What Can Leaders Do?

Research at IMD is revealing pieces of a complex jigsaw puzzle, whose form still remains only in outline. The recent attention to shareholder value is prompting some leaders to put it at center stage in terms of enterprise purpose, notwithstanding evidence that value creation may be jeopardized; others, more circumspect, are intuitively searching for ways to safeguard broader stakeholder interests. Few, if any, are systematically using all the avenues available to achieve balance. From the piecemeal evidence we do have, the following should certainly be considered.

With Respect to Purpose Itself

Hold the CEO Responsible

Recognize that it is the responsibility of the CEO, first and foremost, to balance stakeholder interests. Boards can help by focusing management attention on this issue when it is being overlooked or underestimated. Remember that the CEO wears two hats: the first as a stakeholder in his or her own right, with purposes related to self-realization and reward; the second, as the enterprise leader, with the responsibility to balance this self-interest with the interests of other stakeholders. When boards make CEO appointments, they must bear in mind the inherent predispositions of individuals in this respect and be sure to relate these predispositions to the underlying nature of the business and its inherent requirements for balance.

Enlarge Value Creation Ambitions

I have already intimated that leadership's responsibility is to “bake a big cake” in terms of value creation. The bigger the cake, as any child at a birthday party could tell us, the less squabbling there is likely to be about sharing it out; the smaller the cake, the harder it is to satisfy conflicting purposes. In fact, the smaller the cake, the more differences in purpose among diverse stakeholders are likely to become conflictual. The need in many companies is not just to modestly step up value creation ambitions, it is to massively redefine these upwards. Only then can we expect to achieve simultaneously the diverse, and sometimes divergent, demands of the different stakeholders.

Formally Recognize the Goals of All Stakeholders and Re-prioritize When these Are Not Being Met

It is usual, in fact nearly universal, to define financial targets for business. More and more, these are defined in shareholder value terms, and not just one- to three-year financial plans and budgets. Balanced scorecard approaches have resulted in improved measurement and control of customer satisfaction. These are steps in the right direction.

Unfortunately, it is rarer to find companies that set such clear goals for employee satisfaction. Shell, with its new three-part annual report dealing with economic, social, and environmental performance, is still an exception rather than the rule. It has apparently been a major step toward the achievement of their new balance.

When, as we have seen, the inherent nature of the business tends to favor some stakeholders at the expense of others, leadership's role is to provide counterbalance. In a performing arts company, this might mean paying greater attention to finance and financial stakeholders; in an energy company it might mean paying greater attention to the positive and negative impacts on society at large.

With Respect to Strategic Direction

Formulate a Dynamic and Engaging Mission Statement that Encourages Balance

Good mission statements are short and to the point. They should embrace purposes that spotlight stakeholder interests above and beyond shareholder value. Ball bearing manufacturer SKF's mission statement for its Bearing Services Division's “trouble-free operations” focuses on the customer stakeholder; Alcon, a world leader in the eye care business, has the mission statement “preserving and restoring sight.” This implies benefits both for individual customers and for society at large. It reminds all involved that the company's fundamental purpose is to do good for customers and society, and that they expect that focus to lead to shareholder value. It does. Alcon is the fastest-growing and most profitable company in its industry and a high performer on all five dimensions of purpose. It can boast passionate leadership (its former CEO stayed nearly 40 years at the top and built the company from $20 million of sales to more than $2 billion). It can also boast highly motivated and engaged employees. The mission statement and the fundamental values it implies apparently play a major role in this.

Use Breakthrough Strategies to Achieve Enlarged Value Creation Ambitions

Experience tells us that the most effective way to achieve high levels of value creation is not to simply make incremental changes to what already exists, but to substantially redefine the business and possibly even the industry.

It is hard to imagine achieving balance among the five broad dimensions of purpose without such a breakthrough strategy. The ability to lead strategically towards the future (i.e., to be on the leading edge of new waves, rather than being on the back edge, or worse, submerged by change) is a vital ingredient. I have written extensively elsewhere about the need for all firms and their leaders to employ a dual approach; namely, to have a clear strategy to manage “today-for-today” and to spend equal time on “today-for-tomorrow.”^[5]

Remember that Balance is Only Achieved by Action, Not by Intent Alone

Words are not deeds. Statements of intent with respect to balance are necessary (as we shall see later) but not sufficient. This leadership intent has to be converted into action. In practice, the end result achieved is the sum total of many decisions made explicitly or implicitly by leaders at many different levels in the organization as they go about their daily business. Balance is achieved, or not achieved, because executives up and down the hierarchy put slightly more weight on one foot than the other as they go along. The CEO's foot, because it provides an example to all the rest, is infinitely heavier in showing the way than the feet of anyone else lower down. When, for example, Nestlé was confronted with a plant closing in Austria, the decision by top management to sell the plant to a competitor rather than closing it down was interpreted by the rank and file as a signal that Nestlé cared about its people.

With Respect to Implementation

Put in Place a Supportive Culture, Values, and Beliefs

All that has been recommended will be hard to implement unless the organizational ground for balance is fertile. In attempting to achieve balance, then, the CEO must be aware that his personal initiatives will fall flat unless this organizational context is attended to.

When shareholder value is held up as the central and sole purpose of the enterprise, it is quite possible that executives at levels below the top will interpret this too narrowly and make decisions that trigger vicious rather than virtuous circles. The CEO's job is to instill a clear set of values and beliefs that help the organization's members comprehend the real functioning of the value-creation system and to act accordingly. One such example is Canon corporation's philosophy of Kyosei. Ryuzaboro Kaku, Canon's president, described this as “a philosophy that would guide the company's future development and express its vision.”^[6] This philosophy was expressed as “the achievement of corporate growth and development, with the aim of contributing to global prosperity and the well-being of humankind.”

Align People, Systems, and Processes

This recommendation is really an extension of the last one, but on a more operational level. Balance is not likely to be achieved, even when there is total commitment from the CEO, unless people, systems, and processes follow. When SKF developed the highly innovative approach to the bearings business by stressing service (under the slogan “trouble-free operations”), they went to enormous trouble to also create awareness among employees about the new strategy and its requirements, to train them to accomplish this, and to rely on them extensively for the detailed innovation that was required at the point of contact with the customer. Incentives were brought into line with the new service orientation and new measures of service quality. With this radical new strategy, SKF created substantial new value, dramatically improved customer satisfaction, convinced doubting employees and managers of its advantages, and raised profit margins and growth levels considerably.

Clearly Communicate the Broad Balance that Is Sought

Engraved into the stone above the entrance to the rector's palace in Dubrovnik (it was put there in the late 1500s, at the height of Dubrovnik's naval power in the Adriatic, Mediterranean, and beyond) is inscribed the following: “OBLITI PRIVATORV PVBLICA CURATE.” Roughly translated, it means “to put aside private interests, and serve those of the public.” Not only was it a constant reminder to the rector of the balance that he had to achieve, but because it was also read by all who entered the palace's main portal, it made everybody aware of the most fundamental purpose of this particular enterprise.

The point of this example is not to advocate that every leader should communicate the balance that Dubrovnik espoused; rather, it is to draw attention to the need for and power of communications. In some cases, communications must focus on the need for a new orientation to the customer (SKF's Bearing Services CEO spent huge amounts of time explaining the idea of “trouble-free operations” inside and outside SKF). In other cases communication must focus more attention on financial discipline and returns to shareholders, and in yet other circumstances it must underline that the company is deeply concerned about its employees. The point is that communication is an essential part of any attempt to achieve balance, promote virtuous circle thinking, and thereby create the best possible value result.

The concrete and specific actions that leaders may take may be summarized as shown in Table 9-3. Whatever the underlying nature of the business, they provide, when undertaken in concert, a powerful force for the creation of virtuous circles and for value creation improvement.

Table 9-3. What Leaders Can Do

	Purpose	Strategic Direction	Implementation
Policy level	Hold the CEO responsible	Formulate an engaging mission	Install a supportive culture, values, and beliefs
Strategic level	Enlarge value creation ambitions	Develop a breakthrough strategy	Align people, systems, and processes
Operational level	Recognize stakeholder goals	Follow-through/action	Communicate broad sense of purpose