Books We Trust: Fixing the Game, Roger Martin

This is the ninth in a series called Books We Trust.

A devastatingly important book was published last year, one that I think got lost in all the hue and cry of the market crash. I want to do my bit to fix that.

The book is Fixing the Game, by Roger Martin. Roger is Dean of the Rotman School of Management at the University of Toronto. Named the 6th top management thinker in the world by Thinkers 50 in 2011, his ideas are as clearly articulated as they are broadly based. Fixing the Game is his 6th book.

Capitalism and Major League Sports: Fixing the Game

Charlie Green: Roger, this strikes me as a huge book in management theory, and it reads beautifully. But it has not sold as well as it deserves. Do you agree?

Roger Martin: That is hard to say. It is a policy book more than a self-help or methodology book, so that has a somewhat smaller audience I think. I was disappointed that the sports press didn’t take notice! I gave them a lovely bouquet and they largely ignored it. But policy makers and in potential pension fund managers have taken lots of note.

Charlie: That’s good to hear. About the sports press, you start out with a great metaphor. The NFL has outperformed Major League Baseball on every dimension. That’s because football has been run for the fans, while MLB was run for the owners and players. In the long run, everyone wins if you manage for the fans.

The analogy in business would be to serve the customer. But rather than do that, as Peter Drucker suggested, we have bought into the shareholder value view of the world. We run companies for the owners and players, not the fans. And you show with real data – real companies like Google and Cisco, decades of shareholder performance across all industries – how this approach has failed.

We have fundamentally, basically, gotten it wrong. And we need fundamental, basic fixes.  Is that right? And where did we first go off the rails?

Roger: We started off the rails with an innocent-sounding theory by way of a paper by Mike Jensen and Bill Meckling in 1976.  It argued that we should align the interests of managers and shareholders by giving managers stock-based compensation. The simple and compelling idea was that with stock-based compensation if shareholders do well, so will managers and if shareholders do badly, so will managers.

That produced perfect alignment – or so we thought. Unfortunately, it had an unintended consequence of focusing management on the firm’s stock price rather than its real operations.

There are two important markets in the life of a firm – one is the real market in which it produces real products/services which they sell to real customers who pay them real money and they earn a real profit or loss. The other is the expectations market in which investors imagine what will happen in the real market in the future and on the basis of that make a decision to buy or not buy the firms stock – which results in a stock price.

Before stock-based compensation, the real market and the expectations markets were largely separate; with stock-based compensation, they became tightly linked.

There is a parallel in the world of sports. In the NFL, teams play a real game with real passes and runs, field-goals and touchdowns.  There is a real score with a real winner and a real loser.  There is also a linked expectations market – betting on football. In this game, the betters form expectations about what will happen on the field on the coming Sunday and bet accordingly. To balance the betting on either side of the game, the book-makers create a point spread which gives points to the underdog.

The point spread is the exact analog of a stock price. It is the level that results in equal money being wagered above and below the stock price/spread.

Charlie: The sports metaphor continues. Bettors on a game bet the spread; but we’re horrified if players play for the spread, not the game. In business, however, we’ve gotten to the point where management is incentivized by the spread – not the real game. Is business really a casino in that sense?

Roger: It has become one – and not for the better of the world, that is for certain.

In football, we know that teams can’t keep beating the spread forever. As they do well against the spread, the spread widens until the team will no longer beat the spread – as happened to the 16-0 New England Patriots. They beat the spread the first 8 games of the season and then went 2-6 against the spread while they won the remaining 8 games of the season on the field.

Stock-based compensated executives figured this out. They could only drive expectations and with them the stock price up for a relatively short period; then expectations would come crashing back down. So their personal profit-maximizing route was to drive up expectations until the breaking point and then get out before the expectations come crashing down – and then do it again and again.

That has made the market a casino and the CEOs are the house: they always win.

Charlie: Haven’t there been some warning signs along the way?

Roger: There were many – all ignored. The first was subtle. It had to do with beating analyst earnings expectations.

During the late 1980s and into the beginning of the 1990s, large American public companies met or beat earnings expectations 50% of the time – which is what would be expected. But by the mid-1990s, they were beating expectations 70% of the time, which was only possible only if CEOs and CFOs were manipulating expectations and earnings.

Then we had the bubble and bust, driven by option compensation. Then we had massive accounting fraud (Enron, WorldCom, Adelphia) that was designed to drive expectations. Then we had massive options backdating fraud, that was designed to help executives cash in on expectations.

We ignored all of this at our peril and the consequence of ignoring it was the subprime meltdown of 2008 – yet another expectations-based meltdown.

Why the Game of Capitalism is Broken

Charlie: This is larger than just individual greed, isn’t it?  What are the aspects of business today that keep us locked in this casino mentality?

Roger: The focus on shareholder value maximization has sapped the authenticity of executives. They have become more focused on Wall Street analysts than on their customers. And they have become willing to sacrifice the welfare of their employees to attempt to meet the expectations of Wall Street.

This has resulted in increasingly cynical and distant customers; all who know they come after the shareholders in the pecking order. And the worst thing is that all of this manipulation of expectations has facilitated massive growth of the hedge fund business and hedge funds simply contribute to the casino mentality.

Charlie: Is this casino mentality of betting on the spread rather than the game partly responsible for the horrendous global economic situation we face now?

Roger: Indeed it is. The banks at the center of the subprime crisis all had senior leaders who knew very well the game that they were playing; as Chuck Prince put it, they all “danced until the music stopped.” And dancing meant taking ever-greater risks to meet expectations that were already so high that they couldn’t be met with normal business.

In the face of this situation, the banks created the world’s first infinitely-sized market: synthetic financial derivatives. Unlike all other markets, there is a limit to their size.  There is only so much that can be produced and only so much demand because the product in question is real.

But synthetic CDOs can be created out of thin air – almost forever. That is how the banks forestalled the failure to meet expectations by several precious years – precious for their personal compensation. The problem was that in doing do, they created the worst bubble the world has ever seen – and we have been living with the consequences ever since.

Charlie: George Soros recently gave a speech that got a lot of play. He said we’ve failed partly because we thought we could think our way into success; we need to recognize that humans are fallible and design our world accordingly. Do you see a parallel with our obsession with shareholder value?

Roger: This is standard Soros stuff. He is a falsificationist who closely follows the work of Karl Popper and Imre Lakatos. So he doesn’t believe there is any absolute truth out there, just the best theory that has yet to be found wanting. And when the flaws of the best theory are found, they will provide the seeds for a still better theory – which will automatically be found wanting in due course.

As a consequence, whenever George sees everyone thinking the same thing, he thinks that it is probably, if not certainly, wrong. I assume that he is applying that thinking to the world of the quants at the banks who think their models are perfect but really aren’t.

I think he would argue that once everyone thinks that shareholder maximization is the ‘right’ approach, it almost certainly is wrong – and I certainly agree!

Charlie: Your insights are huge. Do you see them as supported by or integrated with other major thinking going on nowadays? Realignment of strategy? Global integrated reporting? Other thinking you find grounds for optimism?

Roger: Old theories die hard. I liken it to the story of peptic ulcers. For decades, the theory was that they were caused by excess stomach acid and patients were prescribed bland diets and anti-acids; and if that didn’t work, peptic ulcer surgery.

Two Australian researchers, Marshall and Warren, came to the conclusion that the reason that the treatments rarely worked was that peptic ulcers were caused by a bacterial infection – h pylori. Their views were wildly dismissed for the better part of a decade while patients continued to have their stomachs carved apart.

Only when Marshall ingested h pylori, grew a peptic ulcer and cured himself with antibiotics did the world decide to stop ruining patients’ stomachs with needless and damaging surgery. And twenty years after ingesting h pylori, Marshall (and his colleague Warren) won the Nobel Prize in Medicine.

Shareholder value maximization combined with stock-based compensation is an old and beloved theory that will probably take a decade to die because its proponents will continue to argue as they do today that the theory is sound; there are just problems with implementation. That is always the refuge of theory scoundrels!

Charlie: I wonder what is the financial equivalent of h pylori…Roger, many thanks for taking time with us, I do appreciate it.

Roger: And thanks to you as well.


Three Star Leadership

Charlie and I were recently interviewed by Wally Bock of Three Star Leadership Enterprises on the subject of trust and leadership. He wanted to know what bosses in general can take away from our new book, The Trusted Advisor Fieldbook: A Comprehensive Toolkit for Leading with Trust.

From the Front Lines

Wally and I met via Twitter—he was a distinctive and caring voice in the crowd when I first joined the fray. Wally is a coach, consultant, and popular speaker to audiences in North America and elsewhere. He focuses on front-line leadership, and brings to his work all that he indelibly learned as a Sergeant in the United States Marine Corps—first and foremost that a leader’s job has two parts: accomplish the mission and care for your people.

Wally’s latest book, Ruthless Focus, features companies that have been successful for years by training their sights on a single, simple, core strategy. Wally also created the Working Supervisor’s Support Kit, among other resources. He’s committed to providing day-to-day practical advice on how to be a great boss.

Wally blogs thoughtfully and regularly on the subject of leadership at all levels in his Three Star Leadership blog. His aim: to give you insight, information, and pointers to resources to do a better job and live a better life. Example blog posts include:

Q & A

Wally asked us provocative and wide-ranging questions. He wanted to know:

  • How is The Trusted Advisor Fieldbook different from the original The Trusted Advisor?
  • What, exactly, makes this a “fieldbook”?
  • What can a boss take away from here, regardless of the level where they find themselves on the org chart?
  • In addition to the things any boss will get, is there something for each of the following:
    • A first line boss such as a police sergeant, call center boss, utility company crew chief or sales manager?
    • A middle manager, probably with a technical specialty such as accounting, marketing, or logistics?
    • A general manager in any size organization?
    • What is the single most important take-away from the Fieldbook?

Check out Wally’s blog post today to find out how we answered.

Connect with Wally on LinkedIn and Twitter.

Upcoming Events and Appearances: Trusted Advisor Associates

Join us at one or more upcoming Trusted Advisor Associates events.  This Fall, we’ll be hosting and participating in events in Baltimore, MD; Minneapolis, MN; and through globally accessed webinars.

Also, a word about the Trusted Advisor Mastery Program.


Wed. Nov. 2nd          Global            Charles H. Green & Andrea P. Howe

Charlie and Andrea will be interviewed by Jordan Kimmel, host of Trust Across America on VoiceAmerica, at 12:00pm EST. Visit here for information on tuning in, embedding and sharing the program.

Wed. Nov. 9th            Global            Charles H. Green

Charlie will guest-host on the Trust Across America show on VoiceAmerica at 12:00pm EST. Charlie’s guest will be trust expert Robert Porter Lynch and the subject will be trust and neurochemistry, leadership and innovation.

Thurs. Nov. 10th            Global            Stewart Hirsch

“Everything You Wanted to Know About the Trusted Advisor Mastery Program (but were afraid to ask).” When: November 10th, 2011; 2:00-2:45 PM EST.

Register for this FREE webinar and get an inside peek into our signature program, the Trusted Advisor Mastery Program. As our next group is forming in the Fall, this is a great opportunity for you to get to know the program and see if it is a good match for your needs. For more information on the webinar and to register, email Tracey Del Camp at: [email protected].

Wed. Nov. 16th          Baltimore, MD          Charles H. Green

Charlie will be keynoting and doing a book signing of his and Andrea Howe’s The Trusted Advisor Fieldbook, on Day 2 of Entrequest’s 2-day sales seminar, “The eQ Sales Effect.” For more information visit,

Fri. Nov. 18th        Minneapolis, MN         Charles H. Green
Charlie will keynote the Twin Cities Compensation Network Annual Luncheon.  He’ll speak on “Becoming a Trusted Business Advisor: the HR Challenges.”  Marriott Minneapolis West in St. Louis Park, MN.  Open to TCCN members and one guest.


The next Trusted Advisor Mastery Program is forming and registration is $3900/person.  This is the last chance to register for this program at this price before it increases for 2012. Please email Tracey Del Camp of your interest and she’ll be in touch with more specifics.

Here’s what a participant of the current program has to say:

The Trust Mastery Program is a great mix of online modules, background reading, exercises, group discussion and coaching–all of which reinforce the development of personal trustworthiness. I love the way the program is designed. I have been able to go through the material at my own pace, learn from the experiences of my cohorts on the online forum, assess my behavior and set short term doable goals.

—Tina Beranbaum (Principal, Centauric Consulting, La Jolla, CA/Toronto, Canada)

Trust Tips: Moving Right Along

We’re getting close.

The Trust Tips countdown continues to the release of “The Trusted Advisor Fieldbook: A Comprehensive Toolkit for Leading with Trust,” by myself and Andrea P. Howe, to published by Wiley Books in early November.  We issue one Trust Tip per weekday; there are eleven more to come. They’re simple tips you can use every day to overcome the obstacles to having strong trust relationships. impede the trust-building process.

Get the tips straight from the source by following us directly on Twitter (@CharlesHGreen and @AndreaPHowe); you can also find them by using the hash-tag #TrustTip. We’d really enjoy hearing from you; the conversations have become a highlight of my day.

We’re also into making life easier for you, so we also keep a running tab of the tips right here on our site. If you need to catch up, see the recaps below:








And now, skipping on down, here is the latest batch of Trust Tips: Numbers #30-12

#30: If the gods offer you a choice between competence and good relationships, assume it was probably a friendly gesture. Choose…

#29: The ultimate net promoter score driver: trust.

#28: If your competitor has a trusted relationship with a target client: go find a new target client.

#27: A short time-frame is one of the natural enemies of trust.

#26: If you don’t trust me, the odds of me trusting you just went down.

#25: Being brutally honest: what brutes do when they try to tell the truth.

#24: You can’t make somebody trust you; but you can make yourself more trustworthy.

#23: Only on TV quiz shows do you win by blurting out the answer before listening fully.

#22: Robinson Crusoe had no need for trust–at least not before Friday.

#21: Defining the problem is not worth very much unless the other party agrees with your definition.

#20: I trust my dog with my life–but not with my sandwich.

#19: Intent without action seems insincere: action without intent feels mechanical.

#18: Mind readers exist only in carnivals; in business, tell people what you mean.

#17: You get the right answer = you’re lucky. I get it = I’m smart. You agree with me = you’re wise.

#16: The sun is predictable; a man is reliable. Which are you?

#15: Doing the right thing is long-run profitable; but the profit is a byproduct, not a goal.

#14: All trust is personal; corporate trust is just accumulated interactions.

#13: Increased business trust reduces demand for lawyers and regulators.

#12 If someone trusts you, do you screw them? Why should you expect them to be any different?

A couple of my favorites:

#24: You can’t make somebody trust you; but you can make yourself more trustworthy.

This gets to the heart of the matter. In this world, you can never truly control another human being; trying to do so is the root of much misery. The only thing you can control in this world is your own actions—and your re-actions to others’ actions. You can spend hours trying to persuade someone to trust you, and all you’ll get is red in the face and high blood pressure.

Don’t tell someone you’re trustworthy—just act the part, and let them draw their own conclusions. And by the way, those conclusions are theirs too—leave them alone.

#17: You get the right answer = you’re lucky. I get it = I’m smart. You agree with me = you’re wise.

This is like ‘a recession is when your neighbor is laid off; a depression is when you are let go.’ Noticing things from the other’s perspective is never easy; worse, we tend toward assumptions that are self-serving (“I hardly ever have bad intentions. You, however, are frequently mean, clearly have it in for me, and probably always have.”)

But it’s possible to transcend this self-serving self-centeredness.  When we recognize someone in the way that they see themselves, and freely acknowledge it, we get a double success.  First, they appreciate the compliment (if compliments were involved—they don’t have to be).  But much more importantly, they appreciate the notice itself—it is validating.  We get credit for being wise just by understanding the Other from their perspective–and saying so.






Continuing the #TrustTip Countdown

Many people in this world work for tips alone.  We think it’s about time that the tips start working for people.

That’s why we’re giving out a Trust Tip per day, counting down the days until the release of “The Trusted Advisor Fieldbook: A Comprehensive Toolkit for Leading with Trust,” a new book written by the two of us – Charles H. Green and Andrea P. Howe – to be published by Wiley Books on October 31, 2011. They are simple tips that you can use every day to remove the obstacles that slow down the building of trust.

If you follow us directly on Twitter (@CharlesHGreen and @AndreaPHowe) you’ll get these tidbits delivered straight to your Twitter feed; or you can find them by using the hash-tag #TrustTip. We’d love it if you joined us; we’ve been having rather enlightening conversations over on Twitter.  You can also check them out from Charles Green on Google+

But if you’re an eye-roller when it comes to social media, camp, there’s no need to fret. We keep a running list of the tips right here on our site.  You can always catch up–see our recaps below:

Trust Tips #144-135

Trust Tips #134-115

Trust Tips #114-105

Trust Tips #104-90

Trust Tips #89-81

Trust Tips #80-71

Below is the freshest batch, tips #70-56

#70: Try letting someone else have the last word.

#69: Dare to be really honest even (especially) when it makes you look bad.

#68: Saying ‘trust me’ is like saying you’re the winner of the ‘most humble’ award.

#67: Don’t be a blame-thrower; it burns you as much as the intended object.

#66: Rule of thumb: if communication fails, it’s the responsibility of the speaker.

#65: Deliver ‘early & ugly’–collaborate and iterate.

#64: Be willing to make a referral to your competition, if that happens to be the right thing to do.

#63: When your heart’s no longer in it–go find where your heart went.

#62: Trust is a two-way relationship: one to be trustworthy, the other to do the trusting.

#61: You don’t have to think less of yourself to think about yourself less.

#60: Hire for trusting-ness; train for trust-worthiness.

#59: Is there someone you trust greatly? Have you said so to them lately?

#58: People really don’t care what you know, until they know that you care. Maybe a truism, but it’s the truth too.

#57: Trust but verify? No. Trusting means you don’t need verification.

#56: Gossip is poison; envision everything you say being recorded on YouTube for everyone.

A Couple of Our Favorites:

#68: Saying ‘trust me’ is like saying you’re the winner of the ‘most humble’ award.

Having to goad people into trusting you flies in the face of building trust. It’s great when people say you are trustworthy. And it’s valuable to think about talk about how you might become more trusted.  But don’t try to self-advertise.  And please don’t build a marketing campaign claiming that you are someone’s trusted advisor.

Let your actions, not your words, tell people to trust you.  Your credibility will grow and your self-orientation will shrink at the same time, letting your trustworthiness shine through.  Let your actions do the talking, and leave the testimonials to others.

#57: Trust but verify? No. Trusting means you don’t need verification.

Ronald Reagan’s famous Russian-sourced proverb is great rhetoric—and probably sound politics—but it isn’t accurate about trust.  The essence of trusting means accepting the risk that someone might do you harm.

To take a risk without thinking is either an act of faith or of stupidity.  Neither one of those is trust.  But neither is it trust when you cross your fingers behind your back, sneak a peek at the cards, or “trust but verify.” To trust is to consciously assume a risk, knowing that the relationship that can result is often worth more than the risk actually taken.