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Operating Transparently

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The article Is Transparency Always the Best Policy? appears this week in Harvardbusiness.org. The article is about Paul Levy, President and CEO of Beth Israel Deaconess Medical Center, and the answer to the blog’s question, based on this sample of one, would appear to be a resounding ‘yes.’

In matters great and small, Levy has simply made it an operating practice to behave transparently. His great results may surprise many, but they make a great deal of common sense.

Transparency is one of the four Trust Principles I describe in my own work. The other three are other-focus, collaboration, and a medium-to-long term perspective. Here’s the business case for transparency.

If you are transparent about your activities, you are saying you have nothing to hide. If you have nothing to hide, then people trust what you do.

If you are transparent about what you say, then you don’t risk saying one thing to one person and another to another. You don’t appear to be two-faced; you appear to have integrity—you say the same thing to all persons. (And, it’s a lot easier to remember what you said if there’s only one version).

If you are transparent about what you think, then people can observe your thinking, and see that you are not editing what you say. They feel you are available to them, that you are not segmenting them off.

If you are not transparent in your actions, your words, and your thoughts, then people wonder about your motives. Why are you doing what you’re doing?

What is it you really mean when you say something? And what are you really thinking when you’re thinking?

Suspicion about motives colors ever aspect of trust—it affects your credibility, your perceived reliability, and the degree to which people confide in you. The antidote to a bad case of suspicion is transparency. It’s as true in the financial and regulatory world, in the world of negotiation, and in the world of accounting, as it is interpersonally.

With all the obvious advantages that transparency conveys—why aren’t we all more transparent more often?

There are a thousand answers, varying in particular, but with some common threads in general. At the root of it, I think, is fear.

Fear that others will take advantage of us. Fear that we will be misunderstood, or shamed. Fear that others will see the true inner “me” and thus steal the faux power we foolishly think we maintain by being opaque.

Transparency is both a result of lowered fear, and a cause of lowering fear. Sharing information with another encourages another to share with us. Disclosing information within a company—as Paul Levy did so frequently—begets teamwork and lowers suspicion.

The willingness to be transparent in negotiation helps the other party figure out what it is that you want—so the paradoxical result of taking a risk is that you increase the odds of getting what you want.

Transparency is an invitation to collaboration and connection. It lowers fear, it increases trust.

It feels like taking a risk, but it’s really risk-mitigation in disguise.

Operating transparently isn’t just a hospital procedure.

 

Why ‘Corporate Ethics’ is Usually an Oxymoron

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David Brooks, as he occasionally does, knocks it out of the park in The End of Philosophy, in yesterday’s NY Times. The subject: moral reasoning.

Wait wait–don’t run away! It’s interesting–I promise!

We often think of morality as principles-driven. Whether religious or philosophical, if we hear “moral,” we’re inclined to think rule-following or deductive reasoning of some kind.

Not so, says Brooks, surveying current literature. Moral reasoning is much more emotional and intuitive than we think. It evolves evolutionarily, as part of our social development. Which, interestingly, puts it on a par with competition.

Evolution isn’t just survival of the fittest. Evolution also favors those groups who have learned to cooperate—competition isn’t just individual, it’s between collaborating groups.

Which means the urge to collaborate is about on par with the urge to compete. Both come from the same parts of the brain, the emotional centers.

This makes common sense on several dimensions. One is that ethics is fundamentally about relationships—not about rules. Even Immanuel Kant—about as principles-based a philosopher as they come—agrees with this (ethics consists in treating others as ends, not means).

Quick cut to business ethics programs. Sometimes phrased as “ethics and compliance” programs. Which leads us to oxymoron number 1: if you’re talking about complying with the law, you’re probably not talking about ethics.

When Harvard Business School started its ethics program in 2004, here’s how the new course (Leadership and Corporate Accountability) was positioned:

"LCA stems from a belief that business leaders play a crucial role in society. They and the companies they build and lead are expected to deliver strong financial results for investors, superior goods and services for customers, attractive work environments for employees, and innovative ideas for the future. At the same time, they are expected to observe the laws of the countries in which they operate, respect society’s ethical standards, and contribute to the communities of which they are part."

It’s hard not to see this as a course about the art of balancing. Balancing competing demands is something at which HBS does a wonderful job. But the course sounds no different at root from other courses that describe balancing competing constituencies in marketing, or production, or business strategy.

Corporate ethics, by this view, is far more corporate than ethical. It is about navigating a company through a minefield of, among other things, people who believe in something called “ethics.”

This view of ethics is to real ethics as a professor of religion is to a churchgoer. Oxymoron Number 2 is “corporate ethics.”

Programs like this almost always still have one assumption at root: the survival of the corporation in a complex, often hostile world. That is the same assumption at the heart of a course in corporate strategy. Proof? How many ethics courses contemplate the disollution of the company? About as many as strategy courses envisioning the same. Zilch.

Just as Machiavelli linked war and negotiation as alternative means to the success of the State, this view links strategy and ethics as alternative means to the success of the Company. In this environment, cooperation is not about ethics–it’s about negotiation to achieve competitive aims. It’s cooperation as means, not ends. It’s not ethical.

No surprise. Machiavelli doesn’t come to mind as a foremost ethicist.

The continued existence and prosperity of a Corporation or a State is very much what competition is about. It is not at all what ethics is about. In an increasingly connected world, a course about ethics would talk about the value of collaboration across and between companies, and how to manage based on it. I don’t see that happening.

Competition and ethics may both derive from evolutionary, emotional sources. But as long as one is subordinated to the other—as long as they’re teaching ethics down the hall from competitive strategy, with a common philosophical goal of corporate competitive success–the winner will be competitive strategy, and the loser will be ethics. No contest.

Too bad, because old-think in a new world is not what we need.

 

April Carnival of Trust: the Best Yet?

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This month is the 22nd Carnival of Trust.I take nothing away from the other editions by saying that the bar has been raised yet again; this particular Carnival stands out.

Hosted by James Irvine and Trip Allen of Egyii (think "edgy’), out Singapore way, what intrigues me so much about this edition is the case that Allen and Irvine make for trust as one of the most pervasive elements of doing business in the new milennium.  I defy you to read this Carnival and not come away sold that if you’re engaged with trust, you’re not doing business right in today’s world.

For those of you who may not be following, a Carnival is a collection of blogs.  The Carnival of Trust, however, is special, and not just becausd it focuses on trust.

The Carnival of Trust is hosted on a rotating basis, and each host picks the Top Ten–no more, no less–trust-related blogs from the past month, from the fields of Strategy, Economics and Politics; Leadership and Management; Sales and Marketing; and Advising and Influencing.  Not only that, but the hosts weave them together with succinct commentary that adds its own value.

What you, the reader, get is intelligent selection, thoughtful content, and incisive commentary.  Beats any search engine going. 

In this Carnival you’ve got articles connecting love and profit; profit and new social media; branding; and the economics of giving away.  All connected by some very insightful commentary by the egyii folks. 

Like to see past Carnivals?  Like to enter your own blog piece into the funnel for the next month’s Carnival?  Visit the Carnival home page; and submit material for the next Carnival here. 

Give this one a read.  And drop a note to thank James and Trip for the great work they did here.  Just click on April Carnival of Trust, and enjoy.

The Open Letter Main Street CEOs Should Write to Wall Street

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Dear Wall Street CEO:

You’ve been taking it on the chin lately. On the other hand, the only CEO Obama has fired recently came from my side of town–Main Street—so maybe you’re not so bad off.

I have a proposition for you. For both of us, actually.

I, a Main Street CEO, am going to show you, Wall Street, how to create some real value out of “thin air.” I know, you think that’s your schtick, but hear me out.

From here on out, I propose to tell the truth about our earnings.

It’s that simple. We tell the truth about our earnings–warts and all. You come to believe it. You then no longer shave your estimates of our quarterly earnings, because we will no longer smooth them by moving things offsheet, or by tweaking policies from our financial subsidiaries.

Call it the “truth factor.” It really isn’t, though. It’s simply reversing the “suspicion factor” you’ve always had in place. Remember “quality of earnings?” Well, we’re going to provide the highest quality of all; not conservative accounting, but transparent accounting.

That’s the kind of financial value creation I know you understand. But let me go further—this policy is also going to create real value—as in higher productivity, lower costs, greater customer retention, high quality, better customer service—all that good stuff that actually drives business. Here’s how.

This morning, I’m going to announce company-wide that we are no longer including short-term incentives in our performance assessment plans. Here’s why.

Every sentient businessman knows that the dumbest way to run a business is to change plans every 3 months. The smartest way to run a business is to develop a long-term plan, based on long-standing business principles and policies and on core values. Then execute on it.

It is long-term plans, executed well, that produce the best short-term results—quarter after quarter after quarter.

But somehow, in my firm and nearly all others on “Main Street,” we lost track. It started out by our saying, “if you can’t measure it, you can’t manage it,” and “what gets measured gets managed.” So we started measuring everything quarterly (OK, I admit–way shorter than quarterly).

Maybe we got that from you guys.

Now, it pains me to admit this, but somehow—I know, it sounds crazy—we just flat lost track of the simple idea that long-term management produces the best short-term results. And we started thinking that because we were measuring short-term, we had to manage short-term. After a while, nobody would take a 3-week risk. Or honor a 4-week deal. Or sign up for a 6-month customer plan.

Like I said, dumb. But it’s the truth. It’s what we did.

But no more. From now on, we’re managing for the long-term. That doesn’t mean we’re giving up on metrics—precise metrics are critical for all kinds of things, like trend analysis and trouble-shooting. It’s just that using them like a steel cable linking to performance pay and quarterly earnings is not going to be one of those uses.

Our CFO is going to stop focusing on quarterly numbers within and without the firm. Internally, we are going to very clearly explain the long-term basis for performance assessment and goal-setting we will be using. After that, anyone found to be rewarding behavior solely for the sake of short-term numbers will be hauled before the management committee and asked to justify it in strategic terms, or to explain, "What part of long term management for performance do you not get?"

And mark my word, our earnings will go up. Because long-term management fosters relationships, trust, continuity, efficiencies, effectiveness, scale economies, customer loyalty, and employee engagement. And that makes money the old fashioned way–by creating real value.

Externally, you and yours are going to have deal with greater earnings beta from us. The quarterlies are going to be more volatile. But we’re done interpreting numbers for you.

From now on, you have to be good enough at what you do to discern the underlying pattern and explain it (hint: it will be generally NorthEast). We’ll tell you up front our policies, and show you over time how we live up to our pledge of transparency.

So my question to you, Mr. Wall Street, is do you have the guts to play the new game? My cards are on the table, as of this morning. Where are yours?

 

When Sharing the Pain is a Bad Downturn Strategy

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How should you do business in a recession?

Answering that question is the new growth business in the blogosphere.  Naturally, some common themes get voiced with frequency.  And some of those are not good.

Example: John Caddell points out in If Your Key Suppliers are in Trouble, So Are You that the common strategy of stretching out payables has some serious downside effects.

Anyone with payables has to be thinking of stretching out payments.   I don’t have stats on just how that’s playing out, but my educated guess is, it’s pretty common.

Free cash flow on the backs of someone else.  Your suppliers.  It has to look tempting, particularly if you grew up on the mother’s milk of competitive strategy in the last few decades.  One of the Five Forces of competition, after all, is the competitive dynamic of a company and its competitor-suppliers.

But this ain’t your father’s supply chain anymore.  Caddell points out that sticking it to your suppliers just could have downstream consequences in a year or two when the economy rebounds that don’t look so great.

On one level this is nothing new.  I remember a paper wholesaler explaining to me why supply agreements with paper companies always broke down: “because the paper cycle lasts 7 years, and the tenure of an individual in that role is 4 years.”  Self-interest and short-term gain have been the bane of business relationships for a long time.

What’s different now is that the structure of commerce is fundamentally changing.  The corporate boundaries are porous.  Business is no longer done in vertical, hard-walled entities; it’s done across them, in the white spaces and the contracts between and among companies.  The action is not in internal collaboration and external competition, it is in collaboration across corporate lines.  Collaboration is the new competition.

Which is why I noticed two things lately. 

One client suggested to me that they were cutting my rates because “times are tough and we’ve all got to share the pain.”  It clearly wasn’t meant as a way to keep their consultants happy; it was a way to gain advantage over them in a tough time.  That ticked me off.

Another client suggested they were having to cut back on my business—but they were very welcoming of other ideas, and never suggested issues with rates.  That made me like them.

I think that’s just how people work.  If they keep you but try to gain advantage, that stinks.  If they fire you but apologize for having to do it, you don’t feel so bad.  One you want to work with again, and one you don’t.

That’s the thing about tough times.  The people that treat you well when it counts are the ones who earn your loyalty.  This is not a recession: this is the down-half of a business cycle.  How you behave now determines the profit impact of the up-cycle.

Is your business model to make money by squeezing your partners when they’re down?  Or is your business model to make money by having committed partners when times are up?

You’d think that would be a no-brainer.  
 

Call for Submissions: April Carnival of Trust

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Just a reminder: midnight Thursday April 2, is the due date for submissions to the April Carnival of Trust.

In the nearly inconceivable case that you’ve not heard of the Carnival of Trust, it is a compilation of the Top Ten blogposts of the past month having to do in some way with the subject of trust: trust in relationships, business, politics, or society.

The host-ship of the Carnival is rotated each month. The host plays a critical role not only in selecting the blogposts for inclusion, but in adding some value of their own by commenting or adding context. Kind of like a really concise, insightful movie review.

This month we’re delighted to welcome our friends James Irvine and Trip Allen of Egyii (say it "edgy") out Singapore way.  A look at their site will suggest a competent, eclectic, experienced approach to business matters.  I look forward to that perspective informing the Carnival of Trust. 

You can submit your post for inclusion here. Good luck!

 

 

How Business Underestimates the Power of Belief

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The other day I had a conversation with a client about how to change belief systems in an organization.

In Hellhole, a disturbing article from the March 31, 2009 issue of The New Yorker (may be accessible online only to subscribers),  Atul Gawande writes about the effects of solitary confinement on prisoners, convincingly arguing that it amounts to torture.

The story has a lot to tell us about psychology and civil rights. It feels almost like trivializing to draw conclusions from it about business, but I’ll do so anyway.   It is an object example of the power of ideology—beliefs on steroids—to overcome data. So it has lessons for changing corporate beliefs.

Gawande describes rhesus monkey experiments from the 1950s, which evoked public revulsion against animal rights abuse. The monkeys—acquired as infants—were raised like hospitalized infants of the day. They were kept in isolation to prevent infection. This meant, however, they were raised without mothers.

They ended up obliterated socially, permanently withdrawn, incapable of social interaction.

Prisoners of war put in isolation routinely describe solitary confinement as the worst form of torture. What John McCain described about his North Vietnam experience was what Terry Anderson described in Beirut: severe mental debilitation. And it is precisely what we in the US impose on prisoners—more than any other country in history, and more than our own country did only 20 years ago.

The question Gawande poses for us is:

If prolonged isolation is—as research and experience have confirmed for decades—so objectively horrifying, so intrinsically cruel, how did we end up with a prison system that may subject more of our own citizens to it than any other country in history has?

The US now keeps about 25,000 to 100,000 people in solitary confinement. Worse yet, as Gawande says, “It wasn’t always like this. The wide-scale use of isolation is, almost exclusively, a phenomenon of the past twenty years.” A federal court ruled it torture back in the 1890s.

Does it work? The overwhelming answer is, no. It doesn’t reduce violence. The UK has abandoned the approach, and now has fewer prisoners in solitary than we do in Maine alone. It is hugely expensive. Most state prison commissioners are against it. A federal study recommended against it.

Yet even John McCain won’t label it torture. Nor has Barrack Obama. Prisoner commissioners won’t speak openly against it. 

Why? Because the people—meaning the American electorate of the last several decades—don’t believe it. If a politician were to suggest isolation is torture, he or she would rapidly become an ex-politician.

Instead, the American people have come to believe that bad behavior deserves punishment. Very bad behavior deserves more punishment. And a subtle jump occurs here—from arguing that people “deserve” punishment to arguing that punishment changes people or conditions.

This is wrong, as in "incorrect." Solitary confinement doesn’t change behavior or conditions. It doesn’t cure people. It makes it all worse.

But the fact that it is wrong is a pitiful thing compared to people’s beliefs.

In today’s business, beliefs are belittled. What matters is results, behaviors, outcomes—facts. We get there by data, numbers, analytics, metrics. Great managers are data-driven.

They are not. 

Most business people are as belief-hobbled and ideologically blinkered as any other human being, which is to say, a great deal.

Worse yet, one of the strongest belief systems in business today is that centering around corporate change: that it is driven by altering stimulus and response. Not unlike monkeys, or the reward-punishment cycle in prisons. This model is true generally—often not true specifically. It matters how we handle it.

Believing that we are primarily rational creatures is one of our more irrational of our beliefs—and one of the strongest as well.

Why B2B Salespeople Love Value Propositions – But Shouldn’t

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I wrote yesterday about how value propositions play a role in B2B sales analogous to models in economics. Useful, but not to be confused with what really happens.

In the real B2B world, buying decisions are far more emotional than salespeople—or buyers!—like to admit. And while salespeople will admit the truth of this, only the really natural salespeople actually incorporate it into their selling.

Why is that? Why are B2B salespeople afraid to bring emotional connectedness to the sales game? Even when they acknowledge its power?

Let me clarify what I’m talking about. I’m not talking about shooting the breeze, ‘how ‘bout them Bulls,’ or commenting about the kids’ pictures on the bookshelf. I’m not talking about cheap fake intimacy, scripted active listening, or golf outings.

I’m talking about genuine concern for the whole-person well-being of the buyer as individual, and the buying organization as a group. Why do most sellers find it hard to go there?

It’s partly about fear, of course—it usually is. But in this case, something else is at work. It’s an inner conflict that too many salespeople contain within themselves: a battle between the desire to help other people, and the feeling that they must betray those same people to serve the capitalist imperatives of their corporate parent.

In other words: most salespeople think they are fundamentally at war with their customers. They think that business is a zero-sum game. They feel that “good social skills” exist ultimately to con the customer. (A study once showed that insurance salespeople all felt trust was very important, but they themselves were extremely untrusting of others).

They are hardly crazy to think this way. The reigning strategic model of our time is based on Five Forces of competition, including competition with our customers and our suppliers. Salespeople, whose job it is to make nice with customers, are simply internalizing the contradiction—no surprise if they feel schizophrenic.

As a result, they are torn. They know they have powerful skills—they can seduce buyers. But they believe those skills must be deployed on behalf of their company—and therefore against their customers’ interests. Hence to sell well is to harm the people they sell to.

Psychologically, there are only three resolutions for this dilemma. Some salespeople give in to the dark side and simply accept that their role is to move the merchandise, gain share of wallet, get the sale.

Most, I suspect, just live with the contradiction and suppress thinking about it.

But the really great salespeople rise above it. They realize that the best short-term performance comes not from managing short-term, but from managing long-term.

That means relationships–not transactions. And relationships mean emotional connections.

The great salespeople ignore the sales managers’ pleas to tweak end of quarter numbers, because they are truly in it for their customers. They know not only that long-term relationships are more profitable, but also that you don’t get them by re-inventing value propositions on every sale.

You get relationships the same way you get them in the real world. You take risks, you invest, you absorb the minor irritations, and subordinate your ego to the larger good of the relationship.

The best salespeople have opted out of the “competition” game. They do not obsess about “closing,” and don’t worry too much about short-term metrics. They don’t constantly ask themselves how they’re doing, but rather whether they’ve been doing enough right for their customers and for the relationship. They know that sales are simply the fruit on the tree of relationships.

They are other-oriented, not self-oriented; more collaborative than competitive (at least, with their customers). And above all, they don’t shy away from deeply emotional selling. Because they care—big time and long term. And it pays off.

Those people don’t sell by economic value propositions. They sell by personal commitment. They have resolved the schizophrenia problem by squarely opting for the side of the relationship, and realizing there really is no contradiction between doing that and enjoying great economics.

And paradoxically, they do better as a result. Not because they try harder to do better. But because doing better is the byproduct, the side-benefit, of doing the thing that val-prop selling just doesn’t do.

Trust-based selling just works.

Why Value Propositions are Overrated

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Freud famously wondered, ‘what do women want?’

B2B sales people wonder, ‘what do buyers want?’ Unlike Freud, however, they think they know the answer.

The received wisdom is, of course, that buyers want “a compelling value proposition.” As John Caddell puts it in “Another kind of value proposition”

The term “value proposition” has been in vogue in business-to-business sales for twenty years or more. In short, it means that a product for sale must, in essence, create more money (in increased revenue or reduced costs) that it costs to purchase. “If you buy my widget for $x, you’ll get $5x back over the next 10 years,” or something like that.

…The value proposition is a very logical concept. That is its beauty and its limitation.

Just one problem, as Caddell points out: it’s demonstrably not true.

Or, to be more precise, it explains far less about buying behavior than most B2B sellers like to believe. So—truth notwithstanding, the economic form of a “value proposition” remains front and center in B2B sales.

Jeffrey Gitomer puts it nicely: “People buy with their heart—then justify it with their brain.”

The late Bill Brooks, with Tom Travesano, neatly summarized a brilliant survey of several thousand buyers thusly: “People prefer to buy what they need from people who understand what it is that they want.” Not much said there about value propositions.

What “value proposition” doesn’t usually convey is precisely this sense of emotional connection. Caddell notices this too in his recent “customer anthropologizing:”

I haven’t heard one customer say, “I would recommend Company Y because we were able to increase our inventory turns and thereby reduce working capital requirements.”

Instead, they say things like, “I really like that they are easy to reach and work hard to solve my problems when I have them.” Or: “They could have nickeled-and-dimed me when I had to make some changes during implementation, but they didn’t do that.”

In other words, what sticks with customers, and makes them recommenders, are things like “reliability,” “caring about my business,” “saving me time,” “making me smarter.” In other words, the deeper, emotional, fuzzy stuff.

Exactly.

Yet, there’s even more. Sellers can be persuaded they need to be more emotional. But then they confront a next-level problem.

They think being friendly is the opposite of making money, and turn a simple concept into an unnecessary, fake ethical dilemma. They say either:

1. I can’t get too close to them—I have to make the sale, or
2. If I get the sale by being close to them, then I’ve conned them.

Such unnecessary angst.

It seems we may need Freud after all.

Stay tuned for the next installment in the story of Value Propositions gone astray.

Random Acts of Kindness

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One cardinal blogging rule I try to live by is to say something original, something beyond “yeah, and I agree!”

But every once in a while, you can’t improve on the original.

danah boyd (that’s not a typo) is a Berkeley PhD currently working for Microsoft Research, while at Harvard’s Berkman Center for Internet and Society. She made her career (so far) by studying online social networks for teens—Napster, Friendster, Second Life, and everywhere in between.

She was speaking at the recent SXSW conference in Austin. Here, slavishly quoted, is what happened to her on the way back to Boston:

Due to poor planning, G and I were on different flights back. I was already booked on the early flight and had already been assigned my upgrade. So when we reached DFW, we raced across the airport to get him on standby. Success, but of course, he got stuck in a middle seat in coach. Standing around waiting to board, I’m feeling all mega-guilty about being in first while he’s in coach so I’m more affectionate than normal.

The plane boards and I proceed to 1A. The guy sitting in 1B looks at me and says, "Aren’t you traveling with someone?" After I nod, he says, "Why don’t I switch with him?" I explain that he’s in coach and he shakes his head to say "no problem" but I proceed to protest and point out that he’s in a center seat in coach and he protests further by saying that he flies all the time and no problem, no problem, I should sit with my partner…

By this time, first is wide-eyed. I mean, what business traveler in their right mind wants to give up a bulkhead first seat to sit in a center in coach? But before I manage to protest louder, he grabs his stuff and heads back to coach. The woman behind me and I laugh uncomfortably with big eyes, verbalizing what we were thinking: "did that really happen?"

Sure enough, he proceeds to sit in coach. The flight attendants are astonished and find him a seat in the back with more room and continue on to send back ice cream and food and whatnot. At one point, I asked one of the flight attendants how he was doing and she smiled and said that he was an extremely kind man and that the flight attendants were all loving him. That she had never in her day seen someone give up a first class seat as a random act of kindness. We were all quite floored.

The truth is that I was completely flabbergasted and without a script in which to operate. I never caught the man’s name. I couldn’t find him after we landed. I never really got to properly say thank you. But, Mr. Nice Businessman, if you’re out there, I want you to know that your random act of kindness made me a giddy happy kid; flying home next to G was really wonderful. And you made a lot of people smile. So THANK YOU!

I’ll resist my temptation to comment beyond thanks danah!