Why do we employ rules as proxies? Because rules seem efficient, and modern society (and industrial age capitalism) was built on the foundations of efficiency. Most democratic societies, for example, confer the right to vote based on age. In the United States it is 18, in Japan it is 20, and in many other countries it is 21.^[75] (The right to vote at 21 also originates in long-forgotten feudal habits—it was the English age for knighthood.) Age, however, does not necessarily correlate to a person's intelligence, maturity, or sense of civic duty, qualities that arguably comprise a much better standard by which to judge a person's qualification to vote. If you want to hold an election that will produce the best possible outcome for society, as judged by its ability to do the greatest good for the greatest number of people, you would allow only mature, civically responsible citizens to vote. Instead, we choose a proxy—age—as an objective, easily quantifiable substitute for intelligence and civic-mindedness, and hope that this somewhat arbitrary marker includes enough quality voters to get a good representative government. There are, however, many 25-year-old voters who have little idea of what comprises good government and lots of 15-year-olds with a highly developed sense of civic responsibility. By relying on a proxy rather than a value, we include many who, by the standard of holding the best possible election, should not be enfranchised, and we exclude many others who should. Rules like a voting age, when they act in this way, are both over- and underinclusive.

Though an election including only qualified voters would be a much better election, it would be extremely difficult to administer. It is relatively simple to administer an election if the rule says that you need to be 18 to vote. You verify everyone's age and citizenship when they register; then they show up with their registration and vote, and the entire election throughout the country takes but one day. Determining a qualification like maturity and civic-mindedness, on the other hand, would be far more complex and time-consuming, not to mention subjective. In a rules-based society, we often choose efficiency over value, but, while rules-based governance systems may often serve well the values of fairness and representation, their seeming efficiency hides a deep and important flaw: We often rely on rules when they are not, in fact, the most efficient or effective solution to getting the result that we desire. Understanding that flaw is vital to thriving in a world of how.

Another problem with rules lies in the fact that they are not created in a very efficient, or systematic, way. Elected bodies, vulnerable to the demands of the political process, write them; those who wield or seek to wield power over others, either militarily or professionally, write them; owners or boards of companies, or a manager chosen by professional meritocracy write them. William F. Buckley once joked that he would rather be governed by the first 2000 people in the Boston telephone directory than the Harvard faculty, and those Harvard folk are pretty smart people.^[76] Despite the best of intentions, people create rules variously and often in reaction to behaviors deemed unacceptable to the larger goals of the group. That is why we often find ourselves revising the rules when new conditions reveal their loopholes. Again, let me share a couple of examples.

In 1991, the U.S. Congress issued federal sentencing guidelines to incent good corporate behavior.^[77] At that time, the Congress laid out a number of steps and programs corporations could adopt to mitigate their potential liability should they be found guilty of criminal violations. It was a rules-based solution proposed by a rules-based organization: the U.S. government. In response, companies spent enormously on compliance programs (proxies for good behavior, really) and grew large and costly bureaucracies of compliance in an attempt to inoculate themselves against future penalties. This carrot-and-stick approach, however, did not lick the problem. Companies added more enforcement, more penalties for getting it wrong, and more incentivizing rewards for getting it right, and yet they did not see substantially more compliance. Despite this huge investment in more compliance programs, since 1991 there have actually been more companies that have run afoul of the law. In 2003, the ad hoc advisory committee to the Federal Sentencing Commission concluded, after studying these compliance programs, that they failed to achieve "effective compliance."

In the wake of a seeming abundance of corporate scandals at the turn of the twenty-first century, the U.S. Congress hastily wrote a new set of rules to govern corporate conduct, the Sarbanes-Oxley bill (commonly called SOX), and revised the sentencing guidelines to react to those transgressions. Corporations again immediately allocated billions to figure out how to comply with the new regulations, just as they did a dozen years before.^[78]

Consider this smaller example of the same phenomenon: A manager puts up a sign in your company lunchroom that says, "Please Clean the Microwave after You Use It"; then another, "Do Not Put Your Feet on the Tables"; then a third, "Don't Eat Other People's Food." All these rules, and the myriad more little lunchroom dos and don'ts that your manager madly prints out and posts, attempt to codify a single value, respect. Rather than declare a common value, such as "Respect Our Common Spaces," most rules makers spend their time chasing human ingenuity, which races along generally complying with the rules while blithely creating new behaviors that exist outside of them.

What does the persnickety lunchroom manager and his signs have in common with the U.S. government and Sarbanes-Oxley? Both reveal a startling truth about rules: Rules respond to behavior; they don't lead it. Rules don't govern human progress; they govern the human past. This essential truth shapes our thinking about rules: To succeed, it seems to imply, we must learn to dance with the rules.

I believe in the rule of law, and I believe we need rules and laws. Certain laws work. Laws have done a good job of regulating easily quantifiable human actions. Environmental laws, safety laws, child labor laws—these are areas where society unquestionably benefits from hard floors that regulate action. We do not select a bottled water based on how few people it has poisoned, nor do we buy the car least likely to spontaneously combust. If extensive and reliable science exists about how to build a house to best withstand earthquakes and hurricanes, society benefits by codifying that science into law. We should not give builders four options for building something when we know that only one will work. Remember that this book is not about crime, sociopathic behavior, or the desire to undermine or destroy civil society; it is about the habits of mind and behavior that can lead to long-term, sustained success in a hyperconnected, hypertransparent information age. When I talk about rules, I'm talking about the rules that regulate behavior within the mainstream of socially acceptable action.

Likewise, I believe that we should all master the ability to live well within the rules. Mastering the rules is a Hill of B accomplishment. It's safe, well-defined, and basic. Like all basic knowledge, it is a necessary stage on the path to real understanding. But too many of us get stuck on the Hill of B.

We live in a rule-of-law society, and due to our history of ever evolving toward fairer rule making, we have grown very comfortable with rules. In fact, our reliance on them has become part of the problem; we turn to law to solve too much. If the law says we can, then we do. We're very good at can versus can't thinking. Our habits of mind are so strong in this area, in fact, that we've become muscle-bound, as overdeveloped as a bodybuilder trying to touch his toes—strong, but inflexible. We overrespect rules, which leads us into a quagmire where all our actions get mucked up in the spectrum of legal permissibility. We're so strong in this way that we begin to feel like we can do anything as long as we obey the law. We become like Microsoft was in the 1990s, believing that we can crush the competition as long as we don't break the letter of the law.

As Supreme Court Justice Potter Stewart suggested, we've conflated legal permissibility with permission. Dancing with rules often leads to losing your sense of what is right for the long term. Since rules often blow around with the winds of political expediency, they don't provide a stable reference with which to steer a true course, especially when the seas are rough and changeable. Microsoft never got into trouble for being a monopoly. There is, in fact, no law in the United States against being a monopoly. No one minded Microsoft being a bull—we like bulls in business—but no one could stand the company conducting itself like a bully. When Microsoft used its position as a virtual monopoly to act unfairly and with belligerence in the marketplace, the U.S. Justice Department and the European Commission prosecuted the company.^[79] Microsoft never got into trouble for its whats; it got into trouble for its hows.

It might be easy to assume from all this talk about the limitations of rules that I'm an advocate of breaking them. "Rules are meant to be broken" is a familiar strophe in popular culture and conventional entrepreneurial wisdom. "I believe in rules," said legendary baseball coach Leo Durocher. "I also believe I have a right to test the rules by seeing how far they can be bent."^[80] When we "get around" the rules, we feel we are free of constraint, but this is a dangerous illusion.

My central conflict with rules lies in the essential nature of our relationship to them; rules live outside of us. Because of this, we spend a lot of time and effort wrestling with them, trying to find ingenious ways around them or creative ways of living within them. No one internalizes the tax code, not even the accountants who make their living interpreting it. Human beings are natural problem solvers and enjoy the challenge of puzzles. We will always invent new loopholes, and no rule can govern all the cracks.

Time spent dancing with the rules builds muscles of mental agility, cleverness, and ingenuity—Just Do It muscles, and the time of Just Do It has passed. Dancing with the rules turns you into a legal technician, constantly looking for loopholes. Some even think that breaking all the rules qualifies as creative thinking, but it is quite the opposite. Working in opposition to rules is simply the negative space of working within them; thinking just in terms of what a rule excludes is as limiting as being bound by what it includes. Too much time spent in the realm of law limits truly creative thought.

An excess of rules breeds an environment where we are less conscious about what is right. We become dependent on the rule book to govern our behavior. Where no rule exists—in those gray areas that we come up against every day—we sometimes feel we can do what we like. "If it mattered," we think, "they would have made a rule." Overreliance on rules also tempts people to play close to the edge. "How close can I go?" we wonder. We focus on exactly where the rule is and try to toe the line without exceeding its limits. When the wind blows, however, and conditions change, we can easily find ourselves on the wrong side of things, paying a stiff price. When the chairman of the board of Hewlett-Packard (HP), Patricia Dunn, resigned in the wake of the scandal created by her decision to authorize electronic surveillance of other board members, the Los Angeles Times reported that "she was not concerned that anything illegal was taking place because HP lawyers were overseeing the investigation."^[81] Meanwhile, Kevin Hunsaker, an HP senior counsel and ethics officer, was trading the following e-mails with HP security manager Anthony Gentilucci, who was overseeing a team of private investigators performing the investigation:

Leaders must be rigorous about the truth, but Dunn and her HP colleagues got so wrapped up in what they could or could not do that they lost track of what they should or should not do; they lost track of "The HP Way," the values that had built the company and made it strong and unique.

Human conduct is more complicated than what the language of law can describe. Human conduct, in its infinite variety and creativity, defies reduction. It has a lot to do with aspirations and intentions, with back-and-forth interactions. Our interpersonal synapses are two-way streets, and the interactions that travel through them are dynamic. Rules, because they are made reactively, have difficulty keeping up with the infinite permutations and various shades of meaning that pass between people in the course of life.

This presents us with a question: In a fast-changing world, is there a way to govern human behavior that proactively embraces change?

Despite Winston Churchill's quip that democracy is the worst system of government except all the others, it does work. But it works as a social contract because democratic countries are not founded on a set of rules, but rather on a set of shared values, on constitutions. Constitutions are powerful documents because they are filled with the values and principles of the people they govern, such as free expression, liberty, enfranchisement, fairness, justice, the pursuit of happiness, or the rule of law. These core, foundational values can be interpreted and reapplied to new situations as they arise. The more profound the document, the more durably it can adapt to changing times. The key to long-term, sustained success does not lie in breaking all the rules; it lies in transcending the rules and harnessing the power of values.

To fully understand how limited we can be by our overreliance on rules, let's examine for a minute how they affect the way we think. To do that, we must consider the process of language. When you invest yourself in a relationship to rules, you invest yourself in their language as well, and language exerts a powerful influence on the way we think. Most people believe, for instance, that words follow thought: Something occurs to you and then you find the words to express it. In fact, studies have shown that the exact opposite is true; we think in language. The greater our vocabulary and command of the syntax of language becomes, the more refined and nuanced becomes our cognition. If, for instance, you knew only two words to describe a surface, hard and soft, you would be likely to classify it only in one of two ways. The whole world would be hard or soft, and all the degrees of hardness—firm, rigid, stiff, supportive—and all the different kinds of softness—spongy, fleecy, downy, satiny—would tend not to occur to you. You conceive of those qualities mostly because you know the words for them, or, to be more precise, according to linguists, you are more likely to make certain kinds of assessments because of the nature of the language you speak. Although Indian philosopher Bhartrihari first argued this idea in the fifth century c.e., modern linguists call it the Sapir-Whorf hypothesis, derived from the work of linguist and anthropologist Edward Sapir and his colleague and student Benjamin Whorf.^[83] They posited a systematic relationship between the grammatical categories of the language a person speaks and how that person both understands the world and behaves within it. As Sapir put it, "We see and hear and otherwise experience very largely as we do because the language habits of our community predispose certain choices of interpretation."^[84]

To see how language influences the way we solve problems, consider these two examples and the way a predisposition to certain language shaped their outcomes:

In the 1970s and 1980s, during the Cold War, East German athletes won a slew of Olympic medals, far out of proportion to the size of their population. After the fall of communism, what the world widely suspected quickly became well known: They built their success on a regimen of enforced use of performance-enhancing drugs, more commonly known as anabolic steroids.

These drugs later wreaked havoc on the health of the athletes forced to take them, and in 2005, a small group of these former East German Olympians banded together to seek restitution and compensation for their progressive medical problems and expenses.^[85] Since the East German government no longer exists, they sued JVE Jenapharm, the company that manufactured the drugs, seeking $4.1 million to pay for medical costs.^[86] Jenapharm is an old-line, family company dating back to the nineteenth century, that is now owned by pharmaceutical giant Bayer Schering Pharma AG. The firm is known today for its expertise in reproductive medicine, and manufactures a line of oral contraceptives and postmenopausal hormone replacement therapies.

Jenapharm's response to the lawsuit was clear, immediate, and unambiguous. The company argued that, under the command economy of East German communism, the state forced it to manufacture the drugs and then distribute them to athletes without warnings or options. Facing the shadow of potentially bankrupting legal action from the nearly 10,000 other athletes who were similarly harmed, Jenapharm said, essentially, "It's not our fault and we'll see you in court." Given international and German legal precedent, this position contains potentially strong legal merit, and fighting the suit was clearly an option, something, they seemed to say to themselves, they could do.

On the other side of the globe, the University of Michigan Hospitals and Health System (UMHS) in Ann Arbor consists of three hospitals, a medical school, and numerous other health facilities. In 2001, UMHS, like many similar institutions, suffered under a budget-busting load of medical malpractice litigation that had seen exponential growth nationwide over the preceeding decade. Given the increasingly transparent nature of medical care, better-educated patients, and opportunistic personal injury lawyers, it realized that it was going to incur liabilities in some percentage of cases despite doing everything it could to eliminate systemic errors. That year UMHS fought many malpractice claims and lawsuits in court, but also settled more than 260 others at a cost of $18 million.^[87]

As the administrators at UMHS considered ways reduce their potential liability, they realized they could do little about lawsuits stemming from catastrophic errors that result in loss of life or limb. They focused instead on suits involving less serious consequences, like a patient with epilepsy admitted for surgery whose doctor forgot to note his postoperative need for antispasmodic medication. When that patient had a seizure in the bathroom and bumped his head, requiring a few stitches, typically a lawsuit quickly followed. In cases like these, they asked themselves, what should we be doing for our patients?

Continuing to fight malpractice claims in court remained an option, but they chose a different course of action. They encouraged their doctors to say, "I'm sorry." Using their established doctor/patient interaction education program, they developed scenarios to help doctors understand how to step up and promptly admit when a mistake was made. Now, when they discover an error like the prescription oversight for the epileptic patient, the doctor apologizes on the spot. Unlike Jenapharm, when UMHS announced this new approach, the strategy was widely ridiculed as legal suicide.

It is critically important to realize that in a hyperconnected world, where information about your actions travels instantly to any interested party, people watching you will judge not just what you do, but how you do it. They're not going to sit back and wait to see if you win or lose; they're going to watch the manner in which you pursue the case. If these two companies were people—your colleagues or potential business partners—the opinion you form about them would certainly affect the way you choose to interact with them. So let me ask: Given just what you now know about these two similar legal situations, what judgment have you formed about the character of these two companies? Do you think that Jenapharm took a reasonable, prudent, and legally defensible position that represents a legitimate strategy to save the company from bankruptcy and that UMHS must be out of their legal minds for admitting liability immediately when mistakes are made? Or do you think that Jenapharm made the situation all about impersonal legal rights, potentially alienating its customers by acting strictly within legal limits, while UMHS upheld its values and put the best interests of its patients first and the risk of higher legal costs second?

Here is where things stand in the marketplace. In late 2006, Jenapharm agreed to pay 184 of the thousands of affected athletes 9,250 euros ($12,200 each) and donate 170,000 euros ($224,000) to organizations providing support to victims of East German doping.^[88] Admitting no wrongdoing, Jenapharm CEO Isabel Rothe said in a statement that "the agreement will avoid a drawn-out legal argument." The long-term effect on Jenapharm's reputation and relationship with the market is unknown. (Interestingly, a week before Jenapharm's announcement, the German Olympic Sports Union and the federal government announced they would pay a similar amount to 167 victims. Striking an altogether different tone, union president Thomas Bach said, "We take the moral responsibility and we want to make sure that something like that cannot happen again.") In the three years following UMHS's decision to apologize, in contrast, medical malpractice claims and lawsuits against them dropped by nearly 50 percent and the per-case cost of defending against the remaining suits dropped 50 percent as well, saving UMHS millions of dollars. One company attempted to limit its exposure by shutting down all challenges, while the other opened itself up to challenge and, in so doing, actually reduced its exposure.

How did UMHS arrive at a counterintuitive solution like apologizing, a choice widely seen at the time as legal suicide? UMHS employs a values-based approach to pursuing corporate goals. Respect, compassion, trust, integrity, and leadership—the stated values—inform everything from the way they treat their patients to the way they treat their staff, and they articulate these values in their Seven Strategic Principles.^[89] As an organization whose very core was grounded in the language of values, they tackled their mounting litigation problem by asking themselves not "What can we do?" but rather, "Based on our values, what should we do?" This train of thought led them to see that medical care is fundamentally an interaction between two people—the doctor and patient—just like any other business relationship, and to examine what was "sick" in the cases that resulted in litigation. They quickly learned that the overwhelming majority of plaintiffs were generally able to forgive the error itself—doctors are only human, after all—but that the doctors who had betrayed their trust by denying culpability filled them with rage. The real illness in these cases lay in the interpersonal synapse between doctor and patient. Armed with the knowledge that the destruction of trust was contributing to retributive consequences for unavoidable mistakes, UMHS looked for ways to heal this core dysfunction; healing, after all, is what they do best. The new approach realized unexpected additional benefits as well. With the working atmosphere now free of retribution, doctors no longer have to duck and dodge to avoid the appearance of guilt when errors occur. They enjoy greater opportunity to explore what went wrong and devise innovative solutions to prevent future occurrences. The culture of transparency bred by UMHS's new openness has brought error rates down throughout the hospital and measurably improved the quality of patient care.^[90]

All organizations of people need a way to govern (companies, societies, and even families are alike in this way), and most governance systems benefit from the inclusion of at least some rules. In our workgroup-as-stadium metaphor, we might agree, for instance, that everyone needs a ticket to get in, people will sit in their own seats, and the game will start at 9 a.m. Without some rules, anarchy rules; fans rush the gates and sit where they please, and people come to work when they feel like it with little regard for the work schedules of others. The game is never played. Most groups articulate their system of governance as a code of conduct. Some of these codes read like the tax code, a set of rules designed to anticipate, prescribe, and proscribe certain behaviors. "Clean your cubicle at the end of every day." "Always wear blue pants." They, like all aggregations of rules, seem at first blush to be an efficient way to codify and communicate the floors of human conduct throughout the hierarchy of the company. Other codes of conduct read more like constitutions, filled with the values and principles that propel the company's efforts. Clothing maker Levi Strauss's code of conduct states, "We are honest and trustworthy. We do what we say we are going to do. Integrity includes a willingness to do the right thing for our employees, brands, the company, and society as a whole, even when personal, professional, and social risks or economic pressures confront us."^[91] These general statements of principle can, at first blush, seem vague and not immediately or easily applicable to the various day-to-day decisions a worker must face. The nature of the language a group chooses, however, exerts a remarkable and powerful influence on the conduct that follows from it.

The language of laws and rules is the language of can and can't, right versus wrong. It's a binary language with little room for nuance or shades of meaning. That is why it is inadequate to describe the full richness of human behavior. We are, as people, so much more than right or wrong. When you get stuck in the language of permissibility and prohibition (can versus can't) you get stuck thinking in relation to rules rather than in the realm of true human potential. You can discuss a lawsuit in terms of utility—"Can we fight this effectively in court?"—but it is quite another thing to discuss it in terms of your values—"Given what we believe, should we fight this in court?" The first approach prompts thinking in relation to rules and codes; the second opens up thinking in relation to what is most important to an organization's or individual's core values and long-term success. In that difference—the difference between can and should—lies an extraordinarily important step toward thriving in a world of how: True freedom lies not in the absence of constraint; true freedom lies in the transcendence of rules-based thinking.

Thinking in the language of can versus can't predisposes you to perceive challenges in a certain way and respond within narrow avenues. Thinking in and speaking the language of values—the language of should and shouldn't instead of the language of can and can't—opens up a wide spectrum of possible thought, a spectrum that encompasses the full colors of human behavior as opposed to the black-and-white responses of rules. This spectrum can lead to truly creative and innovative solutions to challenges.

I offer the legal challenges faced by Jenapharm and UMHS here because they paint a fairly black-and-white picture of the difference between thinking in can and thinking in should. Being presented with a lawsuit is usually far more serious than our daily confrontations with rules and regulations; however, our responses are in many ways identical in nature. We go through each day avoiding or complying with as much nimble grace as we can. The boss compliments you for a task you know was done by a junior associate on your team. Do you stop her and give the credit where the credit is due? You certainly can say nothing and let the moment pass unmentioned. There is no rule that requires you to credit a junior colleague; in fact, the unwritten rules of business permit you to take credit for the accomplishments of those who report to you. So you let the moment pass. This is rule-based thinking in its most insidious form.

I would guess that most people think that taking unearned credit is not right, even if you didn't solicit it. It's not something one should do, nor a value we agree with. And yet I would also hazard to guess that, if you think hard enough, you can think of a similar moment in which, either because of the absence of a specific rule or the presence of an ambiguous one, you let your actions be guided by your relation to a rule and not by what, in reflection, you should have done to be consistent with your values. Transcending the rules-trapped language of can and embracing the values-inspired language of should illuminates the pathways to truly innovative solutions like those of UMHS, as well as simpler choices like sharing the credit. UMHS achieved dramatically lower litigation costs; you, by sharing credit, earn the loyalty and increased dedication of a junior associate who, the next time your team needs an extra measure of effort to accomplish its goal, happily steps up and puts in the weekend hours necessary to get you there. To thrive in a world of how, you must balance your muscles of casual avoidance—as strong and developed as they are—with the ability to think in the language of values, in terms of should.

There is little in rules that inspires; by definition, you comply with them. All it takes to honor a rule is to do what it says, and nothing more. Rules breed a culture of acquiescence in which everyone comes to terms with them and finds a way to live within them or a way to circumvent them—in other words, to live in their positive or negative space. While giving someone the advice to "break all the rules" is terrible counsel, giving them the opposite age-old counsel to "just play by the rules" is now not that much better advice. It consigns them to a life of external servitude and a compliant mind-set. Thinking in the language of values frees you from the tyranny of rules and from the illusion of freedom you have when in their negative space.

To be capable of making Waves, you need an organizing principle more inspirational and compelling than rules. You can't start a Wave by making a rule that Waves will happen every Tuesday after lunch. And if you could, what kind of a Wave would it be? Thinking and communicating in the language of should—values-based language—by its very nature inspires. The landscape of values is vast and unbounded, and creates a genuinely free space of creativity in which you can see new ways of accomplishing your goals. Values matter to us, and they matter to others, so they fill the synapses between us and others with greater meaning. Values provide floors plus propulsion because we think they are important, and because we tend to spend our energy on what matters most to us. Justice. Truth. Honesty. Integrity. Values have texture. Fairness. Humility. Service to others. The language of values inspires us because values are aspirational in nature. They propel us to higher ground. We don't believe in rules but we all hold a belief in our values. They speak to the core of what makes us human. Values do double duty; they inspire us to do more than while simultaneously preventing us from doing less than. To betray them is to betray ourselves. They create natural floors without creating inadvertent ceilings.

We all have a core set of values, formed over time either by the influence of others—parents, teachers, mentors, friends—or learned through life experience. Unlike rules, which act as proxies for the things we care about—like a voting age approximates maturity and civic-mindedness—values are not a mechanism or device that approximates what is important or mediates between us and what is important; they connect us to it directly. Values play to our strengths as humans. Similarly, thinking of what we do in values terms imbues it with greater meaning. If two masons are paid equally for their day's labor, which one walks away the richer, the one who was hired and managed as a bricklayer or the one enlisted and enfranchised as a cathedral builder?

There are myraid reasons why it is important now, more than ever before, to rethink our relationship to rules. First, twenty-first-century business craves creativity and innovation over almost all else, and freeing yourself from the constraints of rules-based thought unleashes new pathways of exploration and possibility. More important, in a transparent world we are judged as much by the process of how we solve problems as by the results we achieve. In a world where we have any number of competitors or potential competitors, how we do what we do is the thing that increasingly differentiates us from the other guy. There is hardly a business that doesn't suffer from "the grocery store syndrome." We can choose from any number of grocery stores, each one offering competitive prices. After price, the choice of where to shop usually boils down to customer experience, the quality of the human interaction that occurs there. We want to shop where it is pleasant, where the goods are easily seen and obtained, and where the employees respond positively to us. To provide this sort of experience in everything you do, to discover ways to outbehave the competition, you need to think in ways that inspire your best achievement, to think in the language of should.

Thinking in the language of values unlocks powerful possibilities for growth and action, but at first blush it can seem dangerous to some. For the senior management of companies, shifting the way you lead and govern people from rules-based to values-based thinking sometimes brings the fear of losing control. Governing by rules shifts less power down the hierarchy, allowing those at the top to believe they can easily control the actions of those below them. This is a habit of mind left over from the days of fortress capitalism and feudalism. Leading from values, on the other hand, decentralizes power and shifts the responsibility for decision making into the hands of individuals at all levels. Values are not black-and-white or quantitative. Values are like trust; they empower others to honor or betray you. They open up avenues of possibility and leave room for interpretation.

Surprisingly, though, values-based leadership has a tremendous upside. As business units spread around the world and more and more interactions take place among equals in the organization, top-down governance strategies become less effective. The trend of twenty-first-century business to become more horizontal, in fact, creates fertile conditions for leadership strategies that thrive in decentralized environments. While this shift of power may at first seem to make values-based thinking dangerous for businesses of all sizes, it ultimately makes them more powerful. The new conditions of the world of how call out for exactly this sort of approach. Values-based thinking truly frees the individual to act in the interests of the organization.

When Harry C. Stonecipher, the president and CEO of Boeing, was asked by Boeing's board to resign after having an extramarital affair with another employee, for example, the company could have responded by amending its code of conduct to prohibit or restrict certain kinds of relationships between employees. Instead, Boeing did something far more interesting: It enshrined and enforced a value. Lead director and former non-executive chairman of Boeing, Lewis Platt, said, "The board concluded that the facts reflected poorly on Harry's judgment and would impair his ability to lead the company ... the CEO must set the standard for unimpeachable professional and personal behavior, and the board determined that this was the right and necessary decision under the circumstances. We have fought hard to restore our reputation. Everyone should know that if we see any improper activities, we will take decisive action."^[92] Boeing sent the message that employee behavior does not answer to a set of rules, but to a much more powerful standard: repute. In a stroke, Boeing employees understood that part of their job involved bringing the company positive repute, and that integrity was so central to what Boeing is that it could cost even the highest executives their jobs. By celebrating a value rather than instituting a rule, Boeing gains much tighter alignment with its workforce. Every employee must internalize this value, wrestle with it on an ongoing and individual basis—deep in the Valley of C—and thereby develop a much more active relationship to the company's desires and a tighter alignment with its goals. The value, while seemingly less direct than a rule, achieves a greater result.

Even within a lower-skilled, service-oriented workforce like fast-food giant McDonald's, values provide a means of tighter integration with company goals. "The whole experience at McDonald's boils down to the moment of truth at the front counter or drive-through, that 30 seconds of interaction," CEO Jim Skinner told me when we met at the company's Oak Brook, Illinois, headquarters. Skinner built his career on knowing that moment. He began his career with McDonald's in 1971 as a restaurant manager trainee in Carpentersville, Illinois. "The development of that relationship between our people and the customer is probably the hardest thing that we do. With hundreds of thousands of employees serving more than 50 million customers a day across 119 countries, common values are essential. They are efficient. They form the link among all our moving parts, allowing everyone who serves the McDonald's brand to understand what it means to be successful at that moment of truth with a customer."^[93]

Can versus can't thinking substitutes for genuine time spent considering the hows of a given situation (how can I best delight my client? how can I bring the company greater repute? how can I make this meeting more successful?) and fosters a passive relationship to interaction with others (what does the manual say to do? what is my job description? what is on the agenda?). In this mode of thought, you believe you can do what you want as long as you comply with the contract or the code. When you think in the language of values, however, you must actively engage each situation. Values propel action toward others. This creates an energy focused on how you do what you do, and that energy becomes a propeller, driving a Wave of action toward others. In an information economy, where more power lies in the network than in the individual, outwardly focused energy makes sense as a propeller of success.

From can to should. From rules to values. These fundamental shifts in language exert a profound effect on the way you think, orient your energies, make decisions, and, therefore, achieve. New language may seem awkward at first, like learning to communicate in something other than your native tongue. But people who learn a second language often develop better grammar than native speakers, because they do so as a conscious act of will. Understanding the interplay of rules and values, and freeing yourself from the tyranny of can versus can't are essential steps toward mastering the grammar of the new world of how.