Category Archives: Leadership

Linking Sustainability Performance and Executive Compensation

It is no secret that incentive elements of executive compensation arrangements have long been tied to financial performance and increasing shareholder value as demonstrated by improvements in share prices.  Certainly financial success is important to the long-term viability of the business and provides the CEO and other senior executives with access to the capital necessary to remain competitive and pursue and commercialize innovative products, services and technologies; however, there is growing interest among stakeholders, including many institutional investors still very interested in financial returns, to create links between executive compensation and sustainability measures (i.e., metrics based on environmental, social and governance targets).  A Global Compact publication recommended that the duties and responsibilities of the compensation committee include:

  • Ensuring that sustainability issues are included in the compensation philosophy (e.g., the intent to reward sustainability performance and innovation, pay a living wage, ensure equitable pay, ensure appropriate CEO to worker pay ratios and limit excessive compensation, etc.)
  • Drafting a CEO position profile/description that includes reference to sustainability experience, values and leadership, fostering a sustainability culture, incorporating sustainability into corporate strategies and enterprise risk management, ensuring effective internal controls and management systems for sustainability and maintaining quality stakeholder relationships
  • Mandating that the CEO’s annual performance plan and evaluation/review include sustainability objectives, leadership and competencies
  • Implementing succession planning and management/leadership development programs that include sustainability competencies, leadership and values alignment; incorporate sustainability as a factor in position profiles, development plans and career planning for executive leadership and potential successors; and integrate sustainability into talent management strategies and discussions

While a strong business case can be made for including sustainability in the overall strategic goals and objectives for a company and, in turn, integrating sustainability into the elements of executive compensation, it is still far from settled practice.  In fact, surveys conducted by executive compensation consultants among S&P 500 companies have found that only 2% of the companies tied voluntary environmental targets (e.g., reduction of greenhouse gas (“GHG”) emissions) to executive compensation and that just 2.6% of the companies had a performance metric tied to diversity. Several practical issues need to be overcome in order for sustainability performance to take a more central role in executive compensation. For example, compensation arrangements become unworkable if they attempt to address too many metrics. According to Burchman and Sullivan, compensation consultants have traditionally recommended that compensation plans focus on no more than five metrics—one or two financial metrics, such as sales growth or earnings per share, and two or three nonfinancial metrics, in areas such as quality or innovation—and cautioned that including additional metrics, such as sustainability, will likely dilute executive focus.  Another problem, at least in the US, is that regulators have been slow to prioritize sustainability and environmental risks in their pronouncements regarding reporting; however, regulators outside the US, notably in Europe, have moved aggressively to formerly include sustainability into corporate governance frameworks,  voluntary reporting on sustainability has become increasingly prevalent and companies are becoming more sophisticated with respect to integrating sustainability and financial performance in the disclosures they make to their stakeholders.  Advances in sustainability reporting provide a foundation for constructing sustainability metrics that can be added to the financial results and measures of quality and innovation.

While the compensation and organizational development committee is the body of the entire board of directors that focuses its efforts on executive compensation, significant actions in that area must still be reviewed and endorsed by all of the directors.  Directors have long considered financial performance and long-term shareholder value to be the bedrock of their fiduciary responsibilities; however, in recent years boards have shown a willingness to “explicitly embrace the proposition that sustainability is a core indicator of the CEO’s and internal company’s responsibilities and performance”.  The key, according to Burchman and Sullivan, is to focus on those environmental, social and governance (“ES&G”) factors that are “relevant to a company’s business” rather than attempting to address all 17 of the sustainable development goals identified by the United Nations.  Any ES&G factor recommended for inclusion in executive compensation performance metrics must be grounded in a solid business case and accompanied by a clear plan of action with milestones that are reasonably within the scope of the CEO’s direct authority—in other words, as explained by Burchman and Sullivan, “well-defined metrics tied to concrete plans”.  Burchman and Sullivan noted that if companies are not yet able to define a specific sustainability metric, the board can still reasonably incentive the CEO and other executive to “do no harm” by retaining the right, which should be laid out specifically in the executive compensation policy, to reduce incentive awards in case of substantial damage to the company’s business or reputation due to a failure to take adequate precautions (e.g., an oil spill or harm to workers in the supply chain due to malfeasance by the company’s supply chain partners that should have been discovered).

The future of linking sustainability performance to executive compensation may be anticipated by observing the steps that have already been taken by a handful of high profile companies around the world, especially firms operating in industries where it is clear that operational activities can and do have significant and visible environmental and social impacts.  For these companies it is already fairly straightforward to make the business case for targeted, and relatively easy to track, sustainability initiatives such as managing and reducing GHG emissions and energy or water use, improving workplace diversity and enhancing employee safety.  What is needed is for companies to make the pitch to investors that pursuit and achievement of these goals is not only the “right thing to do” from an environmental and/or social perspective but also will reap financial benefits in the form of cost savings, better risk management and a stronger brand that will attract new customers and talented workers.  Metrics must be creatively designed given the end results of most sustainability initiatives cannot be learned for many years, often decades after they are first launched.  In these situations, executives must be incentivized by rewards that are based on achieving clearly defined interim milestones.

Sources for this article included The Essential Role of the Corporate Secretary to Enhance Board Sustainability Oversight: A Best Practices Guide (United Nations Global Compact, September 2016); S. Burchman and B. Sullivan “It’s Time to Tie Executive Compensation to Sustainability”, Harvard Business Review (August 17, 2017),; K. Larsen, “Why tying CEO pay to sustainability still isn’t a slam dunk”, GreenBiz (May 26, 2015); and In-Depth: Linking Compensation to Sustainability (San Francisco: Glass Lewis, March 2016).

This article is adapted from material in Sustainability and Corporate Governance: A Handbook for Sustainable Entrepreneurs, which is prepared and distributed by the Sustainable Entrepreneurship Project and can be downloaded here.

Alan Gutterman is the Founding Director of the Sustainable Entrepreneurship Project, which engages in and promotes research, education and training activities relating to entrepreneurial ventures launched with the aspiration to create sustainable enterprises that achieve significant growth in scale and value creation through the development of innovative products or services which form the basis for a successful international business.  Visit the Project’s Library of Resources for Sustainable Entrepreneurs to download handbooks, guides, articles and other materials relating to sustainable entrepreneurship and keep up with the Project’s activities by following Alan on LinkedInTwitter and Facebook.

Compensation Philosophy

The compensation and organizational development committee plays an essential role in setting the overall tone for the company’s philosophy with respect to rewards and incentives generally and executive compensation in particular.  Among other things, the members of the committee are expected to continuously review and assess the company’s executive compensation philosophy and provide counsel and guidance to the CEO and leaders of the human resources function with respect to alternative approaches to rewarding employees for the work they perform on behalf of the company.

When preparing the statement of the company’s executive compensation philosophy the committee should begin with a description of the primary purposes of the executive compensation program, such as attracting, retaining and rewarding talented leaders who can achieve sustainable and profitable growth for the company’s businesses and maximize the long-term value of the company for its shareholders and other stakeholders.  The statement of philosophy is often broken out into several categories, each of which are considered to be important for recruiting and retaining the best people to lead the organization.  For example, realizing that qualified and experienced leaders are highly sought after it is essential that companies be prepared to offer compensation packages that are competitive, which means that the statement of philosophy should incorporate the following activities:

  • Regularly compare the company’s total compensation levels against comparable companies in each of the industries from which the company is likely to draw executive talent, with particular emphasis on salary levels and short and long term incentives, to ensure the ongoing competitiveness of our compensation program
  • Measure the competitiveness of compensation levels in the countries and regions where the company operates, and utilize compensation benchmarks from multiple geographic markets for executives with international responsibilities
  • Use median (50th percentile) compensation values reported by the company’s comparator group companies as a primary reference for establishing target amounts for each element of compensation, and for maintaining competitive total compensation levels
  • Consider factors related to the executive’s potential impact on the company’s results, scope of responsibility and accountability, and reporting structure in determining appropriate compensation levels

It is necessary, but not sufficient, for companies to offer competitive compensation arrangements to their executives.  Compensation plans must also motivate executives to consistently deliver superior performance and this means ensuring that executives have a significant proportion of total annual compensation contingent upon achieving objective measures of financial and operating performance; establishing an appropriate “mix” of compensation elements to ensure an appropriate and balanced focus on short- and long-term results; and preserving a strong and direct relationship between business and individual performance, and the short and long term compensation earned by executives.  Committees should strive to create incentive arrangement that provide executives with opportunities to achieve compensation levels comparable with the highest earners among their peers at other companies; however, incentives should be tailored so that they are aligned with the company’s long-term strategic objectives and not just winning compensation battles with competitors.

Finally, the compensation package should be built in a way that ensure that executives are properly engaged with the pursuit and achievement of the company’s long-term strategic goals and meeting the expectations of the company’s stakeholders.  Engagement provides a foundation for building a deep and committed relationship between the executive and the company and makes the executive a stronger ambassador of the company to both internal and external stakeholders.  In order to achieve engagement, the company’s executive compensation philosophy must include linking a material portion of executive compensation to measures of business performance for which the executive has direct line of sight and accountability; ensuring that the company’s compensation programs and practices encourage appropriate risk taking and discourage inappropriate risk taking; and ensuring that senior executives meaningfully share the risks and rewards of ownership with the company’s shareholders by basing a portion of their total compensation on share price performance.  While compensation arrangements have traditionally emphasized achievement of financial goals, mounting pressure from institutional investors and other stakeholders has driven companies include sustainability issues in their executive compensation philosophies and explicitly provide that sustainability performance and innovation will be tracked and that a significant element of executive rewards will be based on demonstrable success in those areas.

This article is adapted from material in Sustainability and Corporate Governance: A Handbook for Sustainable Entrepreneurs, which is prepared and distributed by the Sustainable Entrepreneurship Project and can be downloaded here.

Alan Gutterman is the Founding Director of the Sustainable Entrepreneurship Project, which engages in and promotes research, education and training activities relating to entrepreneurial ventures launched with the aspiration to create sustainable enterprises that achieve significant growth in scale and value creation through the development of innovative products or services which form the basis for a successful international business.  Visit the Project’s Library of Resources for Sustainable Entrepreneurs to download handbooks, guides, articles and other materials relating to sustainable entrepreneurship and keep up with the Project’s activities by following Alan on LinkedInTwitter and Facebook.

Developing Inside-Outside Leaders

A number of researchers, including Joseph Bower, a professor at Harvard Business School, and Jim Collins, the author of “Good to Great”, have argued that companies perform better when they appoint insiders as their CEO.  However, the problem that many companies face when it comes time to appoint a new CEO is that they have been managed with leadership development as an objective, which means that they often feel they have no choice but to turn to an outsider to fill the position.  Bower observed that both insider and outsider CEOs have strengths and weaknesses at the start: insiders know the company and its people, but are often blind to the need for radical change; and outsiders see the need for a new approach, but are able to effectively make the necessary changes because they don’t know the organization or industry sector well enough.  The answer, according to Bower, is a dedicated effort by companies and aspiring leaders within those companies to nurture “inside-outside leaders”, described as “internal candidates who have outside perspective.

According to Bower, companies need to have a pool of CEO candidates who have the following four core skills necessary in order to move the firm forward and produce the desired results: the ability to judge where the world and the company’s markets are headed, and frame a vision of how the company should reposition itself; the ability to identify (and if needed recruit) the talent that can turn this vision into reality; an understanding, in a deep and substantive way, of the problems the company faces; and comprehensive knowledge of how the company really works, including being fully embedded into the firm’s administrative inheritance and deep and trusting relationships with key players.  While every CEO needs to have a clear outside perspective, three of the four skills mentioned by Bower require extensive inside knowledge that usually has been accumulated over a long span of time while performing roles and completing activities that expose a person to challenges specific to the company and its industry.

Bower argued that his research supported the proposition that:

 “. . . [T]he best leaders are … people from inside the company who have somehow maintained enough detachment from the local traditions, ideology, and shibboleths to maintain the objectivity of an outsider. They know the traditions and the people of the company but also know how those will have to change. They know what best-in-class looks like as well as how the class will change. They’re able to look at the organization’s administrative heritage as if they had just bought the company.”

Companies and candidates for leadership positions have a role to play in nurturing inside-outsider leaders.  From the company’s side, it all begins with recruiting from a diverse pool of individuals who are both highly talented in their area of specialization and have the potential to be general managers.  Hopefully, these individuals, given the right opportunities, will develop the ability to manage effectively in the context of the company’s strategy, systems, and culture, which means they will become good “insider leaders”.  The challenge for the company is to provide these candidates with resources and support to develop an outside view, and this should be a core goal of the company’s leadership development program.  However, prospective leaders need to manage their own development from the beginning of their careers with the company, and Bower provided the following list of questions that aspiring CEOs should continuously consider as they move down their paths within the company and take on different roles:

At Recruitment:

  • Why are you being hired? Is it just for a job today, or is there a career path?
  • Is this a company where talented people stay for many years? If not, will the experience it provides make you attractive to future employers?
  • How will the company help you grow? What pattern of assignments will you get? Will you have time to learn?
  • What kind of mentoring will you receive?
  • What kind of training is offered? What is done in-house? What is done through outside programs?
  • How soon can you run a business? If you don’t get general management responsibility early, you can’t learn the job.
  • Is this a cookie-cutter program, or are young people given the chance to try out new ideas?

Once You Are On The Job:

  • Do you meet your numbers?
  • Do you help others? Are you developing their talent?
  • What do you do for your peers? Are you just their in-house competitor?
  • When you manage up, do you bring problems—or problems with possible solutions?
  • Are you transparent? Managers who get a reputation for spinning events gradually lose the trust of peers and superiors.
  • Are you developing a group of senior-manager friends who know you and are willing to back your original ideas with resources?

Self-Development:

  • Is your network expanding outside your division? What about outside the company? Have you visited with customers, vendors, and related organizations? If you have a union, have you ever talked with its leaders?
  • Do you know individuals in your community who aren’t businesspeople? You can learn more about what you don’t know from them than from people just like you.
  • Do you attend seminars or expand your general knowledge beyond your immediate business?
  • Are you involved with the community in some way? You can develop many leadership skills by working with an outside organization.

Living a Balanced Life:

  • Are you there for your family? Managing can be lonely—support of family can be invaluable.
  • Have you cultivated a relationship with someone—spouse, close friend, mentor—who tells you the truths you don’t want to hear? The higher you rise in your organization, the more your colleagues will tell you what they think you want to hear.

The questions above shed further light on the role that the company can play in the development process for its prospective leaders.  In particular, performance evaluation, and support and feedback from experienced mentors, is essential for leadership candidates as they wind their way through a series of increasingly complex assignments over a number of years.  Candidates needed to be rigorously trained in planning, budgeting, performance evaluation and compensation in order to understand how to develop and present deliverable plans and become accountable for execution of those plans.  Mentors also need to work with leadership candidates to nurture, yet temper, their tendency to think “outside the box”, a valuable outside trait yet one that must be managed carefully so as to not tear to quickly at the inside culture and established ways of doing things.  As Bower explained: “The trick is to give the young manager the time and leeway to turn a new idea into a great business without giving him the rope to hang himself.  The mentor must make sure resources are adequate but not excessive, dole them out stage by stage, and then wait and see. The mentor, in other words, is a kind of venture capitalist, teaching potential leaders how to make new ideas work.”

To learn more, see J. Bower, “Solve the Succession Crisis by Growing Inside-Outside Leaders”, Harvard Business Review, 85(11) (November 2007).

Alan Gutterman is the Founding Director of the Sustainable Entrepreneurship Project, which engages in and promotes research, education and training activities relating to entrepreneurial ventures launched with the aspiration to create sustainable enterprises that achieve significant growth in scale and value creation through the development of innovative products or services which form the basis for a successful international business.  Visit the Project’s Library of Resources for Sustainable Entrepreneurs to download handbooks, guides, articles and other materials relating to sustainable entrepreneurship and keep up with the Project’s activities by following Alan on LinkedInTwitter and Facebook.

Networking and Leadership Development

Hoppe and Reinelt suggested a framework for classifying networks with a particular focus on networks that organizational leaders might join as part of their leadership development efforts in order to gain access to resources and other support.  They noted that while leadership networks may be intentionally created, they also often emerge from a strong need or desire of the members of the networks to become and remain connected.  The four types of networks in their framework were as follows:

  • Peer Leadership Network: A peer network is based on social ties among leaders who are connected with one another on the basis of the shared interests and commitments, shared work, or shared experiences. A peer network provides leaders with access to resources that they believe are trustworthy and can be used by leaders to share information, provide advice and support, learn from one another and collaborate together.  Gaining access to a peer network is often one of the fundamental goals of a leadership development program.
  • Organizational Leadership Network: The social ties established in an organizational leadership network are focused on increasing performance.  Ties in this type of network are often informal and exist outside of the formal organizational structure and provide leaders with the means to consult with colleagues outside of their departments or business units in order to solve problems more quickly.  In some cases, organizational networks are intentionally created, in the form of cross-functional teams or communities of practice, to bridge gaps in the formal organizational structure that may be impeding performance and progress toward organizational goals (e.g., completing a new product and/or delivering services to customers more efficiently).
  • Field-Policy Leadership Network: Leaders who share common interests and a commitment to influencing a field of practice or policy may come together to form a network that can be used to shape the environment surrounding the topic of mutual interest (e.g., frame the issue, clarify underlying assumptions and/or establish standards for what is expected of key stakeholders). This type of network can be a powerful tool for collective advocacy on issues and policies that are of common importance to multiple organizations and can facilitate mobilization of support and allocation of resources.
  • Collective Leadership Network: A collective leadership network, which is based on a common cause or share goals, emerges and enlarges over time.  The process begins with local groupings that eventually interact with groups in other areas to form larger networks and a much broader community that allows members to pursue specific goals while feeling a part of something that is larger than oneself.

Hoppe and Reinelt emphasized that the framework was largely for illustrative purposes and that many networks are actually hybrids of multiple categories or simply fail to fit neatly into one of their network types.  What is important from a leadership development perspective is the potential value of networks to current and prospective leaders in terms of access to information, advice, support and other learning benefits.  Networking also provides leaders with a foundation for identifying potential collaborators for new initiatives and impacting the external environment of the organizations they lead.

The relative position of leaders within their networks is an important consideration.  In some cases, leaders enjoy strong ties to others members of their network (“bonding connections”) and thus have a feeling of affiliation and connectivity to a trusted community where interactions are familiar and efficient.  However, leaders also need to have “bridging” or “brokerage” connections which, while weaker than bonding connections, nonetheless provide them with essential paths to accessing new resources and developing new opportunities for innovation and profit.  A “bridger” is a person in a network who has connections to different clusters and is typically someone who is deeply embedded in relaying information among other network members.  In this capacity, a leader can gain recognition and trust as a key broker of access and knowledge and as someone who is positioned to move projects that require collaboration from people in different parts of the organizational network.  As a leader’s reputation grows, he or she is more likely to become a “hub” in a network, which means someone who is a highly-sought resource for advice by other members of the network. The influence of a hub increases to the extent that the persons who seek his or her advice are themselves relatively more influential in the network.

To learn more, see B. Hoppe and C. Reinelt, “Social Network Analysis and the Evolution of Leadership Networks”, The Leadership Quarterly, 21 (2010), 600, 601.  This post is an excerpt from Chapter 2 (“Leadership Traits and Attributes”) of “Leadership: A Library of Resources for Sustainable Entrepreneurs”, which is prepared and distributed by the Sustainable Entrepreneurship and available here.

Becoming a Sustainable Leader

Sustainable leadership focuses on bringing about dramatic changes inside and outside organizations and calls for prospective sustainability leaders to be aware of the various traits, styles, skills and knowledge that he or she should have; the internal and external leadership actions that he or she should be taking; the leadership practices and principles that he or she should be following and disseminating and embedding throughout the organization; and the habits that have come to be associated with effective sustainability leadership.  There is no universal curriculum for becoming a sustainable leader and things like traits, actions and practices will vary depending on the personality and temperament of the leader and the context in which he or she is operating; however, the elements listed below are based on the work of several researchers who have analyzed the training, experiences and practices of sustainability leaders in organizations selected from many countries and sectors.  It is hoped that these elements can provide a foundation for the continuous study and work that is needed in order to become and remain and effective sustainable leader.

  1. Traits
  • Caring and morally-driven
  • Honesty and trustworthiness in actions and relationships (“keep your word”)
  • Systemic holistic thinker
  • Enquiring and open-minded
  • Self-aware and empathetic
  • Visionary, tenacious and courageous
  • Concern for disparities and injustices and commitment to human rights
  • Respect for diversity and different ways of working, cultures and mindsets
  • Passion for sustainability and commitment to a sustainable lifestyle
  1. Styles
  • Inclusive and engaging
  • Collaborative
  • Consensual decision making
  • Empowering and trusting
  • Visionary and creative
  • Altruistic (guiding and helping others with the ultimate goal of improving their wellbeing)
  • Servant (transcending self-interest to serve the needs of others)
  • Radical
  1. Skills
  • Manage complexity and unpredictability
  • Bridge disciplines and sectors
  • Communicate vision
  • Exercise judgement
  • Challenge and innovate
  • Staff and team management
  • Managing diversity in the workplace and socially
  • Think and plan long term
  1. Knowledge
  • Competence in domains relevant to organizational goals and purposes
  • Awareness of ecological, economic, political, cultural and community contexts
  • Global challenges and dilemmas
  • Interdisciplinary connectedness
  • Change dynamics and options
  • Organizational influences and impacts
  • Awareness of stakeholder roles and diverse stakeholder views 
  1. Internal Leadership Actions 
  • Organizational culture and reach
  • Informed decisions
  • Strategic direction
  • Governance structure
  • Role of leadership
  • Management incentives
  • Performance accountability
  • People empowerment
  • Learning and innovation
  1. External Leadership Actions 
  • Cross sector partnerships
  • Sustainable products and service
  • Sustainability awareness
  • Context transformation
  • Stakeholder transparency 
  1. Leadership Practices
  • Commitment to training and staff development programs
  • Proactively striving for amicable labor relations
  • Development of strategies for staff retention
  • Shifting compensation programs toward metrics that valued contributions to customer loyalty and to innovation
  • Promoting environmental and social responsibility
  • Initiating communications with multiple stakeholders and transparently taking into account and balancing their interests
  • Developing and embedding a shared vision for the goals of the business
  1. Habits
  • Taking a long-term perspective in making decisions
  • Fostering systemic innovation aimed at increasing customer value
  • Developing a skilled, loyal and highly engaged workforce
  • Offering quality products, services and solutions
  • Developing and maintaining the trust of organizational members and stakeholders
  • Committing to and engaging in ethical behavior and decision making and establishing ethical values and standards throughout the organization

For additional information, see W. Visser and P. Courtice, Sustainability Leadership: Linking Theory and Practice (Cambridge UK, University of Cambridge Institute for Sustainability Leadership, 2011), 1; G. Avery and H. Bergsteiner, “Sustainable leadership practices for enhancing business resilience and performance”, Strategy and Leadership, 39(3) (2011), 5, 6; and D. Timmer, J. Creech and C. Buckler, Becoming a Sustainability Leader (Winnipeg CN: International Institute for Sustainable Development, 2007), 56, 59.  To learn more about Sustainable Leadership, see the chapter on that subject available as part of “Leadership: A Library of Resources for Sustainable Entrepreneurs”, which is prepared and distributed by the Sustainable Entrepreneurship and available here.

Coach Dean Smith and Practicing Servant Leadership

An interesting and entertainment perspective on the practice of servant leadership comes from an article published online on the Championship Coaches Network soon after the death of Dean Smith, the legendary long-time basketball coach at the University of North Carolina who collaborated with Dr. Jerry Bell to write and publish a book, “The Carolina Way”, that included many of Smith’s ideas for effective coaching and leadership.  The article used quotes from the book to illustrate “10 Leadership Lessons from Coach Dean Smith” and the author observed that “Coach Smith was practicing servant leadership long before it has become the popular management principle it is today”.  In fact, the following quotes from the book are quite clear on how Smith approached his relationship with his players: “The coach's job is to be part servant in helping each player reach his goals within the team concept. (p. 147)” and “When I became head coach at North Carolina, I tried to put myself in the shoes of the players. How did they want to be treated? How could I help them reach their potential? How could I make the game fun and enjoyable and still work them hard? (p. 200)” 

Other key characteristics of servant leadership highlighted in the article using quotes from the book included the following: 

  • Genuine caring for followers: “The most important thing in good leadership is truly caring.  The best leaders in any profession care about the people they lead, and the people who are being led know when the caring is genuine and when it's faked or not there at all. (p. 4)”Smith was famous for building and maintaining long-term relationships with all of his players that extended far past the day that a player’s eligibility ended.
  • Willingness and ability to earn commitment of followers: “A leader's job is to develop committed followers. Bad leaders destroy their followers' sense of commitment. (p. 33)” Smith argued that leaders can no longer demand or expect automatic respect from their followers and must be prepared to earn commitment, respect and trust from followers, a process that requires leaders to act with integrity and credibility.
  • Confidence building:  “I'd get on the players if I needed to, but it was also important to praise them for the good things they had done, especially on the road, where they faced enough adversity without my piling on. I wasn't as critical during games as I was at practice. Players needed confidence during games more than criticism. (p. 240)” While constructive criticism is necessary for skill building and correcting errors that are undermining performance, leaders should be sensitive to how and when feedback that is likely to be perceived as negative is delivered.
  • Team building:  In the book Bell explained Smith’s approach to team building as follows: “Part of Dean Smith's greatness as a leader lies in his ability to get his players to get beyond understanding their roles to embracing them. But their commitment starts with clarity. If employees don't understand their roles, their specific areas of responsibility, it's almost impossible for the company to work well as a team. Confusion will reign. Divided responsibility ends up being nobody's responsibility. (p. 137)” The article emphasized the need for leaders to invest time and effort with every employee, not just the “stars”, to set and define their roles within the organization, explain how they are contributing to the organization, and establish a plan for them to follow in order to expand and change their roles as time goes by.

The other principles of leadership highlighted in the article, although not as directly related to servant leadership as those outlined above, were nonetheless complimentary and flowed naturally from Smith’s fundamental approach to relating to his players.  For example, “fair and consistent” punishment was mentioned as an element of team building and inconsistent punishment will almost certainly undermine a leader’s attempt to establish and maintain commitment from followers.  In addition, by caring for players from the moment they entered the program and continuously working with them to define their roles and build confidence Smith was able to develop a group of senior leaders who could mentor younger players and tell them what was expected of them and what it would take to achieve their goals.  Smith also made the process of confidence building easier and clearer by creating a daily “emphasis” and “thought”, based on Smith’s core principles and philosophies, which became the focal points of teaching and reinforcement during practices.  Finally, Smith built credibility among his players by demonstrating through his words and actions that while team performance, and winning, were very important and certainly a source of pressure for everyone involved, his priorities with respect to his players were not grounded in results on the court but on helping them to get a good education and become good citizens.

The source for this post was “10 Leadership Lessons from Coach Dean Smith”, Championship Coaches Network (blog). See also D. Smith and G. Bell, The Carolina Way: Leadership Lessons from a Life in Coaching (New York: The Penguin Press, 2004).  Please download this excerpt on practicing servant leadership from Leadership: A Library of Resources for Growth-Oriented Entrepreneurs.

Principles of Leadership and Organizational Culture at Amazon

Kantor and Streitfeld offered a captivating and often dramatic picture of elements of the organizational culture and climate at Amazon in an August 2015 article that appeared in the New York Times.  According to the article, new employees are immersed in the following “leadership principles” which are “inscribed on handy laminated cards” and posted on the company’s website and which serve as guides for them to break the “poor habits” they learned at their previous jobs and on how they are expected to interact with customers, co-exist with their colleagues and assess their own performance:

(1)        Customer Obsession: Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.

(2)        Ownership: Leaders are owners. They think long term and don’t sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own team. They never say “that’s not my job.”

(3)        Invent and Simplify: Leaders expect and require innovation and invention from their teams and always find ways to simplify. They are externally aware, look for new ideas from everywhere, and are not limited by “not invented here.” As we do new things, we accept that we may be misunderstood for long periods of time.

(4)        Are Right, A Lot: Leaders are right a lot. They have strong business judgment and good instincts.

(5)        Hire and Develop the Best: Leaders raise the performance bar with every hire and promotion. They recognize exceptional talent, and willingly move them throughout the organization. Leaders develop leaders and take seriously their role in coaching others.

(6)        Insist on the Highest Standards: Leaders have relentlessly high standards – many people may think these standards are unreasonably high. Leaders are continually raising the bar and driving their teams to deliver high quality products, services and processes. Leaders ensure that defects do not get sent down the line and that problems are fixed so they stay fixed.

(7)        Think Big: Thinking small is a self-fulfilling prophecy. Leaders create and communicate a bold direction that inspires results. They think differently and look around corners for ways to serve customers.

(8)        Bias for Action: Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk taking.

(9)        Frugality: We try not to spend money on things that don’t matter to customers. Frugality breeds resourcefulness, self-sufficiency, and invention. There are no extra points for headcount, budget size, or fixed expense.

(10)      Vocally Self Critical: Leaders do not believe their or their team’s body odor smells of perfume. Leaders come forward with problems or information, even when doing so is awkward or embarrassing. Leaders benchmark themselves and their teams against the best.

(11)      Earn Trust of Others: Leaders are sincerely open-minded, genuinely listen, and are willing to examine their strongest convictions with humility.

(12)      Dive Deep: Leaders operate at all levels, stay connected to the details, and audit frequently. No task is beneath them.

(13)      Have Backbone; Disagree and Commit: Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.

(14)      Deliver Results: Leaders focus on the key inputs for their business and deliver them with the right quality and in a timely fashion. Despite setbacks, they rise to the occasion and never settle.

New employees are given quizzes after a few days on the job and those able to achieve a perfect score on their recollection and understanding of the principles are given a virtual award that allows them to proclaim “I’m Peculiar”, an important indicator of the company’s intent to develop and maintain a unique workplace in which employees are held to standards described by the company itself as “unreasonably high”.

Parts of the article suggested that Amazon was an extremely difficult place to work, a place where “workers are encouraged to tear apart one another’s ideas in meetings … [and] … toil long and late (emails arrive past midnight, followed by text messages asking why they were not answered)” and an internal phone directory provides instructions to employees on how to send secret feedback to colleagues’ supervisors that employees complained was often used to sabotage their work.  The article included stories of complaints about 80-hour work weeks, interrupted vacations and little tolerance from managers and co-workers when employees struggled with life-threatening illnesses and family tragedies.

Jeff Bezos, the company’s founder who had successfully built Amazon to become the most valuable retailer in the US and had himself become the fifth wealthiest person in the world as of 2015 according to Forbes, encouraged employees to read the article, but commented that “… [t]he article doesn’t describe the Amazon I know or the caring Amazonians I work with every day … [and] … I don’t think any company adopting the approach portrayed could survive, much less thrive, in today’s highly competitive tech hiring environment”.  Needless to say, the article created a high level of controversy and debates among proponents and opponents of the Amazon culture emerged and persisted; however, the article was a useful case study of the development, articulation and application of organizational culture.

The “principles” listed above provide a map to the core characteristics of the company’s organizational culture and were explicitly developed by Bezos himself during the company’s early growth period in the mid-1990s.  The article noted some of the things that Bezos didn’t want to see in his business model—bureaucracy, profligate spending, lack of rigor—and his desire for the principles to serve as a codification of Bezos’ ideas about the workplace that included instructions that were simple enough to be followed by any new worker, applicable to any of the company’s enormous range of businesses and “stringent enough to stave off the mediocrity he feared”.  By all accounts, Bezos’ effort to design the organizational culture to work the way he wanted it to has been very successful and the article noted: “In contrast to companies where declarations about their philosophy amount to vague platitudes, Amazon has rules that are part of its daily language and rituals, used in hiring, cited at meetings and quoted in food-truck lines at lunchtime. Some Amazonians say they teach them to their children.”

Overriding themes come from Bezos and other executives beginning with Bezos’ own caution that “it’s not easy to work here” and employees must be committed to working long, hard and smart, a challenge expressed in the “bias for action” in the principles.  The admonition to employees to “think big” is consistent with the mission of Bezos and his executive team to continuously pursue “big, innovative, groundbreaking things”.  Several of the principles focus on personal goals for each employee such as being “the best”, taking “ownership”, and being able and eager to “dive deep” to find new ideas and solve problems.  Other principles touch on the way things operate in the workplace and how colleagues interact with one another: “frugality”, vocal self-criticism, high standards and regular practice of disagreement in advance of full commitment to decisions.  First and foremost, however, is principle No. 1: “customer obsession”.  Adherence to the principles is clearly a priority within the organization and the article quoted an interview that Bezos gave in 2014 in which he said: “My main job today: I work hard at helping to maintain the culture.”   

Amazonians are expected to “deliver results” (principle No. 14) and their performance against the principles is rigorously and relentlessly measured and critically analyzed, not surprising given Bezos’ long-standing obsession with data and data-driven management.  The article documents ranking of employees followed by departures of those who fall at the bottom of the charts.  Many other employees leave because they simply cannot or will not keep up with the pace and demands of the organizational culture.  The article quoted a former Amazon human resources executive as describing the process as “Purposeful Darwinism” focused on finding the “stars” who are most committed to the mission of the company.  Company officials wave away the complaints by emphasizing that new employees are on notice that they will be driven and pushed and not everyone will survive.  The article cited an Amazon recruiting video in which one of the speakers bluntly counseled: “You either fit here or you don’t. You love it or you don’t. There is no middle ground.”  Amazon also pointed out that many of those that leave the company take away skills and a work ethic that make them highly desirable recruits for other technology businesses such as Facebook and LinkedIn.

Among other things Bezos’ settled on his principles of organizational culture based on his personal enthusiasm for using data and his beliefs regarding how successful companies should be designed and operated.  His values can clearly be seen throughout Amazon’s organizational culture.  Will the culture survive and flourish?  The near-term outlook would appear promising as long as there is a steady stream of new candidates willing to take on the challenge.  Long-term prospects are unclear since configuration models of organizational culture suggest that societal debates regarding work-life balance and the actions of competitors to recruit from the same pool of workers will eventually influence Amazon’s organizational culture.

Sources: J. Kantor and D. Streitfeld, “Amazon’s Bruising, Thrilling Workplace”, The New York Times (August 16, 2015), A1.  The Amazon “leadership principles” included in the article above are published at http://www.amazon.jobs/principles.  Bezos’ response to the original article is chronicled in D. Streitfeld and J. Kantor, “Bezos Says Amazon Has No Room for ‘Callous’ Acts”, New York Times, August 18, 2015, B1.