How senior team character impacts the bottom line
Fred Kiel, April 29, 2016
Senior leadership teams' behaviour can affect the way front line staff perform, and subsequently the bottom line
Most senior leadership teams leave a lot of unclaimed value on the table. Others actually do more – they actively destroy a lot of value – perhaps unknowingly, but nevertheless value destruction happens with alarming regularity.
Our research team has isolated what we call “the worst practices” of senior leadership teams. They are:
1. Treating people as objects
2. Putting up barriers
3. Spinning the truth
Our seven-year research project (reported in Return on Character, Harvard Business Review Press, 2015) uncovered a measurable, observable and consistent relationship between the patterns of interaction of the senior team with the workforce, and the bottom line. We call these patterns of interaction the character habits of the senior team. Strong character teams bring in superior profits (as much as nearly five times more), higher employee engagement (>26%) and decreased corporate risk.
The standard fare: life in a bubble
Most senior teams live in an unreal world. We have evidence that many teams (as high as 80%) do not have a clue as to how the workforce views their character habits. They are often surprised to find that the gap between their self-assessment and their direct reports’ is shockingly large. When we read aloud the answers to the open-ended questions from our benchmark survey they incredulously ask: “Our direct reports said that?”
This blind spot is part of the human condition. Nearly everyone views themselves as well-intentioned and of strong character. We all create our own version of reality and live in a self-imposed bubble. The smart teams, however, pop this bubble and create a culture rich in openness, transparency and safety so that the real picture of the organisation’s health reaches the senior team on a regular basis.
The typical senior leadership team operates in a series of isolated silos. Even when the team leader abhors an organisation that fails to act as one entity, the presence of isolated silos persists.
And if the company has a good business model they may bring positive results to the bottom line and soldier on, completely unaware of the anchors they are dragging while they race their corporate sailboat. They are blissfully unaware of how much money they’re leaving on the table.
Employee engagement surveys often feed this delusion. Staff are reluctant to reveal that they feel dispirited or don’t look forward to coming to work – to do so requires them to admit that they’re stuck in a bad position or that they made a poor choice in the first place. People are reluctant to do this, and their relatively high ‘engagement’ scores give the senior team a sense of complacency.
But if employees are instead asked how often the senior team tells the truth, keeps promises, owns up to their own mistakes, and treats people as people – not as production units – a different picture often emerges.
Treating people as objects
Part of the human condition is to create ‘us’ vs. ‘them’ group identities, and the temptations to do this are great for the members of a senior team. They are typically given compensation and perks that set them aside from the rest of the people in their organisation. Sometimes these markers are dramatic.
One person told me that before General Motors faced certain death (prior to the US government rescue), the senior team were totally isolated. They had their own indoor parking garage and a private elevator up to the executive suite where they entered a locked glass “bubble” of offices – literally their own world.
All of those perks and barriers telegraph to the rest of the workforce that ‘you are less’ and ‘we are more’.
Our research shows that the organisations that delivered five times better Return on Assets (ROA) as a result of strong character practices, all had a minimum number of barriers. Senior team members were certainly paid the most of all the other thousands of employees in the company, but they were felt to be part of ‘us,’ not as a group of outsiders.
The senior executive suite of Costco Wholesale (one of the strong character leadership teams in our research), requires a security badge to enter. But then so do most of the other departments within the organisation, so this is seen as necessary security in this day and age, not as a sign of special perks. Once inside the senior suite of Costco what impresses one most is how modest it is – no mahogany-panelled walls or grand offices.
Figure 1 (below) shows how the employees of the low character teams (which we called the ‘Self-focused teams’) compare to the high character teams (‘Virtuoso teams’) with regard to how they treat people. The high character teams demonstrate to people that they are people – not numbers or ‘production units’.
Putting up barriers
There are numerous ways a senior team can communicate to the workforce that ‘we don’t want to hear unpleasant facts’. The employees in businesses led by Self-focused teams told us that it was “unsafe to tell the truth to senior management”, resulting in a 20-point gap between them and the businesses led by Virtuoso teams.
A culture of favouritism can signal that it’s best to keep your mouth shut since you never know who has the ear of someone at a high level. Again, the employees in Self-focused organisations claimed that favouritism was the norm.
Self-focused teams communicated in a variety of ways that mistakes are not easily forgiven – nor ever forgotten. Virtuoso teams generally respond to mistakes with curiosity, rather than blame and shame.
Spinning the truth
Finally, Self-focused teams often lie. They may not view it as lying but rather euphemistically call it putting the proper spin on facts, or simply hiding behind a ‘need to know’ policy. Virtuoso teams err on the side of openness and transparency. Certainly, some data and information may be confidential and is of a sensitive nature, but if the senior team is trusted to tell the truth the need to withhold some information is expected.
Self-focused teams were rated as “being willing to mould the truth…so that it works to their benefit” about half the time – exposing a 25-point gap between them and the Virtuoso teams who were rated as “almost never” doing that.
No matter how elegantly a senior team misstates a situation, the workforce sees through it. They just won’t tell management they see through their deception, as it’s undoubtedly not safe to do so. Instead people hunker down and try to come to terms with working in an organisation where they have little confidence in what senior leaders say.
The impact of these worst practices
So how much money is left on the table by teams who are known for these practices? Figure 2 (see below) shows this cost.
These three worst practices not only negatively affect the bottom line, they erode whatever confidence the workforce might have had in the senior team at one time. There is also a talent retention cost. The best talent will find other opportunities where they can trust senior management and where they can feel safe telling the truth.
Finally, companion research done by our colleagues at Duke University has shown that firms led by low character teams have higher audit costs, more legal events, and an overall higher risk profile.
So what can be done? If you want to know if you are living in an unreal world, what can you do? The first step most likely requires a change in mindset. Coming to the conclusion that it is better to know than not to know your team’s true character reputation with the workforce is a good place to start.
Regarding what you as an HR professional should be doing here, it’s once again a case of having earned a seat at the leadership table as a valued member. You’ll be particularly effective here if you play a role as a trusted confidante to the senior leader (whether CEO or president) and team. You should:
- Create the dialogue. Getting this on the senior team agenda requires precipitating the right conditions. If you are both a voice for the organisation’s employees, and are listening deeply, you will have a good sense of any disconnects between intentions and reputation ‘out there’. Go with your gut, be bold and raise the flag that ‘we need to look at ourselves and the role we are playing as a senior team’.
- Collect data. We have already said that engagement surveys are, at best, a blunt tool for insight-informed action. We find the most useful part of the survey, including our own Return on Character benchmark, is the open comments versus the actual scores. Consider really scouring the comment section of your engagement survey or even better conduct a series of your own interviews. Make sure you go at least three levels below the senior team. This sends a great message to the employees that ‘they’ care and also gives you the ammunition you need.
- Facilitate the insights. This is where you earn the big bucks they pay you. Don’t just share a summary of your data collection with your senior team, but read out every comment. Engage the team with the ‘what’ (the facts), the ‘so what’ (implications of the facts), and the ‘now what’ (key action).
- Be the ‘character cop’. Once key team actions have been crafted and individual team members are aligned and committed to the collective action, hold everyone accountable for following through. Also keep progress and learning on the senior team’s agenda.
Employees eventually experience the real character of the senior team through the grapevine and town hall presentations. Let them now sense the changes.
Fred Kiel is the chairman of KRW International and the author of Return on Character: The Real Reason Leaders and Their Companies Win