The short answer is yes CSR matters and no it isn’t enought to just employ people and earn a profit; and it never really has been otherwise. The truth is that now there is more transparency (like it or not) around what companies and business owners are doing. And there is obviously much discontent over the widening gap between the “haves” and the “have nots” or, if you will, between the 1% and the 99% to use the now quite ubiquitous rallying cry of the Occupy Wall Street Crowd.

I’ve noticed an increase in the number of business speakers who are “pitching” employee engagement as a critical discipline for the coming year. Why? Well, for one thing, as the economy improves, we will need to do more to keep our key employees. If you’ve had to cut back on wages, bonuses and benefits, you may want to do whatever you can to restore those wages, bonuses and benefits. If we are not able to do that for profitability and cash flow reasons, then we will need to find other ways to encourage employee involvement in our enterprise. Green Research found that 80% of major corporations are planning to invest significantly in employee engagement in 2012. According to Gallup, 86% of engaged employees say they feel happy at work compared to only 11% of those employees who feel disengaged. So what does this all mean to the company? Companies with high levels of employee engagement saw increases in their bottom line. Towers Watson calculated improvements on average of 19.2% for engaged organizations and a decline in bottom line results of almost 33% for those companies scoring in the lower levels of employee engagement.

One of the ways employees feel engaged is if they are allowed to volunteer their time for causes they support. Many companies are finding ways to support their employees by giving them time, or allowing them to “earn” time that they can volunteer for an appropriate charity organization. Some companies are even exploring the idea of partnering with a not for profit organization and giving their employees an opportunity to volunteer, raise funds, etc. The Social Enterprise movement is pairing for profit businesses with not for profit businesses so that there is a cross-learning opportunity. The not for profit organization may have some great ideas for employee engagement since they spend much of their time getting volunteers energized around a mission. The for profit company can share best practices for containing costs, continuous improvement of processes and managing the paid staff properly. It is a win-win situation in most cases.

As social media continues to grow (businesses are finding the new Google+ to be a great platform) and mature, businesses are finding that they have no choice but to be catering to their customers who often use these platforms almost exclusively. These tools are also used by the consumer to determine the quality of the vendor they are considering. They look for referrals and/or ranking by their friends. They do not believe paid advertisements. Companies have to be involved with the social media sites if for no other reason than to know what is being said about their brands and to know what is going on in their community. The social responsibility part of all this is to make sure that the company is engaged in the community.

The National Association of Corporate Directors sent out a Public Company Governance Survey and found that the highest priority at 72% of the respondents was strategic planning and oversight while only 2% put CSR at the top of their priorities. This suggests that many boards will be working to catch up to their more nimble and media savvy competitors. If the trends in transparency, CSR and employee engagement continues, then we will soon find that “good business” is not only the norm, but a requirement to compete.

Harvard Business School defined entreprenuer this way: “Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled.”- Howard Stevenson

I was reminded of this several times this past month. First, over on LinkedIn, one of the groups I frequent posted this great article from Inc. Magazine. It’s an interesting read.

Entrepreneurship is creating something out of nothing. And of course there has to be a fair amount of leadership quality in the entrepreneur, at least in the beginning. Besides this article, I was reminded of the “entrepreneurship puzzle” as I worked with a colleague on his business idea presentation for his peer advisory board. That, in turn reminded me of the success gained by one of my UCI mentees in starting his own business. These two gentlemen are very different in training and background. Yet they both have the desire and the drive to build their own businesses – “without regard to resources currently controlled.”

The sometimes puzzling thing about those entrepreneurs who jump into things – like young kids jumping into the summer swimming hole without first looking to see what is there – is what motivates them to do so in the first place. And as Eric Schurenberg mentions in his Inc. Magazine article, Stevenson stated that “The entrepreneurs I know are all different types. They’re as likely to be wallflowers as to be the wild man of Borneo.” I agree. The personalities of the business founders with whom I work are very different. And their reasons for jumping into the entrepreneurship swimming hole varies as much as their personalities. Yet one thing seems to be common – they have an idea for a product or service and they are willing to “do what it takes” to get that idea off the ground and into the marketplace. They don’t seek risk, but are willing to evaluate, mitigate and live with the risk. And some pretty much do jump into the swimming hole without looking – though that is by no means a requirement for success; or failure. A solid well thought out business plan is always useful when properly understood and implemented.

In this political season, there is much talk about the particular brand of capitalism in the U.S. Who creates jobs? Is it the small businesses and start-ups or the more established firms? Who are the “good guys?” Captains of industry with their out sized compensation or the entrepreneur earning less than his/her key employees? As usual, there are lots of numbers being quoted to make points on all sides of this argument - an argument which I think is pretty much a moot point. History does not support business being stagnant with the existing players being the only players moving forward. Someone will start new businesses with disruptive technology and the business scene will again shift to create new opportunities for many – including employment. The question will always remain, in my view, How will the workforce evolve to match the new requirements for employment? Who will start the next “big thing?”

One can imagine that entrepreneurship itself will begin to fill the gap on how we as individuals can continue to grow our knowledge and skill set through new an innovative ways of learning. All of this will, of course, continue to be painful and we will have the usual suspects claiming that all businesses eventually become corrupt and those who claim the only way to save our economy is to completely turn the business community loose, without constraint. And as always, the truth will be in the middle somewhere. My sense of things is that we almost have it right today. If we keep entrepreneurs in mind as we formulate policies and regulations so that many new businesses can start and fail and flourish, then we will hopefully have the boiling up of change and new services that we need for a vibrant economy. If we continue to learn from the companies who game the system and plug the holes in regulations, then we will avoid some of the excesses creating havoc now and in the future.

The goal is to restore and maintain the consumer’s confidence that there is a level playing field for them and that someone “has their back” when it comes to “fighting” large corporations. The Occupy Wall Street movement is sending a strong message to the captains of industry and politicians alike – they perceive that the playing field is no longer level. The vast “middle class” is finding their stagnated purchasing power and stunted upward mobility is no longer acceptable. We need to remind ourselves that it makes no difference what we might think, as long as the perception is what it is, then that is the reality for a large number of people. We ignore it at our own peril.

So what are we doing to re-think our approach to the business climate? Will the old models and political party dogmas solve today’s problems? I think not. What if we decided that despite economies of scale we better serve people if we make sure most companies remain “small.” I’m not suggesting government mandate this, but rather that businesses change their models on their own. What if those businesses who might need to be large – telecommunications? Power generation? – found a way to truly serve individual customers as though they really mattered, and found a way to more reasonable executive compensation? Perhaps changes along those lines would go a long way to obviate the need for revolution of the people or intervention by the government. Too much to hope for, I suppose. But then, we could be the change we want to see in the business world and it is the small business, the entrepreneur that is best equip to make the necessary adjustments. That’s a grand idea!

As we furthered the conversation, it seemed that we are actually seeing pretty much the same trends. Business in general (it’s certainly different for each business depending on size, industry, etc.) is sitting on a fair amount of cash that has been accumulating over the last several years. Lack of confidence in the economy means that folks would naturally save in order to be sure survival has maximum opportunity – cash is king! At some point, however, maintenance, improvements, capital equipment, new software and implementing business process improvements can no longer be deferred. What my colleague and I are seeing is that some folks are finally “pulling the trigger” on projects that improve productivity and reduces costs.

There was no discussion that business is picking up for his customer’s customers. That is, demand is not growing (or shrinking for that matter), but is holding steady. Yet to stay competitive, keep a reasonable margin, the whole supply chain is having to reduce costs and one way to do that is investing in infrastructure and improved business processes. Luckily, my colleague is in that very business, so he gains from this slow growing trend of putting in that investment.

Where are consumers in this picture? I think, on a small scale, they are doing exactly as small and medium sized business are doing. The consumer is fixing the things in their homes they need to fix. They are repairing cars rather than simply going out to purchase a new one. They are paying down debt. They are investing in a child’s education where they can afford to do so.

Where are you and/or your business in the supply chain? Do you know what your customer’s customer needs? What will you do to be ready if demand for your product or service is going to be at this low level for the foreseeable future? Or, if demand picks up, are your operations ready to handle the load? Did you let too many employees go to ramp up? Should you hire full time or part time employees? Are there new opportunities for you to fill a need? Assuming we continue to “bump along the bottom” in economic terms, how will you structure your business to survive and thrive?

Lots of questions and very few answers. But then, that’s part of what leadership is about. Knowing which questions to ask, developing a compelling vision for the future and enrolling others in that vision is what makes you a great leader. So how will you get from where we are right now to developing that new vision? Who will help you develop that vision and who will you enroll? This is definitely the right time to re-invent yourself and your company. It is a matter of survival for some!

And then there’s the sun. We haven’t paid too much attention to it until lately. But now, we are learning a great deal thanks to the many orbiting satellites we put around it to study as much as we can about the life of the sun. And that causes us to “connect some dots” with the effects here on earth. Did you know, for example, that you get more vitamin D into your body from 10 minutes in the sun than you would get drinking 200 glasses of milk? That’s a good thing, right? Well, yes except for skin cancer, so now we shoo our kids out of the sun or slather them with cream to block out the harmful rays which also blocks out the vitamin D. But the sun doesn’t really care what we do, and neither does the universe.

The Sun's Heartbeat

Did you know that the sun has cycles? Yes, it has a regular cycle, that scientists have been following for more than 250 years. The cycle is 11 years long. And those cycles have (until now) dominated the earth’s weather patterns. Well, to be precise, there are four factors that dictate our earthly weather: 1. Our own atmosphere, 2. the Sun, 3. El Nino cycles and 4. Volcanic activity. Scientists have figured out the model using all four factors and have very accurately accounted for our weather patterns. Luckily, the sun has been very quiet as we built carbons in the atmosphere, thus giving us a bit of a break in global warming. The question is what about the next cycle? If it is a normal peak, we will see the warmest temperatures ever recorded by man. If it is a “wimpy peak,” we will get a continued break in the global temperatures. One way or the other, neither the sun nor the universe cares about our comfort.

Finally, here’s a bit of information that really stopped me in my tracks (literally, I stopped running so I could go back and listen again). Science has proven that life has been on the earth for about 4 billion years. The sun should be relatively unchanged for another 5 billion years or so. However, the sun also increases its temperature by 10% every billion years or so and has ever since it was born. That means that in about another billion years, even without making any drastic changes, it will increase the temperature on the surface of the earth to about 700 degrees F. Life as we know it, and perhaps all life period, will no longer exist. That means life on earth has lived out about 80% of its allotted time – assuming we humans don’t kill ourselves in some other fashion first or speed up this demise by continuing our irresponsible activities. All of a sudden, the business and life “problems” I deal with seem pretty puny. So, as I said, the universe is indifferent and knowable. Sometimes the knowing gives comfort and insight into life here on earth. Sometimes the knowledge gained isn’t all that comforting. But it does help to put things in perspective!

But having gained knowledge – whether about our universe or ourselves or our social/business situation – is only the beginning. We need the wisdom to act according to that knowledge and our best guess about how we might “shape the future.” To bring my favorite saying down to earth, “nature is indifferent and knowable.” The earth doesn’t care if we make it – and may, if anything, have a tendency to want to see us gone because we are very disruptive. And when it comes to our businesses, “the markets are indifferent and knowable.” And competitors may have a tendency to want to see us gone.

While the politicians in Washington DC played their silly games with the debt ceiling – perhaps permanently destroying faith in the American experiment or at least our credit ratings – the markets did what markets do without regard to what we might want. Link the shenanigans in DC with the global debt crisis and you have the perfect storm for a very permanent and painful change in our business models. It remains to be seen what the citizens of the world decide to do with their respective governments and economic systems. Yet, we as individuals can hardly just sit around and wait to see what transpires. Complaining won’t help. Screaming obscenities at the TV won’t help although that does seem to make one feel better! So what should we do?

I’m going to suggest that we take a hint from our scientists. First, I’m going to do my best to find out what’s so. I’ll use data, observations, experiments and see if I can understand at least a little bit better this complex, interdependent economic system we’ve set up. We can’t go back, so we have to figure out how to go forward. I’ll build a theory and see how that works first to explain what I’m observing now and then to give me some hints about how to chart a course to the goals I set.

So far, here’s what I think is so:

• The economic models of the past are no longer working to predict our markets
• Consumer activity will be generally less than it has been
• Industrialized countries will experience the most pain as they adjust to de-leveraging/deflation
• Lower levels of growth are in for most developed countries
• Developing countries will require skill at not letting their economies become over leveraged
• Countries no longer have time, resources or the need to fight wars (but some will be stupid and engage anyway despite the broken model!)

There are, of course a whole bunch of other major things to add to the list, such as demographics, technology advances, etc. This list is one that addresses the complaints or statements I hear about “getting back to normal.” From what I can see – ain’t gonna happen!

Despite this list, I am optimistic that we will actually figure this all out, and more people will be living better lives in many countries than are now enjoying such a life. The pain will be the adjustment for those who have enjoyed privileged places up to now. Don’t get me wrong on this, I’m not saying America’s best days are behind her. Not at all. I am saying it’s not at all unlike what happens in individual countries as technology “kills” one industry displacing workers who have to either re-invent themselves or slip into poverty and despair. Some people never stop weeping and wailing, but most pick themselves up, find out what is so, decide what the will do about it and take action. I think the developed countries will, by and large, do just that. And so will our companies. We will re-invent ourselves. But first we have to admit what’s so. Scientists do that on a regular basis, but it is slow going.

Neils Bohr said that “Science progresses one death at at time.” Old theories, old models die hard. I’m not wanting to hasten my own demise, so I will accept the new ideas on how business needs to adjust rather than stick to my old, comfortable ideas. How about you? Are you leading your company to new ways of looking at the way business is done? Are you actively changing people’s world view? Are you seeking new data? Trying new things out? How will you take advantage of the globalized changes taking place?

The dwindling allure of building factories offshore

One has to wonder why this is such a “surprise” and so newsworthy. I guess it’s because we are looking for good news, ANY good news to give us some hope that the country’s economy is truly on a sustainable upward trend. Back when we were belly-aching about the auto industry losing its edge, there was a lot of discussion about how the foreign auto manufacturers seemed to be doing just fine using American labor and manufacturing right here in the good ol’ U.S. of A. So as labor costs increase in the developing economies and the cost of transportation continues to increase, we are sure to see movement of manufacturing to be closer to the markets served. The US won’t be left out of this continuing trend.

While manufacturing may still continue to lose jobs to productivity increases and may also find some industries just simply won’t be able to compete with manufacturing offshore, the trend to losing jobs to off-shoring should decline. However, it is doubtful, to say the least, that the U.S. will ever go back to being a premier manufacturer. What concerns me most is not the continued erosion (if you’re a pessimist), nor the slightly improved trend to competitive manufacturing (if you’re an optimist). What bothers me is that we are not investing in the education of scientists, mathematicians and engineers. Nor are we willing, it seems, to guide young people who will not attend college to solid careers in a trade. It will forever frustrate me that consumers will pay huge contracts to sports celebrities (read Moneyball to figure out how illogical we are about that market) who arguably do not contribute to anything except the advertising industry, consumers and shareholders allow outrageously large pay and bonuses to poorly performing CEOs and taxpayers agree to move tax dollars into providing cushy jobs , health care and retirement packages for politicians and public employees while ignoring investment in the very things that will make our economy thrive now and in the future. The good news is we live in a country where we can all choose to do these things. The bad news, in my mind, is that we as a society do choose to do them – or allow them to happen!

The loss of manufacturing is to me a red-herring. The real issue is much larger. What will America do to play in the world economy? What are we doing now to make sure we are ready to assume that place and compete successfully? Our multi-national companies will figure out the best way to manufacture. They will figure out how to minimize the impact of earthquakes and tsunamis on their supply chains.

Feel free to leave a comment on how you see our country surviving in the global economy. Since the global economy isn’t going to go away then we can’t set up trade barriers to protect our companies. If we cannot “unilaterally” play in the global market, then what do we do to make sure we add value?

At the end of the previous post, I mentioned the fact that we need to add the concept of “feedback” into the model. The tricky thing about all this feedback is that we are masters at seeing only what we

Positive Feedback

believe. So if we believe we “know what is so,” or “how the world really works,” or “what the truth really is,” we will see those things in the data we review. In other words, we are great at denying reality if it conflicts with our view of reality.

If we look at the results of our actions, that is we look at the data from our measurements, and if that data appears to be what we expected, then we will conclude that our beliefs and values are correct and that the “real world” responded to our actions as planned. But here’s the rub. We often do not see the data for what it is. We see what we believe, so we are often blinded to the fact that the data is suggesting that we did not see the world as it really is, but as we wish it to be.

Rest assured that (a) you aren’t the only one who falls prey to this all too human trait or that (b) highly educated people are not susceptible to this same human trait. All our science based studies show that you are definitely not alone and that even highly educated scientists who rigorously follow the scientific method fall prey to the way our brains discern and filter patterns.

Negative Feedback

What happens when the information we receive back from our actions does not meet the expected results? Unfortunately, the more common response is to assume an anomaly – a “one off” result. We automatically assume that our process, our thinking, our beliefs and our values must be sound, so nature threw us a curve on this one! Yet we now know that our brains are pattern recognizing and meaning making machines. We make up meaning and we see patterns that do not exist or have no significance in the “real world.” We often do not see things that are so, but see things as we wish them to be.

This tendency creates real difficulties in all aspects of our lives including in business. But great leaders will more readily see that the data is suggesting that their view is wrong or incomplete in some fashion. They are willing to admit that they do not know what they do not know. Gian Carlo Menotti said, “A man only becomes wise when he begins to calculate the approximate depth of his ignorance.” Yet we do not easily see or admit to the fact that there has to be far more that we don’t know than we do know about the universe and how it works.

The successful leader helps her team to see that the data points in a certain direction regardless of what the conventional wisdom claims is so. Hypotheses are tested in depth to be sure of their veracity. The effective leader agrees that “what gets measured gets done,” and is willing to make sure that not only is the measurement the correct measurement for the process but that the resulting data is actually seen clearly – not filtered through preconceived world views.

Thus a critical component of the proposed FOP model is not only that the leader do the hard work of getting right down to the very basic Fundamental Organizing Principles, but that s/he also make sure that they recognize that they have filters and try to find ways to mitigate the effects of how the human brain works. At present, I see no way to remove the filters other than to remove the human. Perhaps that is why when we leave some things to the computers, the outcome is better and improvements are made. But at least if we are aware that we only have part of the whole truth, that we are each like one of the blind men exploring the elephant (I’m sure you’ve heard the fable of the Blind Men and The Elephant by now). It is the human condition that because of how our brains evolved, we are all blind men and women when it comes to the whole story about what is actually so. Great leaders “get” that and so they seek to truly understand. Then they steadfastly pursue the goals UNLESS accurate data dictates otherwise. When a change in strategy is dictated by reality, the great leader is the one who admits to the necessity of change, rallies the team and enrolls them in the new direction. She (you) can only do this if you recognize the limitations of that computer between your ears and are willing to compensate for the buggy program!

Maybe, but I think  not; and I suspect Buffett would agree. The controversy seems to be over whether Buffett has done a sufficiently transparent job of communicating that this kind of behavior will not be tolerated at Berkshire Hathaway. It seems to me that Buffett could compose a message that would not “play the blame game” with Sokol but at the same time re-enforce the fact that any perception (real or not) of  insider advantage, or self-serving deals is simply not going to be tolerated at Berkshire Hathaway. Even if the terms of the “resignation” were that Sokol would not be “fired” for internal ethics violations, there has to be a way to make it clear that what happened with Lubrizol, Sokol and Berkshire Hathaway is not “business as usual.” There is trust, a brand and corporate culture at stake.

The consensus seems to be that neither Sokol or Berkshire Hathaway broke any laws. Technically, everything is legal. Still, Buffett has developed a culture of doing more than just simply what is legal. He’s been fairly quick to lecture others on the need for “high ethical standards” in business and seemed to be the gold-standard by which all others were measured. So now he is and should be expected to take the high road on all of this or the Berkshire Hathaway brand will be tarnished. There’s nothing worse than finding out that your “golden god” has clay feet.

The needed communications are clear to me. Buffett must make a public statement saying that what happened in this case involving Lubrizol is not the way business was expected to be conducted at Berkshire Hathaway and that systems are now in place to be sure that this kind of action will not go undetected in the future. To do less is to condone a lower standard than was communicated to the public.

Clayton M. Christensen is a recognized leading thinker around the topic of disruptive innovation. His landmark work, Innovator’s Dilemma,” and the many HBR articles on the topic of innovation has demonstrated his deep knowledge of how things are “shaken up” in our businesses and economy. He has applied the same systems thinking approach to the healthcare industry in our country and has outlined his findings in “The Innovator’s Prescription, A disruptive solution for Health Care.” I have not yet read the book, but it is certainly on my list. Mainly because this topic keeps coming up in my circle of colleagues and there seems little chance that one side will find anything good to say about the other side’s point of view. So I’ve been thinking about this topic for some time now.

Then this morning, on my jog, I was listening to a podcast and the interviewer was speaking with Clayton about his recent health problems (let’s be honest, health crisis!) and what he had experienced in his own personal interaction with the healthcare system. As usual, Christensen pulled it all together and made a cogent case for why no approach being discussed (The Patient Protection and Affordable Care Act or Rep. Paul Ryan’s plan) is going to solve the problem. In fairness, when pressed, he stated that he believed the present legislation is a step in the right direction to make sure we don’t leave folks behind while we get on with “blowing up the present system” and putting in place what is needed going forward. Also when pressed, he stated that the Ryan plan was not going to work. His reasoning was simple – the market modularizes the services provided, optimizing each “subsystem” in the healthcare system and thus makes the overall system totally un-optimized.

Christensen, who has long dealt with diabetes, found himself at age 55 unexpectedly dealing with a series of other health crises – heart attack, stroke, detached retina and several other issues. His experience in the healthcare system worked for him and he could see first hand how it was also not working for others. While he had already been working on his book before being stricken, this experience helped him solidify and express his concern for disruptive innovation in the healthcare system. What he found was that only those who step back and look at the whole system have come even close to understanding the issues, let alone solving them.

Christensen held up Kaiser Permanente in Northern California as the right model. Because Kaiser controls the whole system for providing the services, they can optimize and provide cost savings over the long term. They can force communication about what is needed for each patient and care regimen and follow up to make sure things are done right. The example he gave was that children in the Kaiser system are given treatments to seal their teeth. There are essentially no cavities when the teeth are sealed. This has been known for a very long time. But your dentist will likely not recommend such a treatment simply because they make their money on fillings. Kaiser can say, “no, we are going to save money in the long run by preventing decay in the first place.” There are many more examples of why health care, rather than our present system of sick care, makes sense in keeping costs down. We will not, however, see a move to that system if we simply tinker or let “markets” determine costs. Christensen worries that by taking the first step in the process with PPACA, we will ossify and further embed the present system – which is dysfunctional from a cost containment point of view. What is needed is disruptive solutions, and they will be hard to implement as long as this is a political issues. With both sides calling names and vilifying the other side, we will make no progress.

The name I’ve given to the deep underlying knowledge that drives our lives is “Fundamental Organizing Principles.” These principles are so basic and so fundamental to who we are that we will not change them

Fundamental Organizing Principles

unless we expend great effort and/or experience some life changing event (such as near death event). It is from these “FOPs” that we then develop our values, beliefs and actions which give us the results in our lives.

Some will do this hard work and others will espouse beliefs that are “imported” from others rather than figure things out for themselves. It’s difficult to draw on the vision and ethical decision making system required to respond quickly and consistently if one has not taken the time to really understand what is fundamentally driving their being.

An example of a very fundamental principles is difficult to provide since they are typically very personal. Usually, what we observe when we watch other people is an example of their values and their beliefs. If, for example, one has an FOP that the universe is indifferent and knowable, then they may exhibit a “value” for higher education so that they may have the tools for further understanding the universe in which they find themselves. From that value for education, they may develop a belief that education should be open and free to all, should be encouraged by all private and public institutions. From that belief they will make decisions to take actions, hopefully, that are in concert with the values and beliefs they hold. Those actions will generate results that will either reinforce the held beliefs or point out that perhaps the actions and beliefs have to be adjusted to live the values driving them.

Here’s a bit of a rub – we tend to see what we believe (not the other way around). Recent studies of the brain shed light on the way we see and “remember” things, and it isn’t pretty! (Here is a great summary of what we know so far: Brain Rules by Dr. John Medina – 12 Principles for Surviving and Thriving at Work, Home, and School). In short, we mix some of what was “seen,” “smelled,” “touched” and “heard” with strong filtering and then augment it with past experience and store that integrated “memory” away. This process is why so called “eye witnesses” are so notoriously unreliable. Yet, each of us believes that what we remember is true to reality. It most assuredly is not. So, when we have a belief it is very difficult for us to see “opposition” in the data – because we tend to see what we believe.

While the above discussion is focused on an “individual,” the process is largely transferable to our organizations. Especially for the entrepreneur, leadership includes consciously shaping the corporate culture and that generally means inculcating the values that “live out” the founders fundamental organizing principles. For the leader in a large, established company, the job of shaping the corporate culture is more complex than it is for the entrepreneur and requires great skill at managing change (a major topic in itself and subject of myriad books).

In the next post, I will discuss how the results we achieve must be constantly tested, verified and “fed-back” in order to ensure continuous improvement in our organizations. For now, I am interested in pressing the point that to be an effective leader the individual must understand the deep underlying fundamental organizing principles s/he uses to run her/his life. They are not all positive. At some point, early in your childhood, you may have encountered a situation causing you to draw the conclusion that you “aren’t good enough,” or that you “can’t do that,” whatever “that” is or that you “have” to have a college education to succeed, etc. You bring all those things to the table as a executive leader in your company, and you will unconsciously be limiting possibilities not only yourself but your organization. So the question is – What are you doing to discover your deeply held Fundamental Organizing Principles? How are you consciously shaping the values and beliefs that comprise the culture you are building and shaping in your organization (culture being “the way things get done around here)?

Your list will be different than mine or your neighbors. What outrages you may be different than what outrages me or your neighbor. The point is that we need to be more than a nation of laws. The disaster in Japan is what started me thinking about all this. Despite the earthquake and tsunami, there were no troops called in to stop the citizens from looting or taking advantage of the situation. Some will argue that Japan has paid a price for this “compliance” or utilitarian society. That isn’t clear to me. They were, until recently the second largest economy in the world. Their products are sought after. Even the latest “scandal” with unintended acceleration of Toyota cars has proven to be not a defect in quality but rather a user error.

So do we “do well by doing good”? I find it interesting that it appears that many companies do – over the long haul. It is easy to make a short term gain by being less than honest or to focus solely on the bottom line. It seems, however, to build a sustainable, profitable business, one must be fanatical about providing high quality products and to be authentically concerned about doing what is right for the customer/client.

From WME 2011

According to the folks over at Ethisphere, it pays to build a culture of ethics in our companies. The graph that they provided seems telling and the list of “World’s Most Ethical Companies” comprises familiar companies. Investing in ethics is beneficial for any company, even in a recession. The graph compares the “WME Index,” or all publicly traded 2011 World’s Most Ethical Company honorees, against the S&P 500 since the initial World’s Most Ethical Companies recognition from 2007.

Here is a bit of the methodology: “Ethisphere conducted data analysis on hundreds of companies based on their responses to the survey, as well as documents and information researched and requested by Ethisphere to confirm survey responses. Every company was then given an EQ score based on the results of the survey and measured against seven distinct categories. These categories were Corporate Citizenship and Responsibility; Corporate Governance; Innovation that Contributes to the Public Well Being; Industry leadership; Executive Leadership and Tone from the Top; Legal, Regulatory and Reputation Track Record; and Internal Systems and Ethics/Compliance Program.”

Winning at any cost is not going to build a long term and sustainable business. Perhaps we need to re-think some of the heroes our children see and who we reward in business. So what is the culture at your company? Are you making a stand for ethical business or are you pushing caveat emptor?