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.  Successful nations often fail because over time a small group (the ‘elite”) extracts and retains available resources via political institutions that discourage widespread 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 to one 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 (thanks in part to the English Channel as opposed to the Russian winter), even his mighty army could not conquer England’s “nation of shopkeepers”– or more accurately a government heavily influenced by motivated shopkeepers.

Drive by Daniel Pink.  Our behaviors are driven by biological and emotional needs.  Traditional extrinsic reward systems (carrot and stick) work less well for jobs in the information age.  Efforts to upgrade these extrinsic rewards (so-called Motivation 2.0) via flextime, telecommuting, and general empowerment can help but still may e perceived as mere band aids on the problem.  Real motivation and drive at work (hence successful companies) come from intrinsic rewards which flow from skills, mastery, and purpose – in other words, providing 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 Pres. Bush I, he became CEO at Alcoa, the aluminum giant.  The first thing this unlikely Alcoa CEO choice did was to institute a culture focused on accident reduction.  This new “habit” — to identify potential dangers and report all incidents (no small details ignored) — fostered open communication that in turn fostered a culture that led to increased productivity and profits.  Similarly, Starbucks CEO Howard Schultz realized the importance of instilling habits that made baristas receptive and tolerant to even the most difficult customers.  After all, some boorish behavior could be expected before a morning caffeine dose was received.  Finally, Tony Dungy, a successful former NFL coach and now TV commentator, repeatedly 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 must compete not just on what they do, but on how they do it.  Thus, providing excellent customer service through engaged employees, not just 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 to enhance the enterprise (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 help spread and safeguard the wealth so profits and goodies are not retained by just a few. 

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.”  Team members divide tasks to multiply successes.  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.   You can’t just whistle a symphony; you need an orchestra!

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 to stay motivated.  Importantly, the ESOP can create a workforce of “shopkeepers” and an accompanying corporate governance structure responsive to their input and needs.  This corporate structure can include committees and groups (formal or ad hoc) designed to improve the workplace and benefit employees by improving their skills and providing for career advancement (e.g., intrinsic rewards).  These rewards can run the gamut from flextime, 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.