Donald Sull is Associate Professor of Management at London Business School.
Leadership is about making commitments and seeing them through.
There are two dangers with commitment making. The first danger is that the commitments fail. Sull argues that the second danger is that the commitment succeeds. A series of successful commitments can be bundled up in what Sull calls a company's success formula. In an every changing world, leaders must guard against being prisoners of their own success formulas.
The most interesting part of this book is his creative pairing of similar companies in similar industries who took different paths of either honoring or destroying their success formulas. The stories of Firestone versus Goodyear in the tire industry have extraordinary value for us today and are well worth reading.
What does this mean for those who serve on Boards of Directors?
BOARDS WANT TO HIRE CHAMPIONS
Boards want to hire champions. Champions are bred to be decisive and self-confident. They love making commitments and seeing them through.
As Donald Sull argues, when champions make commitments you have a double edge problem. It is predictable that champions will have difficulty admitting that their commitments no longer fit the times. Indeed this trait is so predictable I called it the LBJ Effect in honor of the American President who escalated commitment to a failing war once it became clear that the war could not be won.
LESSONS FOR REVIVAL OF THE FITTEST FOR BOARDS OF DIRECTORS.
1. Good CEOs are champions. Champions believe in themselves and their commitments.
2. In the absence of a strong countervailing force, some CEO Champions will rigidly hold on to what Sull calls the success formula when it ought to be thrown away. We even take the more extreme position that in the absence of a strong countervailing force, champions will pour more resources into an inappropriate success formula.
3. This strong countervailing force is called the Board of Directors.
SETTING THE RIGHT CULTURAL TONE
At a cultural level, the LBJ Effect can be fought by the board insisting on a culture where it is acceptable to fail, to learn from mistakes, and to try again. It is a culture where "mid course correction" is not necessarily a sin and "stick-to-itness" is not necessarily a virtue.
Perhaps the most famous example of a corporate culture that supports this notion is Johnson & Johnson. On the desks of most executives within the J&J organization is a framed one-page document called, "Our Credo."
The J&J Credo is a series of principles that govern management decisions:
When there was a concern that a batch of Tylenol had been poisoned, a division manager unilaterally ordered all bottles of Tylenol off the U.S. market. That action was taken without consulting corporate headquarters. It was justified to management on the basis of the credo. Senior management at J&J backed the local manager and the employees were enormously proud of it.
This use of a corporate values statement is not unique at J&J. We have consulted at other companies with credos. And some of these companies had problems as severe as the Tylenol crisis. But in no other company would a middle level manager make a major decision based on an esoteric company principle. With respect to failure, the J&J Credo states:
"Employees must feel free to make suggestions and complaints....We must experiment with new ideas. Research must be carried on, innovative programs developed, and mistakes paid for."
In other words, failure is not "bad." It is part of the necessary price for being innovative.
Board Influencing Tactics
Boards seeking to influence CEOs to make mid-course corrections have a semantic problem. Leaders must be convinced that mid-course corrections will not be labeled as "indecisive" or "waffling." Such negative words are inconsistent with a positive sense of self. On the other hand, adaptability in the face of changing circumstances is consistent with a positive self-concept.
Some CEOs deride Sarbanes Oxley as an example of legislative overkill. They say that it will move the board/CEO relationship into an adversarial stance. Such a stance will only harm shareholders and waste resources. Sull's perspective is powerful people are only too human. And they are all too human in predictable ways.
A valid checks and balances system should keeps the LBJ Effect from getting out of hand and help companies decide when it is time to destroy their own success formula before competition does it for them. Maryanne Peabody and Laurence J. Stybel,Ed.D. are co-founders of Board Options, Inc. Its mission is to increase Board effectiveness through the application of practical behavioral Science. |
Revival of the Fittest: Why Good Companies Go Bad and How Great Managers Remake Them Books In Print, Audio Books.