Wisdom From Clorox’s CEO

Recently, I ran into an interview with the CEO of the company that’s best known for Bleach.

Two things that stood out (to be honest, the entire interview/article made for a nice read) I thought should be mandatory reading for CEOs and managers everywhere:

On the heart side, the lesson is that it’s all about your people. If you’re going to engage the best and the brightest and retain them, they’d better think that you care more about them than you care about yourself. They’re not about making you look good.  You’re about making them successful. If you really believe that and act on that, it gains you credibility and trust. You can run an organization based on fear for a short time. But trust is a much more powerful, long-term and sustainable way to drive an organization.

 The other thing I’ve learned is that you’ve got to assume the best intent of people, and that they’re really trying to do a good job. I’ve seen organizations that are based more on fear than trust because senior management really thinks people are trying to get one over on them, that they’re just punching a clock. People really are trying to do a good job, and they want to be proud of where they work. Understanding that helped make me a bit more patient.

What Makes For A Good Manager?

Gallup, in its research, found that just one out of ten people possess all of the 5 traits that make for a good manager:

  1. They motivate every single employee to take action and engage them with a compelling mission and vision.
  2. They have the assertiveness to drive outcomes and the ability to overcome adversity and resistance.
  3. They create a culture of clear accountability.
  4. They build relationships that create trust, open dialogue, and full transparency.
  5. They make decisions that are based on productivity, not politics.

But since most promotions are based on individual performance (or worse, seniority), no wonder there are so many bad managers all around…

Corollary: Ever run into an accomplished “individual contributor” that’s chosen to remain that way, spurning promotions to management? I think they deserve respect.

Doing Away With Sales Commissions

Paying salesmen and saleswomen commissions is, as we all know, de rigeur pretty much the world over.

But is there a better way?

Not too long ago, a company called ThoughtWorks (and a handful of others) tried something different, as Stacy Perman wrote recently on The NYT:

At the start of 2012, ThoughtWorks, a software company based in Chicago, decided to upend one of the sacrosanct principles of sales. It eliminated commissions and placed its entire sales force, a team of 40 stretching across 12 countries, on straight salary.

Over the years, ThoughtWorks prided itself on developing a culture based on collaboration. But some parties in the sales equation appeared to be operating at cross purposes. “We made the decision to take the individual incentive out of the picture,” Mr. Gorsline said, “and instead focus on the customers and their pain.”

Throughout 2011, the company worked on a strategy. During that time, Mr. Gorsline and his team brought the entire sales force together to discuss the new direction, explain the rationale and provide a forum for discussion. “It was all very transparent,” he said. Next, they met with individual sales representatives to establish a new compensation plan. A start date of January 2012 was set.

According to Mr. Gorsline, the straight-salary structure took into consideration high performers, offering them compensation close to what they had earned with commissions. Still, all of the representatives took pay cuts — although they did gain something: a steady paycheck. “We operate in a cyclical industry,” he said. “This provided them with a sense of security whether it was a good year or a bad one.”

The result?

More important, Mr. Gorsline said, the company’s annual growth increased between 18 and 22 percent in each of the last two years. “We still demand revenue generation,” he said. “The only thing that changed is the way they are compensated.”

Of course, as the rest of the article says, this is not for everyone. And, the ultimate success – or failure – of such a compensation model depends strongly on the behavior of customers and competitors. Still, an interesting innovation that might be selectively successful, one assumes. 

Employees, Trust, Promises and Productivity

Trust, as we know, takes a long time to earn and build. But if you want to destroy trust, that can be arranged in a couple of minutes. And that is as true in business, as it is outside of it. 

So how then must employers manage employee trust, given not just the fundamental ideas of fairness and integrity, but also productivity – which hinges on trust to a great degree?

Jan Li and Niko Matouschek, two Professors at my alma mater, investigated this in the context of “relational contracts”, 

Such “contracts” cannot be quantified or written down (at least to a lawyer’s satisfaction) the way, for instance, a sales agreement might be: Sell $100,000 worth of our product and get a 5 percent commission. Instead, relational contracts represent more casual understandings between management and labor about things like performance bonuses.

[Do these contracts really matter, if a contract is not really a contract unless there is paper to back it up? I think they do…especially in the context of employer-employee relations, where naive employees or employees without a lot of power (hello unions) implicitly trust their employer to “do the right thing” in exchange for productivity, especially over the course of many years.]

Anyway, the research, which forms the basis of an interesting article in Kellogg Insight, starts off not in the abstract, but with a very specific business situation in a real company, Lincoln Electric.

When Donald F. Hastings took over as CEO of the welding-supply manufacturer Lincoln Electric in July 1992, he anticipated a little time for celebration. But literally less than a half hour later, the new executive’s bubble burst: The European operations of his Cleveland-based company reported $7.5 million in losses, which, added to losses in Latin America and Japan, made for a devastating overall $12 million second-quarter plunge in assets. “I could imagine the headline in the local newspaper,” Hastings later recalled: “New CEO at Lincoln Electric Fumbles in First 24 Minutes on the Job.”

Hastings remembered how his thoughts then “raced ahead to December” 1992, when the company would be expected to pay out millions in bonuses to its 3,000 American workers. Year-end bonuses had long been Lincoln’s style, comprising more than 50 percent of the company’s often $70,000–$80,000-level salaries. Small wonder that Lincoln’s workers signed on for life and the company dominated its market. So, on that July day in 1992, Hastings had to decide: Set a possibly dangerous new precedent by borrowing to pay the bonuses, or not pay them and undermine worker motivation?

The full article talks about Mr Hastings’ decision, and describes the Professors research in more detail. Anyone in business, not employers and principals, may find it worthy of a read. 

Time vs Bandwidth – And Productivity Implications

Today’s blog posts seem to be heavily tilted towards various academics’ wise words. 

The latest and possibly last one today comes from Sendhil Mullainathan, a Professor of Economics at Harvard, via Time Magazine. In his piece there, Prof Mullainathan asserts that:

Busy people all make the same mistake: they assume they are short on time, which of course they are. But time is not their only scarce resource. They are also short on bandwidth. By bandwidth I mean basic cognitive resources — psychologists call them working memory and executive control — that we use in nearly every activity. Bandwidth is what allows us to reason, to focus, to learn new ideas, to make creative leaps and to resist our immediate impulses. We use bandwidth to be a good participant at an important meeting, to be a good boss to an employee who frustrates us and to be attentive parent or spouse.

When we schedule things, we don’t want to just show up, we want to be effective when we get there. This means we need to manage bandwidth and not just manage time. And this is where things get tricky, because bandwidth does not behave the way time does. Time can be dissected easily: an hour can be cut up in many ways. Fifteen minutes on this memo, a five-minute walk to another meeting, 30 minutes at that meeting and then 10 minutes debriefing. Oh, and maybe a quick phone call on the walk to that meeting. The busy are expert at dissection: that’s how they make it all fit.

Something to think about over the upcoming (hectic) weekend…

The Role of “Trust” in Management And Corporate Governance

In business settings, the temptation to monitor and control human behavior via contracts, rules, handbooks, guidelines, audits, etc., is quite high. In fact it’s the standard way in which most companies are managed. 

But what if companies emphasized trust over regulations and rules?

Everyone would be better off, assert a Stanford Professor and a researcher at Stanford, who together wrote a book called “A Real Look At Real World Corporate Governance“.

How would this work? 

For starters, trust replaces the need for written contracts because the two parties commit in advance to abide by a set of actions and behaviors that are mutually beneficial. Both parties in a trusting relationship generally understand the limits of acceptable behavior even when these are not fully specified. And when trust is introduced into the environment, the motivations of each party are known and their behaviors are predictable. That means managers can spend less time monitoring employee actions, and employees can focus on their jobs rather than exerting additional effort simply to demonstrate they are compliant with the firm’s standards.

And they go on to list four specific ways in which this mindset and philosophy could have real world benefits before talking about a couple of companies that already treat their employees (and execs) as trust-worthy grown-ups:

Real estate company Keller Williams Realty Inc. maintains a strict “open books” policy. All agents within the company’s market centers have access to detailed information about the office’s revenues, commissions, and costs. This reduces the opportunity for theft, waste, or special dealings, and also the need for a robust internal-audit department.

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Netflix Inc. is known for maintaining a high-performance culture rooted in the concept of “freedom and responsibility.” Employees are expected to work hard, take ownership, and put the company’s interests ahead of their own. In return, the company offers top-of-market salaries equivalent to the combined value of the salary and bonus offered by other firms. Netflix does not offer incentive bonuses, and equity compensation is granted only to employees who voluntarily request it as a portion of their compensation mix.

Of course, this approach comes with its own risks that companies should be mindful of…Further, like with anything, trust by itself, in isolation, is not a silver bullet. Wise companies must make other strategic HR and management decisions that can build a culture in which trust can flourish and yield benefits for all. 

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