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TPL Insights: Building Peak-Performance Cultures – #41 Stakeholder Engagement – Time to End the Perversion of Capitalism

November 12, 2020

By  

Rob Andrews

Allen Austin Leadership

 

By Rob Andrews with paraphrased content from Joan Williams and  Ro Khanna 10.29.20 article in Harvard Business Review

 

The conversation about stakeholder capitalism is heartening evidence that much of the business community recognizes that capitalism has gone seriously off track. The obvious criticism is that, while CEOs are well-placed to pursue profits, they are ill-suited to weigh and balance the needs of many different stakeholders, as has been cogently argued in The New York Times. And so far, the follow-through on the embrace of stakeholder capitalism has been decidedly mixed.

What’s needed is to evolve toward sustainable capitalism — and away from the slash-and-burn capitalism of recent decades. In their pursuit of quarterly profits and high salaries, there has emerged since the 1980s a dysfunctional version of capitalism that does to the economy what clearcutting does to forests — destroys the conditions necessary for long-term success by focusing excessively on short-term profits.

We don’t need to reinvent capitalism. We just need to practice it. Last March Williams and Khanna spoke of capitalism’s evolving identity and what has happened to many iconic brands that lost their souls. Raj Sisodia, the co-founder of Conscious Capitalism, believes that companies that don’t understand the unstoppable forces that are driving this makeover could have a short life expectancy.

Companies with a soul are high concept companies. High concept means high touch, which means demonstrating the ability to empathize, to understand the subtleties of human interaction, to find joy in one’s self and to elicit it in others, and to stretch beyond the numbers, in pursuit of purpose and meaning. Firms of Endearment speaks of affection, love, joy, authenticity, empathy, compassion, terms used routinely by firms who endear themselves to stakeholders by bringing them all into strategic alignment. No stakeholder group benefits at the expense of another and each prospers as the others do. They meet the needs of all their stakeholders and delight them and engender affection for and loyalty to the company.

The terms share of wallet, share of stomach, share of spend, and others are commonly used today. The firm Sisodia writes about strive for share of heart. Earn a place in the customer’s heart and she/he will gladly offer you a bigger share of the wallet. Do the same for an employee and he will pay you back with a quantum leap in productivity and work quality. Bond with your providers and be rewarded with superior offerings and amazing responsiveness. Give the communities in which you operate a reason to love you and be rewarded with an endless source of loyal customers and employees. And don’t forget the shareholders. They want good returns, but they also take delight in investing in companies they admire.

The peak performing companies studied all subscribe to a purpose for being that is different from and goes beyond making money. They actively align the interests of all stakeholder groups that go beyond stakeholder engagement. They have compensation plans that are far more equitable than most. They devote far more time to workforce training than their industry peers. They have significantly lower turnover and they empower employees to make certain that every customer is fully satisfied. They typically pay more than their peers but expect employees to work hard in support of their fellow stakeholders. They make a serious effort to hire only those who are passionate about their company and products. They humanize the experience for customers and employees and have a genuine passion for customers of an emotional level. Their marketing costs are significantly lower and their customer loyalty significantly higher than their industry peers. They view their suppliers as true partners and collaborate with them to move both their companies forward. Rather than trying to extract every nickel of cost from their suppliers, and forcing them to discount their services, they help their suppliers reach higher levels of productivity, quality, and profitability. Suppliers, in return, function as true partners, advocates, and extensions of their staffs, rather than indentured servants.

Each of these peak performing companies recognizes their corporate culture to be their single greatest asset and primary source of competitive advantage. This is also the case among the companies we’ve studied to build the Total Performance Leadership architecture. The leaders of these peak performing organizations know full well that their cultures are their only sustainable competitive advantage, and that everything else can be copied.

Their cultures are resistant to short-term, incidental pressures, but also quickly adapt as needed. Because engagement levels are so high in these companies, they tend to be the innovators and the rule-breakers within their industry sectors. Because these exceptional leaders understand that corporate culture is tantamount to physical health, and must be constantly monitored and adjusted, they are painstaking in their efforts to establish mechanisms to measure cultural norms and strive for optimal organizational health.

According to Sisodia, while financial data surely is important in analyzing a company’s strength and past performance, qualitative indicators are even more important in assessing a company’s future prospects. Raj goes as far as to say that in many instances, qualitative factors may be more revealing in drawing an accurate picture of a company’s future performance than quantitative factors. Southwest Airlines has elected a “Culture Committee” charged with sustaining and strengthening the company’s unique culture.

Firms have developed methods by which they constantly assess the effectiveness of their hiring practices, leadership, clarity of purpose, stakeholder engagement, customer experience, measurement systems, innovation, and financial performance. It is amazing how much these organizations differ in their capital structures, industry sector, size, and even for-profit status; and how strikingly similar they are in their approach to maintaining optimal organizational health. The leaders studied are keenly aware that great cultures take discipline, hard work, and constant attention to build, – and very, very little to destroy. Even the most powerful culture is incredibly perishable and can evaporate overnight without the right leadership at the top.

We hope that this piece has been interesting, thought-provoking, and perhaps even useful. Our work is about building cultures of peak performance and we would love to be your thought partner. Give us a call.

Warmest Regards,

Rob

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