of the purpose of the corporation will be increasingly important with the wave of millenials taking over as the prime stakeholders. It will be important to have a ”why” that serves many stakeholders simultaneously in what is know as super alignment.

"Make yourself sheep and the wolves will eat you" 

Benjamin Franklin                                       

The How

The rise of the millenials also makes it important how corporations operate not only as a corporate citizen with respect for society, the environment, customers, employees and other stakeholders but also with transparency.

The concept of corporate transparency is developing rapidly and can be a major source of stakeholder engagement. From being a spotlight you only pointed at the cleaner areas of the corporate exhibition halls the social media revolution is illuminating everything, including dirty laundry. Transparency is not a strategy anymore – organisations will have to work on creating sustainable business models that can withstand light rather than try and sugarcoat the existing business model.

”Transparency may be the most disruptive and far reaching 

innovation to come out of social media”           Paul Gillin

Transparency normally stops when getting close to the business model and the supply chain. Traditional companies are not comfortable disclosing their internal costs of manufacturing and similar. The official reason is that it is proprietary information that needs to be held from competitors but it could also bet that  customers would be furious knowing how they get robbed. And the other sheep are probably experts in grass anyway.

A few brave companies are taking this next step and disclosing internal costs to their customers. The company Everlane in the fashion industry have given full disclosure in a market where 8x markup is common. No doubt they will attract unwanted attention to the other sheep in that marketplace and has the potential of becoming a wolf.

It is uncomfortable for most leaders to address the why and the how of their strategy. ”Why cant we just focus on the shareholder like everybody else”? ”Why can’t we hide the true nature of our operation so we do not attract uncomfortable questions”?

Unfortunately addressing the why and the how of the strategy is seen as a negative that adds costs and not as having the potential to create significant engagement with the company's stakeholders.

“The best way to predict the future is to invent it.”

                                                              Alan Kay

Shareholder focus kills employee engagement.

Corporate view of motivation

The modern era of HR is predominantly dominated by a Maslowian view of motivation: The individual is driven by a motivation to ffulfill increasingly higher needs depending on the completion of a lower level of motivation. Although still useful, the Maslow Hierarchy, used in an organisational setting, creates a division between the employee and the company. The company has to deliver a lot of elements to the employee or risk the employee leaving. This creates thinking where every dollar that is given to the employee is seen to come out of the shareholders pockets - a zero sum game. This has become evident in the pre Financial Crisis age where companies relentlessly have reduced headcount to meet cost targets, completely ignoring that the same employees had a positive impact on revenue. If the logic of employees only affecting cost was true, corporations should have no people at all.

Purpose driven motivation

A more useful model for human motivation is what is known as the 3^rd Viennese school of psychology based on Viktor Frankls work on Logotheraphy.  In opposition to the first two – Freud’s view of human motivation as search for pleasure and Adler’s search for power, Frankl work points towards humans being motivated by a search for meaning. Rather than seeing people’s motivation as a result of external stimuli he believes that motivation comes from within and is based on your subjective view of what meaning is. Despite meaning being subjective and situation bound, Frankl suggests that meaning is often associated with doing good for others, with love and with the freedom to choose your attitude in any given situation – even in hopeless situations.

A survivor of the Holocaust, Frankl got plenty of experience of humans in hopeless situations and found that the people surviving rarely where the physically strongest but more often somebody that had a strong purpose and a reason to survive. He captured it in the phrase:

It is not what you expect of life that is important; it is what life expects of you.

Frankl’s motivational model is becoming increasingly more relevant as corporations are starting to understand that employee engagement is crucial to the creation of sustainable competitive advantage. The traditional employee satisfaction surveys show the same and predictable results independent of it is conducted in successful companies or the opposite. Employee engagement is strongly impacted by purpose – both the purpose of the individual’s contribution to the corporate purpose and to the corporate purpose itself. And a good purpose isn't about making money!

Corporate purpose is important

The financial crisis killed the real and initial purpose of many corporations – a purpose often focused on bringing value to one or more of the company’s stakeholders. Instead a relentless shareholder focus took over in a way that would have made Milton Friedman proud. Making bosses and owners wealthier is not a noble purpose that engages employees and unlocks productivity. Jack Welsh ex Ceo of GE calls shareholder focus the dumbest concept he has ever heard of and Kip Tindell of Container Store says that shareholder focus alienates all other stakeholder groups including employees and customers.

A new and engaging way of creating value

Leading companies have found that creating strategies that serves the needs of many stakeholder groups simultaneously in what Tom Gardner, CEO of Moetly Fool calls super-alignment creates a strong purpose that engages stakeholders to support the company in a way that creates competitive advantage. The beauty of stakeholder alignment is that it also increases the value for the shareholders – a company loved by its customers and employees will not fail completely.

Talking against shareholder value is often seen as an attack on capitalism and the free market and a defense of totalitarian systems. Reality is that no company became great because they wanted to make money – they became great because they created value for others. Somewhere down the line it was forgotten that capitalism is a social experiment focused on value creation for others and not ugly exploitation of often powerless stakeholder groups to satisfy the greed of a few.