Leadership Matters

Let’s examine some best-selling books that discuss leadership and motivation both in government and business.  Their observations are highly relevant and transferable to successful ESOP companies.  Here’s a brief synopsis of each book:

Why Nations Fail by Daron Acemoglu and James Robinson.   Nations typically fail because a small group (the ‘elite”) extracts and retains available resources via political institutions that discourage private ownership and meaningful citizen participation.  North Korea and the former Soviet Union are examples of such extractive economies, as are former monarchies and colonial regimes in America and Africa.  In contrast, England experienced gradual change from an extractive regime led first by nobles (the Magna Carta) and then by a growing merchant class that ultimately led to the “Glorious Revolution of 1688” whereby Parliament established true supremacy over the crown.  This political and economic liberation laid the foundation for its Industrial Revolution and England’s growing superiority over its historical rivals, France and Spain.  (Of course, this same spirit of liberation also led to the revolution by American colonists in 1776.)  As Napoleon subsequently discovered, even his mighty army could not conquer England’s “nation of shopkeepers”– or more accurately a government heavily influenced by shopkeepers.

Drive by Daniel Pink.  We are driven by biological and emotional needs.  Traditional extrinsic reward systems (carrot and stick) may work poorly for jobs in the information age.  Efforts to upgrade these extrinsic rewards (so-called Motivation 2.0) via flextime, telecommuting, and general empowerment are mere band aids.  Real motivation and drive at work come from intrinsic rewards which flow from skills, mastery, and purpose – in other words, opportunities for career advancement, learning, and meaningful work.

The Power of Habit by Charles Duhigg.  We can improve actions, outcomes, and our organizations by focusing on certain key behaviors.  Some examples: before Paul O’Neill became Treasury Secretary for Bush I, he was CEO at Alcoa, the aluminum giant.  The first thing this unlikely CEO choice did was institute a culture focused on accident reduction.  This new “habit” — to identify potential dangers and report all incidents — fostered open communication that in turn increased productivity and profits.  Similarly, Starbucks CEO Howard Schultz realized the importance of instilling habits that made baristas receptive to even the most difficult customers.  Tony Dungy, a successful NFL coach, drilled his players in new and simple recognition patterns that became habit and reflex under the chaos of actual game conditions.

How by Dov Seidman.  The internet age makes pricing information widely available so the best companies compete not just on what they do, but on how they do it.  Thus, providing excellent customer service through engaged employees, not the lowest prices, ultimately is your key value differentiator in the marketplace.

The themes expounded in these different books explain why so many ESOP companies outperform their dysfunctional competition.

Employee Participation.  ESOPs give employees a meaningful stake (e.g., an enforceable and valuable property right) in the success of their company.  Open book management and an independent annual appraisal help create transparency and encourage participation and innovation (an “industrious” revolution).  Some ESOP companies permit pass-through voting for the Board and allow employees to hold a Board seat.  In other cases, the Board may have outside members or also may be accountable to an independent external trustee.  All these factors limit the ability of insiders (e.g., elites) to keep the goodies for themselves.

We’re Owners.  ESOPs promote their special status to customers because customers prefer working with someone who behaves like an owner.  In other words, someone who “lives” the company mission and takes care of them from start to finish.  This premium service is a powerful branding tool and value differentiator compared to those competing solely on price.  You know what I’m talking about if you’ve ever flown that airline where you have to pay extra to put your bag in the overhead bin and get a cup of water.

Peer Pressure and Good Habits.  ESOPs help focus all employees on performing as a team with the same direction.  Slacking off and truancy are not tolerated; top performers and victories are jointly celebrated.  Team leaders instill good habits so nobody says “it’s not my job.”  Appropriate risk taking is encouraged and when mistakes are made (1) they are used as learning tools, and (2) safeguards are put in place so they are not repeated. 

It’s Not Just the ESOP For Motivation.  As we’ve said before, the ESOP is a means to an end, not the end itself.  A growing ESOP account balance is an extrinsic reward but employees need more than that.  Importantly, the ESOP can create a workforce of “shopkeepers” and an accompanying corporate governance structure responsive to their needs.  This corporate structure can include committees and groups (formal or ad hoc) designed to benefit employees by improving their skills and career advancement (e.g., intrinsic rewards).  These rewards can run the gamut from tuition reimbursement, training opportunities, financial wellness, 360 degree feedback, and notice/preference for internal job openings.

In conclusion, the biggest contributor to company success is motivated employees going the extra mile.  Employees will go the extra mile when they believe (1) in the company mission and the importance of their work, and (2) their additional effort will be properly recognized and rewarded.  ESOP leaders that provide (1) the vision to make the company mission come alive, and (2) the appropriate incentive programs to reinforce core values will create highly motivated employees that provide your company with a significant competitive advantage.