Ed Batista

When Leaders Break Glass

We've seen it countless times on fire alarms and panic buttons: Break glass in case of emergency. (The example above is from a San Francisco BART station.) It's a fitting figure of speech for a theme in my practice: When a client feels that their company's established processes are too slow or that employees are addressing a situation with insufficient urgency, they "break glass" and intervene to bypass those processes, generate the requisite urgency, and ensure that the issue is resolved now.

The leader who never breaks glass runs the risk of missing out on narrow windows of opportunity and being overtaken by fast-moving threats. Sensing when to break glass and learning how to do so with the right amount of force are essential leadership skills. But the leader who breaks glass incessantly at the first sign of delay causes other problems.

Such knee-jerk reactivity can affect the company's culture and infrastructure. As I've noted before, "[Leaders] generally have a bias for action, and when they’re faced with a system that seems to be slowing things down, they simply ignore it. This can be a great strength--but it can also be a crucial weakness, particularly when a leader’s reflexive disregard for systems prevents their healthy evolution in the organization at large." [1]

It can also affect employees' sense of responsibility and motivation: "When a leader repeatedly continues to intervene...as an organization grows...people are taught that this is the leader’s job, not theirs, and they fail to develop their own crisis-management and problem-solving abilities... Ultimately even the most intrepid employees can feel demotivated when the leader is always there to 'rescue' them." [2]

So if you're a leader facing this dilemma, what can you do? How do you know when to break glass and when to let a scenario play out? There's no single solution, but there are some practices that can help you find the right balance.

Know Your Tendencies

Most leaders I've worked with tend toward one end of the spectrum or the other. Founders and other early-stage leaders often break glass without a moment's hesitation. Many new ventures are essentially ongoing exercises in glass-breaking, and that attracts a certain personality type.

There are also many leaders who resist breaking glass or find it very difficult. Their training, formative experiences and past successes have taught them to build and rely upon orderly systems. This approach lends itself well to any number of enterprises--often large-scale or highly regulated--which also attract a certain personality type.

The challenge is that companies are dynamic entities, and leaders must be able to adapt their style to suit changing circumstances. As I've written before, "the fluidity and ambiguity that foster creative problem-solving in an early stage startup will feel like chaotic dysfunction at a later point in the company’s development." [3] And the smooth-running corporate machine will run itself right into a ditch if leadership is unable to interrupt established procedures and change course when necessary.

Knowing your tendencies is insufficient on its own, but in the absence of that self-awareness you'll likely stay in your comfort zone, do what's familiar,  and miss opportunities to adapt.

Regulate Your Emotions

Despite the popular conception of emotion as an impediment to rational thought, decades of neuroscience research has made it clear that it's a vital input to the reasoning process. [4] Even so, as the eminent neuroscientist Antonio Damasio has written, and as we all know from personal experience, "uncontrolled or misdirected emotion can be a major source of irrational behavior [and] seemingly normal reason can be disturbed by subtle biases rooted in emotion." [5]

The most relevant emotion in this context is anxiety. It's typically some form of anxiety that either drives a leader to break glass too often or prevents them from doing so when it would be useful. I'm not suggesting that you should discount or ignore your anxiety. Emotion's primary function is to alert us to potential opportunities and threats, and if we lacked the capacity for anxiety we would be in grave danger. [6]

But emotions are data, and like all data they're comprised of both signal and noise. Emotion regulation isn't suppression--that's just pretending that you're not feeling what you're feeling. In contrast, regulation involves assessing what you're feeling and putting it in perspective in order to discern the meaningful signal in the midst of all the distracting noise. In this context, this requires you to sense, comprehend, articulate and express your anxiety in ways that enable you to make a deliberate decision about whether--and how--to break glass. [7]

Learn From Every Situation

Becoming more effective at breaking glass--and knowing when not to--isn't just a matter of advance preparation. It also entails looking back at each situation in order to learn from it. You observed a potentially troubling delay, and you either intervened and disrupted established processes, or you refrained from taking action and let things play out. What happened?

You have to assess not only the benefits of your choice, but also the costs, and here it's important to take others' perspective into account. A theme in my practice is the leader who breaks glass repeatedly and achieves the desired result in a given situation, but over time their employees become demotivated or disaffected. I'm not suggesting that you should feel obligated to tread lightly and avoid giving offense. That will cause you to hesitate at moments when you should act decisively. But there are inevitably costs to breaking glass, and they're not always obvious.

Key factors in this process are a degree of rigor in your analysis, feedback from other stakeholders, and an ongoing effort to hone your intuition. Rigor isn't rigidity, and it may be sufficient to simply ensure that you have regular time for reflection in your calendar. [8] To provide a little more structure, consider keeping a decision journal to track your results. [9]

Soliciting feedback from stakeholders doesn't mean that they get to determine whether your choice was the right one. But in the absence of input from others, you're left with your own perceptions of success or failure, and we reliably deceive ourselves under certain circumstances. [10]

Any given decision to break glass or not will be an intuitive one, made on the basis of imperfect information and dependent on subtle cues, both internal and environmental. If the choice is obvious, it will usually be made by someone more junior than you who's closer to the problem. Intuition isn't some mystical quality--it's merely pattern recognition occurring on the margins of consciousness, as noted by economist and psychologist Herbert Simon:

The situation has provided a cue; this cue has given the expert access to information stored in memory, and the information provides the answer. Intuition is nothing more and nothing less than recognition. [11]

Your task is to ensure that the accuracy of your intuitive judgments improve over time, resulting in fewer false positives--when you broke glass and the costs outweighed the benefits--as well as fewer false negatives--when you failed to break glass but should have.

 

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Footnotes

[1] How to Scale: Do Less, Lead More

[2] Ibid.

[3] Ibid.

[4] Antonio Damasio on Emotion and Reason

[5] Descartes' Error: Emotion, Reason and the Human Brain, page 52 (Antonio Damasio, 1994)

[6] "It is clear that emotion should not be very susceptible to willful control. If we could turn off all our emotions, feel no pain, never laugh, not be gripped by fear or despair, stop being excited, and so on, we could easily end up dead... The priority of emotions over will is important for our survival because it allows our plans to be interrupted by the immediate pressures of reality." (White Bears and Other Unwanted Thoughts: Suppression, Obsession, and the Psychology of Mental Control, page 123, Daniel Wegner, 2nd edition, 1994)

[7] The Tyranny of Feelings

[8] How to Think (More on Open Space and Deep Work)

[9] Shane Parrish of Farnam Street offers a useful set of decision-making resources:

• Decision Journal (Shane Parrish)
• Creating a Decision Journal (Shane Parrish)
• The Ultimate Guide to Making Smart Decisions (Shane Parrish)
• Mental Models: The Best Way to Make Intelligent Decisions (Shane Parrish)

[10] When Heuristics Go Bad (On Cognitive Biases)

[11] What is an "Explanation" of Behavior? (Herbert Simon, Psychological Science, 1992)

 

Photo by Nancy McClure.

The Antidote to "Manager Mode" is Actual Management

This is not the solution.

Management as a concept seems to have fallen into disrepute. In a recent essay Paul Graham described "manager mode" as the unpalatable alternative to "founder mode." But what is Graham really criticizing? He recounts a talk given by Airbnb CEO Brian Chesky:

The theme of Brian's talk was that the conventional wisdom about how to run larger companies is mistaken. As Airbnb grew, well-meaning people advised him that he had to run the company in a certain way for it to scale. Their advice could be optimistically summarized as "hire good people and give them room to do their jobs." He followed this advice and the results were disastrous...

The way managers are taught to run companies seems to be like modular design in the sense that you treat subtrees of the org chart as black boxes. You tell your direct reports what to do, and it's up to them to figure out how. But you don't get involved in the details of what they do. That would be micromanaging them, which is bad.

Hire good people and give them room to do their jobs. Sounds great when it's described that way, doesn't it? Except in practice, judging from the report of founder after founder, what this often turns out to mean is: hire professional fakers and let them drive the company into the ground. [1]

So Graham isn't criticizing actual management. He's criticizing the absence of management, which is an issue I've observed in my practice for years and wrote about in 2022:

It's possible for a less-experienced CEO to get in the way of their senior leaders--but more typically I see the opposite problem. The CEO gives their executives a great deal of space, only to find several months or quarters later that they backed off too far, and some important objectives were neglected and fell into the gap. [2]

Why does this happen? Why do otherwise capable CEOs fail to provide sufficient oversight to senior leaders? And why is Graham's critique of "manager mode" resonating with so many people? In large part because the historic critique of management practices--a decades-old phenomenon, not a recent one--has been so badly misunderstood and so poorly implemented that many leaders are now so fearful of being called a "micromanager" that they fail to provide sufficient management at all.

The concept of "micromanagement" is associated with the work of MIT professor Douglas McGregor, a mid-20th century pioneer in the application of behavioral science to the challenges of organizational life. [3] McGregor offered a compelling critique of the conventional approach to management, which he dubbed "Theory X." He noted that Theory X manifests in both a "hard" version that extracts employee compliance through coercion and threats, and a "soft" version that renders employees pliable by catering to their desires for comfort and security.

While we associate "hard Theory X" with the early industrial era, and it remains common in certain sectors and parts of the world, today we encounter "soft Theory X" almost everywhere in the information economy. But both hard and soft Theory X are rooted in a shared view of human nature: that people are "indolent...lack ambition, dislike responsibility [and] prefer to be led" and therefore must be "persuaded, rewarded, punished [and] controlled" in order to give best effort in pursuit of organizational goals. [4]

McGregor's alternative, Theory Y, takes as its starting point an entirely different set of assumptions about people and their capabilities:

People are not by nature passive or resistant to organizational needs. They have become so as a result of experience in organizations.

The motivation, the potential for development, the capacity for assuming responsibility, the readiness to direct behavior toward organizational goals are all present in people. Management does not put them there. It is a responsibility of management to make it possible for people to recognize and develop these human characteristics for themselves.

The essential task of management is to arrange organizational conditions and methods of operation so that people can achieve their own goals best by directing their own efforts toward organizational objectives.

This is a process primarily of creating opportunities, releasing potential, removing obstacles, encouraging growth, providing guidance. It is what Peter Drucker has called "management by objectives" in contrast to "management by control."

And I hasten to add that it does not involve the abdication of management, the absence of leadership, the lowering of standards, or the other characteristics usually associated with the "soft" approach under Theory X. [5, my emphasis]

It should be obvious that putting these Theory Y principles into practice isn't easy. Finding ways to confront and overcome this difficulty is one of the central themes in my work with clients and in my writing on this site. But compounding the problem is that McGregor's complex and nuanced ideas have been dumbed down to mean "Hire good people and give them room to do their jobs," which often results in "the abdication of management [and] the absence of leadership"--precisely the outcomes that McGregor sought to avoid.

There's a noteworthy and relevant parallel here with the work of Amy Edmondson, whose research has highlighted the importance of psychological safety in organizational life. Sadly, this concept has been misinterpreted to mean, "No one's feelings can get hurt," when it really means "No one should be punished for speaking up and sharing bad news." What has resulted are organizational cultures in which leaders are fearful of being direct and walk on eggshells to avoid giving offense, which are actually psychologically unsafe environments. [6]

So what can we do? First, let's rehabilitate the concept of management. While excessive direction and control on the part of leadership is unlikely to yield the best results from highly-skilled knowledge workers, those workers still need to be managed. They need leaders who are actively involved in the process of determining 1) who will do what by when, 2) to a certain standard of quality, 3) with regular check-ins to assess progress, 4) and the ability to intervene and change course when necessary. That's not "micromanagement"--that's just management.

And yet let's not over-correct in the process. Graham doesn't offer much detail in his definition of "founder mode," other than endorsing engagement with a wide range of employees beyond the leader's direct reports. But he does offer a warning, in his final footnote:

I also have another less optimistic prediction: as soon as the concept of founder mode becomes established, people will start misusing it. Founders who are unable to delegate even things they should will use founder mode as the excuse. [7]

At certain stages in a company's life, the leader must be intensely involved in the most minute details of every aspect of its operations. Some issues will remain under the leader's close scrutiny indefinitely, while others will come and go depending on the context, and the cultivation of the ability to know the difference is an essential leadership skill.

But just as McGregor and Edmondson's ideas have been misunderstood and misconstrued, I fear that Graham's concept of "founder mode" will be misinterpreted as both an excuse and an obligation for leaders to operate this way well beyond the point of diminishing returns, contributing not to excellence, but to under-performance and personal overwhelm. I want to free leaders from the fear of being called a "micromanager" when they're simply providing the necessary elements of management. But I also want leadership to be a sustainable calling, not a ticket to burnout. [8]

 

This is a companion piece to the following:

• "Work Hard or Work Smart?" Is the Wrong Question (2017)
• Accountability and Empathy (Are Not Mutually Exclusive) (2019)
• The Judicious Imposition of Structure (2021)
• Hard Problems in Soft Cultures (2022)

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Footnotes

[1] Founder Mode (Paul Graham, 2024)

[2] Mind the Gap (On Leading Senior Executives)

[3] In The Micromanagement Disease: Symptoms, Diagnosis, and Cure (Public Personnel Management, 2010), Richard White makes a connection between McGregor's work on Theory X and the subsequent emergence of the term "micromanagement." White cites the Oxford English Dictionary's attribution of the first usage of "micromanagement" to a 1975 article in The Economist, but I haven't been able to verify this.

[4] "The Human Side of Enterprise," page 6 (Douglas McGregor, Leadership and Motivation, 1966). This essay is McGregor's best-known and most influential work--it originated as a speech on the Fifth Anniversary of the School of Industrial Management at MIT (later known as the Sloan School) in 1957, and was published in the American Management Association's Management Review in November of that year. It subsequently formed the basis of his 1960 book The Human Side of Enterprise. My citations here are from a posthumous collection of McGregor's work issued by MIT two years after his death to commemorate his contributions.

[5] Ibid, pages 15-16.

[6] Safety Is a Resource, Not a Destination

[7] Graham, 2024.

[8] For more on leadership and sustained excellence:

• Happy Workaholics Need Boundaries, Not Balance
• Open Space, Deep Work and Self-Care
• Investments, Not Indulgences

 

Photo via TomEatonSA.

Why Your Bonus Plan Isn't Working

A major theme in my practice is executive compensation. Like all other professionals, my clients are seeking to obtain a fair return in exchange for their services, and they're also leaders who must offer competitive compensation to attract and retain top talent. In some conversations, we'll focus on a client's own financial requirements, and in others we'll address the needs of one or more employees, or the company's overall approach to compensation

I don't provide comparable datasets or detailed guidelines for compensation plans, although I can refer my clients to people who do. [1] Instead, when working with clients on their individual compensation I'm generally helping them think about their overarching goals as well as their immediate negotiation strategy. [2] And when working with clients on employee compensation, my role is to help them consider the organizational implications of any particular choices they might make.

In the latter case, we often wrestle with the issue of bonuses. Economic sociologist Viviana Zelizer describes the various forms bonuses can take:

Advance inducements to make some major commitments (e.g. enlistment in the army), after-the-fact lump-sum rewards (e.g. veteran's bonuses, retirement bonuses), discretionary rewards by employers (e.g. Christmas bonuses), payments tied to extraordinary individual achievements (e.g. overfulfilling sales quotas, landing a big account, inventions that become company property), payments tied to collective performance (e.g. shares of company profits, group productivity rewards), and more. [3]

Typically my clients hope to use a bonus to motivate and reward behavior that will lead to "extraordinary individual achievement" or yield improved "collective performance," although for a bonus to achieve these goals a set of conditions must be met. And a problem I often see in my practice is a bonus that's offered in the absence of one or more of these conditions, which renders it far less effective as a motivator and yields frustration on the part of employees, management, or both. Why does this happen, and if you're a leader in this situation, what can you do about it?

A Lack of Clarity or Control

The desired behavior must be sufficiently distinct from ordinary activity, and employees must have a degree of control over the intended outcome. The desired behavior need not be novel or innovative--it may simply entail "do more of what's already working." It's also not necessarily the case that management must provide explicit guidelines or instructions--that's rarely feasible with highly-skilled knowledge workers. But employees must grasp that something different is being asked of them, even if it's up to them to determine how to proceed.

Should employees accept that challenge, they must also feel a sense of agency in the process. There has to be a connection between their expenditure of effort and the achievement of the goal. This doesn't mean that employees need to have total control over the outcome or that exogenous factors can't ever get in the way. But the more control they enjoy, the more effective the bonus as a source of motivation. And below a certain level of control, any bonus plan will likely be viewed as unfair and demotivating.

The Wrong Risk Profile

Employees must be comfortable with the concept of variable compensation, and optimally they prefer this to a fixed salary. Everyone's comfort level with risk varies, and this risk profile can play a significant role in our career choices. People with a relatively high tolerance for risk gravitate toward fields that offer variable payouts, largely because they're attracted by the potential upside, but in some cases because they find the uncertainty itself stimulating. They're gamblers, in a sense, and they like to bet on themselves.

This risk profile is common among the entrepreneurs and investors who comprise the majority of my clients, but it can be found in most market-facing fields, particularly sales. (And most of my clients must sell in one way or another, from closing deals to raising funds.) But many people are uncomfortable with risk, and their caution may be heightened when it comes to financial matters. They're less interested in upside potential and more intent on downside protection.

A bonus is of interest to this latter group to the extent that it's merely additive on top of already sufficient compensation--so it may not really serve leadership's goals at all. This isn't to say that bonuses never work outside of sales or similar roles. But the overall organizational culture must foster an appetite for risk, even in conventionally risk-averse functions.

Hedonic Adaptation and Loss Aversion

The bonus must be viewed as a quid pro quo for the desired behavior, not an expected function of employment. But a challenge is that we readily adapt to improved conditions and soon come to take them for granted, a process known as "hedonic adaptation." [4] Even if the above conditions are satisfied, when a bonus is paid out repeatedly it may well come to be expected by employees.

It can help to maintain a clear delineation between base and variable compensation, although even then it's likely that at least some employees will come to view the bonus as a given. When that occurs, the absence of a bonus in the future will cause even greater unhappiness, the result of "loss aversion," our propensity to weight perceived losses more heavily than equal gains. [5]

There isn't really a "solution" to these states, which are deeply rooted in human psychology. But it's important to be aware that they generate continuous upward pressure on ambitious employees' financial expectations, and leaders who fail to prepare for this eventuality are engaged in magical thinking. [6]

On Currencies

Even as I work with clients to help them optimize their compensation plans, I believe it's essential to bear in mind the work of the great 20th century psychologist Frederick Herzberg, who provided a sharp critique of conventional approaches to motivating employees, which he referred to as "kicks in the ass" or KITA. These kicks aren't only negative, in the form of criticism or threats--they can also be positive, in the form of desirable rewards:

Let us consider motivation. If I say to you, "Do this for me or the company, and in return I will give you a reward, an incentive, more status, a promotion, all the quid pro quos that exist in the industrial organization," am I motivating you? The overwhelming opinion I receive from management people is, "Yes, this is motivation." I have a year-old schnauzer. When it was a small puppy and I wanted it to move, I kicked it in the rear and it moved. Now that I have finished its obedience training, I hold up a dog biscuit when I want the schnauzer to move. In this instance, who is motivated--I or the dog? The dog wants the biscuit, but it is I who want it to move. Again, I am the one who is motivated, and the dog is the one who moves. In this instance all I did was apply KITA frontally; I exerted a pull instead of a push. When industry wishes to use such positive KITAs, it has available an incredible number and variety of dog biscuits (jelly beans for humans) to wave in front of employees to get them to jump. [7]

As I've written before,

Herzberg is exaggerating for comic effect here--I don't think he ever kicked his dog. But his larger point holds: rewards like dog biscuits and jelly beans may result in movement, but that's not the same thing as motivation. This doesn't mean rewards are irrelevant as incentives, but a key in deploying them effectively is understanding that there are two different types of motivation, intrinsic (deriving from the work itself) and extrinsic (deriving from by-products of the work or aspects of the environment in which work occurs). [8]

Bonuses and other forms of compensation are extrinsic motivators, which Herzberg called "hygiene factors." His research indicates that inadequate compensation causes tremendous job dissatisfaction, but above a certain amount (which varies for everyone), additional compensation doesn't yield greater satisfaction. I'm not suggesting that bonuses never work--that's obviously not the case. But should you find that your bonus plan is failing to deliver the desired results even in the presence of the conditions described above, it may be worth considering what other "currencies" your employees value that you may be failing to provide. [9]

 

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Footnotes

[1] For more detailed guidance, I recommend these experts on executive compensation:

• Jody Thelander, J. Thelander Consulting and LinkedIn
• Lanelle Santimauro, Compensation Consultant
• Rob James, Pearl Meyer and LinkedIn

[2] Culture, Compensation and Negotiation

[3] A Humbler Bonus (Viviana Zelizer, The Huffington Post, 2009)

[4] For more on hedonic adaptation:

• The Myths of Happiness: What Should Make You Happy, but Doesn't, What Shouldn't Make You Happy, but Does (Sonja Lyubomirsky, 2014): "Human beings have the remarkable capacity to grow habituated or inured to most life changes... What is particularly fascinating about this phenomenon, however, is that it is most pronounced with respect to positive experiences. Indeed, it turns out that we are prone to take for granted pretty much everything positive that happens to us." [pages 18-19]

• The Laws of Emotion, pages 353-354 (Nico Frijda, American Psychologist, 1988): "One must, I think, posit a law of hedonic asymmetry, the law of asymmetrical adaptation to pleasure or pain: Pleasure is always contingent upon change and disappears with continuous satisfaction. Pain may persist under persisting adverse conditions."

• We Won't Be Happy WHEN. We Could Be Happy NOW.

• Pain, Suffering and Hedonic Adaptation

• Stop Trying to Be "Good Enough" by "Getting Better"

[5] For more on loss aversion:

• Thinking, Fast and Slow, Chapter 26: "Prospect Theory" (Daniel Kahneman, 2011)
• Loss aversion (Behavioral Economics)
• Questions about the validity of loss aversion have emerged in the course of social psychology's replication crisis. For example, see Kahneman and Tversky’s "debatable" loss aversion assumption (Jason Collins, 2019). While acknowledging this controversy, I still find the concept a reasonable explanation for otherwise curious behavior.

[6] The Traps We Set for Ourselves

[7] One More Time: How Do You Motivate Employees? (Frederick Herzberg, Harvard Business Review, originally published 1968, republished 2003)

[8] Currencies (On Motivating Different People)

[9] Ibid.

 

Photo by pictures-of-money.

The Ambiguous Role of Executive Chair

According to Spencer Stuart, the outgoing CEO becomes the Board's Executive Chair in over 40 percent of S&P 500 CEO transitions, and I've worked with several clients who followed this path. [1] In these cases everyone agreed in principle that the company would benefit from the continuity afforded by having the former CEO take on this special role, but what this meant in practice was often highly ambiguous.

A degree of ambiguity is inevitable. Any standardized "job description" for such a specialized role will fail to meet a given company's unique needs. (This is also often true for Chief Operating Officers, another role that varies widely from one organization to another. [2]) But too much ambiguity makes it difficult for the parties involved to understand what it will take for this new arrangement to work.

This can pose a particular challenge for the Executive Chair and the incoming CEO. The Chair may have played a large role in recruiting and selecting their successor, and if so it's likely that both parties said the right things about their future working relationship and were reluctant to jeopardize the deal by asking too many inconvenient questions. As a result sometimes very little is spelled out with any specificity before the Chair and CEO must begin working together, which can easily lead to misunderstandings.

I don't believe there are best practices that an Executive Chair must follow in order to succeed, but here are a set of questions that a new Chair and an incoming CEO can explore to arrive at a shared definition of success:

The Executive Chair and the CEO

• What expectations do you both have for this relationship?
• How clearly have those expectations been articulated?
• How often will you communicate, and on what issues?
• What decisions does the Chair expect to be consulted on?
• How does the CEO (really) feel about this?
• What decisions does the CEO expect to make autonomously?
• How does the Chair (really) feel about this?
• What will happen when you disagree?
• How will any disagreements be resolved?
• What role will the Chair play in assessing the CEO's performance?
• If necessary, how open are you to working jointly with a coach?

The Executive Chair and the Board

• What role will the Chair play during Board meetings?
• Will they facilitate or have any other special responsibilities?
• How does the CEO (really) feel about this?
• What role will the Chair play in between meetings?
• Will they hold one-on-ones with other Directors?
• If so, is this an option or an obligation?
• And how does the CEO (really) feel about this?

The Executive Chair and the Business

• What ongoing responsibilities (if any) will the Chair have?
• How much autonomy will they have to conduct these duties?
• How accessible will the Chair be to other parties, such as investors, analysts, or the media?
• What role will they play in those settings?
• To what extent will they be empowered to speak for the company?
• And how does the CEO (really) feel about this?

 

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Footnotes

[1] 2023 CEO Transitions (Spencer Stuart, 2024)

[2] The Mythical COO

 

Photo by Kyle Taylor.

Risky Business (When Commerce and Compliance Clash)

My clients are senior leaders whose businesses invariably face a wide range of risks. Some of them must deal with literal threats to life and limb in medicine, pharmaceuticals, construction, manufacturing, or other industries. All of them have to consider the risk of financial losses, technical failures, legal action, or damage to their reputation should things go wrong.

Risks are mitigated by various forms of compliance. Companies in the industries listed above must comply with various methods and procedures to ensure the safe provision of their goods and services. And businesses in every sector protect themselves against unacceptable risk not only by complying with legal and regulatory obligations but also by following recommended best practices.

We take on risk for the promise of a reward, and even as these businesses seek to maintain compliance they do so in pursuit of commerce. I often work with leaders whose companies are taking a novel approach in their field, which usually means that the commercial potential is large but is by no means guaranteed, while the risks they run are uncertain and hard to predict.

In these businesses there's often a tension between the recommended or required compliance and the prospective commercial opportunity. There isn't necessarily a zero-sum relationship between the two, but in any given situation there may be competing priorities, and so a balance must be found. If a company can't provide its goods and services safely and profitably, it won't be around for long.

Many roles in a company are either compliance-oriented or commerce-oriented. This doesn't imply that the people primarily responsible for compliance don't care about profits, or that the people primarily responsible for commerce don't care about safety or quality. But many professionals are educated and trained in disciplines that emphasize one side or the other, and at scale companies are typically organized along functional lines that foster sub-cultures which do the same.

In good times this state of affairs offers an important advantage. Individual employees and their respective functions have distinct incentives that are aligned but not identical, creating a system of checks and balances. This ensures that the demands of compliance and commerce are met with neither side predominating.

But such harmony can be difficult to maintain, particularly in the face of competition, financial pressures, customer churn, outside scrutiny, or legal threats, among many other factors. In these circumstances executives who've previously operated as allies may find themselves at odds, advocating for more stringent compliance or a more vigorous approach to commerce.

And even in good times some leaders must understand and advocate for both sides rather than championing one over the other. This is particularly true for the CEOs who make up the majority of my practice, but a leader at any level of an organization may be called upon to do the same. So if you're a leader who's caught up in such a dispute or who feels stuck in the middle of one, what can you do?

Question Assumptions and Labels

When the commerce vs. compliance divide turns rancorous, among the first casualties are charitable interpretations of the other side's behavior. People leap to conclusions about what's happening and why, and in the process often label their counterparts in ways that reinforce the schism. David Bradford, one of my mentors at Stanford, has noted that professional conflicts tend to escalate in stages:

1. Annoyance at having to adjust our style to accommodate the other person's.

2. Feeling alienated from the other person as our annoyance builds over time.

3. Making unfounded assumptions about the underlying cause of the difference.

4. Viewing the other person as "the problem" (or worse) that's preventing us from working effectively. [1]

David was making an observation about differences in what he called "work style," but this framework is equally applicable to conflicts that result from goals and incentives. The key is recognizing when we've begun to label our counterparts as "the problem" and working backwards to understand what assumptions we've made about their motives and intentions.

Typically we have only a partial understanding of their perspective. Sometimes this is a function of limited access to information or insufficient time to explore the data that is available. But as the great psychologist and communication theorist Paul Watzlawick has noted, "It is gratuitous to assume not only that the other has the same amount of information as oneself, but that the other must draw the same conclusions from this information." [2]

So while improved information-sharing can help, there's often a more fundamental gap in worldviews with regard to risk. People in commercial and compliance roles are trained, acculturated, and incentivized to view risk differently. It's necessary to recognize that all parties are not only acting in accordance with their respective incentives and goals, but also see the situation through a very different lens.

Bridge the Emotional Gap

Once we've stopped labeling our counterparts as "the problem" and begun questioning the assumptions we've made about their motives and intentions, we may still find ourselves viewing them from across a divide. We know more about what they're thinking and why, but we find their conclusions unreasonable.

Such a gap between people in commerce and compliance roles is often heightened by the emotions that are readily evoked in stressful circumstances: Anxiety and fear that we won't achieve our goals. Frustration and anger directed toward any perceived obstacles. Such feelings, while unpleasant, can be useful: negative emotions serve an essential function by warning us of potential threats or the loss of potential opportunities. But emotions are very noisy signals, in part because we're predisposed to overreact to our concerns. This is a reliable feature of human psychology described by physician and evolutionary psychiatrist Randolph Nesse as "the smoke detector principle":

Most of the responses that cause human suffering are unnecessary in the individual instance but still perfectly normal because they have low costs but protect against huge possible losses. They are like false alarms from smoke detectors. The occasional wail when you burn the toast is worth it to ensure that you are warned early about every real fire. [3]

Yet in a commerce vs. compliance dispute it's likely that both sides believe that their perception of risk is accurate and the negative emotions they feel as a result are justified. And as many of us have learned the hard way, it's unhelpful to tell someone who's upset that they "shouldn't" be upset. The key here is empathy, and as I've noted before empathy isn't agreement:

We act as though empathizing with someone entails endorsing their perspective and their feelings, but this need not be the case. Understanding someone’s perspective and their emotions while suspending our judgments about both does not necessarily imply that we agree with that perspective or believe that the resulting emotions are justified. It simply means that we comprehend their perspective and emotions, and we are able to envision ourselves experiencing that perspective and those emotions under similar circumstances. Just as we can empathize with someone without sympathizing [i.e. feeling sorry for them], we can empathize with someone while disagreeing with them and considering their perspective inaccurate and their emotions unwarranted. [4]

In practice this means withholding our judgments about the other person's thoughts and feelings, and actively expressing our understanding in a way that registers with them. The idea isn't to feign agreement, but to lower the emotional temperature and help everyone be more dispassionate in assessing risk--because ultimately a decision must be made about how to proceed.

Decide How to Decide

A common problem in professional disputes is that people jump immediately into advocating for their point of view on an issue without first agreeing on a decision-making process. Management thinker Jurgen Appelo has identified "7 Levels of Delegation" to help groups determine how a given decision will be made:

1. TELL: Leader decides, no discussion.

2. SELL: Leader decides and convinces.

3. CONSULT: Leader seeks input and decides.

4. AGREE: Leader and group decide together.

5. ADVISE: Leader suggests and others decide.

6. INQUIRE: Others decide and inform leader.

7. DELEGATE: Others decide with no further discussion. [5]

(Here's an illustration.)

There are several factors to consider in a commerce vs. compliance dispute: Who has information about the nature of the risks involved? What role should they play in the decision-making process? How will we ensure that this information is explored thoroughly and efficiently? And perhaps most importantly, what are the sources of power and authority in this situation?

I emphasize that last point because in many settings the person with the ability to unilaterally make a decision is in a commerce role or a compliance role, or their training and experience derives from one side rather than the other. In such cases it's essential that they correct for potential biases and are perceived as even-handed, without allowing the process to become bogged down.

Invest in Cross-Cultural Relationships

Once a given dispute has been resolved, continued work over time will help ensure that subsequent disagreements are less heated and resolved more easily. A key in this effort is ensuring that people in commerce and compliance roles don't merely retreat to their respective sub-cultures, but actively maintain cross-cultural relationships with their counterparts.

This need not entail de-emphasizing these sub-cultures or pretending they don't exist. It's a natural human tendency to form cultural sub-groups within a larger population, and this can have beneficial effects, as former Kaiser Permanente CEO George Halvorson has written:

Humans are social creatures; we fall readily into group loyalties. We instinctively divide the world into "us" and "them" and treat others very differently according to which category they’re in... In the 1970s the social psychologist Henri Tajfel gave us the concept of social identity--the understanding that an individual’s identity is powerfully shaped by group allegiances... Researchers since have shown that when people in a work setting have a strong sense of being an us, morale and productivity rise...

Many workplaces default to a version of kinship based on function. A group’s shared identity reflects a common characteristic of its members--everyone’s an engineer, or everyone’s a radiologist. Doing similar work under the same conditions is enough to make an "us." But it doesn’t provide much impetus for the group to align its energies and take bold action. [6]

Commerce and compliance sub-cultures within an organization typically form an "us," what Halvorson calls "a version of kinship based on function." But there also needs to be what I've called "a greater us," a larger organizational identity that encompasses both of these sub-cultures (and any others as well). [7] This can take on symbolic forms in logos and corporate swag, but it also occurs via interpersonal experiences.

So whether you're in a commerce role or a compliance role--but especially if you're a senior leader tasked with overseeing both functions--look for opportunities to bring members of these tribes together so they will recognize each other as fellow inhabitants of the same village. The goal isn't simply to establish connections, but in so doing to amass a store of social capital that will contribute to greater empathy and trust the next time there's a disagreement over risk.

 

---

Footnotes

[1] Work Style Differences

[2] Pragmatics of Human Communication: A Study of Interactional Patterns, Pathologies and Paradoxes, page 95 (Paul Watzlawick, Janet Beavin Bavelas, and Don Jackson, 1967)

[3] Good Reasons for Bad Feelings: Insights from the Frontier of Evolutionary Psychiatry, pages 40-41 (Randolph Nesse, 2020). For more on this concept, see The Smoke Detector Principle (Why We Overreact).

[4] The Difficulty of Empathizing Up

[5] The 7 Levels of Delegation (Jurgen Appelo, 2015). For more on this concept, see Leadership, Decision-Making and Emotion Management.

[6] Getting to "Us" (George Halvorson, Harvard Business Review, 2014). For more on social identity theory: Experiments in Intergroup Discrimination (Henri Tajfel, Scientific American, 1970) and Social Identity Theory (Gazi Islam, Encyclopedia of Critical Psychology, 2014)

[7] Startup Leadership: A Greater Us

 

Photo by Rhys Asplundh.

The Problem with Hot-Swapping (On Exec Transitions)

A CEO attempting to hot-swap an exec.*

A theme in my practice is the CEO who's concluded that one of their executives is under-performing and must be managed out. Sometimes the CEO holds out hope that the transition will be perfectly seamless, with no disruption to operations, no awkwardness, no mess. A client once called this "hot-swapping," referring to technical components that can be replaced without powering down the system. What would this look like in practice?

• The CEO conclusively determines that the incumbent exec is under-performing and incapable of improvement. There's no question that they need to be replaced.
• In the absence of an obvious successor, the CEO runs a confidential search. News of the search never leaks to the incumbent, and prospective candidates aren't dissuaded by the secrecy.
• After a successor is identified and closed, the news is broken to the incumbent. They take it with grace and accept the severance package, with no threats of legal action or negative publicity.
• The successor is introduced to the team, who welcome their new colleague and eagerly assist in the onboarding process.
• The team wishes the departing exec well, who reciprocates. All loose ends are tied up, and the departing exec has left clear and thorough documentation for their successor.

It's not that things never turn out this way, but it's rare. There are multiple points where this neat and tidy plan can go awry. There's not just one problem with hot-swapping--there are many. So if you're a leader in this position, what challenges are you facing, and what might you do about them?

Making the Decision

You know the incumbent exec is under-performing, but you may not know the extent to which their performance is a function of situational factors that would hamper anyone in the role rather than personal shortcomings. If the incumbent hasn't been provided with sufficient critical feedback, you may not know whether they're capable of improvement. And if you leap to conclusions prematurely, you'll not only squander potential talent, you'll also miss opportunities to advance your own growth and development as a leader.

As CEO it's your obligation to replace under-performing execs when necessary, and yet you don't want to create a climate of fear on your team. You also don't want to cycle through multiple execs because you keep setting them up for failure in an untenable position. So consider...

• Are there structural or contextual factors beyond the incumbent's control that you might address?
• Have you provided them with sufficient critical feedback on the factors that are within their control?
• If so, how have they responded? Are they open to learning? Or are they defensive?

Run a Search? Or Break the News?

If you decide to proceed with a transition, unless you have a successor at the ready you face an important choice. One option is to run a confidential search and break the news to the incumbent later in the process. This poses several risks: If the incumbent learns about the search second-hand, they may feel betrayed, and the relationship will be damaged, making an amicable transition more difficult. To maintain confidentiality you'll need to limit exposure to the team, which will prevent them from providing input and may deter some prospective candidates. And you won't get the benefit of any insights from the incumbent, who may be in a position to tell you why they struggled.

In some circumstances you may feel obligated to identify a successor before breaking the news. You may lack faith in the incumbent's ability to handle the news. You may worry that they'll become a source of disruption once informed. Or you may have concluded that their poor judgment renders their insights less useful. But an alternative to the above is to inform the incumbent that you'll be replacing them and then reach agreement on a transition plan. This isn't always preferable before you have a successor lined up. But in my experience CEOs over-estimate the risks of this option and under-estimate the risks of a hot-swap. The key is recognizing that there's no risk-free path. So consider...

• You don't owe an under-performing exec a permanent role, special treatment, or a debate. But how might you treat them with honesty, fairness, and dignity?
• If you're concerned about a break in continuity, what's behind your fear of the empty chair?

Breaking the News...Again

However you proceed, at some point various stakeholders will need to be informed about the transition. This includes your other employees, such as the departing exec's direct reports, their colleagues on the executive team, and potentially the entire company. It may also include Board members, customers, and other external partners. The key element is the explanatory narrative, the rationale for the transition that helps these parties make sense of what's happening and why. Here hot-swapping poses a dilemma, because an exec who's been summarily terminated is unlikely to be a willing partner in this process. Even if they're induced to play along, the transparency of the charade is usually evident, which breeds cynicism and mistrust.

It isn't always preferable to hear from the departing exec. In cases of malfeasance, toxic behavior, or gross incompetence it may be preferable or even necessary to simply announce their departure. But barring such factors, it's likely that all parties will benefit from some form of joint participation. The departing exec is afforded an opportunity to say their goodbyes, minimize the loss of face, and leave with dignity. Other stakeholders gain clarity and reassurance, which increases their trust in your ability to manage difficult situations.

While the participation of the departing exec can be advantageous, I'm not suggesting that you obtain it by misleading people. Explanatory narratives rarely include "the whole truth," yet they must be truthful to be plausible. In an effort to help the departing exec save face you need not pretend that their tenure was an unqualified success or that anyone else is at fault for their shortcomings. So consider...

• What factors will influence your ability to create a plausible, truthful shared narrative?
• What information should be shared as a part of that narrative, and what should not?
• If you haven't yet chosen a successor, what role, if any, do you want other employees to play in the hiring process?

The Transition

Once you've identified a successor, you now have to implement the actual transition. Some parameters will have been fixed in the process of making the decision and breaking the news, while others remain open. Here, too, attempting a hot-swap can be counter-productive in multiple ways. You can leave the under-performing exec in the role for too long, or they may quit abruptly before you're prepared to make a change. If you've managed the process effectively, you still retain a great deal of flexibility at this point--and if you haven't, you may be locked into a suboptimal course of action.

The transition shouldn't be too lengthy. The departing exec will rapidly lose power and influence, and it will be difficult for them to remain motivated to give best effort. Organizations reliably solve for optionality, which often leads to excessive transition periods. This is one of the primary rationales for hot-swapping in the first place--CEOs often over-estimate the risk of a gap in continuity, and under-estimate the risk of leaving an under-performing exec in place.

In the circumstances noted above--malfeasance, toxic behavior, gross incompetence--the transition will be brief. Even if a severance package is contractually obligated (or advised by counsel), there's no need to retain the outgoing exec's services. But in most cases there are benefits to a longer, more orderly process. The departing exec has time to wrap things up, and the incoming exec is able to do the same as they conclude their previous role. The team can prepare to help onboard the incoming exec and will be better positioned to do so with sufficient notice and clarity on the narrative. So consider...

• How will this transition--the departure and the arrival--affect your executive team?
• What does the incoming exec need to know about the existing culture?
• How might you benefit from their fresh perspective?

This is Hard. What Helps?

If you're tempted to hot-swap an exec and you're anything like my clients, it's not because you're callous, but because you're human. The process I've outlined here necessarily entails having an ongoing series of difficult, awkward, even fraught conversations. In some cases you may be understandably obligated to prioritize other efforts. If your company's in the midst of a crisis, you simply may not have the time to invest in managing an under-performer, and you're justified in taking the most expedient route.

But even when that's not the case, you may still be reluctant to lean in because those conversations will be hard work, and you may feel that you lack the skills to conduct them effectively. While I obviously recommend working with a coach, here are some relevant resources to help you manage, offer feedback, communicate, and hire and fire more effectively:

Management

• Mind the Gap (On Leading Senior Executives)
• Why Executives Derail (and What You Can Do About It)
• How to Have Better One-on-Ones

Feedback

• How to Deliver Critical Feedback
• Building a Feedback-Rich Culture
• Why Some Feedback Hurts (and What to Do About It)

Communication

• Take a Walk (Making Tough Conversations Easier)
• Learning to Yield (Navigating Tough Conversations)
• Setting the Table (Difficult Conversations)

Hiring

• Fear of the Empty Chair, Part 2 (On Hiring)
• Surfacing Defensiveness (Three Questions for Candidates)
• Daniel Kahneman on Conducting Better Interviews

Firing

• Fear of the Empty Chair, Part 1 (On Terminations)
• Merciful Exits (On Under-Performing Executives)
• On Firing a Senior Team Member

 

* If you don't get the reference from the movie still above, see this clip from Steven Spielberg's classic 1981 film, Raiders of the Lost Ark.

Primates Wearing People Masks

Primates take...a mass of social information into account, and are so finely attuned to the moods and intentions of others, that it has been speculated that their high intelligence evolved in order to deal with an increasingly complex group life. This idea, know as the Social Intelligence Hypothesis, may also apply to the enormous brain expansion in our own lineage.

In this view, technical inventiveness is a secondary development: the evolution of primate intelligence started with the need to outsmart others, to detect deceptive tactics, to reach mutually advantageous compromises, and to foster social ties that advance one's career. Chimpanzees clearly excel in this domain. Their technical skills are inferior to ours, but I would hesitate to make such a claim with regard to their social skills.

~Frans de Waal, Chimpanzee Politics [1]

If you're a leader navigating the challenges of organizational life, it's useful to bear in mind that human beings are really just a special type of primate, and this has significant implications for how people behave in groups. We sometimes focus on our special qualities as a species--our capacity for logical reasoning, our facility with tools, our extensive use of symbols--and imagine that we have little in common with our evolutionary cousins. But then we encounter some curious behavior in a group setting, or we find ourselves perplexed by our own behavior in a group, and we may question just how evolved we really are.

This is where it's important to remember that humans are "primates wearing people masks." We put on clothing, adorn ourselves, and employ any number of symbolic artifacts, from wedding rings and Swiss watches to job titles and even our very names. But these accoutrements don't extinguish our underlying identity as primates. So what are the implications of all this for organizational life?

We're Social Animals

Most people are aware that our success as a species is in some way related to the size and complexity of the human brain, but we often mistakenly assume that our evolutionary advantage was derived from our enhanced cognitive abilities as individual problem-solvers. Instead, research suggests that the greatest benefit of a larger brain was our social intelligence--the ability to conceive of and operate within a vast network of interpersonal relationships. [2]

As a consequence, group experiences loom large in our mental landscape, and the social dynamics operating within any group have a powerful effect on its members. This is sometimes overlooked in contemporary Western culture, given our emphasis on the individual. [3] We readily acknowledge the impact of groups in extreme circumstances, such as when a crowd becomes an unruly mob [4], but we often miss the pervasive influence of groups in everyday life.

We're not herd animals, and another defining human characteristic is the ability to wrestle with and overcome our primal impulses, but we remain acutely sensitive to group dynamics and highly motivated to abide by prevailing norms. This can be dysfunctional at times, causing us to censor ourselves or ignore our better judgment. [5] But as with so many confounding aspects of human psychology, it's a feature for the species that occasionally acts like a bug.

So a starting point in organizational life is simply recognizing that people are are profoundly social and keenly sensitive to the impact of group experiences, for better and for worse. Groups aren't merely collections of individuals (although they are that), but can also take on a life of their own, exerting tremendous influence on individuals' judgment, perception, choices and behavior. Countless leaders have exploited this aspect of human psychology to others' disadvantage in dictatorships, cults, street gangs--and some companies. But group dynamics aren't necessarily nefarious, and thoughtful leaders can harness them in ethical ways. [6]

We're Emotional Animals

Psychologists disagree on whether the affective responses we observe in animals should truly be called "emotions" [7], but it's certainly the case that non-human primates display a wide range of such responses that are analogous on some level to human feelings and which serve as a form of "social information" that enables them to co-exist in groups, as the eminent biologist Frans de Waal notes above. The human experience of emotion may be substantially more complex than that of other primates, but in this sense there's a parallel: group experiences always have the potential to evoke emotions, and this "social information" plays a valuable role in organizational life.

Given the nature of coaching, I often talk with leaders about group experiences gone awry as the result of negative emotions. As a consequence it can be tempting to conclude that emotions are a "problem," and being called "emotional" generally carries a stigma in professional settings and suggests a lack of clear thinking. But this misjudges the nature of emotions and their function.

The idea that emotions are antagonistic to reasoning is a popular misconception, one that's exacerbated when we believe that emotions are some sort of base instinct. But neuroscientists have known for decades that emotion and logic work together in concert, and our feelings are vital inputs in reasoning. [8] Emotions allow us to process massive amounts of data very efficiently in a short period of time. In comparison, logical reasoning is a slow and resource-intensive process.

This doesn't mean our feelings are always reasonable or justified, of course. [9] They're a "quick and dirty signal," as noted by neuroscientist Joseph LeDoux. [10] But we rely on emotions to make sense of dynamic, data-rich environments--and that's exactly what occurs in any group setting. Other people are our most vital resource and, potentially, our gravest threat. It's of the utmost importance that we understand their thoughts and intentions, but explicit communication is often insufficient, particularly when we have concerns that our counterparts might lack sound judgment or be untrustworthy.

Emotions fill in those communication gaps by enabling us to rapidly perceive and interpret a host of factors--tone of voice, eye contact, facial expressions, body language--while simultaneously assessing what we know or can surmise about the other people involved. So we shouldn't view emotions as unerring guides to right action, and it's essential to observe and correct for any patterns in which emotions--both positive and negative--repeatedly result in mistaken conclusions or counterproductive behavior. But we should expect that groups will reliably trigger a host of feelings, and we should heighten our ability to sense, comprehend, articulate and express them in order to make most effective use of them.

Simultaneously, we must also expand our capacity for empathy, which can be defined as the ability to see the world from another person's perspective, understand their feelings, suspend our judgments about them, and communicate our understanding. [11] All this entails substantial effort, made easier when we remember that people in groups will reliably trigger emotions in each other, those feelings are potentially useful data (and occasionally misleading), and our "people masks" aren't always accurate indicators of who's feeling what and why.

We're Competitive Animals

As noted above by biologist de Waal, humans' social intelligence differs from that of other primates not in kind, but in degree. One of the most significant differences is our capacity to operate in relatively large social units, and it was the development of advanced social capabilities that enabled early humans to form groups much larger than their evolutionary rivals. Work by anthropologist Robin Dunbar sets this number at roughly 150 people, and a group of that size contains more than 10,000 one-on-one relationships. [12]

A group of 150 people is a powerful force, capable of securing resources and food, fighting off predators, and coping with environmental challenges. Our ability to operate within such large groups is what has enabled us to become the dominant species on the planet, but this advantage also carries some costs. As UCLA neuroscientist Matthew Lieberman has written, "The downside of larger groups is that there is increased competition for food and mating partners within the group. If you are on your own and you manage to find food, it's yours. The larger your group, the more likely it is that one of the others in your group will try to poach it." [13]

More fundamentally, survival depends on one's ability to remain a member of the group. Although bands of early humans came to dominate their environments, individuals were defenseless on their own, vulnerable to attack and the elements. Being left behind or expelled was a death sentence. As a result, we evolved to be acutely sensitive to our social standing and our relative status in the group. [14]

But evolution has solved for the survival of the species, not for our individual happiness or peace of mind. So this heightened awareness of our relative status keeps us collectively striving toward greater accomplishments, while simultaneously being the source of much personal misery. The key for a leader in organizational life is recognizing that our predisposition to social comparison will reliably trigger status contests and power struggles [15] on a near-constant basis, fueled by the unhappiness people feel when they perceive themselves to be "behind" in some way. [16]

Managing these competitive dynamics among employees is one of a leader's primary responsibilities. This is obvious when it comes to issues such as compensation [17] and titles. [18] But it also applies to more subtle forms of status, like the communication patterns within a group. [19] A common theme in my practice is the surprise many clients express at the range and persistence of the interpersonal competitions they're compelled to oversee. But in addition to managing these dynamics among others, we must also bear in mind that we are subject to them ourselves.

Leaders, particularly the CEOs who comprise the majority of my practice, are shielded from aspects of social comparison within their companies, in part because of the status and autonomy that they enjoy as a function of their role. But that very same role puts them in competition with other leaders outside their companies. Sometimes these contests are direct and explicit, as when two companies are going head-to-head in the same market. But more often such competition is symbolic, as when a leader compares their accomplishments to those of friends, classmates, role models, and even historic figures.

As a leader you're almost certainly making such comparisons, and they stoke your competitive fires. [20] Learning how to harness and manage this drive within yourself is one of your most important tasks. The challenge is that the good feelings that accompany success and the flush of victory are inevitably fleeting. And while you'll put certain concerns and anxieties behind you with each new level of accomplishment, new perceived needs will emerge. It's unlikely that you'll switch off this drive, nor is that necessarily desirable--it has undoubtedly contributed much to your ability to generate value for yourself and others. But it also has the potential to render you permanently dissatisfied, competing at ever-higher levels for ever-scarcer prizes. The key is coming to terms with your fundamental nature as a primate in competition with other primates, while determining for yourself what constitutes enough. [21]

 

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Footnotes

[1] Chimpanzee Politics: Power and Sex Among Apes, pages 38-39 (Frans de Waal, 1982, 2nd edition 2007)

[2] "Our social nature is not an accident of having a larger brain. Rather, the value of increasing our sociality is a major reason for why we evolved to have a larger brain." From Social: Why Our Brains Are Wired to Connect, page 33 (Matthew Lieberman, 2013).

[3] "No civilization, as far as I know, has given more scope to individual expression and initiative than the West. Non-Western civilizations have generally tended to subordinate the needs of the individual to those of the collective. Despite important exceptions, including Plato, Aristotle, Hobbes, Rousseau, and Hegel, the prominence of the individual is one of Western civilization’s distinguishing marks. This individualism, as Colin Morris puts it in The Discovery of the Individual, is 'an eccentricity among cultures.'" From A Brief Primer on Individualism in Western Intellectual History (Tamer Nashef, Areo, 2018).

[4] "In a group the individual is brought under conditions which allow him to throw off the repressions of his unconscious instinctual impulses. The apparently new characteristics which he then displays are in fact manifestations of this unconscious, in which all that is evil in the human mind is contained as a predisposition." From Group Psychology and the Analysis of the Ego , page 9 (Sigmund Freud, 1921).

[5] "We frequently fail to take action in an organizational setting because we fear that the actions we take may result in our separation from others, or...we are afraid of being tabbed as 'disloyal' or are afraid of being ostracized as 'non-team players.'" From The Abilene Paradox: The Management of Agreement, page 6 (Jerry Harvey, Organizational Dynamics, Summer 1974). Also see The Abilene Paradox and Other Meditations on Management (Jerry Harvey, 1988).

[6] I discuss how leaders can effectively leverage group dynamics in Loyalty Oaths and Kicks in the Ass.

[7] As a devoted dog owner, I believe that animals' affective responses can be characterized as emotions, but for more on the opposing point of view, see Lisa Feldman Barret's How Emotions Are Made: The Secret Life of the Brain, Chapter 12: Is a Growling Dog Angry? (2017).

[8] Antonio Damasio on Emotion and Reason

[9] The Tyranny of Feelings

[10] The Emotional Brain: The Mysterious Underpinnings of Emotional Life, page 163 (Joseph LeDoux, 1998)

[11] A Concept Analysis of Empathy (Theresa Wiseman, Journal of Advanced Nursing, 1996)

[12] Neocortex size as a constraint on group size in primates (Robin Dunbar, Journal of Human Evolution, 1992)

[13] Lieberman, page 34.

[14] In addition to Lieberman's Social, see the following:

• Good Reasons for Bad Feelings: Insights from the Frontier of Evolutionary Psychiatry (Randolph Nesse, 2020)
• The Myths of Happiness: What Should Make You Happy, but Doesn't, What Shouldn't Make You Happy, but Does (Sonja Lyubomirsky, 2014)
• Status Anxiety (Alain de Botton, 2004)

[15] Power Struggles Among Nice People

[16] Learning How to Fall Behind

[17] Culture, Compensation and Negotiation

[18] Very Cheap, Then Very Expensive (On Job Titles)

[19] Group Dynamics: Very Loud (and Very Quiet) People

[20] "Most of the time, it's impossible not to compare ourselves with others... Social comparisons arise naturally, automatically, and effortlessly." (Sonja Lyubomirsky, The Myths of Happiness: What Should Make You Happy, but Doesn't, What Shouldn't Make You Happy, but Does, pages 131-132, 2014)

[21] The Trap of Competition

 

Photo by Brecht Bug.

The Mythical COO

A theme in my practice is the CEO whose company has reached the point where there are substantial gaps in leadership capacity, succession planning, and operational rigor, and sufficient resources to attract senior talent. In some cases these gaps are best addressed through a series of executive hires, but it's common for a CEO to envision filling them all at once in a single stroke. They're dreaming of that mythical creature, the Chief Operating Officer.

I'm not suggesting that COOs are figments of our imagination. I've had a number of them as clients over the years, and many of my other clients have hired one or worked alongside one. What's mythical about the position is the all-too-common fantasy that there's a pool of candidates whose experience as COO fits a company's needs and the CEO's vision. The reality is that there's no single job description for "COO," and it can mean something wildly different from one company to another:

• CEO-in-waiting, i.e. the designated successor.
• A capable successor to the CEO, i.e. emergency backup.
• A potential successor to the CEO on an extended tryout.
• An "operational CEO" who manages most (or all) internal functions, while the CEO handles external duties.
• The "first among equals" on the executive team with higher status than others.
• The CEO's "right hand" who tackles special projects.
• A glorified VP Ops who may not really merit a C-level title.
• A co-founder who lost the power struggle for CEO.
• Any combination of the above.

And while a COO may have fit one of these descriptions when they started the job, it's quite possible that their role evolved into something entirely different over the course of their tenure. So when a CEO determines that it's time to make this hire, it's far more difficult than with other executive positions to find someone who's done the job before. Yes, a candidate may have "COO" on their resume, but what does that really mean? Which of the jobs above have they actually done? What job are they doing now? And what job do they want?

The first step in resolving this challenge is for a CEO to fully clarify just what needs they want a COO to fill, and, if at all possible, to reach agreement with current executives, Board members, and other stakeholders who may have their own understanding of what a "COO" does. Achieving this alignment not only makes the search process more efficient, because everyone has a shared understanding of what they're looking for, but it also minimizes the risk that a newly-hired COO will face divergent expectations from different parties.

Obtaining this buy-in from existing stakeholders can itself pose a substantial challenge, however. Other members of the executive team will be worried about a loss of power and influence, whether or not the CEO envisions the COO as their successor. This anxiety will be heightened if the CEO is planning to level one or more current reports under the new COO. And this is often the case, both because the CEO is hoping to free up time and attention, and because experienced COO candidates will expect to have a sufficiently broad managerial scope.

There's no simple solution, but timing is key. It's unhelpful to announce the intention to hire a COO too soon, as that can unsettle the executive team, and the search is usually a lengthy one. It's equally problematic to announce the hire too late, particularly when execs have concerns about their ranking in the new hierarchy. I advise clients to err on the side of transparency. If someone is going to resist being levelled or become a flight risk, it's generally better to know sooner rather than later.

Investors and other stakeholders can be skeptical about a CEO's plan to hire a COO, and sometimes this is well-founded. They've likely seen COOs fail to fulfill expectations for any number of reasons. A presumptive successor can lack the capabilities to step into the CEO role. A heavy-handed leadership style or interpersonal issues can lead to a failure to integrate with the executive team. A lack of clarity on the job description can cause frustration on all sides. Or an inexperienced candidate can convince a CEO to give them an opportunity, but they may never grow into the C-level title.

This isn't to say that a CEO should simply defer to these concerns. The CEO knows more about the evolving needs of their executive team than anyone else, and, unless the Board has approval over executive hires, they're not the CEO's boss. But a CEO who's facing skepticism about a COO hire is well-served by ensuring that such concerns are aired and addressed, even if agreement isn't achievable. Because the goal isn't simply to fill the role, but to ensure that an incoming COO is set up for success. And what's the rush? It will almost certainly be a long search.

 

Questions to Consider

• To what extent do we have clarity on the various needs we expect a COO to fill?
• Where might our respective expectations be out of alignment?
• Is the COO is a factor in CEO succession planning? If not today, might that change in the future?
• Does the CEO's relationship with the COO differ from their relationship with other executives?
• What is the relationship between the COO and other executives? What is their relative status?
• How do other executives feel about this relationship and their relative status?
• How might any of this change as the COO's capabilities and ambitions evolve?

For Further Reading

The Fine Art of Levelling

Fear of the Empty Chair, Part 3 (On Attrition)

Conform to the Culture (Just Enough)

The Evolution of the Executive Team

Not Your Friends. Not Your Enemies. Not Your Boss.

Fear of the Empty Chair, Part 2 (On Hiring)

 

Photo by Carole Raddato.

Loyalty Oaths and Kicks in the Ass

I don't care what the people outside say. Do you agree with me?... Let me ask you this: Are you in it? Let me ask you this again: Are you in it to win it?

~Starbucks CEO Laxman Narasimhan at a company forum [1]

Pointed questions like these, when posed by a leader to employees, are a type of loyalty oath. There's only one acceptable answer, and it's not "Let me think about it." When a client tells me they're thinking about taking this approach to rally their team, I'm reminded of psychologist Frederick Herzberg's classic work on motivation:

The surest and least circumlocuted way of getting someone to do something is to administer a kick in the pants--to give what might be called the KITA. There are various forms of KITA, and here are some of them...

Negative Psychological KITA. This has several advantages over negative physical KITA...If the employee does complain, he or she can always be accused of being paranoid; there is no tangible evidence of an actual attack. Now, what does negative KITA accomplish? If I kick you in the rear (physically or psychologically), who is motivated? I am motivated; you move! Negative KITA does not lead to motivation, but to movement. [2]

The problem is that sometimes a loyalty oath is nothing more than a "negative psychological kick in the ass." And just as a kick in the ass generates movement but not motivation, an oath can yield an affirmative response without generating actual loyalty. It's entirely appropriate and even admirable for an organization to seek to build a culture in which the freely-given answer to such questions is, "Hell, yes!" But all too often these questions are posed in such a way that the desired answer is not freely given, but, rather, coerced.

So if you're a leader who'd like to hear employees say, "Hell, yes!" while knowing that such fervor is heartfelt, what can you do? How might you cultivate meaningful loyalty without resorting to kicks in the ass?

Safety

The concept of "psychological safety" has gained currency in recent years, in large part due to the work of Harvard Business School professor Amy Edmondson. [3] But it's often misunderstood as "No one's feelings can get hurt," which creates an environment in which people are fearful of causing offense, stifling open discussion. In such a setting the most hypersensitive person who's least able to regulate their emotions dictates the culture for everyone else. What is actually meant by psychological safety is something quite different, as I've written before:

To be very clear: Psychological safety entails candid and direct communication. It requires asking and answering hard questions. It does not mean "being nice." It does not mean avoiding difficult conversations or fraught topics to ensure that no one experiences distress. To the contrary, a setting in which people are reluctant to be candid and direct for fear of triggering any distress in others is psychologically unsafe. [4]

The value of safety in building genuine loyalty is that in a safe environment people feel free to raise doubts and concerns, rather than obliged to keep quiet. This isn't to say that as a leader you should simply defer to such anxieties. But in an unsafe environment those concerns and doubts don't disappear because they're not expressed. They may well get worse, and failing to discuss them is a missed opportunity to alleviate them. [5]

It's not the case that the use of social pressure to evoke loyalty is always illegitimate--see the final section below. There's ample evidence that groups have a substantial effect on individuals' attitudes and behavior, and this has the potential not only to foster a strong sense of group identity, but also to render the group unsafe for dissenters. [6] Companies aren't cults or street gangs, and you have to utilize social pressure responsibly, not to stifle disagreement. Again, the key is ensuring that people feel free to voice a wide range of views.

Reciprocity

Loyalty is ultimately a matter of influence. An oath can be extracted under duress, but coercion doesn't yield sustainable change--true loyalty is given, not taken. And influence is reciprocal: Employees are open to your influence to the extent that you're open to theirs. The leading scholar on the subject of influence is psychologist Robert Cialdini--more on him below--and he's written about the important role played by reciprocity throughout human history:

One of the most potent of the weapons of influence around us [is] the rule of reciprocation. The rule says that we should try to repay, in kind, what another person has provided us... A widely shared and strongly held feeling of future obligation made an enormous difference in human social evolution, because it meant that one person could give something (for example, food, energy, care), to another with confidence that it was not being lost. [7]

So when seeking to inspire loyalty among employees, you must show loyalty in return. This can take many forms, from company-wide initiatives to personal gestures. At the organizational level, employees will certainly assess your loyalty to them as a function of how vigorously you strive to retain them through periods of difficulty. Layoffs are sometimes necessary, and I've coached many leaders facing this challenge in recent years. But even then you can demonstrate loyalty by taking steps to make the process less painful. [8]

At the personal level, you can show loyalty by expressing support to a direct report who's struggling. This does not mean tolerating under-performance, but, rather, providing clear and direct critical feedback [9], offering resources such as coaching [10], and, should a transition become necessary, conducting it with honesty, fairness and dignity. [11]

Commitment

The affirmative response generated by a loyalty oath is a form of compliance. [12] Compliance is useful and even necessary under certain circumstances, but it's less useful when leading highly-skilled knowledge workers. [13] The pressure to comply will hold such people in place temporarily, but over time the most talented will leave, seeking an environment that affords them more agency and choice, including the freedom to respond to a loyalty oath with questions and concerns.

The alternative to compliance is commitment, a far more robust expression of loyalty, but one that also takes more work to establish and maintain. Rather than merely obtaining compliance by administering an oath, building commitment requires an open dialogue, additional efforts to gain influence, and the cultivation of a set of norms.

In an open dialogue, as the leader you must be willing to engage in tough conversations. This doesn't mean you have to defer to anyone who raises questions and concerns, but a free-flowing exchange of views in which disagreements are welcome will enable you to surface and address those issues, rather than suppress them. This process will present you with extensive opportunities to exert influence.

In addition to reciprocity, Cialdini has identified a set of principles through which we reliably influence others, including several that are relevant in obtaining commitment. [14] We're more open to the influence of people who are both authoritative and likeable, so it's important to strike a balance. Your grasp of the facts and logical reasoning will make you a credible authority figure, but your tone and demeanor are equally significant. Far too often leaders emphasize the former at the expense of the latter, missing opportunities to build influence through warmth and personal connection. [15]

When employees are committed, their loyalty is reflected in a set of norms, which I've defined as "social regularities that individuals feel obligated to follow, and patterns of behavior based on shared beliefs about how individuals should behave." [16] Note that employees who are merely compliant haven't adopted loyalty as a norm--they're responding to pressure. And when the pressure's off, their loyalty will vanish with their compliance.

When Loyalty Oaths Work

If loyalty oaths don't always yield loyalty, why do leaders employ them? When do they actually work? When you've built a foundation of safety, reciprocity and commitment, then you've created the conditions under which employees are far more likely to respond to a loyalty oath with a heartfelt "Hell, yes!" This is the result of two additional principles of influence identified by Cialdini:

Social Proof: "One means we use to determine what is correct is to find out what other people think is correct. The principle [of social proof] applies especially to the way we decide what determines correct behavior. We view a behavior as more correct in a given situation to the degree that we see others performing it." [17]

Consistency: "Once we have made a choice or taken a stand, we will encounter personal and interpersonal pressures to behave consistently with that commitment. Those pressures will cause us to respond in ways that justify our earlier decision." [18]

This is why loyalty oaths are often administered in public, and why leaders repeatedly remind employees that they have previously "made a choice or taken a stand." But bear in mind that there are no short cuts here. The leader who resorts to an oath without taking the time to create safety, demonstrate reciprocity, and earn commitment is really just delivering a kick in the ass. And "if I kick you in the rear, who is motivated? I am motivated; you move!"

 

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Footnotes

[1] Howard Schultz Is Back-Seat Driving Starbucks. That’s a Problem for His Successor. (Heather Haddon, The Wall Street Journal, May 9, 2024). In fairness to Narashimhan, he's clearly under an immense amount of pressure as his predecessor Schultz takes to social media to publicly air concerns about the company's performance, and there's no indication that Starbucks employees resented these questions--but there's also no indication that employees rallied enthusiastically as a result. I suspect the effect was neutral at best.

[2] One More Time: How Do You Motivate Employees? (Frederick Herzberg, Harvard Business Review, originally published 1968 / republished 2003)

[3] For more on Amy Edmondson's work on psychological safety:

• Make Your Employees Feel Psychologically Safe (Martha Lagace interviewing Amy Edmondson, Harvard Business School Working Knowledge, 2018)
• How Fearless Organizations Succeed (strategy+business, 2018; excerpted from Edmondson's book below)
• The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation and Growth (2018)
• Building a psychologically safe workplace [11:26 video] (TEDxHGSE, 2014)

[4] Safety Is a Resource, Not a Destination

[5] Talking About Feelings

[6] For more on social pressure, group identity, and loyalty:

• Social Conformity and Group Pressure (Jessica Schrader discussing the work of Solomon Asch, Psychology Today, 2023)
• In-Group Loyalty and the Punishment of Corruption (Hector Solaz, Catherine De Vries, and Roosmarijn de Geus, Comparative Political Studies, 2018)
• Social Psychology of Gangs [PDF] (DaJung Woo, Howard Giles, Michael Hogg, and Liran Goldman, The Handbook of Gangs, 2015)

[7] Influence: The Psychology of Persuasion, pages 17-18 (Robert Cialdini, 1993)

[8] Making Layoffs Less Painful

[9] How to Deliver Critical Feedback

[10] Getting Coaching for Your Team

[11] Merciful Exits (On Under-Performing Executives)

[12] This passage is adapted from Compliance vs. Commitment (On Behavior Change).

[13] What Peter Drucker Knew About 2020 (Rick Wartzman, Harvard Business Review, 2014)

[14] Harnessing the Science of Persuasion (Robert Cialdini, Harvard Business Review, 2001). In addition to the book cited above, this classic article provides the best overview of Cialdini's work.

[15] Connect, Then Lead (Amy Cuddy, Matthew Kohut and John Neffinger, Harvard Business Review, 2013)

[16] Rules Aren't Norms (On Company Values)

[17] Cialdini 1993, page 116

[18] Ibid, page 57

 

Image: Oath of the Horatii (detail) by Jacques Louis-David, 1785. Photo by Steven Zucker.

Lessons from Ferrari CEO Benedetto Vigna

I'm skeptical of glowing CEO profiles. When we put leaders on pedestals, we often set them up for a fall. That said, Ben Cohen's recent Wall Street Journal piece on Ferrari CEO Benedetto Vigna offers some interesting insights. [1] While it would be a classic example of the fundamental attribution error to give Vigna too much credit for the company's stellar performance, he's clearly made a meaningful contribution since taking on the role in 2021. [2]

Respect for tradition, with a fresh perspective.

Vigna cares deeply about the Ferrari tradition of excellence, dating back to his childhood when he was a devoted fan of the company's Formula 1 racing team. But his training in the semiconductor industry gives him a new perspective on the brand: "It's a luxury company where, contrary to other luxury companies, technology plays an important role."

There's a noteworthy contrast here with Boeing, the world's largest aircraft manufacturer. Founded in Seattle in 1916, Boeing may have been seeking a fresh perspective when they relocated their headquarters to Chicago in 2001. But in the process they seem to have lost their traditional focus on engineering, laying the groundwork for a host of serious production problems today. [3]

Cultural evolution.

Respect for tradition doesn't mean no change at all. Vigna was dismayed to find an unnecessarily complex and multi-layered organizational structure, and he took steps to simplify it:

The problem, he discovered, was that Ferrari was being weighed down by its "bureaucratic mass index," his name for the excess layers of an organization... At one point, Vigna counted nine levels of employees in a cybersecurity meeting and noticed that only the lowest-ranking person had anything useful to say. He restructured groups and reduced the number of organizational levels.

But these changes appear to have been measured, not sweeping:

When you change the culture of a company, it's never a revolution. It's an evolution. If you have a revolution, you will have a lot of passive resistance and you will be inefficient. You will was a lot of energy for a small gain.

A freer flow of information.

When Vigna became CEO, he was concerned that the company's structure was preventing important information from reaching him. He began his tenure by interviewing 300 employees from throughout the company, and he didn't stop there:

Vigna also sought out the people who had spent the most time in Ferraris: the test drivers... He bumped the test drivers from six levels below the CEO to three with the goal of accelerating the flow of information. "They cannot be nested under the engineers," Vigna said. "Otherwise it's like asking the server how is the wine."

While I thoroughly enjoyed Cohen's piece on Vigna, this post is also just a good excuse to share not only the gorgeous photo above--possibly a 225 Sport Spider from the 1950s--but also one of my favorite videos of all time:

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Footnotes

[1] He Loves Speed, Hates Bureaucracy and Told Ferrari: Go Faster (Ben Cohen, The Wall Street Journal, April 20, 2024)

[2] Roberto Fernandez, one of my best professors in business school, described the fundamental attribution error as "ascribing causality to personal characteristics when causality actually lies with the situation." The original research was also conducted at Stanford in the 1970s: The Intuitive Psychologist and His Shortcomings: Distortions in the Attribution Process (Lee Ross, Advances in Experimental Social Psychology, L. Berkowitz, editor, pages 173-220, 1977)

[3] Why Boeing’s Problems with the 737 MAX Began More Than 25 Years Ago (Bill George, Harvard Business School Working Knowledge, January 24, 2024)

 

Photo by Bill Abbott.