Build Great Institutions, Not Just Profits
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Not many years ago, corporate leaders were challenged by the public, college students, governments, and the media to create and exhibit social responsibility, above all else. Although it doesn’t generate the volume of headlines it once did, creating more than an overly impressive bottom line is still treasured.
Harvard Business School Professor Emeritus, Michael Beer, in his new book, Higher Ambition: How Great Leaders Create Economic and Social Value, faces this challenge straight up and directly. Examining CEOs of global and national companies, he describes, evaluates and focuses on their contributions to their employees, customers, communities, and building great, long-term, influential institutions.
Certainly, profits are important to success, stockholders, management, and market values. However, is this really how great leaders are defined? Should these leaders continue to strive for a higher ambition, including forming rock-solid relationships with all “stakeholders” in mind?
The recent disastrous global recession has reinforced the need to generate, not only consistent cash flow, but noteworthy profits. Has the down economy, second only to the Great Depression of the early 20th century, inflated the need to generate profit at the expense of social responsibility? Professor Beer and his co-authors Russell Eisenstat, Nathaniel Foote, Tobias Fredberg, and Flemming Norrgren, think not.
True leaders should learn and adopt a higher, stronger commitment to creating outstanding institutions along with financially successful organizations. Education and training—and its failures—may play a major role in those leaders that lack the focus or commitment to build great institutions.
Who Are the True Leaders with this Higher Ambition Quotient?
Those executives that understand this principle focus on creating both high financial and social values for their organizations. CEOs and other C-level executives who comprehend the importance of building self-sustaining, socially-conscious institutions along with generating reasonable profits are rarer than the business community would like to admit.
Professor Beer’s book features those leaders who identify their focus as generating both financial and social value for their organizations. The author found that these leaders targeted their decision-making to value-added results for staff, customers, vendors, and their communities. Their commitment to the “social component” was as strong as their dedication to the financial factor.
The authors’ search for these specific leaders was a bit challenging. Predominant business leadership was focused on bottom line results far above all else. They did, however, study 36 CEOs, from three continents, who fit their targeted profile.
Criteria included achieving a “compounded annual growth rate in revenues, profits and market capitalization that exceeded the 50th percentile of industry peers between 1997 and 2006, or for the CEOs tenure.” (Harvard Business School, “High Ambition Leadership,” Martha Lagace, September 2011) The authors examined both public and privately held organizations to develop a meaningful sample.
Their goal was to learn how these leaders thought, spoke and viewed their raison d’être for managing their companies. The authors made no attempt to “prove” a solid relationship between their financial and social responsibility performance. However, it became apparent that there was a correlation with their subjects' style of business leadership.
How Committed Leaders Build Superior Institutions
The primary technique to building outstanding, responsible institutions while generating good financial results is to “align” both strategies and organization. This action plan is different than the approach of most senior executives and corporations. In most settings, executives, focusing on career advancement, treat these two features as separate and different entities.
How do these leaders use this novel approach to their responsibilities? The authors discovered that these senior executives first examined the inside of their company instead of looking at markets and current competition. They analyzed “who” their companies were, “what” was their purpose and “where” their passions lay. Aligning their personal values with their company’s values, these leaders were able to integrate these values with their strategy development.
This alignment creates a working “harmony” to build great institutions, based on corporate and personal values. These outstanding institutions also generated strong bottom lines. Curious, but encouraging.
While Nokia, like other cell phone manufacturers, faces strong challenges from other smartphone makers, e.g., iPhone (Apple), they are a good example, used as a focus in Professor Beer’s book. Shortly after noted consultants suggested that they should not enter the cell phone industry, they did precisely that—with great success for some years. Their CEO realized that the company had both the passion and capability to produce quality cell phones affordably, making them available to the general public.
Their business leadership understood that the corporate “identity” could be effectively merged with their strategy to achieve success. These executives comprehended that they could lead, manage and be socially responsible, while still enhancing their own career advancement goals.
This strategy, to combine social consciousness—taking cell phones from the hands of only the wealthy and making them available to the less “financially gifted”—with revenue and profit worked amazingly well. Nokia sold off numerous unrelated business vehicles to target the cell phone arm, enjoying wonderful success, at least until recently.
Some business leadership seems to understand that creating great institutions begets strong profit, but more importantly, a revered legacy, enjoyed by employees, customers, stockholders, and the commercial community. These leaders also enjoy strong career advancement, as they display enhanced resumes and proven track records of multiple successes.