7. Organization Purpose and Principles

“Make no small plans...for they have not the power to stir men’s blood.”

—Niccolo Machiavelli, 1514

“The way I see it, leadership does not begin with power but rather with a compelling vision or goal of excellence.”

—Frederick W. Smith, CEO, Federal Express

A critical condition for employee enthusiasm is a clear, credible, and inspiring organizational purpose; in effect, it’s a “reason for being” that translates for workers into a “reason for being there.” This might seem odd when talking about for-profit enterprises—isn’t the idea simply to make a buck, and don’t employees, in turn, understand that and simply want to be paid well? Well, in fact, no. We humans are not that simple. Not in what we want and not in what we expect from the organizations to which we belong and to which we are asked to give our talent and loyalty.

It is also difficult to be loyal to an organization that stands for nothing but making money. Obviously, making money is far from trivial; in fact, the financial achievements of a company can be an important source of pride for its employees. But just as an individual employee derives pride from more than his income (from doing high-quality work, for example), so does pride in an organization depend on more than its profitability.

Our research reveals a strong correlation between pride in the organization and the overall satisfaction of workers with that organization.¹ We find four main sources of pride, all of which reflect different facets of a single attribute—excellence:

• Excellence in the organization’s financial performance

• Excellence in the efficiency with which the work of the organization gets done

• Excellence in the characteristics of the organization’s products, such as their usefulness, distinctiveness, and quality

• Excellence in the organization’s moral character

People want to work for an organization that does well but also does good. Roughly speaking, the first two of the factors listed relate to doing well (working for a business that is profitable and well run), and the latter two relate to doing good (providing something of real value to its customers and conducting its business ethically). These four aspects of excellence are, of course, interrelated. As we shall show, it is difficult to produce excellent long-term financial results without providing value to customers, or to succeed for long with unethical business practices. But, as determinants of pride, each of the four is distinct and important. Thus, the desires of employees that their company act ethically and produce high-quality products are important in and of themselves, not only because ethical behavior and quality are, in the long run, good for business.

You might be surprised by our assertions about the importance to most people of working for a “good” organization. Our evidence comes from both the statistical analysis of our survey data and from our qualitative material (the write-in questions and the focus groups, where both doing well and doing good receive significant mention). Indeed, employees want their companies to do very well and a lot of good. Here are a few typical write-in comments from employees in a number of companies. First, positive comments. (These are responses to the question, “What do you like best about working here?”)

The commitment to be the best. The folks who run [company] have the money to be the best, and they spend it.

Keep up the good work of making [company] successful. I enjoy working for [company] and want to continue working for the company long term.

Great product, great strategy, great leadership, great concern for employees, great care for customers, great honesty. Senior management is terrific. We are very lucky.

It is a pleasure working with an executive leadership team that is willing to put actions to their words...gets it done for customers and shareholders. Thanks. It is great to part of the [company].

I am insanely proud of my work as a [job] for [company] and insanely proud to be here. It is universally recognized as a great company with very high standards and integrity. Most importantly, I grow and learn every day, have a chance to show what I can do and feel I’m contributing to a common good... In fact, I still feel, after several years here, that I would almost pay for the privilege of working for [company]. I couldn’t afford that, really, but you get the idea.

It’s the top of the game, like being on the roster of an organization like the New York Yankees.

Now, some negative comments. (These are responses to the question, “What do you like least about working here?”)

As a company, we are not “leaders” in any areas anymore. We no longer strive for innovation or excellence. We do...what “everyone else is doing” yet we say we wish to be “best in class.” You can’t have it that way. The man who leads must break the wind...we sure are becoming mediocre.

We seem to be going out of business with a knee-jerk approach to everything. We talk growth but that’s all it is—talk and no growth. We are throwing out everything that’s not tied down and that includes loyal workers. What happened to the great company that we were?

Top performance is desired and is needed, but top management has done almost everything possible to make it a non-performer. The smallest detail must go to the top for approvals. Having the president determine the transfers within the lower levels of a technical function is incredibly inefficient and it takes forever to get a decision made. Where is the leadership?!

They put up Quality posters all over the walls but the foreman tells you just get the pieces out the door. Nobody believes anything the company says; it’s all baloney. They lie to customers.

All they want to do is cut costs and people and the work today is sloppier than it has ever been. It’s getting embarrassing to tell people where I work.

The desire for highly competent management—a real “winner”—will not come as a surprise to most readers, and most agree that employees don’t want to work for clearly unethical management. But outstanding regarding ethical standards? Outstanding regarding product quality? You bet! Again, read the positive comments to sense the worker pride that comes from corporate excellence and ethics. Keep in mind that, here, we discuss the determinants of employee enthusiasm, not “contentment” and certainly not just the absence of anger. It is difficult to be enthusiastic about a company whose financial performance is mediocre, but of comparable importance are the questions: how is the business being conducted, and to what ends? Without good answers to these questions, one’s job and organization tend to become mere means to the achievement of other goals, especially financial. They have no value in themselves and won’t arouse or sustain enthusiasm except in those few people who are motivated by nothing but financial gain.

If you doubt what we say about workers, ask what, in addition to your pay and benefits, you want from your employment. For example, what does it mean to say, “I have done a good day’s work”? Is it not a feeling that you did quality work that day, that your work showed skill, that your work was having a significant, positive impact on the organization or a customer? Furthermore, except for gangsters and other sociopaths, people usually don’t feel good about a day’s work that requires lying, cheating, or stealing.

And people don’t want to work for companies that act that way. People don’t want to produce products of mediocre quality. In early survey work for U.S. automobile companies, in the late 1970s, workers complained bitterly about the poor quality of the cars produced by their factories. In that period, the workers and their union were often blamed for shoddy U.S. products. However, most workers felt terrible about what they said they were being forced to produce.

Enthusiasm about one’s company requires a company with purpose, especially in relation to its customers. And it requires principles.

—George Merck II, Former CEO, Merck and Company, 1950

Why isn’t it enough for an organization to focus just on doing well (as if that weren’t difficult enough to achieve)? After all, pride in one’s organization is certainly fostered by operational success in the sense of financial performance and excellence of process. Aside from purely moral considerations, is there truly that much more to be gained as a business by pursuing a higher good? Moreover, can most companies find a higher good to seek?

In fact, there is considerable evidence that, on average, organizations that “do good” have superior long-term performance. One of the most impressive studies in this area is the research of Collins and Porras, summarized in their highly regarded 1994 book Built to Last.² They compared companies that were the “best of the best” in their industries (and, importantly, had been considered so for decades) with companies that were just satisfactory. This was a comparison, as they put it, between the “gold medalists” and the “silver or bronze medalists.” For example, General Electric (“gold”) was compared to Westinghouse, Johnson & Johnson to Bristol-Myers Squibb, Procter & Gamble to Colgate, IBM to Burroughs, and so on. In 18 such paired comparisons, the best companies far outperformed the comparison companies, on average, as well as the market as a whole, over the long term. For example, $1 invested in the best companies on January 1, 1926 would have been worth $6,356 on December 31, 1990. The worth of the stock of comparison companies would have been $955 and that of the general market $415.³ It is important to keep in mind that the research covers companies as they were up to the time of the research. As we shall see later in this chapter, companies can change radically, oftenwith the advent of a new CEO.

The Collins and Porras researchers sought to determine the factors that distinguished the best companies from the merely satisfactory. They referred to the former as “visionary” because among the key distinguishing features of those companies was emphasis on a vision that was “more than profits”:

Contrary to business school doctrine, we did not find “maximizing shareholder wealth” or “profit maximization” as the dominant driving force or primary objective through the history of most of the visionary companies. They have tended to pursue a cluster of objectives, of which making money is only one—and not necessarily the primary one. Indeed, for many of the visionary companies, business has historically been more than an economic activity, more than just a way to make money.⁴

Many examples are cited of the “more than profits” visions, such as the earlier quote from George Merck II and this one from an interview with John Young, who was the Hewlett-Packard CEO from 1976 to 1992:

Maximizing shareholder wealth has always been way down on the list. Yes, profit is a cornerstone of what we do—it is a measure of our contribution and a means of self-financed growth—but it has never been the point in and of itself. The point, in fact, is to win, and winning is judged in the eyes of the customer and by doing something you can be proud of. There is a symmetry of logic in this. If we provide real satisfaction to real customers—we will be profitable.⁵

That view is contrasted by Collins and Porras with HP’s comparison company, Texas Instruments (TI):

...we reviewed over 40 historical articles and case studies and could find not one single statement that TI exists for reasons beyond making money... TI appeared to define itself almost exclusively in terms of size, growth, and profitability. For TI, bigger was better, period—even if the products were low-quality or made no technical contribution. For HP, bigger was better only within the context of making a contribution.⁶

Such contrasts in vision are found in pair after pair. The authors speak of the “core ideology” of a company, and they are at pains to stress that there is no “right” ideology—the key is that it consists of a vision that is “more than profits” and that it inspires and guides the company’s employees. For the authors, Citicorp’s value, “autonomy and entrepreneurship,” is as expressive of a core ideology, as is Johnson & Johnson’s, “the company exists to alleviate pain and disease.”

Nevertheless, as we review each of the visionary companies’ ideologies, a strong moral component is found in almost all of them. Here are some examples of moral elements in the corporate ideologies of Collins and Porras’ visionaries:⁷

• 3M. Absolute integrity.

• General Electric. Improving the quality of life through technology and innovation.

• Hewlett-Packard. Technical contribution to the fields in which we participate (“we exist as a corporation to make a contribution”); respect and opportunity for HP people, including the opportunity to share in the success of the enterprise; contribution and responsibility to the community; profit and growth as a means of achieving all the other values and objectives.

• IBM. Give full consideration to the individual employee; spend a lot of time making customers happy; go the last mile to make things right; seek superiority in all we undertake.

• Johnson & Johnson. The company exists to alleviate pain and disease; we have a hierarchy of responsibilities: customers first, employees second, society at large third, and shareholders fourth.

• Motorola. The company exists to honorably serve the community by providing products and services of superior quality at a fair price; continual improvement in all that the company does, in ideas, in quality, in customer satisfaction; treat each employee with dignity and as an individual; honesty, integrity, and ethics in all aspects of business.

• Nordstrom. Excellence in reputation, being part of something special.

• Sony. To experience the sheer joy that comes from the advancement, application, and innovation of technology that benefits the general public; to elevate the Japanese culture and national status; respecting and encouraging each individual’s ability and creativity.

• Walt Disney. No cynicism allowed; fanatical attention to consistency and detail; to bring happiness to millions; to celebrate, nurture, and promulgate “wholesome American values.”

Collins and Porras’s data clearly support the proposition that, on the whole, a strong moral component in corporate behavior is certainly not inconsistent with long-term business success and, in fact, appears to contribute significantly to it. Other studies supporting the positive relationship between corporate citizenship and business success abound, and we cite a few here. In 1996, Waddock and Graves found positive correlations between the social performance of corporations and measures such as return on assets, return on sales, and return on equity. Social performance was defined by them as the way corporations treat not just shareholders, but other key stakeholders as well, such as customers, employees, and the community.⁸ A longitudinal Harvard University study found that “stakeholder-balanced” companies showed four times the growth rate and eight times the employment growth of companies that focus only on shareholders.⁹

Besides the enthusiasm and pride that employees feel for an organization with “purpose,” the research suggests a number of other reasons for the positive relationship between doing good and long-term corporate performance. One reason is the impact of broad corporate reputation, and the trust that it inspires, on purchasing decisions by consumers. Surveys consistently show that a large majority of consumers say they are likely to switch brands or retailers to ones associated with a good cause. This is not just because the consumer agrees with the cause. It is also that being “good” in one sphere—such as respecting the environment—generalizes, absent contradictory information, to other spheres, such as the quality of the organization’s products. At the least, in modern marketing terms, doing good helps an organization favorably differentiate its brand from the competition.

In addition, the specific components of doing good yield tangible financial gains. High-quality products and services attract and keep customers. Beneficent personnel policies attract and keep employees. There are many instances of progressive community-relations policies generating community support for company business initiatives and protecting the company from activities that are unfriendly to it and its interests.

A particularly vivid example of the benefits of positive community relations could be seen when, in 1987, the Dart Group sought to acquire the Dayton Hudson Corporation (now the Target Corporation) of Minneapolis. A charitable giver of 5 percent of its pre-tax profit, Dayton Hudson had become an icon of good corporate citizenship. On the other hand, Dart was widely perceived as a predatory corporate raider. In defense against the hostile bid from Dart, the company enlisted the community goodwill that it had acquired over more than 100 years, and it received overwhelming support. A special meeting of the Minnesota state legislature was convened to change the law relating to the timing and organization of company takeovers in the state. That helped defeat the hostile bid for Dayton Hudson.

At the negative end of the corporate citizenship continuum are companies that engage in clearly unethical behavior. A wealth of evidence shows that behaving in egregiously socially irresponsible and illegal ways is detrimental to shareholder value. In 1997, one study investigated 27 incidents of unethical or illegal corporate behavior and concluded that such behavior resulted in significant losses of shareholder wealth.¹⁰ And, as we have seen in the behavior of financial services companies leading up to the Great Recession beginning in 2008, the negative impact extended far beyond the companies themselves and would have resulted in their bankruptcy had the federal government not intervened.

To summarize, the research appears to show that business profitability is not simply about making money in the short term, but is also about building positive and trusting relationships with all major constituencies that promote and sustain long-term profitability. A company should want customers who are willing to go the extra mile to purchase its services, employees who give their all for the organization, suppliers who feel themselves to be genuine “partners” with the organization and therefore seek to deliver their best work to the company and in a timely manner, and a community that vigorously supports the company’s legitimate business interests. The importance of these relationships might not be obvious in the short run, and they won’t appear to be needed in flush times, but they are critical to sustain good performance over the long haul and especially when business conditions turn tough. A major mistake that companies make is to take their key constituencies—their stakeholders—for granted.

—Jim Sinegal, Cofounder and former CEO, Costco

Expecting executives not to be oriented to the bottom line is, for most companies, akin to asking them to preside over a failing company and their own professional demise. The important distinction, as we see it, is not between a senior management that is interested in profits and one that is not but rather between having a long- versus a short-term profit perspective. Although the correlation is by no means perfect, it is abundantly clear that “short-termism” is often a recipe for profitability now and endless problems—sometimes disaster—later, whereas a longer time horizon is part of the foundation for sustained success. The correlation between time horizon and success is not perfect because there are some executives who seem to flourish at the edge and are extraordinarily nimble as they get into and out of trouble and skirt disasters for themselves or their organizations. It is just the pattern of their business lives. We saw in the financial crisis of 2008 how many large banks and their executives—despite being among the primary perpetrators of the crisis—managed to survive (and even prosper!) through government bailouts and generous severance packages. Luck? Talent? Probably a combination of the two, but skin-of-your-teeth escapes—especially when so many others suffer as a consequence—are not the path one would normally recommend for the conduct of a business.

All the companies we discuss admiringly in this book because of their people-management practices have as well a strongly long-term orientation. Or, more accurately, some of them did have one. The marked positive impact that a long-term outlook has on company performance can be seen most sharply in companies that have significantly changed in that respect (because we can then compare a company to itself over time rather than to other companies that may differ from it in other ways that could affect performance). We have three important examples to discuss.

First, consider change in Toyota. From 2009–2010, quality problems in Toyota vehicles, centering on stuck accelerator pedals that caused crashes, burst into the headlines. Until that time, Toyota was arguably the most esteemed automobile manufacturer, world-renowned for the quality of its products. The problems had actually begun more than six years earlier but were not acknowledged by the company, which was now claiming that human error was responsible for the crashes. After widespread negative publicity, including Congressional hearings and actions by government regulators, the company began to take the problems seriously and made the needed corrections.

The source of the problem in Toyota, many analysts claimed, lay in the company’s changed culture brought on by an excessive focus on growth. Steven Spear, of MIT, observing Toyota’s drive to become the world’s largest automobile company, commented on the conflict between quality and the desire for bigness, noting that the behaviors necessary to achieve each in full measure are very different: “The problem was that the ‘Toyota way’ was diluted by the demands of production.... People in Toyota would say, ‘This is going to bite us in the behind.” Jim Press, once Toyota’s top U.S. executive, said: “The root cause of their problems is that the company was hijacked, some years ago, by anti-family, financially oriented pirates (who) didn’t have the character to maintain a customer-first focus. Akio does.”¹¹ And Akio Toyoda, the company’s president, conceded: “The problems arose when some people just got too big-headed and focused too excessively on profit. The ultimate responsibility for mistakes...lies in me.”

Since the crisis erupted, the company has sought to show it is on top of its quality problems. Quality executives have been appointed throughout the organization; an outside advisory panel has been formed chaired by Rodney Slater, the former U.S. Secretary of Transportation, to provide an independent look at the quality issues and their solutions; and it has accelerated the pace for the recall of cars. It appears too soon, as of the writing of this book, to gauge the extent to which Mr. Toyoda has engineered the restoration of his company’s culture. The signs are mixed, with some commentators extolling the company’s bounceback in a number of respects, including quality. On the other hand, in October 2012 Toyota had to recall 7.5 million vehicles due to a faulty door switch that could result in car fires. This was the world’s largest recall in 16 years.¹²

Another example of a company changing its course has been Johnson & Johnson (one of Collins and Porras’ “Gold Medalists”). The reader will learn later in this chapter about J&J’s “Credo,” an exemplar for decades of the positive impact of clear values and a long-term orientation on a company’s practices. Basic to the Credo is this statement of J&J’s purpose: “The company exists to alleviate pain and disease; we have a hierarchy of responsibilities: customers first, employees second, society at large third, and shareholders fourth.”

As in Toyota, however, the beneficial corporate culture generated by this vision appears to have been seriously eroded in recent years by a short-term business focus that has triggered an array of business problems. Among the problems have been many product recalls, safety issues with J&J’s artificial hips, and a number of lawsuits aimed at the way it has marketed its antipsychotic drug, Risperdal. As analyzed in Knowledge at Wharton, “Many say that the problems are evidence that J&J has lost its way. ‘I think the credo used to be quite real there,’ says Erik Gordon, a professor at the University of Michigan’s Ross School of Business. ‘There was a time when people really believed in it and took great pride in it. But those days are long gone.’ Now, he says, ‘the major function of the credo is similar to mommy’s skirt—which you hid behind—or like wrapping yourself in the American flag. It is to distract people from what is going on.’ Gordon argues that CEO Weldon’s relentless focus on the bottom line—the company’s website touts its record of 27 consecutive years of adjusted earnings increases and 49 consecutive years of dividend increases—is the reason for the current woes. ‘Bill Weldon sets the priorities and the culture for the company,’ says Gordon. And the problems, from overly aggressive marketing to underinvestment in safety and quality systems, reflect ‘people trying to get their bonuses, hit their numbers, and keep their job.’”¹³

We come, finally, to Goldman Sachs, another corporate icon and what may be the most widely publicized recent case of a company’s transformation in its operating values. We would have included Goldman as a stellar example of the principles we argue for in this book had it not been for its deep involvement in the 2008 banking crisis and the company’s culture in recent years that the crisis exposed.

Our past admiration for Goldman stemmed from its renowned culture, most prominently its “partnership” view of its relationship with its clients and the extraordinarily collaborative and productive relationships among its employees. That culture changed markedly in recent years. This was dramatically revealed in a resignation letter written as a New York Times Op-Ed column on March 14, 2012, by Greg Smith, the former head of Goldman’s U.S. equity derivatives business in Europe, the Middle East, and Africa. Speaking of the past, Smith wrote that the “secret sauce” of the success of Goldman Sachs was its culture which: “...revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients.” He claims that that has changed markedly and describes the current culture as “toxic and destructive,” consisting of a no-holds-barred focus on making the greatest profit for the firm, no matter what the impact on the client. And, as we saw at the onset of the Great Recession, the impact on clients of this kind of culture can be severely negative. While the firm and its employees have, of course, always been interested in making money, that wasn’t their only goal, Smith says. He writes of an extraordinary “pride and belief” in Goldman, which stemmed from its focus on clients’ interests and a collaborative approach to serving those interests.¹⁴

It would be naive to claim that the past at Goldman was Utopia and that the present has been all ethical hell. Large corporations such as Goldman are complex entities with a variety of businesses, business environments, and personalities. But from what we have learned, there appears to be little question that there has been a significant shift in the basic message to employees from senior management about what’s really important now—the real values of the firm, its culture—and that these revolve around short-term profits.

We spoke earlier about the näiveté of the notion that profitability can ever be a second-tier priority for senior management. The issue is whether short-term objectives override long-term considerations. Previous Goldman management thought in precisely those terms. The oft-repeated informal motto of the company, coined by Gus Levy, its senior partner until 1976, was, “Be long-term greedy, not short-term greedy.” With long-term greed, money was made with clients, not from them.

Toyota, Johnson & Johnson, and Goldman Sachs were all iconic companies in their very different industries, and they have resembled each other as well in the paths they have chosen in recent years: a much more intense focus on short-term gains at the expense of their customers and their long-term core values. And, perhaps, at the expense of their shareholders, too. As compared to the S&P 500, each has underperformed markedly. While the S&P 500 has grown 13.6 percent based on full-year averages from 2009 through 2012, Toyota and J&J grew much less (5.3 percent and 2.2 percent, respectively) and Goldman Sachs declined (–7.4 percent). It comes as no surprise to Michael Krensavage, founder of investment firm Krensavage Partners, when, for example, he considers J&J’s market performance. “It’s been one blunder after another,” he says. “It’s hard to explain.”

A few additional words about business ethics. Although operating for the short term is not necessarily equated with being crooked—individuals and companies can be perfectly upright in their business dealings despite a concentration on short-term earnings—that single-mindedness about profits now sets a climate in which unethical behavior is more likely to occur. People are complicated, and just a small percentage will do anything anytime to make a buck. But if someone has to meet this quarter’s, or this month’s, or even today’s business goals—meet them or else!—normally honorable people can do borderline—or clearly unethical—things: deceiving customers, surreptitiously cutting corners on quality, fudging financial records, and on and on. Such behavior is usually rationalized (“Gotta feed the family!”) to reduce the psychological discomfort, and we are not going to make easy and self-righteous judgments about the matter. Further, focusing on individual employees and their guilt doesn’t get us very far. It is the culture of the organization that requires attention—a culture where misdeeds turn out to be actually, if not publicly, encouraged so that otherwise unrealistic corporate goals can be met—and this must start at the top of the company, not the employees. Once that is done, employees who violate the company’s ethical standards can be dealt with individually.

Regarding purpose, the fact is that most organizations produce some product or service about which their employees can be proud, at least potentially. (We say “potentially” because workers might feel embarrassed by the quality with which a product or service is provided.) Not just astronauts, emergency-room personnel, or special-forces soldiers feel pride in the type of work they do. We survey all kinds of organizations and occupations—from cleaning services to research laboratories, sanitation workers to investment bankers—and an overwhelming majority of employees feel that they provide a valuable service.

A sanitation worker in a focus group tells us, “There’s no job in the city more important.” A packer of cookies says, “I’m doing something that makes people happy.” A housekeeper in a hotel asks, “Do you know what this place would be like without us?”

We must put ourselves into other people’s shoes when we think about the meaning, dignity, and purpose of work. The fact that the reader might not feel particularly proud of packing cookies is irrelevant. We want to know how the cookie packers feel and, for them, this is not demeaning work. Is collecting garbage demeaning? All of us might do well to consider whether our own jobs are indeed more important.

The strong desire to be proud of our jobs is the reason that the pride scores are as high as they are: the norm is 82 percent, with the least favorable company still being 55 percent. Despite this restricted range, our research shows that large gains in morale and performance can be reaped when management behaves in a way that moves the scores toward the high end of the range.

Our discussion of an organization’s purpose centered on customers and, therefore, overlaps with this discussion of principles. Customers are key stakeholders, and providing them with high-quality and useful products and services is not only the organization’s purpose but also an ethical consideration. Employees certainly see it that way. At a minimum, they expect their company not to cheat or deceive customers, whether or not such actions are technically illegal. But it’s more than that: they want the products and services customers buy to be exceptional—at least to provide great value for the price paid. Our survey questions relating to quality and value show strong correlations with employee morale.

When asked what they like most about their jobs, many employees talk about the customers:

There is a great sense of satisfaction when you help someone, customer or peer, who is really in need. That person thanking you for “stepping outside of the box” and helping them is what makes my day.

I love working with customers, knowing that I impact people’s lives. Without them, I would not come to work either.

What I like best about this company is that it stands by its word to customers, and believes in doing the right thing.

We never stop trying to out-do ourselves in regards to the services/amenities that we provide to customers. It is little wonder that we do a great job of retaining our customers.

We strive to exceed our customers’ expectations everyday and we love doing our job.

I see a real win-win atmosphere and attitude concerning the way we deal with our customers. As employees, we establish lasting relationships and partnerships with our customers and the benefits multiply as time passes.

I feel that we do put the customers first and that if the customer has a problem, we will always do the best to have the problem fixed as soon as possible.

Another area basic to workforce treatment is physical safety, especially in traditional blue-collar industries. We did not discuss safety in detail in the equity section of this book, having reserved it for this chapter where ethical principles are discussed.

A multitude of federal, state, and local statutes cover safety and some companies, as we see periodically in news reports, repeatedly violate the law. At the other extreme are companies such as Alcoa which, under the leadership of former CEO Paul O’Neill (who later became the U.S. Treasury Secretary), compiled an extraordinary safety record. We will soon discuss what determines the success of statements of purpose and principles and will see that CEO leadership is critical. O’Neill’s role in Alcoa’s safety achievements is highly instructive in that regard.

When he took over at Alcoa, O’Neill announced that he wanted a chief objective to be a marked improvement in the company’s safety record:

“I said the first day that no one who works for Alcoa should ever be hurt at work... The world is so full of cynicism and disbelief about really caring about each other that the first response was predictable. The senior people came to explain to me that we were already in the top one-third of all companies in the world in our safety performance as measured by the absence of lost workday cases. At that time the lost workday average...was 5 per 100 employees per year. The 1987 number at Alcoa was 1.87, so they were very proud of themselves. They didn’t say it to my face, but the hallway conversation was, “When the next tough economic time comes, he’ll shut up about this. He doesn’t know anything about making aluminum; how can he be here telling us what we’re going to do about safety?”

And so I set out to make it reality by traveling around to Alcoa manufacturing sites. The first place I went to was a plant in Tennessee, and after lunch with 45 people that included top management and top union representatives... I said...that people should not be hurt who work for Alcoa. I told them it’s not a priority, but it’s a precondition. Important things are not priorities, they’re preconditions. So I said to the management,“From this day forward, we will not budget things that need to be done to improve safety conditions. If you have identified something that needs to be done, you should go and do it and you should not have an excuse list that says we’ll put it into next year’s budget and in the meantime hope that no one gets hurt.” And then I said to the hourly workers, “If the management doesn’t follow up what I just said to them, here’s my home phone number.” A lot of the management was really horrified I would give the hourly workers my home phone number, but I did. It’s interesting that I got a few phone calls. Not too many, because when people called me and they could demonstrate that the ideas were being violated, I took some action to clean up the situation.”

—From a speech at the University of Minnesota’s Carlson School of Management, June 2002

By 2000, when O’Neill retired, the injury rate at Alcoa was one-tenth of what it was when he arrived in 1987. George Becker, the union’s president at the company, described O’Neill as “a man you can trust and believe what he says.”

We see that obeying the law and adhering to commonly accepted practices and ethical standards were not sufficient for O’Neill. The companies that generate employee enthusiasm are those that go beyond that and, in effect, act as true advocates for their stakeholders’ interests. Their ethical commitments are not ancillary to the conduct of the business or a constraint on it, but rather an integral part of their operational and strategic decision-making. For O’Neill, safety was important in and of itself, and he also saw it as smart business. As Leslie Wayne of the New York Times put it, “...he figured out how to make money—not by cutting costs or slashing the payroll, but by improving productivity and making worker safety his top goal. His relentless push on safety had bottom-line benefits—he argued that a production process that was so flawed that workers got hurt was one that could not turn out high-quality products efficiently and cost effectively.”¹⁵

More broadly, in O’Neill’s own words:

“For me, [it] is not about safety, per se; it’s about leadership. And it’s about a conviction I have that a truly great organization requires that people be aligned around important values and they understand what they are. And no matter where you are in the world, they’re the same.”

—Remarks at the National Safety Summit, 2001

During O’Neill’s tenure at Alcoa, the company nearly tripled in size, with shareholder value increasing from $4 billion to $32 billion.

We recognize, of course, that what a company says and does about its ethical commitments and social responsibility can sometimes be deceptive and hypocritical. This often happens when a company is particularly and visibly generous in its relationship with the community but is quite the opposite in its treatment of other constituencies such as employees, customers, and investors. As David Vogel pointed out in an article in The Wall Street Journal:

Enron was long regarded as an exemplary corporate citizen. The firm and its senior executives were generous supporters of community institutions in Houston, and it captured international attention by building a power plant in India without resorting to bribing government officials... And the company pleased many environmentalists with its investments in alternative energy.¹⁶

Enron, in 2001, went bankrupt in a wave of accounting scandals.

The moral of the story, obviously, is that any judgment about a firm’s principles must be based on its behavior in relation to all its key constituencies. A company doesn’t need to be outstanding in all these relationships, but it gets no credit—quite the opposite—from being outstanding in one or two spheres while clearly immoral in others.

Workers usually know exactly what is happening. Consider these examples of comments from our surveys:

What I am very unhappy about is the...hypocrisy under which the company is run. For instance, [specific example deleted]. The company says it values its employees but acts differently. Talk is cheap!

I think outsourcing jobs to other countries is un-American and hypocritical. We jumped on the 9/11 bandwagon and sent U.S. jobs overseas.

There seems to be a hypocrisy that exists in our company. We need to learn lessons from other companies’ mistakes. Let’s not be the next Enron or WorldCom and get back to our core values and remember the greatest asset we have, our people.

The company is very hypocritical in its practices.... Treating employees with dignity and respect is a core value, yet if the company can save money by firing people (while still reporting a profit), it will do so. Loyalty should be a two-way street.

We must work to overcome the systematic maneuvers and the hypocrisy (true insincerity) of certain “leaders” who worry about showing “fake competence” to their superiors. They underreported the numbers this month so they can look better next month.

Hypocritical leadership. We hear from our leaders that they want honest feedback from us. However, if that feedback happens to be negative, we are viewed as disgruntled employees who need to go elsewhere if we aren’t happy at the company. We have been TOLD by our leadership how we should give feedback. So much for honesty.

Trying to smile at the leadership when they preach loyalty to the company and they are only looking to make the most money themselves with our jobs, only to eventually outsource to other countries. This appears to be what employees will get for their loyalty to this company.

The management preaches that quality service is what they want you to give to customers. However...the...[emploees] who have bad quality but good quantity get number one ratings.

They talk ethics but their advertising is totally misleading. They advertise items we don’t even have in stock.

Although workers feel positive about an organization that does good, they understand that they are not working for a charity. Samuel Gompers, the first president of the American Federation of Labor, knew that. “The worst crime against working people,” he declared in 1923, “is a company which fails to operate at a profit.”

The second-worst crime, Gompers would no doubt add, is a company that operates at a profit through exploiting its workforce, or, we would add, through exploiting any of its key constituencies. Workers are especially appreciative of a management that sees doing well and good as not only compatible, but mutually reinforcing: doing good contributes to a company’s long-term business success, and business success enables a company to do good things.

—Eileen C. Shapiro, Fad Surfing in the Boardroom

The great majority of companies with which we are familiar have formal statements of “purpose” or “mission” or “vision” or “values.” In our surveys, however, we often uncover employee skepticism about whether these statements are ever translated into practice. This is a shame since such statements can be enormously helpful to guide and inspire a workforce. They provide employees with both an overarching purpose for their individual efforts and basic decision-making criteria. But when they are seen as empty rhetoric, they do more harm than good.

The failure to make statements credible is rarely a result of insufficient effort spent on their wording. A lot of time is usually devoted to that, with no small involvement by senior management (often at two- to three-day retreats). Indeed, employees often wonder why such high-powered, high-paid time is devoted to a matter that turns out to have little consequence for the organization.

Here are three reasons these statements are only sporadically implemented:

1. The most important reason is that, despite the resources devoted to their composition, the avowals by senior management that “this is really serious,” and their widespread and repeated communication to everyone in the workforce, the statements are in truth felt by senior management to be largely peripheral to the business. It is as if the executives attended church at the retreat, but it’s back to business on Monday.

2. The statements’ phrasing can be so general that they seem meaningless or so concrete and detailed that they become uninspirational.

3. Other than communicating the statement to everyone, the company lacks an effective method for translating it into a daily reality that endures over time.

What is decidedly not an issue is semantics. The meetings in which these statements are formulated are often filled with endless debates about the meanings of terms such as “vision,” “mission,” and “purpose,” and whether all or just some of these should be incorporated into the company’s statement. Who cares? Any one of a variety of combinations of these categories can be used to good effect. Our preference is to limit the statement to two categories: purpose (what the organization tries to accomplish) and principles (the values that guide it). Probably the most time-consuming and unnecessary semantic debate concerns the difference between “vision” and “mission.” Despite having sat through innumerable lectures and discussions on the topic, we still don’t understand the difference.

Let’s look in greater detail at each of the real reasons that “mission” (or whatever) statements often have little effect.

• Business judgment. In line with what we said earlier about the difference between a short- and a long-term orientation, it should not be surprising that the businesses that do best translating purposes and principles into practice are those where senior management has a long-term perspective. Those are the companies which, in the normal course of doing their business, will take into account the impact of their decisions on all of their key constituencies. They don’t easily scrap what they decided on in a retreat because of short-term pressures and temptations.

But translating purposes and principles into day-to-day practice is often not simple. Companies, after all, do experience immediate business pressures such as periodic needs to cut costs. Let’s say that in a company with cost pressures, analysis shows customer service to be one of the areas ripe for cost-cutting. The point of principles—serious principles—in a company is not to so constrain the organization that it suffers serious business damage. Other than prohibiting clearly unlawful behavior, the principles are rarely absolute. What a principle relating, say, to customer service does is to force attention in a business sense to the long-term impact of cutting corners on service. The question, “Can we afford to maintain this high a level of customer service?” might well become, “Can we afford not to?” This doesn’t necessarily make the decision easier, but it more evenly balances the sides of the argument. Most frequently and beneficially, what it does is cause management to seek ways to meet both objectives to the extent possible: reducing costs in a way that minimizes damage to customer satisfaction with service. In fact, the Total Quality Management movement (to be discussed shortly) offers many examples where the reduction of costs (such as by eliminating bureaucratic obstacles in responding to customers) leads to higher customer satisfaction.

• The emotional level. Business judgment needs to be reinforced by the personal values and passions of senior executives. Purposes and principles are much more likely to be translated into practice if the company has a top management (especially the CEO) not only with a long-term business view but also as passionate about products and people as they are about profits. These kinds of executives simply would not want to be associated with an enterprise that produced shoddy products or treated its employees and other constituencies badly, whatever the business benefits. This, then, comes down to the personal makeup of executives: what makes them, at their gut level, feel good or bad about the way their organization functions. They can be highly moral people and do all kinds of good outside of work, but unless an important source of personal pride for them is their companies’ “doing good” (in addition to well), purposes and principles will not likely have a sustained significant impact on the functioning of the business.

Doing good, therefore, should be treated as more than a collection of discrete practices or occasional gestures in parallel to the mainstream business and serving from time to time as the “conscience” of the business and helpful for public relations. Those kinds of efforts will often be found to be run by relatively uninfluential staff departments who are asked to report on their activities from time to time to senior management. Doing good should instead be viewed as a comprehensive set of policies, practices, and programs driven by senior leadership and integrated by their connection with serious business objectives and by their reflection of strongly held values aimed at building long-term, positive relationships with all major stakeholders.

• It should be relevant to the specific business, not so general and filled with platitudes as to be virtually meaningless.

• It should be simple and clear, getting to the heart of what the company is without a lot of detail and qualifications. Too many words can obscure the central message.

• It should be inspirational in that it appeals to values that employees hold above and beyond profits (especially the usefulness and quality of the product or service), encourages excellence in the achievement of those values, and promotes a feeling of being special—an “elite” organization that is noticeably different from others.

There are many particularly good statements of purpose. Here is one that we especially admire; it’s taken from a three-person benefits department in a medium-size company:

Benefits are about people. It’s not whether you have the forms filled in or whether the checks are written. It’s whether people are cared for when they’re sick, helped when they’re in trouble.

This statement is particularly impressive to us. After all, it was composed in a tiny organization devoid of the high-powered executive attention and professional “wordsmithing” such statements normally receive. And it was composed for the kind of department often notorious for its fixation on bureaucratic rules and procedures. It is a statement truly from the heart, with the focus in the right place: on caring for people, rather than having the right forms.

For the statement of principles (the values that guide the organization in the achievement of its purpose), the same three general guidelines described for the statement of purpose should be followed to the extent possible. A statement of principles will, of necessity, be more detailed than one of purpose, but brevity should still be a goal. Although certain ethical principles are indeed applicable to any organization (is honesty ever irrelevant?), the wording should reflect, as well as it can, the issues and conditions of the particular business for which the principles are being written.

In many companies, the statement of principles goes well beyond what might normally be considered “ethics” and depicts the major features of the company’s desired internal culture. Thus, besides integrity, companies might stress the need for an internal environment that is open, empowering, collaborative, diverse, creative, and so on. These are perfectly appropriate and useful in the context of principles. In fact, these elements of internal culture often derive, in part, from ethical considerations—empowerment as an outgrowth of treating people with respect, and openness from the need for honesty and transparency.

Here are a few more particularly good examples of statements of principles from easily recognized companies:

Lands’ End

1. We do everything we can to make our products better. We improve material, and add back features and construction details that others have taken out over the years. We never reduce the quality of a product to make it cheaper.

2. We price our products fairly and honestly. We do not, have not, and will not participate in the common retailing practice of inflating mark-ups to set up a future phony “sale.”

3. We accept any return for any reason, at any time. Our products are guaranteed. No fine print. No arguments. We mean exactly what we say: GUARANTEED. PERIOD.

4. We ship faster than anyone we know of. We ship items in stock the day after we receive the order. At the height of the last Christmas season, the longest time an order was in the house was 36 hours, excepting monograms which took another 12 hours.

5. We believe that what is best for our customer is best for all of us. Everyone here understands that concept. Our sales and service people are trained to know our products, and to be friendly and helpful. They are urged to take all the time necessary to take care of you. We even pay for your call, for whatever reason you call.

6. We are able to sell at lower prices because we have eliminated middlemen; because we don’t buy branded merchandise with high protected mark-ups; and because we have placed our contracts with manufacturers who have proven that they are cost conscious and efficient.

7. We are able to sell at lower prices because we operate efficiently. Our people are hard-working, intelligent, and share in the success of the company.

8. We are able to sell at lower prices because we support no fancy emporiums with their high overhead. Our main location is in the middle of a 40-acre cornfield in rural Wisconsin.

Merck

1. Our business is preserving and improving human life. All of our actions must be measured by our success in achieving this goal. We value above all our ability to serve everyone who can benefit from the appropriate use of our products and services, thereby providing lasting consumer satisfaction.

2. We are committed to the highest standards of ethics and integrity. We are responsible to our customers, to Merck employees and their families, to the environments we inhabit, and to the societies we serve worldwide. In discharging our responsibilities, we do not take professional or ethical shortcuts. Our interactions with all segments of society must reflect the high standards we profess.

3. We are dedicated to the highest level of scientific excellence and commit our research to improving human and animal health and the quality of life. We strive to identify the most critical needs of consumers and customers; we devote our resources to meeting those needs.

4. We expect profits, but only from work that satisfies customer needs and benefits humanity. Our ability to meet our responsibilities depends on maintaining a financial position that invites investment in leading-edge research and that makes possible effective delivery of research results.

5. We recognize that the ability to excel—to most competitively meet society’s and customers’ needs—depends on the integrity, knowledge, imagination, skill, diversity and teamwork of employees, and we value these qualities most highly. To this end, we strive to create an environment of mutual respect, encouragement, and teamwork—an environment that rewards commitment and performance and is responsive to the needs of employees and their families.

Those statements were chosen to show that there are no rigid formulas for such things. They are all effective, yet differ from each other in significant respects. Don’t be confused by the fact that these statements of principles often appear to overlap in content with statements of purpose. Merck’s first principle, “Our business is preserving and improving human life...” certainly sounds like a purpose. Indeed, sometimes purpose and value statements are not distinguished from each other at all. Consider Johnson & Johnson’s famous Credo, to which we referred earlier:

We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs, everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers’ orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit.

We are responsible to our employees, the men and women who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly, and safe. We must be mindful of ways to help our employees fulfill their family responsibilities. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development, and advancement for those qualified. We must provide competent management, and their actions must be just and ethical.

We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens—support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources.

Our final responsibility is to our stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programs developed and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realize a fair return.

Before recent years, the Credo’s fame was well deserved: it was clear, relevant to the business, and inspirational. Since it was formulated in the mid 1940s by Robert Wood Johnson, then the CEO, it had an enormous influence on the way Johnson & Johnson operated and its employees conducted themselves. Most famously, perhaps, was how the company responded during the 1982 Tylenol crisis, when seven people died after taking Tylenol that had been laced with cyanide. The company quickly stopped production and removed all Tylenol from the market. Jim Burke, chairman at the time, remarked, “After the crisis was over, we realized that no meeting had been called to make the first critical decision. Every one of us knew what we had to do. We had the Credo to guide us.”¹⁷

Because successful statements of principles vary greatly, let’s not obsess over form. We have our own preferences, such as the distinction between purpose and principles, but other approaches serve just as well.

There is no great mystery about what is required to make noble-sounding words into a day-to-day reality:

• Strong and visible top-management support, especially the CEO’s support.

• Clear, enforceable, and enforced policy.

• Internal processes that enable the policy to be carried out.

• Full communication to the workforce of the policy and its rationale.

• Training of the workforce in implementing the policy on their own jobs.

• Tools that the workforce needs to carry out the policy (including authority).

• The workforce’s participation in developing the methods used to carry out the policy.

• Measurement of the results.

• A reward system geared to the results.

Two of these requirements—top-management support and workforce participation—relate to each other and deserve a bit of elaboration. Much has been written about how important it is to get the workforce involved in defining organization purpose and principles. Our view is that, in certain key respects, this cannot be a participative process because its essence—especially of an organization’s purpose—must come from the top. The exact wording and elaboration of the statements, and certainly their methods of implementation, will profit greatly from the involvement of others, but it is more than a little ludicrous for a CEO to expect others to give her a purpose for the organization. As we argued earlier, the CEO must be the type of person who, at a gut level, takes pride in achievements in addition to those reflected in financial statements and believes that such achievements are important for long-term business performance. The CEO then requires that the organization behave in conformity with these values; there can be no room for debate about this. The only question is how they will be achieved, including how their meaning can best be captured in words; for this, broad workforce participation is extremely beneficial.

We can provide many examples of effective implementation of purposes and principles. Throughout this book, we have dealt with such implementation in the employee realm. As the primary example in this chapter, let’s use the implementation of statements of purposes and principles that relate to the customer constituency.

The great majority of purposes and principles statements by America’s corporations contain commitments to excellence in the products and services provided to customers. In many companies, however, surveys of both customers and employees reveal large gaps between what companies say they aim to do, what employees say they actually do, and what customers say they experience.

The companies where those gaps are smallest—in fact, where customers often say that they receive more than they expect—are often those in which total quality management (TQM), or some version of it, such as “Six Sigma,” has been effectively introduced. TQM originated in Japanese industry in the 1950s and has become steadily more popular in the West since the early 1980s. Although TQM was originally seen by many as another management fad, it has, in our view, been an extraordinarily valuable initiative for those companies that have taken it seriously. It is responsible in significant measure, for example, for the transformation of much automobile manufacturing in this country and that industry’s ability to compete on quality with Japanese imports.

TQM is an outstanding example—when taken seriously—of how purpose can be successfully translated into action.

There are many definitions of TQM, but we define it as a culture and methods that aim to provide customers with products and services that fully satisfy their needs. TQM requires continual improvement in the quality of all aspects of the company’s processes so that things are done right the first time and defects and waste are eradicated from operations. Included is a focus not just on “things”—processes, products—but on people as well, such as the need to obtain workforce involvement in generating ideas for quality improvement and getting people to work collaboratively within and across departmental boundaries.

TQM is not a one-time “event,” as are so many management fads. It encompasses a detailed methodology that takes considerable effort, time, and culture change to carry out well. The systematic use of TQM has been greatly enhanced in the United States—and its definition sharpened—by the federal government’s Malcolm Baldrige National Quality Award. Created in 1987 by congressional mandate, this program seeks “to create an awareness of quality as an important part of organizational performance and excellence, encourage the sharing of performance excellence strategies, and recognize those organizations with particularly effective practices.”¹⁸ The Baldrige awards are given to organizations on the basis of evaluations by trained examiners on a series of criteria that include both external and internal quality performance. The criteria provide a well-reasoned, well-accepted roadmap for companies that seek to significantly improve their performance, whether or not they apply for the award.

Many organizations have “quality” programs of one kind or another, but relatively few take them seriously enough to be strong candidates for the award, even if they were to apply. Sadly, professionals in the field estimate that only about 20 to 30 percent of TQM efforts have been implemented in a truly effective way in American companies—that is, with significant and lasting quality results. For the majority, it is a fad or an isolated and staged event in one part of the business for public relations purposes.

What does taking a program such as TQM “seriously” mean? Earlier, we listed the actions that we see as necessary for turning noble objectives into reality (such as strong and visible top management support). Consider a specific case: Federal Express was a Baldrige award winner in 1990 and, Baldrige or not, is a company with an outstanding and widespread reputation for the excellence of its service to customers.

FedEx’s quality policy calls for “100 percent customer satisfaction 100 percent of the time.” That charge comes directly from the company’s founder and CEO, Frederick Smith. How has this clear-as-a-bell policy been followed over the years?¹⁹ Here are some of the ways:

• Two customer guarantees: if FedEx is more than 60 seconds late in delivering a package, the customer does not have to pay for it. If the customer asks to trace a package and FedEx can’t do it within 30 minutes, the customer doesn’t have to pay for it. Many millions of dollars have been invested in the company’s tracking system. (“Customers want the security that comes from knowing we can track their packages every step of the way.”)

• An executive quality board oversees the quality process; quality administrators and employee facilitators are assigned throughout the corporation.

• A Service Quality Index (SQI) measures service failures in 12 categories, such as delivery late on the right day, delivery on the wrong days, missed pickup, damaged package, and calls to the company abandoned by customers. (The focus is on failures because the company says that 99 percent is not good enough; 99 percent success in FedEx translates into millions of failures.)

• Twelve root-cause teams, one for each SQI category, seek reasons for failures in each category and act to ensure they do not recur. Each team is led by a senior executive.

• Cross-functional teams in every geographic market that meet regularly to figure out what needs to happen in their market to get those airplanes and trucks out on time every night.

• Quality-action teams work on specific projects.

• Regular surveys of customers (2,400 calls per quarter) to determine their needs, satisfactions, and dissatisfactions. Regular surveys of employees with disciplined follow-up on the issues uncovered. (“To achieve the greatest level of customer satisfaction, you need to keep your employees happy. Customers can sense if employees do not have tremendous pride in their company....”)

• Empowerment of employees to do whatever it takes to satisfy customers. (Frederick Smith says of FedEx employees, “Daily, they go above and beyond to serve our customers. They are the ones who trek through all kinds of weather; deliver every package, each one critical; they persist in solving every customer’s problem; they ferret out the root cause of every problem to prevent it from ever happening again. Their talent, ingenuity, and commitment drive our quality standards closer to our goal of 100 percent customer satisfaction.”)

• Intensive six-week training in customer interaction for couriers and service representatives.

• Employee satisfaction, service quality, and profitability goals.

• Bonuses tied to the achievement of the goals.

FedEx’s devotion to quality is a superb example of what we mean by turning an organization’s purpose into a day-to-day reality.

Does serious attention to quality pay off in financial performance? In 2002, a major study analyzed 5-year returns in 600 publically traded TQM award winners. The researchers found that $100 invested in each firm one year prior to winning the award yielded 34 percentage points higher returns five years later than the same $100 invested in the S&P 500 (114 percent versus 80 percent returns, respectively). The TQM firms outperformed the S&P 500 four out of the five years. (In one year they were about even.) Performance on other financial metrics yielded similar results.²⁰

Customers are an extremely important constituency of any organization, but they are just one. Detailed examples of effective implementation like FedEx’s could be given for other stakeholder groups, such as suppliers, investors, and the community. In all these cases, the basic points are the same:

• Purposes and principles must emanate from strongly held convictions of senior management.

• Statements of purposes and principles will be exercises in futility unless they are accompanied by a serious implementation plan.

This chapter focused on one of the most important components of leadership—namely, providing an organization with purpose and principles of which employees can be proud and to which they will willingly and enthusiastically devote their skill and energy. The reader has learned in earlier chapters that we in no way minimize the importance to workers of equitable treatment in matters such as pay, benefits, and job security. In fact, having noble purposes—for customers, community, and so on—rings hollow if employees are treated shabbily. But conceiving of employees as working “just for a living” and the corporation as strictly an economic entity misses a vital element of human nature: the need to do something that matters and to do it well. Ironically, seeing employees strictly in economic terms is a long-term economic disadvantage for a company because it loses out on the extra performance that people who are enthusiastic about a purpose will give.