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Learn. earn. Lead. Succeed. a SampLer of management bookS from paLgrave profeSSionaL buSineSS

Selected Excerpts from: all above board nice companies finish first the proactive Leader conquering global markets building resilience for Success How excellent companies avoid dumb things


Contents 3 All Above Board Ulf Lindgren 16 Nice Companies Finish First Peter Shankman 23 The Proactive Leader David de Cremer 31 Conquering Global Markets Nancy A. Hubbard 46 Building Resilience for Success Cary Cooper, Jill Flint-Taylor and Michael Pearn 54 How Excellent Companies Avoid Dumb Things Neil Smith and Patricia O’Connell

Palgrave Professional Business books are written by the best minds in business, combining topical writing, cutting edge research and strong industry case studies. In this sampler we have included chapters from our recently published Management and Leadership books. From the aspiring leader to the experienced CEO, these essential books will help you overcome challenges and lead teams and organisations with confidence. To order any of these books, please visit www.palgrave.com and enter the promo code WORLDPALGRAVE20 to receive a 20% discount.


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9781137264251 | August US / July UK 2013 $40 | $46 CAN | ÂŁ26 Hardback | 188 pages

Based on unique access interviews with leading chairmen and senior executives, All Above Board examines the key functions of the ideal 21st century board, how and why badly led boards fail, and what changes can be made to improve board behavior and efďŹ ciency for best practice.

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4 • An Excerpt from All Above Board

CHAPTER 2

The board of the future

The board of directors: the ‘hidden asset’ Should the boards of Lehman Brothers, Bear Stearns, General Motors, Northern Rock, Saab Automobile, Beyond Petroleum and others have been able to avoid the disasters that subsequently hit these corporations? Could their boards have been much more proactive at an earlier stage so as to lead the companies into different and more sustainable strategic avenues and business models? Although it is obvious that the boards alone cannot be blamed for these crises, we can debate whether they should have been able to guide the corporations into strategic actions and paths to prevent it from occurring in the first place. In many corporations, the Board of Directors are simply not performing to their full potential. Observing the corporate board composition of most large companies around the world, it is clear that they consist of very prominent and experienced members, often with vast personal contact networks, management experience, customer inroads and indisputable skill sets. Why is it that this ‘Hidden Asset’ is not used to deliver the results it surely has the potential for? Are shareholders not paying enough attention to the performance of the board? Or are there built-in flaws in the internal procedures of the board itself that keep it from performing to its full potential? Perhaps the boards simply focus on the 6


An Excerpt from All Above Board • 5

The board of the future wrong things, too much on regulatory and legal issues, financial reporting and compliance issues versus too little focus on strategy and value creation, and challenging the CEO and his/ her top team’s strategy and goals.

One team In the ideal world, if we were free to design and find the optimal Board Team, we would look to a set of imperatives when making the selections: • Boards would appoint members who complement each other, bring key skills and expertise to the board and enhance quality and accuracy of decision making. Cultural and gender diversity should also be part of the profile definition. • Boards must make everyone understand that they all serve the interest of the Company; they are not selected to look after self and factional interests, and they must be committed to giving the CEO and his team their full support. • Boards must avoid involving members who cannot listen and/or who like to listen only to themselves. How many times are boards forced to sit in and listen to the ‘Monologue of Director X’ who can go on forever until another director or the chairman forces him/her to stop? • Boards must avoid drawing on the ‘Old Boys Network’. This network, when it exists, is often biased towards one industry, gender, geography, and so on. The board must stay clear from the ‘club atmosphere’ and develop high standards of professionalism and effectiveness. It also should stay free from ‘I’ll scratch your back if you scratch mine’ syndromes. • The relationship between the CEO and the chairman is a key imperative for all boards to promote; without a well-functioning chairman to CEO interaction, the board’s work is doomed to fail. Bearing in mind that the CEO reports to the chairman, as well as the fact that the ultimate responsibility of the board and thus its chairman, is to hire

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6 • An Excerpt from All Above Board

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All above board and fire the CEO, this requires that the roles and tasks of these two ‘captains’ must be clearly defined and executed upon. • Chairman and CEO should never be the same person. They must be assigned to two people with complementary skills and profiles, and with a personal chemistry that benefits their relationship. Finally, it is ultimately the task of the chairman to promote the ‘One Team’ spirit and modus operandi. By setting the standards and following up on individual board member performance, he/she can actively promote and build a board consisting of team players who set the Company’s interests first and their own aspirations and objectives later.

Agenda and strategy Far too often, board meetings are spent on issues far removed from what is of strategic importance to the Company. Meetings become filled up by operational items and with legal and compliance issues, and so on. Sometimes a whole board meeting can be devoted to presentations by many (sometimes all) of the top executives of the firm. These ‘Powerpoint Waterfalls’ can prove to be destructive for strategic decision making. Too many times the agenda is drawn up in haste without any strategic focus in mind. How many times are the same agenda items from the last meetings just copied over to be used for the next one? Many formal issues can be circulated and subsequently dealt with beforehand, such as legal and financial reporting issues. Here the board must require more proactive work from the CFO and the Chief Legal Officer respectively. The chairman seems to have the task to put together an agenda with a strategic focus, perhaps assisted by the President/CEO. However, it is important to stress that the chairman must not ‘abdicate’ the task of driving the agenda-setting process. The agenda determines the content and the quality of the board


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The board of the future meeting, and thus is imperative for the entire functionality of the board. This is a factor that is often overlooked and forgotten. The chairman must be prepared to say ‘no’ to requests for putting various non-strategic and legal issues on the agenda. This enables the board to stay focused on strategic decision making and not turn the meeting into a ‘discussion club’ lacking focus and without deliverables.

The committees Many boards today operate a set of board sub-committees such as the Nominating Committee, the Compensation Committee, the Risk Committee, and sometimes even a Chairman’s Committee. When structured and defined in the right way, committee work can be of great help for the chairman to leverage time to stay focused at the main board meetings. Committees can be both helpful and enhance the effectiveness of the board, including contributing to significantly better decisions. But committees can easily become isolated ‘silos’ giving themselves specific, and non-strategic, narrow mandates. The risk of creating unnecessary filters and bureaucracy cannot be over-stressed. Instead of freeing up and leveraging the time for effective board work, committees can seriously add to sclerosis and prohibit action-oriented execution of board decisions, which must be avoided at all cost. Our research indicates that in some cases, the Chairman’s Committee had become the real board, that is, where the real strategic decisions were being made. This can be a faster route to decision making, but it is risky, as it reduces the significance of the main board itself. The role and mandate of each committee must be made clear to everyone, and at all costs they must be stopped from becoming ‘silos’. We recommend that the chairman meets with each such sub-committee beforehand and that he/she gives a summary of

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8 • An Excerpt from All Above Board

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All above board the key recommendations to the board; not the sub-committee itself who could be expected to sometimes lose proper context. Overall, given that committees must be put in place as required by the law, they should be used intelligently. However, if we were to have our way, we would rather not have them at all.

Board and innovations Innovation is essential to the firm’s long-term success. Regardless of industry and business situation, businesses must constantly strive for innovations and new ideas to develop key products and services to target customer groups. Innovations allow us to charge higher prices. Innovations lead to growth and create the market by driving demand for new solutions. The board is essential to pushing for innovation. Often, the board satisfies itself that a certain amount is spent on Research & Development (R&D) and perhaps that a certain part of total revenue comes from new products. However, a healthy strategy calls for more. The board must ask and push for examples, and constantly discuss with the management team how the key products are being ‘innovated on’ to satisfy the target customer group’s requirements. These are the issues that should be on the board’s agenda. The discussion should not be on general long-term R&D, but rather on what is really ‘new’. How well are we meeting key customer’s demands for new solutions and services? This requires a thorough understanding of customer needs and a willingness by board members to learn more about key customers and their requirements, as well as their willingness to spend more on truly unique solutions. Successful board members tend to grasp the underlying customer economics, that is, how the solutions that the company is offering


An Excerpt from All Above Board • 9

The board of the future impact on the economics of the customer’s business model. How many times does the CEO bring board members to key customer meetings? Such initiatives should be part of every board member’s learning process when he/she joins the board of the company.

Challenge the paradigm A vital imperative for the board must be to challenge the way the company conducts its business, how value is being created, and how resources are being deployed. Are we really doing the right things? And, are they being done in the right way? The board must be prepared and willing to ‘think big’, to stretch the business beyond its traditional boundaries in terms of business model, performance goals, and so on. Most companies live under some form of reigning ‘paradigm’, the mantra through which its business is carried out. The best leaders tend to challenge such accepted ‘truths’ and continue to push for new and breakthrough initiatives. This is what we believe a board should be doing: to constantly challenge the paradigm, to stretch the limits and to strive for excellence in every aspect of the company’s business. This could imply developing new and disruptive business models, either from within the existing strategic scope of the company or let it emerge as a separate business model in a dual structure. Few boards seem to have the courage and conviction necessary to engage in such bold strategic moves. We have seen examples where the chairman is pushing his fellow directors to approach the boundaries of the business, to stimulate and encourage management to ‘think-out-ofthe-box’, and have achieved astonishingly good results. But it has been based on a high degree of mutual respect and exchange of views; typically, the board has been turned into

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10 • An Excerpt from All Above Board

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All above board a true ‘meeting place’ where ideas and views are being openly presented and debated, the challenger of the status quo is not being branded a ‘villain’ by his/her peers, but rather is shown respect and an open-minded reception of such suggestions for new and ground-breaking thinking. This is what we have seen happen at some truly world class boards, under the strong and visionary leadership of a non-conformist chairman. At the same time, many existing corporations are being challenged by new entrants adopting new and disruptive technologies, and sometimes entire new business models. We see this happening in financial services, airlines, retail, and other sectors. Again, the board must act as a catalyst for new thinking and constantly challenge its CEO and his/her team to be watching out for these ‘new kids on the block’. There are too many examples of how strong companies have been brought down because of lack of insight about new trends and ideas; how they miss out on being a ‘learning organization’ and live on based on their past successes. Here the chairman has a great responsibility to foster a never-ending search for strategic excellence.

Pursuing the performance-based culture: creating the ‘gap’ There is a clear pattern that many boards tend to be satisfied with the existing way things are being done, as long as the performance of the business is in line with what other comparable businesses are doing. Yet, truly successful companies go beyond that and their boards tend to be asking for even more all the time. They are never satisfied to be ‘as good as the best’. As one chairman put it to us: ‘Benchmarking is for losers. The winners are those who create the Gap.’ This form of active and demanding leader is what makes the difference between winners and losers, those who create the ‘Gap’ and those who are satisfied in trying to fill it. But it is


An Excerpt from All Above Board • 11

The board of the future

not enough to never be satisfied and push for more; the board must be so well prepared that when it asks management to go back and improve their results and plans, it must understand more about why and how this could be done than sometimes even the management itself. This requires reliable and fast information along with its interpretation. This is the level of excellence that a board should strive for in a world-class corporation today. Only then will the constant challenging of the results presented by the CEO and his/her team lead to changes in behaviour and create world-class results. Such mutual respect exists in some of the successful boards we have observed creating superior results for the business that they are serving. This successful relationship starts with the chairman and his directors. They must themselves be high performers and deliver superior results in support of the CEO and his/her Team. When this happens, we have seen how the entire organization develops a culture of performance orientation. Values are aligned between the executive team and the board. Such a performance-based culture tends to remain with the organization even if the board is being changed. In effect, these corporations have shown a constantly superior performance. The culture of such ‘Gap’-creating organizations is characterized by focus on speed, action and results. Fast actions are being rewarded and become a natural element in the values adopted by these successful companies. Such ‘Quantum Leaps’ distinguish world-class companies from the rest and the winners from the losers. This can almost always be traced back to the board and its strong leadership. The next generation boards must focus on how to work better, by adopting a customer focus and by daring to challenge the eternal truths, the ‘sacred cows’ of the corporation it serves. Ultimately, implementing this is the task of the senior executive management, but the board’s role is to push for this.

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12 • An Excerpt from All Above Board

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All above board

Reality case A day in the boardroom1 The CEO and the Chairman are both sitting in the large conference room dedicated for the Group board meetings. They are putting together the last-minute reports to be attached to the board agenda document. They are also considering what to put under the agenda point ‘Other Items’. The deputy chairman enters the board room. He has been asked to present his suggestions for such ‘Other Item’ issues to be discussed at the very end of the meeting. Not because they were not considered important, but simply because the ‘Other Item’ point was always put at the end of the agenda and thus dealt with last. The CEO then tells the chairmen that he asked two of the major business area executives, who were not board members, to prepare a brief on the state of the business in each of them and present any important points for discussion to the board. Now, the chairman and CEO argue that there would not be enough time to deal with all of them at today’s meeting. Thus, the deputy chairman agrees to bring his suggestions back and present them at the next board meeting three months later. The deputy chairman is quite disappointed about this outcome, but accepts the decision. Obviously something important was about to be discussed, perhaps even decided, that related to the core business areas. The board meeting is scheduled to start at 9 AM. One by one, the other board members arrive. One board member has been travelling the entire night from the US West Coast, whereas one came in from another board meeting that he had attended in Mumbai. Both seem tired and show signs of jet lag. Finally, all twelve board members arrive, including the two union representatives. None of the directors is a woman. The


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The board of the future board of this large industrial group, one of the largest companies in Scandinavia, has allocated three hours for the meeting. Time is important so the agenda must be followed very strictly. The chairman opens the meeting and goes on to the first item, ‘Minutes from the Last Meeting’. Forty-five minutes later, this item is finally put to the minutes and the chairman goes on to Agenda Item number two; ‘Results for the 2nd Quarter 2011’. Here the CFO enters and starts handling the remote control for his long presentation, including eighteen slides. He goes through the quarterly results and asks the board to approve the results as they were presented. The CFO had sent out the financial results to the board members the previous day so they could have a chance to review the data. However, as most of them had been travelling to come to the meetings, this was not the case for all of them. As a result, the financial presentation and discussion takes almost forty-five minutes as well. The next item on the agenda is to approve a set of legal documents. These are presented by the Group Legal Officer. They relate to two foreign acquisitions where share purchase agreements have been signed subject to board approval. As with the financial reports, the legal department has sent the signed agreements to each board member ahead of the meeting. Nevertheless, the Group Legal Officer has to ask each board member for questions and comments. One board member, who previously had been critical to the proposed growth initiative for this specific business area, is occupied by the guarantees that were included in the acquisition agreements. He insists on a review of the warranties by another legal expert, as he views them as too weak for the purchaser, that is, this group. After a discussion, this request is rejected by the rest of the board. The agreements are approved. Now the Chairman suggests a five minute break. By the time the board reconvenes, it is already 11:05 AM. After the break, the CEO presents the head of the second largest business area of the group. He tells the board that they

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14 • An Excerpt from All Above Board

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All above board have prepared an overview of the strategic situation of the business. The business area head starts on what turns out to be a thirty minute presentation of his division. As this is the segment where one of the two acquisitions has been made, the board member who had previously expressed his concerns and objection to prioritizing this specific part of the group’s business again raises his voice. ‘I want this board to approve to appoint a strategy consultant to carefully review this business area’, he explains. ‘I have discussed with one of the world’s leading consulting companies, and they have agreed to submit a proposal to the board for a strategy review that they could start right before the summer holidays’. As everyone on the board was aware of this particular board member’s critical view regarding this business segment, they are not surprised, but still the Chairman did not expect that such a request would come up. Therefore, he is not prepared for such a proposal from this board member. As the discussion of the proposed strategy review lasts for almost a quarter of an hour, the Chairman has to take the matter to a vote. Time is running out and the end of the meeting quickly approaches. The result of the vote is a clear ‘no’ to the proposed study. The only director in favour of the motion is the board member proposing the study himself. With only ten minutes left of the meeting, the Chairman now moves on to the last agenda item, ‘Other Items’. Just one such item remains on the agenda as the two additional items prepared by the deputy chairman have already been removed from today’s meeting. Before the meeting went on to the Other Item issue, one senior board member who has flown in from the US that same morning, asks the CEO, ‘When is my taxi coming to pick me up for the airport?’ Finally, the last item on the agenda starts. The CEO presents his plans for engaging in a dialogue with a couple of private


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The board of the future equity firms regarding the possible sale of one of the six remaining business areas, at least of one of the two separate units forming part of the business area. This is a plan that had come out of the strategy meeting that the group board had held during the meeting earlier in the spring. No decision has been made, however, the CEO has prepared a preliminary assessment of potential valuation of the business, and is asking the board to approve of the appointment of an investment bank to be in charge of the divestment process. By the time the CEO finishes his presentation, the Chairman looks at his watch and has to finish the meeting. It is now 12:10 PM, and they are ten minutes late. One board member whose taxi had been ordered to pick him up at noon sharp, has already excused himself and left the meeting room. The chairman announces the time and place of the next meeting, and the board meeting is concluded with his wishes for a great summer for everyone. Everybody leaves the head office of the company in a hurry.

Lessons to be learned Reality case: ‘A Morning in the Boardroom’ • Important and relevant material must be documented and distributed well in advance of the meeting. • Only items pre-announced to the Chairman must be brought up during the board meeting session. • Individual board members cannot be allowed to use the board for his/her agenda. • Presentations by executive management must be focused and decision-oriented. • Start the board meeting with ‘Other Items’ (at least to try it out).

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9780230341890 | March US / April UK 2013 $26 | $30 CAN | ÂŁ16.99 Hardback | 256 pages

In Nice Companies Finish First, Peter Shankman, a pioneer in modern PR, marketing, advertising, social media, and customer service, proďŹ les the famously nice executives, entrepreneurs, and companies that are setting the standard for success in this new collaborative world.


An Excerpt from Nice Companies Finish First • 17

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What’s so great about being a niCe guy? “Be the change you want to see.” —Gandhi

n

ot too long ago i was standing in line at the airport waiting to check in. The whole experience of flying has been severely downgraded over the last 20 years, from glamor-

ous and exciting to dismal and depressing, not to mention inconvenient and uncomfortable. so i wasn’t really all that surprised to see the person in front of me, a normal-looking guy in a suit, throw a tantrum that would put an overly tired, sugar-infused three-year-old to shame. i know you’ve seen this before: Tantrum Guy wasn’t getting his way. Didn’t the airline rep know who he was? He should get the seat he wanted. Why wasn’t he getting bumped up to business class? everyone at the airline was a jerk. He was important. He had to get to a Vip meeting. The ticketing agent remained stoic during his unconstrained tirade.

978-0-230-34189-0_Shankman.indb 1

2/1/13 10:46 AM

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18 • An Excerpt from Nice Companies Finish First

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niCe CoMPanies Finish First

The most powerful leaders are almost always the role models for the change they seek.

We’ve all been witness to this kind of embarrassment at one time or another. i just shook my head, rolled my eyes, and briefly made eye contact with the agent. None of my fellow passenger’s perceived problems was the fault of the agent, who was, of course, just doing her job amidst her own problems, like bills to pay, an annoying supervisor, or a kid on the verge of becoming a teenager. still, Tantrum Guy didn’t give a thought to any of this. To him, the agent had ceased to be human and instead became the vessel into which he poured all of his petty aggravations and frustrations. in reality, the agent continued to be patient and polite, and then she dispatched him as quickly as possible, all while he continued to whine and complain loudly. “Well. . . . That sucked.” i smiled as i got up to her. “i give you a lot of credit for letting him leave with his teeth.” i grinned. “i hope your day gets better from here.” “Thank you, mr. shankman,” she said as she smiled back. “How can i help you today?” “oh, i just need to check in, and with any luck, you won’t have to deal with any more idiots of that caliber today.” and with that i was upgraded to first class. lesson number one: it pays to be a nice guy. second: always stand behind a pompous ass whenever possible. your niceness will be thrown into dramatic high relief.

There’s no way to institutionalize or “corporatize” niceness—it comes from the top person and permeates a place.


An Excerpt from Nice Companies Finish First • 19 What’s so great about being a niCe guy?

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let me tell you another story. i have a colleague who worked for a big corporation more than 20 years ago. That’s a lifetime in working terms. she had a boss who could be very cutting—it was a management style that defined her, in fact. she pitted the members of her team against each other so that they often worked at cross-purposes. That was bad enough, but the offhand insults she threw at them were perhaps the most harmful of all. Words sting. especially when they come from a supervisor. at any rate, one day my colleague was asked to re-do a report done by a person in another department. she took on the challenge and did her best. “i felt very proud of that report,” she said. “But when i showed it to my boss, instead of sensing my pride and thanking me at least for the effort, she said, ‘you’re not that good at this,’” referring to the analysis my friend had put into the report. “i carried those words with me for 20-plus years,” my friend told me. “They were always in the back of my mind, even though i had gone way beyond that job.” in fact, today she is a very successful consultant whose insightful analysis of markets is in huge demand. “one day i was minding my business, and my old boss wanted to friend me on Facebook,” she said. “i thought, okay, i’m curious. But i couldn’t help but be reminded of the way she had treated me—and my colleagues. i posted the revelation of how awful it had been on my page, without mentioning her name. even though she recognized herself and apologized, it seemed very hollow to me. What was more interesting was the many responses i got from Facebook friends—how it resonated. so many of us have been hurt by bosses, people who we want desperately to trust.” This isn’t an unusual story—carrying around the toxic spew of a bad boss affects too many people. The difference is that nowadays we have the chance to announce it to the world. These incidents got me thinking. i’m a serial entrepreneur, a ceo, and an avid student of brands and marketing, so i tend to

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20 • An Excerpt from Nice Companies Finish First

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niCe CoMPanies Finish First

look at life from a business perspective. it occurred to me that in business, one of the most demonized populations around (with good reason), nice people, actually can and do finish first despite the conventional wisdom that says you have to be a cold, uncaring bastard to succeed in the corner office. in other words, more and more, nice guys do win. That’s why i always take the first meeting and try to have five minutes for someone. you never know where that first meeting will lead, and you never know what can be accomplished in those five minutes. Understand—this doesn’t mean i get taken advantage of. i always tell people (with a smile): “Happy to answer a question you might have, but don’t ask me to write your marketing plan for you.” There’s a big difference between being nice and being taken advantage of. Good leaders know this and work accordingly. if you look under the hood of successful companies, you’ll find that they are made up of people working together in an atmosphere that is conducive to civility and good cheer. There’s no way to institutionalize or “corporatize” niceness—your Hr department is never going to come up with a management structure that magically creates a collegial atmosphere. it has to come from the top, and from there it will filter down through managers, supervisors, staffers, and so on (the same can be true of a negative atmosphere). i’m not just talking about making your business the top in its sector, exceeding sales expectations, or making boatloads of money. First of all, nice ceos can (and do) make great business and plenty of dough (richard Branson at Virgin, shantaul Narayen at adobe, and Kenneth chenault at american express, to name a few). Nice guys have a constant competitive advantage over their nasty counterparts, as illustrated by my airport story. Versions of that same scenario play out every single day, and not just in terms of the ceo who yells at his assistant, but also with the ceo who refuses to answer shareholder questions, who


An Excerpt from Nice Companies Finish First • 21 What’s so great about being a niCe guy?

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cheats employees out of bonuses, or who treats stakeholders and the community like dirt. There’s a growing body of research indicating that bad bosses hamper productivity, which results in smaller profits and lost business. University of Florida researchers found that people who work for abusive bosses are more likely to arrive late, do less work, and take more sick days even though they may be physically fine. Wayne Hochwarter, an associate professor of management at the Florida state University college of Business, and his colleagues interviewed more than 700 people from a variety of industries about the treatment they received from their managers. The results were dismal: • 31 percent reported that their supervisor gave them the “silent treatment” during the year. • 37 percent said that their supervisor failed to give credit when due. • 39 percent noted that their supervisor didn’t keep promises. • 27 percent told the researchers that they had discovered that their supervisor made negative comments about them to other employees or managers. • 24 percent reported that their supervisor invaded their privacy. • 23 percent indicated that their supervisor blamed others to cover up mistakes or to minimize embarrassment. according to the researchers, this kind of employee–manager abusive relationship resulted in a workforce that “experienced more exhaustion, job tension, nervousness, depressed mood and mistrust.” These workers were also less likely to take on additional tasks, such as working longer or on weekends, and were generally less satisfied with their jobs. also, employees were more

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22 • An Excerpt from Nice Companies Finish First

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niCe CoMPanies Finish First

likely to leave if they were involved in an abusive relationship than if they were dissatisfied with their pay—proving the old maxim that people quit bosses, not companies. Ultimately, strong leadership is the most important competitive advantage companies have—it comes first, before technology, finance, operations, and everything else. “Nice” ceos and managers are the best leaders: run better companies, attract innovative and more loyal employees, get into legal and regulatory trouble far less frequently (if ever), have better relationships, get more done, and are even healthier than the bad guys. and i can prove it. in this book, i identify nine “nice” characteristics. i talked to dozens of ceos, entrepreneurs, and other leaders who embody these traits and practice them actively to very profitable effect. my hope is that i can encourage a whole new generation of ceos, managers, and entrepreneurs to embrace their inner nice guy (or gal) and make it the hallmark of their business life. Who knows? maybe a few Tantrum Guys will even change their attitudes. read on. let’s learn about these traits—Do you identify with any of them, either positive or negative? Do you see yourself as a “good” ceo or a “bad” ceo? more important, how do your employees see you? one last story: i was sitting in a meeting with a ceo a few years ago when an administrative assistant walked in, caught her foot on a piece of rug that had curled up, and went down like a lead balloon, taking with her about 200 collated but not stapled pages. The ceo, in his thousand-dollar suit, jumped up and sat on the floor with the admin, picking up and re-collating papers for the next ten minutes. We all joined in as well. end result? No harm, no foul, and no injury to anyone’s pride. That ceo had his company acquired for about $600 million last year. Not bad for a guy sitting on the floor collating papers.


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9781137290267 | July US / June UK 2013 $32 | $46 CAN | ÂŁ19.99 Hardback | 146 pages

Too many decisions are taken too slowly or not at all because of the dithering behavior of our leaders. Using case studies of well-known leaders, David De Cremer explores decisions they have made and actions they have taken to show where procrastination and inaction has caused failure, and what can be learnt from these examples. Full of practical checklists and tools, The Proactive Leader explains why people delay decisions, and how to manage this behavior in yourself and your teams. Order at www.palgrave.com. Enter code WORLDPALGRAVE20 to receive a 20% discount.


24 • An Excerpt from The Proactive Leader

C HAPTER 5

The consequences of delaying decisions We all want to make progress. We humans are learning organisms and we have a tendency to evaluate our existence in terms of growth and profit. Finding the strength to continually improve is therefore one of the things that we look for in life. Any opportunities that present themselves must be seized with both hands. It is built into our DNA that we want to go further, faster and higher. Viewed from this perspective, it is little wonder that a failure to take decisions is equated with failure and ineffectiveness. Procrastination and avoidance are not compatible with our fundamental human instinct to keep moving forward. Leaders who are unable to satisfy this basic instinct will not be long tolerated in their role as representative of the group. If you cannot win approval and support from your followers, your career as a leader is destined to be a short one. Procrastination can indeed lead to all kinds of unpleasant consequences for a leader, ranging from financial difficulties to career and health problems. Just as seriously, the delaying or avoidance of decisions can have far-reaching consequences for followers as well. But what exactly are these consequences?

Financial consequences It will come as no surprise to learn that people who have difficulty in controlling their impulses often end up with financial problems. The relationship between an inability to act and negative financial consequences is clearly present in our society. A famous study conducted in Chicago provided direct proof that a tendency to procrastinate undermines your financial results.96,97 In this study of a group of MBA students it was found that they had the possibility to win 300 dollars by playing a series of games. Once the games were over, the students were given a choice with regard to their winnings. They could 85


An Excerpt from The Proactive Leader • 25 86

The Proactive Leader either immediately receive a cheque for the 300 dollars or they could wait for two weeks, in which case they would receive a larger amount. Most of the students took the first option – immediate payment. There was nothing wrong with this, of course, but it was curious to note that these students, who wanted their money up front, then took an average of four weeks before actually cashing their cheque in the bank! If they had waited just two weeks they would have automatically got a larger sum from the test organisers, but the majority rejected this offer. This would have been a perfectly rational strategy, if they had cashed their cheque immediately, but by postponing their action they actually lost out financially! Your financial strength can also be diminished if your career does not run as smoothly as you had hoped. In his excellent book about procrastination, Piers Steel observes that people who delay decisions or put off action are generally less successful.98 The large majority of procrastinators (63%) perform under the average level for what can usually be regarded as a successful career. In other words, leaders who procrastinate will in general perform less well than leaders who can resist or control this temptation. For this reason, it is vital that leaders who have the opportunity to grow within an organisation are coached in a manner that helps them to understand the importance of self-control as a key element in their leadership make-up. Another way of demonstrating that procrastinating behaviour can have serious financial consequences is to look at the costs it creates for society. Let’s take, for example, the negative results of such behaviour for organisations in European countries like Belgium and the Netherlands (for organisations in the United States, see the excellent book by Piers Steel). The findings alone are staggering. If we look at the total working population in both countries and then calculate their average earnings on the basis of an eight-hour day, the figures tell a sombre story. Based on statistics for 2010, there were 7,785,000 people at work in the Netherlands, with an average gross annual salary of 34,600 euros. The average number of working hours per year was 1703 hours. The researchers estimated that for each 8-hour day, no less than 25% of the time – 2 hours per day or 414 hours each year – is spent exhibiting procrastinating behaviour. A little simple arithmetic tells us that the average gross salary per hour in the Netherlands in 2010 was 20.31 euros (34,600/1703), and that the total cost of procrastinating behaviour was therefore 8408.34 euros per employee (20.31 × 414) or 65,458,926,900 euros (8408.34 × 7,785,000) for the nation

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26 • An Excerpt from The Proactive Leader

The consequences of delaying decisions

as a whole. And what of their neighbours? In Belgium in 2010 there were some 3,859,000 people in active employment, earning an average gross salary of 35,232 euros. Using the same parameters of 1703 working hours per year and 2 hours of procrastinating behaviour per day, this gives a total annual loss of a massive 33,038,905,680 euros. And in both cases, these are conservative estimates – the real costs are probably much higher.

Health The postponement of decisions can perhaps give a feeling of relief and a short-term benefit to health, but in the long run it will have a negative effect on the physical and mental well-being of leaders. People have an automatic focus on the short term and frequently react to the feelings that they are experiencing at any given moment. In contrast, there are very few people who automatically consider their needs and wishes over the longer term. This is unfortunate, since if you find yourself trapped in the spiral of postponement and avoidance, this will ultimately lead to greater stress. Procrastinators consistently suffer from a higher incidence of colds, flu and insomnia. Even if you postpone a decision, you cannot eliminate the tension associated with the making of that decision. The uncertainty will remain and you will continue to worry about how things will turn out in the future. There may be some initial relief, but the problem will not simply go away and will soon return to haunt you, usually in a manner that weighs far more heavily on your health and your conscience than first time around. But the consequences are not just psychological – they can also be physical. There is solid evidence to show a clear connection between procrastination and increased levels of stress.99 If you analyse the decisions you are required to make each week, you will probably conclude that your worst feelings are not the result of the total number of decisions you are asked to make but that they have their origins in the more limited number of decisions you put off – and then worry about. This type of stress can have a damaging effect on your immune system. And if your immune system is under pressure, this can lead to sleepless nights, bad eating habits and lower levels of bodily resistance and recovery. If this is allowed to persist for any length of time, a process of escalation can lead to serious long-term harm. To make matters worse, procrastinators are not the type of people who will readily visit a doctor unless it is unavoidable – by which time the damage is often already

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An Excerpt from The Proactive Leader • 27 88

The Proactive Leader done. In other words, they even apply their procrastination to their own health! By refusing to face up to the problem, possible remedial action is not taken, so the levels of stress and nervousness increase still further – and so the vicious downward spiral into illness – and possibly worse – continues. Another possible consequence of procrastination is alcoholism. A build-up of postponed decisions may lead some people to seek other ways to relieve the pressure they feel. One of the most ‘popular’ methods of doing this is the consumption of strong drink. Because they are poor in self-regulation, procrastinators are much more likely to hit the bottle than the rest of us. This means that if they drink, they are less inclined to drink with moderation. And once they start drinking to relieve stress, they will react so impulsively and so uncontrollably that they will drink more than is good for them. This often results in alcoholism, which is not only damaging to your health but also to your relations with others. Excessive use of alcohol can lead procrastinators to behave in an increasingly aggressive and emotional manner, so that they are no longer motivated to accept their responsibilities. Conflicts develop more quickly than in normal circumstances and the means to resolve them become harder and harder to find. This tendency towards alcoholism – particularly if you are a born procrastinator – can rapidly destroy the atmosphere and team spirit in your group, so that your legitimacy as a leader is in danger of being challenged. Before long, you may even lose your right to speak on behalf of your own followers. A less obvious consequence – but nonetheless a real possibility – is that procrastinating leaders gradually become more and more isolated and lonely. The alcohol again plays an important role, by driving people away (nobody likes a drunk), but the irritation and incomprehension caused by the constant postponing of necessary decisions is also a key factor. Very few people are willing or able to find sympathy for this dilatory approach. This again increases the likelihood of conflicts and conflicts lead to a polarisation of opinions, which force the contending parties further and further apart. Soon the leader will find himself on one side of the dividing lines and most of his followers – if not all of them – on the other side. And it hardly needs to be emphasised that loneliness and isolation are also bad for people’s health. In particular, loneliness has a negative effect on self-regulation. Lonely people have more difficulty controlling their impulses. They will be inclined to drink more, eat badly and neglect proper exercise. There is also evidence that loneliness can also have harmful effects on the immune system, increase

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28 • An Excerpt from The Proactive Leader

The consequences of delaying decisions blood pressure and heighten the risk of heart disease.100 In these circumstances, stress and depression are often just around the corner.101 The fact that people no longer have social contacts with others influences the chemical processes that decide whether or not loneliness will have a negative effect on one’s overall health. Depression is a chemical reaction that means we no longer derive pleasure from our daily activities. Everything seems pointless and this feeling simply strengthens any existing tendency towards procrastinating behaviour, in the hope that everything will seem better ‘tomorrow’. Unfortunately, this is almost never the case, so the negative spiral becomes ever deeper and our reactions more desperate and panic-stricken. To break this negative relation between procrastination and ill health, it is important to take good care of yourself in all areas of your life: 

Build healthy, lasting, genuine – and not virtual – relationships with others.



Make sure that you get enough sleep. Eat healthy and take enough exercise. Away from your work, make sure that you do things that you enjoy doing. We all need a release valve, a chance to express ourselves and be who we really are. Devote enough time and attention to your intimate relationships with your partner, family and close friends.

 

 

Try to give the things in which you believe a central place in your life.

The cost to others Leaders who regularly postpone decisions do little to promote cohesion within the group that they lead. It is noticeable that people who are led by procrastinators often complain of feeling frustrated. In the long run, this negative emotional situation within the group will result in less constructive behaviour. This might express itself as resistance to the wishes of the leader, a withdrawal of trust or an open display of mistrust, all of which might eventually persuade some people to even leave the group. The negative consequences for the functioning of teams and organisations stem from the fact that the implicit psychological contract

89


An Excerpt from The Proactive Leader • 29

The Proactive Leader

90

Leader decides to delay decisions

Perception that the leader does not take up his/her responsibilities

Psychological contract breach

Outcomes: – Less cohesion – Less commitment by the followers – Distrust – People leaving the group

Figure 4 Social consequences of leaders’ delaying decisions between the leader and his/her followers has been broken by the leader’s failure to take action (see Figure 4). This contract implies that the person who accepts the position of leader also accepts the responsibility of actively pursuing the interests of all the members of the group. It is almost as if the leader makes an unspoken promise to move the organisation forward, to the general benefit of all concerned. But there can be no progress without action and no action without decisions. Procrastinating leaders are therefore in breach of the trust given to them by their followers. The leader’s promise means that the followers can reasonably assume that the leader is worthy of their trust and that he will not damage their interests.102 They believe that the leader will feel uncomfortable and guilty if he/she does not keep his/her promises and that consequently non-compliance with the implicit or explicit agreements between the leader and the followers will weigh heavily on the leader’s shoulders. This leads to the further assumption that the leader will not behave in a manner that runs contrary to his/her promise. Even so, procrastination is becoming more and more common as the years go by – certainly much more common than we would all like – and this is resulting in a growth of negative feelings in a whole range of environments.

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30 • An Excerpt from The Proactive Leader

The consequences of delaying decisions In view of the above reasoning, it is important that leaders should be made more aware of these implicit psychological contracts with their followers. Leaders are not always fully familiar with the full range of responsibilities that they are expected to carry. This means that they will not be rationally capable of making an accurate assessment of the hopes and fears of the people they purport to represent. To allow this to become more apparent, it is necessary for leaders to create a culture of maximum transparency, where the giving and receiving of feedback is built into the DNA of the group.103 This approach can help to ensure that the expectations of both sides – the leaders and the led – are more or less attuned to each other. In addition, it is also vital that leaders should be prepared to learn the skills and competencies that will allow them to deal with crisis situations – such as the moments when, for whatever reason, they lose their follower’s trust. As mentioned earlier in the book, every leader will display procrastinating behaviour from time to time – no one can ever eliminate it completely. The fact that this type of behaviour has a negative impact on mutual trust means that leaders must know what action they can take to win back this lost confidence – and fast. It is crucial to identify the breach of trust as soon as it occurs and to take corrective action as quickly as possible. The longer the mistrust persists, the deeper it will become. For this reason, action to restore confidence must be taken immediately and must appear spontaneous.104 It is also important when taking this action that the leader makes clear that he/she knows why the bond of mutual trust has (temporarily) been weakened. If you admit that something has gone wrong and own up your mistakes, your followers will at least see that you understand where the root of the problem lies. Once this has been clearly communicated, the next step is to detail in an open and competent manner the steps that need to be taken to put matters right and how this will be accomplished. These points are worth repeating: you need to recognise that a breach of trust has occurred and then outline the actions that will restore that trust. Doing just one without the other will not work. If your deeds fail to match your words, you will soon acquire a reputation as an inconsistent and unreliable leader. And when this happens, you will never be able to recover your followers’ lost faith in you.

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Conquering Global Markets offers assessments of the issues, statistics, cases, and best practices of mergers, acquisitions, joint ventures and alliances throughout the world. Using information gleaned interviews with CEOs, Nancy Hubbard, a leading expert on acquisition, provides insights into making global M&As successful.

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32 • An Excerpt from Conquering Global Markets

2

13

Trends in Globalization

Introduction The pattern of globalization has been a topic of debate for 40 years. The events toward the end of the twentieth century spurred on a dramatic acceleration of globalization that had yet to be seen on a global stage. This chapter will review those events, their impacts, and the various theories of globalization in light of the study participant’s experiences. In addition, four trends that are currently unfolding in globalization will be further examined.

The facilitators of globalization The end of the twentieth century saw a dramatic transformation of the world’s corporations, which had an enormous impact on globalization. This was caused by several factors that are grouped into three subcategories: political, technological, and economic.

Political Several key changes in the political landscape facilitated global organizations as they extended their global reach. The first of these was the fall of the former Soviet bloc. This act, while political in nature, had massive economic implications (Harvey, Kiessling, and Novicevic, 2003). Not only did hundreds of millions of potential consumers become available, the privatization of former Russian state-owned enterprises led to the rise of asset-rich Russian corporations especially in the natural resource and infrastructure industries. They in turn instantly became world players as well as potential venture partners. The most obvious of these are Rosneft, Lukoil, and Gazprom, all of which rank in the world’s top 20 oil companies, and were partly privatized and are still at least owned in part by the Russian government (Pravda, 2009). The second major political event that transformed the global marketplace was the relaxation of trade relations with many previously closed or restricted markets. The most notable of these, of course, is China that is discussed in more detail in Chapter 10. The 2001 admittance of China into the Word Trade Organization signaled a concerted change in the


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Chinese government’s philosophy toward capitalism. The sudden inclusion of over one billion Chinese consumers combined with the Chinese government welcoming low-cost manufacturing spurred a massive influx of foreign investment into China and the region as a whole. The end result was threefold: new market opportunities for many globalizers, cheaper manufacturing centers for the same, and a burgeoning assortment of newly developed nation’s corporations who were laying the foundation to expand internationally. A third political factor was the formation of the European Union economic zone (1994) and ultimately the Euro zone (1999), which spurred on an acquisition wave within European boundaries. A host of cross-border acquisitions occurred in anticipation of European political consolidation. The net result was a rapid increase in the amount of cross-border European acquisition activity thus creating larger multinational organizations and further opportunities (Coeurdacier, DeSantis, and Aviat, 2009). The final major political trend that transformed the international landscape is related to both of the first two—that is, the wholesale semiprivatization of national assets in many developing world economies. These newly commercialized businesses came with preferential government relationships and excellent sources of funding, as many were still owned in part by the sponsoring government. State-owned enterprises (SOEs) are those “enterprises comprising parent enterprises and their foreign affiliates in which the government has a controlling interest (full, majority, or significant minority), whether or not listed on a stock exchange” (UNCTAD, 2011, p. 28). The level at which one defines a “controlling interest” differs: a generally accepted view is that occurs when the government owns more than 10 percent, is the largest single shareholder, or if it can actively dictate the organization’s strategic direction (ibid.). Interestingly, while there has been quite a concern over the ownership of emerging nation SOEs, the vast majority of the world’s largest SOEs (including the largest 12) come from developed nations (see Graph 2.1 given further). What all of these enterprises share, however, are extensive resources and are becoming increasingly confident on the international stage.

Technological Simultaneously, while markets were opening up, changes in technology facilitated the growth and complexities of international businesses into far-flung geographies. The reduction of transportation costs shortened product life cycles, meaning that manufacturing in lower-cost locations became a viable alternative to local manufacturing (Harvey, Kiessling, and Novicevic, 2003). In addition, the increase in communication ease made managing complex globalizers possible. Only a generation ago, the ability to manage a retail behemoth the size of Walmart’s 2.2 million employees in over 10,000 retail units in 27 countries would have been impossible.

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34 • An Excerpt from Conquering Global Markets 2  T RE N DS IN GL OB A L I Z AT I ON

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Economic The economic factors that led to the increase in globalization are too numerous to be addressed in this book. However, they include universality of production, differences in production costs between countries, technology transfers, and a growing population in certain parts of the world (ibid.). In addition, rising wage costs of developing nations caused their corporations to seek cheaper manufacturing bases often in the formerly off-limits developing world economies. This in turn led to a rise in the available incomes of those manufacturing centers and made them more attractive domestic markets thereby creating a spiral of production being increasingly allocated for the domestic market share growth and less being allocated as export. Simultaneously, diversified conglomerates from the developed world increasingly began to fall out of fashion. Research has shown, with some notable exceptions, that Anglo-Saxon and European diversified conglomerates underperform their single industry counterparts (Christensen and Montgomery, 1981). Markets began to realize this and increasingly favored those organizations in related industries. This change in investor attractiveness has led to a realignment of organizations along related industries. Interestingly this move away from diversification does not apply to all geographies. Japanese global companies continue to operate in a focused conglomerate format and see global success and investor favor. Conglomerate formats from the developing or newly developed world are seen as the norm as demonstrated by the rapid growth and globalization of the South Korean and Indian giants such as Aditya Birla Group, Tata, Samsung, and Hyundai.

Trends in globalization The combination of economic, political, and technological changes fundamentally reshaped the global corporate landscape, and with it triggered four main trends: globalfocussing; rejection of globalization; the changing role of mergers and acquisitions for overseas expansion; and the changing nature of the global investor, including the emergence of the SOE and private equity buyer.

Globalfocussing The first trend witnessed is a refocus and shift in global organizations from a more diversified perspective into a far narrower industry focus with the organization’s objective of replicating the process throughout the world (Meyer, 2006). Rather than promoting business diversification in a geographic area, organizations increasingly moved to promote geographic diversification


An Excerpt from Conquering Global Markets • 35

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CONQ U ER I N G G L O B A L M A R K ET S

with a narrower product offering. This shift has been termed “globalfocussing” and is marked by “shifts in the relative importance of country-specific and industry-specific resources and capabilities due to changes in the international and external environment, notably the globalization of markets and supply chains,” and this is shown in Diagram 2.1 (Meyer, 2006, p. 1109). As will be discussed later in this chapter, the survey results concur with this perspective; this is seen as one of the major trends impacting global businesses today. This change in focus from industrial diversification to geographic diversification has led to some dramatic shifts in the international landscape. It is not unfair to say there has been a wholesale reorganization of many of the world’s largest organizations that in turn has fueled 15 years of merger activity with transactions increasingly occurring in less traditional corners of the world. At least part of the 1999–2006 merger mania was fuelled by a surfeit of attractive targets as the developing world’s financial markets decidedly turned against the idea of diversified conglomerates. The fall from grace of diversification combined with the increase in available markets led to a wholesale demerging in many large “Western” multinationals. For example, in 2001 over one-third of the UK’s largest listed companies were demerging along industry lines while simultaneously looking for related industry targets (Hubbard, 2001). This led to a great number of divestments that became attractive acquisition and merger targets for other multinationals trying to solidify their positions in their specific industries.

Diversification HIGH

Domestic single industry

Country specificity Globalfocussing LOW

Internationalization

LOW

HIGH Industry specificity

Diagram 2.1 Globalfocussing Notes: The figure describes country and industry specificity of resources. The arrows indicates change induced by liberalization and globalization of industries. Source: Meyer (2006).

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36 • An Excerpt from Conquering Global Markets 2  T RE N DS IN GL OB A L I Z AT I ON

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Research at the time gives a clear snapshot of the reasoning behind what is called the Millennia Merger Wave. A survey that dates from 2001 found that 37 percent of large organization mergers and acquisitions were occurring for “over capacity”—companies were buying direct competitors of the same geography and merging the organizations together to reduce costs through economies of scale and take out a competitor (Bower, 2001). The addition of a product line to the existing product offering accounted for 36 percent of acquisitions. Geographic extension—moving into a new market— was only 9 percent (ibid.). As will be seen in this research, the reasons why acquirers are buying now is completely different—they are buying to enter new geographies. The 9 percent of geographic extension is now more likely 42 percent. Thus there is a shift from cost-saving acquisitions where there is enough overlap in which to remove duplicate costs to geographic expansion where there is little if any duplication of functions to combine. As will be seen, this research found that globalizers are pursuing top-line growth as their primary objective in their march toward global market positions rather than economies of scale cost savings.

A retrenchment to global expansion While the vast majority of those interviewed continued to pursue globalization, a significant handful had reined in their global expansion plans and instead focused on a specific geographic region rather than the world as a whole. Lonrho and Standard Bank had focused their operations on the African continent. Standard Bank have publicly stated that, while they will not be selling their assets that are not located in Africa, they are concentrating their efforts and resources on retaining their standing as the largest bank on the African continent. Santander have also concentrated their efforts in those markets in which they already have a commanding presence, including in significant parts of Europe and Latin and South America while divesting operations that fall outside of that remit. As will be seen in Chapter 8, Tele2 reduced their international exposure from 25 countries to 11 in order to organize their efforts in a more concentrated regional strategy. The reasoning for regional focus is not unlike those globalfocussers who narrowed down the diversity of their product offering and then expanded geographically with the hopes of gaining significant global presence in a narrower industry. These organizations are focusing their efforts in those regions where they are able to be market leaders and parlay that into organizational strengths and competitive advantage knowing that they don’t have the size or benefits of doing this on a global scale. As the representative of one of the companies in our survey commented, “I don’t think the benefits of being global are worth the effort.” In 2011, GDF Suez decided to forgo a global footprint and concentrate their management’s attention on a European growth strategy. As part of this, GDF Suez spun off their international assets into a merger with


An Excerpt from Conquering Global Markets • 37 18

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International Power plc, a listed UK energy company while retaining 70 percent of the combined organizations’ shares. The combination, however, meant that GDF Suez’s international management remained separate from their pan-European business. Recently, however, GDF Suez committed to buying the outstanding 30 percent of their merger partner’s shares to fully take back control of the combined international business.

The changing nature of merger and acquisition The third key trend is a change in the use of acquisition as a vehicle for growth, including the rise of the transformational transaction, the drop in use of hostile acquisition as a vehicle for taking control, and the changing origination of global acquirers. The late 1990s saw an exponential rise in the use of large-scale consolidation via mergers and acquisitions, which led to the advent of the Millennia Merger Wave that occurred between 1998 and 2007. Prior to 1996, the largest merger in history was the 1988 purchase of RJR Nabisco by KKR at $25 billion. In just 15 years, 100 others had surpassed it in value, including over 5,000 $1 billion or more transactions. What makes the merger activity of the past five years so significant to globalization, however, is its transformational nature, the fall of hostile acquisition activities, and from where the corporate players originate. Firstly acquisitions have increasingly been used in a transformational capacity especially in terms of quickly extending a corporation’s geographic footprint. Cadbury Schweppes, for example, entered the South American market with their purchase of Adams from Pfizer in 2002: this being an example of the pharmaceutical giant shedding one of their noncore businesses—globalfocussing (see Case 7.1 of Chapter 7). As Sir Roger Carr, former Chairman of Cadbury Schweppes noted, “Had we not done the Adams acquisition, Cadbury Schweppes would look very different now.” The advent of globalfocussing meant that some very significant divestments have taken place, meaning for another globalizer the ability to make a significant merger or acquisition. As will be seen in Chapter 7, a significant number of globalizers interviewed acquired key related businesses because of this. Secondly, during the late 1990s and early 2000s, organizations seemed more willing to use hostile acquisition as a means of taking corporate control. Even so, less than 5 percent of public deals were hostile acquisitions (UNCTAD, 2000). The most famous is the largest acquisition in history: the $200 billion acquisition of Germany’s Mannesmann by Britain’s Vodafone that played out as an acrimonious cross-European affair. The implications are that one didn’t need mutual consent in order to grow the business. This trend seems to be abating in recent times, however, with fewer large-scale hostile acquisitions taking place. There are notable exceptions, however, including the bitter takeover of Cadbury Schweppes by Kraft in 2010. This may be linked to the increasing number of large-scale acquisitions occurring

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38 • An Excerpt from Conquering Global Markets 2  T RE N DS IN GL OB A L I Z AT I ON

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in the developing world where hostile acquisitions are very rare in part due to cultural differences and also family ownership structures (UNCTAD, 2010). On a global basis this shift shouldn’t be surprising. When one is acquiring for consolidation of assets and economies of scale benefits, employee retention is less of an issue as there is considerable duplication of skills. With the current push of using acquisition to enter new markets, there is little duplication of effort, and therefore employee retention becomes critical. In fact, the KPMG study of 162 companies found employee retention to be the joint highest HR concern after a cross-border acquisition. It is discussed in more detail in Chapter 7.

The changing nature of the international investor Part I

The emerging market internationalizer

The final and perhaps most important trend currently being experienced in globalization is the changing nature of who is globalizing. In the past 20 years we have seen the rise of the emerging world globalizer (EWG). In the past, the world’s largest organizations have been dominated by developed nation organizations; however, this trend has been slowly changing. Increasingly emerging world organizations have been entering the ranks of the world’s largest transnational organizations. Between 2001 and 2004 on average there were six EWGs among the list of the world’s 100 largest quoted companies. By 2006, this number had jumped to 18 and it has remained relatively steadily at this position. Using the list of largest quoted companies is an imperfect science as it excludes some of the world’s largest organizations that are either state owned (e.g. CITIC), privately held (e.g. Cargill), sovereign wealth funds (e.g. Abu Dhabi Investment Authority), private equity funds (e.g. Kohlberg Kravis Roberts), or pension funds (e.g. Norwegian Government Pension Fund), all of which have been making significantly more foreign investments. It is, however, a telling indication of the increasingly diverse makeup of transnational organizations. Another indicator of globalizer diversification is the pursuit of largescale acquisitions to fulfill organizational objectives. The nationalities of those organizations pursuing mega deals, those with a value of over $1 billion, have changed quite dramatically during the past few years as seen in Graph 2.1. As can be seen in Graph 2.1, the number of mega deals clearly reflects the global economy. The impact of the 2001 World Trade Center bombing and the war in Iraq can be seen in the lower activity of 2001 through 2004 and the economic downturn for the developed world can be seen in the lower figures of the decade’s end. Even during these downturns the composition of transactions was changing. Between 2000 and 2003 emerging world companies acquiring into the developing world accounted for less than 1 percent on


An Excerpt from Conquering Global Markets • 39 20

CONQU ER I N G G L O B A L M A R K ET S

800 700 600 500 400 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 EA/ET

EA/DT

ET/DA

DA/DT

Graph 2.1 Size and participants’ nationalities of acquisitions greater than $1 billion Notes: EA = Emerging world acquirer ET = Emerging world target DA = Developed economy acquirer DT = Developing economy target Source: Raw data provided by Thompson Financial.

average of all mega-deal transactions. In the latter half of the decade, EWG averaged almost 6 percent of transactions. Their involvement as either an acquirer or target of mega deals went from being less than 10 percent in 2000 to roughly 30 percent by 2012 (see Graph 2.2). Some of this was in all likelihood fuelled by the timing of the economic downturn—the emerging world did not experience the same degree of downturn as the industrialized world, thereby creating a window of opportunity that many emerging nation corporate acquirers exploited (UNCTAD, 2010). In addition, the newly privatized industries of many emerging nations meant that attractive targets were surfacing all over the world. The geographic diversity of acquirers also changed quite dramatically during this time frame. We saw the first mega transactions involving acquirers from Papua New Guinea, Kazakhstan, Angola, Uganda, Chile, and Nigeria (see Table 2.1). The amount of large-scale acquisition activity from some of these countries is quite surprising. For example, Kazakhstan corporations made 11 acquisitions of over $1 billion each during a five-year period beginning in 2007.

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40 • An Excerpt from Conquering Global Markets 21

2  T RE N DS IN GL OB A L I Z AT I ON

40 35 Percentage

30 25 20 15 10 5 0 Both target and acquirer from the developing world

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 4.3

Developing world acquiror 1.6 Developing world target

3.3

4.3

7.1 11.7 4.3

6.5

8.8

9.3 13.9 23.8 19.2 21.7

3

2

0.5

2.8

2

3.1

5.9

6.7

5.2

5.5

4

3.6

3.6

2.3

2.5

6.9

5.8

4

5.4

7.1

4.9

7.6

Year

Graph 2.2 Percentage of emerging market globalizers in M&A mega deals worth greater than $1 billion Source: Raw data provided by Thompson Financial.

Table 2.1 Total mega-deal acquisitions between 2007 and 2011 featuring emerging market countries Acquirer’s Country of Origin

Total Number of Mega Deals

Acquirer’s Country of Origin

Total Number of Mega Deals

Angola Brazil Chile China Columbia Egypt Equatorial Guinea Hong Kong India Kazakhstan Kuwait Malaysia Mauritius Mexico Morocco

1 63 2 72 7 1 1 19 19 11 4 15 2 19 2

Papua New Guinea Philippines Qatar Russia Saudi Arabia Singapore South Africa South Korea Taiwan Thailand Turkey UAE Uganda Ukraine Venezuela

1 7 10 72 5 24 17 39 4 10 2 32 3 2 3

Source: Raw data provided by Thomson Financial.

Part II The rise of government and venture capital funds in cross-border investment While sovereign funds, SOEs, state-sponsored funds, and venture capital funds have existed for years, their expansion activities have been primarily domestic. Venture capital funds accounted for 14 percent of 1997’s global


22

An Excerpt from Conquering Global Markets • 41 CONQ U ER I N G G L O B A L M A R K ET S

cross-border M&A deals if measured by the number of transactions; this percentage jumped to 25 percent in 2010 (UNCTAD, 2011). In 2011 they completed a record 2,050 transactions worth $122 billion largely due to the apparent stabilization of global economic factors; of these transactions, almost one-third of value was earmarked for the developing world (ibid.). State-influenced funds include state pension funds, sovereign wealth funds, and SOEs. There has been a significant change in legislation regarding pension funds such as the relaxation of investment policies in terms of taking larger stake holdings that could further increase their international reach. For example, the Norwegian Government Pension Fund has more than $400 billion under management. It is anticipated that the enormous amount of available funds, combined with relaxing investment policies will make state pension funds more aggressive sources of foreign investment in the future (ibid.). We are already seeing the consequences with Canada’s Pension Plan Investment Board making the largest cross-border acquisition by a pension fund with their 2010 $3.1 billion purchase in Australia of Intoll Group (ibid.). Sovereign wealth funds are those owned by a government for the express purpose of investment (ibid.). They are considerable influences on international investment with, as of 2012, over $5 trillion of assets (UNCTAD, 2012). The vast majority of sovereign wealth funds are from emerging countries with the most active historically being from the Middle East. In fact over 20 sovereign wealth funds were established in 2009 alone almost all from the developing world (UNCTAD, 2010). An example of recent activity comprises the Qatar Investment Authority holding with an estimated $120 billion of foreign assets, including the purchase of Harrods in the UK for $2.3 billion in 2010 (ibid.). Similarly the China Investment Corporation (CITIC) continues to expand rapidly with an estimated $100–200 billion cash injection in 2010 by the Chinese government solely for the purpose of overseas expansion (ibid.). SOEs present another type of investor and an increasingly important source of direct foreign investment. SOEs are relatively rare in terms of the overall number of transnational corporations numbering only around 650 in 2010. But of those transnationals, they number 19 of the world’s largest and 28 of the largest EWGs accounting for almost one-third of the emerging world’s foreign direct investment (UNCTAD, 2011). Domestic SOEs are much more prevalent in the emerging world than in Europe—there are at least 150,000 businesses in China where the largest shareholder is either the Chinese government or a local municipality (UNCTAD, 2011). SOEs are not a homogenous group and can be divided into four subgroups: emergency SOEs, sovereign wealth SOEs, privatized SOEs, and expansion vehicle SOEs. Emergency SOEs are those corporations that, usually through a form of mismanagement or massive economic

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42 • An Excerpt from Conquering Global Markets 2  T RE N DS IN GL OB A L I Z AT I ON

23

downturn, run into financial problems and are bailed out by the organization’s government; usually the injection of capital is in the form of a shareholding. Recent examples include General Motors (US) and Royal Bank of Scotland (UK). The second type of SOE is a sovereign wealth SOE, which in reality resembles a pension fund-style sovereign wealth fund in behavior—taking sometimes significant stakes in various businesses in order to successfully manage the returns for the benefit of shareholders (often government pensions). Examples include most of South Africa’s SOEs that have invested in a variety of South African businesses (ibid.). These investors are characterized by the government viewing these holdings as a portfolio investment and as such taking a “hands-off” attitude in their governance. Privatized SOEs are those organizations that were once nationally held, and when privatized the government retained a stake ranging from a minority shareholding (Volkswagen’s 20 percent owned by the German government) to a majority stake (Statoil’s 67 percent holding by the Norwegian government after its 2001 privatization). While the increased visibility and aggressive international expansion of the leading Chinese SOEs have brought a fair degree of criticism in terms of unfair advantages (Athreye and Kapur, 2009; Szamosszegi and Kyle, 2011), nine of the ten largest SOEs are European (see Table 2.2) and include four French giants, two Italian, and two German (UNCTAD, 2011). Perhaps a bigger issue than the shareholding is the degree of government involvement in the organization’s operations. While there is a dearth of external research on this subject, the participants who discussed SOEs commented that their organizations were treated relatively fairly by European SOEs—there are legislative processes in place to ensure fair play between state and private corporations (UNCTAD, 2011). The only serious complaint was the obvious nationalism that they experienced when competing against SOEs in their home country. The greatest concerns voiced among participants against SOEs when operating in emerging markets was of blatant favoritism in dealing with host governments. These included the granting of favorable contracts, generous funding, and work being awarded without tender offers. The banks complained of favoritism in privatization and listings in which only the indigenous (SOE) banks were given the work. One participant said, “You have to think that the IPO [initial public offering] business in China was three times that of the US last year. Now who’s getting that business? The medium-sized companies were working together with their Chinese stateowned banks that were then doing the IPO for them.” The final type of SOE is the expansion vehicle SOE, which is created by the government with the express objective of pursuing that country’s economic prerogatives both within its home territory and abroad. They are the mainstay of the emerging market with 56 percent of SOEs originating from those geographies (ibid.). They can run the gamut from


An Excerpt from Conquering Global Markets • 43 24 Table 2.2

Thirty largest state-owned enterprises

Company name

Home country

Enel SpA Volkswagen Group GDF Suez EDF SA Deutsche Telekom AG Eni SpA General Motors Co. France Telecom SA EADS NV Vattenfall AB Veolia Environnement SA CITIC Group Statoil ASA Deutsche Post AG Vale SA Petronas—Petroliam Nasional Bhd TeliaSonera AB Renault SA Japan Tobacco Inc.

Italy Germany France France Germany

34.7 20.0 36.4 84.7 31.7

Utilities Motor vehicles Utilities Utilities Telecommunications

231 255 247 348 184

Italy United States France France Sweden France

30.3 32.0 26.7 22.4 100 10.7

Petroleum Motor vehicles Telecommunications Aircraft Utilities Utilities

169 136 133 116 83 72

China Norway Germany Brazil Malaysia

100 67.0 30.5 5.5 100

Diversified Petroleum Transport and storage Mining and quarrying Petroleum

315 97 50 102 126

Sweden France Japan

37.3 18.3 50.0

Italy

30.2

Telecommunications Motor vehicles Food, beverages, and tobacco Machinery and equipment Transport and storage Petroleum and natural gas Telecommunications

Finmeccanica Spa

China Ocean Shipping China (Group) Company Lukoil OAO Russian Federation Singapore Singapore Telecommunications Zain Kuwait Qatar Telecom Qatar Tata Steel Ltd India Petroleo Brasileiro SA Abu Dhabi National Energy Co. PJSC Petróleos de Venezuela SA China National Petroleum Corporation

Percentage of government ownership

100 13.4 54.4 49.2 55.0 12.9

Industry

Assets (billions US$)

37 92 42 44 36 79 27

Brazil

39.8

Telecommunications Telecommunications Metal and metal products Petroleum

20 23 24

United Arab Emirates Venezuela

100

Utilities

100

Petroleum

150

China

100

Petroleum

325

200 25

Source: UNCTAD (2011).

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44 • An Excerpt from Conquering Global Markets 2  T RE N DS IN GL OB A L I Z AT I ON

25

full governmental control to “substantive inf luence” (ibid.). Expansion vehicle SOEs are involved in championing their country’s economic strategies both from within and increasingly outside that country’s borders and have grown in international importance. The Chinese campaign of “Go Global” (see Chapter 10) is a prime example of state-owned transnationals being given ample funding and encouragement to pursue global aspirations. One participant summed up the issue of SOEs very well: There’s a fair amount of alarmism about state-owned enterprises and their growth throughout the world. When they say Abu Dhabi Investment Authority et cetera, they tend to ignore the German and French banks. We all have to think a little wider about some of these things and what actually is happening. It’s really the controller of the funds rather than the fact that they are controlled by a sovereign body, that is, rightly, a more important question and the motivation behind the control. There’s clearly a state capitalist model and it is practiced to varying degrees in different countries. It’s not China and nowhere else. It’s a graduation where you’ve got the US and UK on the left-hand side, and I think it goes across and absolutely France does operate with a strong degree of state involvement … and it runs all the way through to North Korea. China comes somewhere in there in the different ways.

This combination of global trends means that the face of globalization is changing rapidly—no longer is it the remit of the Western or Japanese company investing in the emerging world. Instead it is far more complicated—with the landscape shifting quite dramatically. No doubt, the economic and political factors combined with globalfocussing have facilitated the shift, as highly attractive targets previously never considered for sale have changed hands, including privatized industries and blue chip subsidiaries. And they have changed hands to an increasingly complicated group of buyers.

Conclusion Not only is the business world seeing a dramatic shift in the globalization of industries, it is seeing the face of industry changing. Globalfocussing, or the repositioning of organizations along industry lines, has led to a wholesale shift in business priorities with organizations now prioritizing their endeavors in narrower business lines. Those businesses not part of that platform are being divested and picked up by other globalfocussing businesses to which those businesses are core. EWGs are becoming increasingly prominent, with the rise of the emerging market corporations, state-owned globalizers, and venture capital globalizers, all of which are


26

An Excerpt from Conquering Global Markets • 45 CONQ U ER I N G G L O B A L M A R K ET S

gaining confidence and moving outside their domestic markets, investing internationally to become global players in their own right. Mega acquisitions that were once the domain of the developed world are now occurring throughout the emerging world, with an increasing number of EWGs participating, fueled by deregulation and relaxation of markets. It is a trend set to continue.

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46

9780230361287 | August US / July UK 2013 $40 | $46 CAN | £26 Hardback | 244 pages

What helps employees stay effective in the face of difficult circumstances and equips them to bounce back? When it comes to workplace pressure, managers’ actions can mean the difference between improving or permanently damaging such resilience in the workforce. Drawing on contemporary research and professional case studies, Building Resilience for Success examines the sources of work-related stress, and explores how personal resilience can be developed both within and outside the work context.


An Excerpt from Building Resilience for Success • 47

INTRODUCTION—SETTING THE SCENE

THE MEANING OF RESILIENCE AND THE PURPOSE OF OUR BOOK The focus of this book is on building individual resilience—also known as psychological, emotional, or personal resilience. We use these terms interchangeably throughout, so what do we mean by them? The most straightforward, if somewhat narrow, answer is that this kind of resilience is being able to bounce back from setbacks and to stay effective in the face of tough demands and difficult circumstances. Expanding on this, our definition goes beyond recovery from stressful or potentially stressful events, to include the sustainability of that recovery and the lasting benefit—the strength that builds through coping well with such situations.1 The capability that is developed in this way applies to coping with everyday problems and challenges—the need for individual resilience is by no means restricted to extreme circumstances or heroic acts. Our purpose has been to put together a resource on which managers, human resource specialists, learning and development professionals, and others can draw to commission, design, deliver, and evaluate workplace resilience-building interventions. We describe and discuss many different approaches, findings, and practical applications and we share our own experiences, suggestions, and recommendations. It is not our intention to provide a prescriptive self-help guide or trainer’s manual, but rather to offer a broad base of knowledge, ideas, and solutions that can be mined in various ways to meet different needs and organizational circumstances. Firstly, in Part 1, we review developments in the field over the past twenty years or so, with reference to both research and practice. Based on this foundation of theory, evidence and experience we present a two-part framework that can be used to structure and facilitate resilience development within organizations. The style of Part 1 1

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48 • An Excerpt from Building Resilience for Success BUILDING RESILIENCE FOR SUCCESS

reflects an emphasis on applying expert knowledge from research and practice to develop a robust framework for use in organizations, and we provide detailed references for those who are interested in the science behind our approach. Following this, in Part 2, we look further at the way practical resilience-building interventions have developed over the years in line with new research and theory, and we present detailed suggestions and examples to show what can be achieved in the organizational context. The style of this section reflects an emphasis on explaining different techniques and learning from the specific experiences of individuals and organizations. Key research references are provided where appropriate, but the main focus is on practical suggestions and examples. Finally, in Part 3, we offer a strategic overview and further illustrations of some of the main ways in which resilience-building can be positioned within the context of wider organizational objectives and interventions, such as leadership development, organizational transformation, and performance enhancement.

COPING WITH PRESSURE—INDIVIDUAL DIFFERENCES In referring to “individual” resilience we raise questions by highlighting the fact that this ability varies from one person to another. Many people have probably at one time or another watched a politician on television and doubted their own ability to remain as calm in the face of a storm of personal criticism. At other times they may be surprised by the vulnerability of a friend or colleague, recognizing that they have been less affected by similar circumstances. So it is important to know more about how this works—what is the nature of these personal differences; are they set in stone or can anyone improve their resilience over time? As far as the last of these questions is concerned, this book is founded on the very good evidence that resilience can indeed be developed. More on this evidence shortly, and in later chapters we will explore a number of practical activities and approaches that can help to achieve this objective. To start with, however, we need to look in more detail at the fact that some people cope better than others, and why this is a matter for organizations as well as for those who work in them. 2


An Excerpt from Building Resilience for Success • 49 INTRODUCTION

When we describe someone as resilient, we often mean that he or she copes well with pressure. We may even say they thrive on it. The opposite of this is generally referred to as “being vulnerable to stress, setbacks or disappointments.” From this it becomes clear that pressure can be “positive” (challenging but energizing) or “negative” (stressful), so to understand resilience we need to understand the nature of pressure and stress. The first point to make is that the same situation may be positively challenging for one person, but stressful for another. This could happen, for example, if a sales manager presents the quarterly results, and makes it clear that he or she is not happy with the team’s performance. One member of the team may feel determined to try harder the following week, while another may feel anxious and discouraged. Another complication is that the same person may react quite differently from one week to the next, even if the message from the sales manager is very similar on both occasions. There are many reasons for these different reactions, involving both situational factors and more intrinsic personal factors. Some of these influences may be obvious to the manager, or at least to the team member concerned. Other influences may be harder to pin down, but they nevertheless affect how each person feels as well as what he or she does next. Richard Lazarus2 explained individual differences in the experience and expression of emotion in terms of a process he called “appraisal”, commenting that: If two individuals appraise the same situation differently, their emotional responses will differ. And if they appraise different situations in the same way, their emotional response will be the same. Even coping ... works by influencing and changing how the individual appraises the significance of what is happening and how it might be dealt with. (p. 336) This theoretical position is just one of many that emphasize the role of perception and belief in determining how we react to events. In this, it is entirely consistent with our definition of stress, as arising when pressure exceeds your perceived ability to cope.3 Richard Lazarus was talking about emotions in general, but many researchers and practicing psychologists have taken a similar view when focusing specifically on anxiety, depression, and stress. It is from this field of clinical psychology and mental health, including the study of 3

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50 • An Excerpt from Building Resilience for Success BUILDING RESILIENCE FOR SUCCESS

workplace stress, that much of our understanding of resilience has emerged. It was, indeed, fortunate that during a long period when it was unfashionable in mainstream academic psychology to study emotions, an active interest in the causes and treatment of anxiety and depression ensured that knowledge of these issues continued to develop. However, the current, growing interest in resilience as a feature of the normal, adult life-cycle— outside the field of clinical psychology and mental ill-health—is a more recent development. We conclude at the end of this book that resilience, especially in organizational settings, has transitioned from a remedy for weakness to capacity builder to help the strong become stronger. Nonetheless, it is important to understand where the concept arose and why the need for it still has somewhat negative ring. The normalization of resilience—the acceptance that it is a part of everyday life and work for everyone—comes at a time of rapidly growing interest in positive psychology. There is no doubt that the recent study of “positive emotions and experiences” has played an important role in emphasizing the potentially beneficial strengthbuilding nature of “positive (or challenge) pressure.” In addition, it has broadened our understanding of the range of ways in which resilience can be developed.

AN INTRODUCTION TO RESILIENCE-BUILDING IN THE WORKPLACE One of the first contexts in which the more general interest in resilience became apparent was that of the workplace. In the 1970s and ’80s, researchers in the United States began to investigate the qualities that helped some managers to cope more effectively with prolonged stressful circumstances than others.4 In the late 1980s, the American psychologist Martin Seligman, who had been involved in anxiety and depression research for many years, began to take an interest in how the findings could be applied to helping employees cope with challenging work situations. He developed a one-day resilience training course for insurance sales representatives, whose job involved cold calling (making unsolicited marketing calls to potential customers) and a high level of rejection. The success of Seligman’s training inspired researchers at London’s Institute of Psychiatry to develop a longer and more in-depth course, 4


An Excerpt from Building Resilience for Success • 51

INTRODUCTION

which they tested in the insurance industry and also with professionals and managers who had been continuously unemployed for more than a year. Again the results were very encouraging, with outcomes ranging from improved resilience and general well-being to higher sales and retention (in the insurance industry study), and a higher number of job interviews and job offers (among the unemployed participants) when compared with a control group who received different but relevant training.5 These resilience-building courses were acknowledged as practical and effective, and the design was implemented within a number of corporate and government programs. There were, however, several barriers to the wider spread of the approach, even within organizations that had already benefitted financially and in other ways through their participation in the research. To those of us involved in promoting the training in the corporate sector in the 1990s, it became clear that the main obstacle was a lack of industry-wide organizational readiness.6 This was indeed a problem, as “organizational readiness” is now known to be one of the main prerequisites for the successful implementation of innovative training and development programs. In terms of winning the “hearts and minds” of budget holders and senior stakeholders, the sales figures and cost savings made a strong, rational argument for rolling out the resilience training. Yet there was a more emotional distrust of any training with a “psychological” foundation, and anxiety about engaging with an issue so closely associated with workplace stress. “Resilience training” carried a bit of a stigma. It seemed to be intended for those who were failing to cope, and this perception has impeded the take-up of resilience development in organizations despite the solid evidence of financial and other benefits. Related to these concerns, some people have a skeptical view of resilience-building programs as a manipulative “management trick”, designed to ensure that ever-increasing pressure can be applied to the workforce in the interests of maximizing output and profit. While such reservations are still in evidence, they are under challenge from a growing conviction that coping with pressure is a critical skill in today’s workplace. Acceptance has also been boosted by a shift away from remedial resilience training towards a “strengths-based” approach that has its roots in the increasingly popular Positive Psychology movement. In addition, recent research and practice have demonstrated a strong and direct relationship between individual 5

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52 • An Excerpt from Building Resilience for Success BUILDING RESILIENCE FOR SUCCESS

well-being and organizational outcomes (including productivity). There is always a risk of any tool or method being used for cynical or exploitative purposes, but the expanding workplace well-being agenda helps to ensure that such interventions benefit both the individual and the organization. Chapter 3 tells in more detail the story of how resilience development has found a place in organizations over the past twenty years, with momentum building up to the point where today it is widely seen as “an idea whose time has come.” As a result, forward-thinking leadership teams are now actively seeking suitable resilience development solutions for all organization members or groups who are in critical roles or who are subject to more extreme pressures. We are even seeing a greater recognition of the need for this kind of support among the senior executives themselves, although for many this is still a difficult admission to make.

A TALE OF TWO CHIEF EXECUTIVES When it comes to the pressures of leadership, there is no doubt that any chief executive can expect to face challenges that seem insurmountable at times. Just to get to that position in the first place requires a high level of personal resilience, but that is not the same thing as being invulnerable. More than one CEO has told us that appointment to the role presented the steepest—and loneliest— learning curve he or she had ever faced. So consider the following stories. The first is of the founder of one of the world’s most successful hi-tech companies, who thrived on pressures the rest of us could hardly imagine only to succumb to what is widely considered to have been a treatable cancer. When asked why treatment had been delayed, Steve Jobs’ biographer is quoted as saying, “I think he kind of felt: if you ignore something you don’t want to exist, you can have magical thinking. It had worked for him in the past. He’d regret it.”7 Our second tale is that of the CEO of the UK’s largest retail bank, who took an extended period of sick leave after “suffering fatigue due to over-work” yet about whom “colleagues say he is obsessive about detail, but is cool under pressure and shows few signs of stress.”8 Of course we can never know the full truth of what went wrong in either case. However, just these short accounts make it clear that 6


An Excerpt from Building Resilience for Success • 53 INTRODUCTION

personal resilience is not a simple matter, that even the strongest have their Achilles’ heel, and that there is always a risk of being undermined by the very qualities and beliefs that have been the foundation of our success for many years. Reflecting on these stories gives us five core principles: 1. Individuals vary in both the nature and degree of their ability to cope with pressures and setbacks. 2. Psychological resilience is complex rather than one-dimensional. It is not something we either have or lack altogether—most of us are resilient in some ways, but less so in others. 3. Even the most resilient people have their limits, although they may be less alert to when these limits are being reached. 4. Certain qualities and beliefs, such as optimism or self-confidence, may boost our resilience in most situations but can harm it if they are taken to extremes. 5. Resilience results from the interaction of an individual and their situation—it is not a fixed personality trait and it can be developed. OVERVIEW OF THE BOOK Throughout this book we aim to provide a framework that facilitates the integration of personal resilience development interventions with broad, strategic programs to improve individual well-being and organizational performance. Integral to our approach is the need to factor in an understanding of the work context—in particular an understanding of the main sources of workplace pressure and support. Without this understanding it is difficult to make the most of opportunities to develop resilience on the job, yet this is a context that can produce far greater improvements than the widely used format of a short, one-off training session. Part 1

Understanding resilience Chapter 1 addresses the question of individual differences, and sets out a framework for understanding personal resilience strengths and 7

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54

9781137278401 | September US / October UK 2013 $16 | $18.50 CAN | ÂŁ9.99 Paperback | 240 pages Also available in hardback (out now)

How Excellent Companies Avoid Dumb Things reveals the hidden barriers to success that exist in even the best-managed companies. Highlighting the principles managers need to apply in breaking down these barriers, Neil Smith offers a fast, proven solution to achieve remarkable results.


An Excerpt from How Excellent Companies Avoid Dumb Things • 55

CHAPTER 1

BARRIER 1: AVOIDING CONTROVERSY

M

Y COLLEGE ROOMMATE WAS VERY EXCITED WHEN he called to tell me that he had been made regional manager of the pharmaceutical distributor he worked for. He had worked

hard and fully deserved his promotion, which probably was overdue. “Now I can finally make some decisions to get this place moving,” he said. His enthusiasm was centered on something we all believe to be true: managers make decisions and direct others. But in every company I have worked with, this truism turns out to be not quite so true. In every company, large, controversial issues are left unresolved because decisions have not been made. And these unresolved issues exist at every level of management in even the best companies. This happens because managers often deliberately avoid making controversial decisions. One of the key skills of being a strong manager is knowing which battles to fight and which to ignore. The best managers have a knack for getting this just right. They have impeccable timing. 9781137003065_03_ch1.indd 11

4/11/2012 2:52:43 PM

They know exactly when to make a decision. They also know that it is sometimes easier and even wiser in the short run to leave things the way they are rather than to make a decision that, although obviously the right thing to do, may have other consequences. But leaders are expected to deal with and resolve controversial issues. When they do not, however good the reason, they can cause confusion, frustration, and misunderstanding as well as inefficiency. Avoiding controversy is one of the most significant behavioral barriers, and in its wake important issues remain unresolved, usually leaving huge opportunities for change. There are many reasons people avoid controversy and try to keep the peace, but as Neville Chamberlain learned in the years before World War II, “peace in our time” carries a high price indeed. In this chapter, I Order at www.palgrave.com. Enter code WORLDPALGRAVE20 to receive a 20% discount.


56 • AAn Excerpt from How Excellent Companies Avoid Dumb Things BARRIER 1: AVOIDING CONTROVERSY

13

demonstrate why managers avoid controversy and what can happen when they do. And I show how a good change process can provide the air cover to tackle controversial decisions. As you will see with all the eight barriers we write about, recognizing when a barrier exists is the first step toward breaking it. The goal of a good change process is to help companies see how each of the eight barriers manifests itself in their organizations and how they can break them down. In the case of the Avoiding Controversy barrier, it is usually very clear to the organization that decisions are not being made, but it is unclear why a manager is avoiding making them. There is usually a sound reason, but the reason is often invisible. A good change process will force controversial issues to be addressed and decisions to be made by spotlighting the issues and making avoiding a decision very difficult.

HOW AVOIDING CONTROVERSY FORCES COMPANIES TO DO DUMB THINGS A chief executive officer of a Midwest industrial company had been living for four years with the pet project of his chief operating officer—an expansion into the “middle market,” a customer base that was smaller in size than the company’s traditional customer base. The venture was still considered a start-up and had yet to make a profit. The argument, year after unprofitable year, was “Oh, give us another year and we’ll make money next year.” The project had been approved at a time when the economy was growing quickly and it was hard for industrial companies that already served the market to keep up with demand. After two years of solid investment, it should have generated healthy profits in the third year. This start-up was launched with much fanfare within the company. A lot of effort and money were invested in it, and its progress was featured prominently on the company’s intranet—until it became apparent that the expansion wasn’t going well. The CEO was in a tough spot. The COO had been at the company much longer than he had, and many people who had thought the COO


An Excerpt from How Excellent Companies Avoid Dumb Things • 57 HOW EXCELLENT COMPANIES AVOID DUMB THINGS

14

deserved the top job were disappointed when an outsider was brought in. The CEO knew that he could justify keeping this project going for only so long before the board and shareholders would ask questions, but he also knew that killing the COO’s pet project would harm the COO’s reputation and a relationship that was important to him. The CEO didn’t feel comfortable turning to the COO and just saying, “We need to close this down.” So the expansion continued . . . and continued to lose money.

Why should a CEO feel uncomfortable telling a direct report, “Well, we gave it a shot, but it’s just not working”? This is business, after all, and everyone is a professional. The industrial company was publicly traded, so the CEO had an obligation to shareholders to maximize profits by doing away with money losers. As surprising as it may seem, Avoiding Controversy is something I have seen over and over in my work with companies. And like all of the other barriers, it surfaces at all levels of management. But there are many dynamics at play, as you will find true of each of the eight barriers that we explore. This one misfire notwithstanding, the COO had a great track record. During his 15 years with the company, he had successfully overseen the integration of several acquisitions. Ironically, they had included having to make some tough decisions about jettisoning unprofitable parts of the business. He was known to be fair-minded and reasonable, which earned him the loyalty not only of his direct reports but of people several levels down in the organization. This middle-market expansion was the COO’s blind spot as he had invested much in making it a success—so much that the CEO feared he would lose a key lieutenant if he shut down the project. The CEO made a conscious decision: he rationalized that the disruption caused by losing the COO would be more costly than this money-losing project. The CEO also realized that shutting down the project could be interpreted as a vote of no confidence in the COO, thus robbing this key

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58 • An Excerpt from How Excellent Companies Avoid Dumb Things BARRIER 1: AVOIDING CONTROVERSY

15

player of respect within the organization and possibly compromising his ability to be effective going forward. So while on the surface it looked like the CEO was merely taking the easy way out by not addressing the problem, he believed that it was beneficial for the company to live with this money-losing operation for a while longer. Of course, it was not easy for the rest of the organization to understand why he was doing this. A publishing company had two analytic units that essentially did the same thing. Each provided market research for the company’s extensive prospect mailing program to solicit subscriptions. The analytic units used research and statistics to determine the type of people who would buy a particular type of magazine. They then located appropriate mailing lists and monitored the results. They also created, implemented, and monitored the success of different types of offers (such as buy one, give one free as a gift). One of the units reported directly into the flagship magazine division. The second unit reported to the centralized marketing division, which supported the other two publishing divisions. This duplication of effort stemmed from a time many years earlier when the central analytic unit did a very poor job of supporting the flagship magazine. As a result, the flagship magazine division created its own unit. Since then the circumstances had changed. An executive who was considered an industry leader was running the central unit, and service levels had increased tremendously. Both heads of their respective divisions now agreed there should only be one group doing analytics, but each believed that his own unit could do the job better. The executive vice president (EVP) to whom both division heads reported did not want to address this issue for fear of demoralizing either team member, each of whom was a high performer. As a result, both analytic units were left untouched— and duplication persisted.

Clearly it would have been far more efficient to have one unit performing the analytics function. But the two executives in charge of the units were fiercely protective of their own units. Neither believed that a new, combined analytics center of excellence should report to the other.


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An Excerpt from How Excellent Companies Avoid Dumb Things • 59 HOW EXCELLENT COMPANIES AVOID DUMB THINGS

The EVP who oversaw the two divisions didn’t want to look like he was favoring one manager over the other. Each of them had a large degree of autonomy and responsibility, and it was important to him that each was in control of his own resources. He knew there should only be one unit, but he didn’t want to dictate the answer to them—he wanted them to figure it out for themselves. If he chose a winner, by default there would be a loser. This was a zero-sum game, and the EVP didn’t want to demoralize either of his high-performing executives. And he had another concern. One of the potential losers was very close to the EVP’s boss, the CEO. If, as a result of his decision, the company lost an executive for whom it had high hopes, the EVP didn’t relish the thought of facing the CEO’s wrath. The customer service call center of a bank provided live service 24 hours a day, 7 days a week, as was the industry standard. The head of operations (to whom the call center employees reported) believed that keeping the center open 24/7, 365 days a year was an unnecessary expense. He proposed reducing the hours to 20 a day, shutting down between 1:00 AM and 5:00 AM. This four-hour-a-day reduction would allow him to move from three eight-hour shifts to two ten-hour shifts and would save the bank more than $2 million a year. The retail banking president, whose job it was to keep customers satisfied, resisted the idea of reducing the hours. “We can’t offer our customers less service than the competition does,” he argued. He believed that customer service was one of the few areas in which the bank could distinguish itself from its competitors. This line of reasoning was behind the retail banking president’s already-successful campaign against outsourcing the call center function, as market research had shown that the bank’s customers were against outsourcing.

Each executive had a strong argument—substantial cost savings versus keeping up with the competition. The details of the situation were clear and the financials were known, but the two executives couldn’t reach an agreement. Neither of them wanted a showdown, and interference on the part of the CEO, to whom both reported, could have been seen as heavy-handedness.

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These two departments shared responsibility for numerous initiatives, and they worked closely together and partnered on many other projects. Outside the bank the two executives were best friends, a fact that made it even more surprising that they couldn’t reach an agreement on this simple issue. To the retail president, it was clearly important to mirror what competitors were doing. To the head of operations, this was a simple waste of money. This was a highly visible disagreement, and for the CEO the choice was very difficult. Because the debate was so visible to the organization, to side with one executive over the other would clearly undermine the power of whichever executive’s suggestion was rejected and potentially cause bitterness in the ranks.

BARING THE BARRIER You may think the answers to these problems are obvious and that these are just examples of weak managers unable to make decisions. But all three of these companies were considered among the best in their industry. Even the very best managers will have more than a couple of controversial ideas they do not want to act on . . . and that includes the CEO. Perhaps they don’t want to anger the person they don’t agree with, because there is already tension there. Perhaps they don’t want to be seen as empowering one person at the expense of another. I even know of one executive who could not bring himself to fire someone who was incompetent at running his division because, frankly, he liked the person too much. Managers are human, after all. The real reason the Avoiding Controversy barrier exists is because everyone who makes decisions has to pick their battles—whether you have just three people reporting to you or whether you are the CEO in charge of the entire company, you leave some things undecided. That means that issues—often big, controversial issues—are left untouched in every organization. Sometimes decision makers are essentially powerless. They may have the authority to make a decision, but, from a political perspective, it would make no sense for them to act. To be seen as a manager who


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wields decision-making authority in anything less than a deft way is to run the risk of being viewed as heavy-handed and unfair. The best managers always think carefully, for example, about a business decision that produces a zero-sum game, where, if there is a winner, there is also a loser. Decisions can become polarizing; people align with one side or the other. Even CEOs can be powerless. True, the CEO is the ultimate boss, but once he or she has designated a person to run a business, unit, or division, for the CEO to intervene would be disrespectful and disruptive. The CEO would be seen to be micromanaging and risk having a revolt on his or her hands. If there is no decision, there is neither a winner nor a loser. So, because of the Avoiding Controversy barrier, contentious matters remain unresolved, because it can seem to make more sense to do nothing. This is true regardless of whether a manager’s style is dictatorial, democratic, or delegating. Even dictators have a power base that they cannot risk offending by issuing a fiat. Democratic bosses, whose teams are accustomed to sharing in the decision making, cannot suddenly switch gears. And bosses who have delegated responsibility run the risk of destroying their power base by taking away authority they have given others. Another reason that some managers avoid controversy is that they are deliberately conflict adverse. I recently had lunch with one of my former client CEOs, and he laid this problem bare. He said, “Some executives will avoid conflict as much as possible as they guide their career through the organization. In my experience, controversy avoiders are often very popular, and it is easy to promote them. Everyone feels good and no one feels threatened when they are promoted. A very successful career path can be built on avoiding controversy.” The best managers know when to pick their battles and have a knack for doing so. But even with deft use of this skill, important issues in the organization are left unaddressed. The examples I have given—most rooted in actual work I have done with companies—are just some ways in which avoiding controversy plays out. One of the reasons a good change process is so successful is that it removes the Avoiding Controversy barrier so that managers no longer have to pick battles; the process does this by shining

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light on every aspect of the company’s operations and by forcing the right decision to be made on each one of them. Now, there are also times that managers do not act for reasons less noble or rational than the situations I have described. Sometimes they do things—or don’t do things—because they want to keep people below them from becoming too powerful, for example. But regardless of the reason for the lack of action or not making a decision, and regardless of how a reason might be rationalized, when people avoid dealing with controversy, the barrier is still there and the problems still remain.

BREAKING THE BARRIER My firm gets hired to break down the barriers in companies and help them achieve change that will make them more efficient, more profitable, and less complex. We do that with the PGI Promise® process, which has proven to be extremely effective in allowing creative ideas to come forward. In most cases in which people are Avoiding Controversy, they are aware that they are doing it. Their motive is to avoid painful consequences. A big part of my work in dealing with the Avoiding Controversy barrier is the creation of a short-term environment in which executives must face issues and must determine the outcome together. Failing that, the CEO must make a decision. The CEO and other executives are “protected” by the process when making decisions. It provides the ground cover for controversial issues to be resolved and decisions to be made. When the entire organization sees an issue and there is a structure in place to make decisions, it becomes hard to avoid making them. The manager can blame the process: “Sorry—it is the process that is making me decide this.” The process also makes it easier for “losers” to accept decisions. And, the fact that there is now a change process in place helps to depersonalize the issue. In fact, every idea is depersonalized—and so is every solution. The process is driving the decision making. A key principle of our change process is that ideas are easy to get in the system but hard to take out (see Principle 6 in chapter 9). People have to defend their reasons for


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not doing something. This is the reverse of the way decision making usually takes place. In a typical environment, one person’s dissent can be enough to veto a suggestion for change. In the barrier-busting environment, the onus is on a dissenter to say why an idea cannot work. As a result, the idea becomes focused, and the senior management has to make a decision. Attention is focused on the idea. The process forces a decision to be made. The change process forces people to address a controversial issue in a neutral way, armed with facts, as just one of hundreds of decisions that are being made for the improvement of the entire company. In this environment, even the most controversial of ideas must be resolved. Let us see how the process played out in the three scenarios that we talked about earlier in the chapter. In the case of the COO’s pet project, the process gave him the opportunity to look like he was leading by example by suggesting himself that his midmarket expansion be abandoned. This appeared to be a major sacrifice. And it sent a strong message to the organization: “If I can give up my pet project, I’d better not see you trying to keep yours.” When there is a company-wide review and everything is being considered, it becomes clear that change is going to be occurring on a large scale and that everyone is potentially affected. People are going to have to make sacrifices. I was able to say to the COO, “This is your sacrifice. And if you make that sacrifice—giving up your idea—imagine what a message that’s sending to everybody else in the organization.” He was able to demonstrate strong leadership; it looked like his decision, he did not have to lose face, and the CEO did not have to risk alienating and losing an important member of his team. And yes, the company saved money by shedding this business in a nondisruptive manner and did not lose the COO. With the analytic unit, remember, there were two highly qualified, high-performing executives—and no clear reason why one executive’s unit should be chosen over the other. It was a simple (but not easy) matter of just having to make a decision that could have seemed arbitrary and clearly would have labeled one a winner and the other a loser.

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Ultimately, it did come down to the rather black-or-white decision of Charlie’s department being kept rather than Dave’s and to combine the units under the centralized marketing division. In this situation, however, Dave was a lot less angry than he would have been because it was done in the context of “it was the right decision for the company” and just one of many being made, some of which made Dave a clear winner. In fact, the process made the decision to lose his analytics unit seem more like a trade-off. Initially, Dave was not completely happy with the decision to lose analytics for his flagship magazine division, but he stayed with the company— after all, the impartial process ensured that he did not come out labeled a loser. Funnily enough, after a year, he became very enamored with the new centralized unit. The cost savings achieved by eliminating the duplication allowed the new combined unit to afford better technology, which helped Dave do his job better. The resolution of the call center situation brings to light another important aspect of breaking down barriers—that it is possible for people who have been disagreeing to agree once their perspective shifts. Now the onus was on the retail president of the bank to say why he did not want to go to a 20-hour call center. It was not up to the operations manager to defend his idea for change. Sure, the retail president had already said that he wanted to do what his competitors were doing. So members of the Catalyst Team (see chapters 9 and 11) asked this simple question: “What’s the value of the calls that come in between 1:00 and 5:00 in the morning?” He did not know, so they said, “Okay, well why don’t you just go to the call center and check it out? Because if they’re saying there’s no value in the calls, but you think there is, why don’t we all get together in the call center at 1:00 in the morning and see what happens?” Here the decision was being driven by fact (see Principle 7 in chapter 9: consideration of ideas must be based on facts and analysis, not opinion). And in this case it was easy because the senior executive who was opposing the change in hours, the retail president, actually changed his mind.


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He went to sit in a call center for two consecutive mornings between 1:00 and 5:00 and listened to some of the calls that came in. He found that many of the callers were lonely people who wanted someone to talk to or just wanted to see what their balance was. The call center was almost more of a Good Samaritan service than banking customer service! As soon as the retail president recognized this, he had no hesitation in reducing the call center hours. He was open-minded enough to realize that the calls coming in really were not that valuable in terms of providing excellent customer service, and he was confident enough to be able to change his mind without losing face. In this case, the process kept the responsibility for resolution firmly in the hands of the heads of retail and operations, with the true onus on the retail president. And this is where it belonged. The process broke the stalemate in this example of the Avoiding Controversy barrier. It forced the responsible parties to make a decision together. Now, the process cannot take all the credit for this resolution. The retail president was an executive who did not feel threatened when the facts contradicted his belief—and not all executives are as confident or as wise. Some people will argue in spite of the facts. But it is a lot harder to argue in the face of facts—and almost impossible to win when you do.

WHY PEOPLE AVOID CONTROVERSY BY Dr. Richard Levak Given human nature, it is hardly surprising that Avoiding Controversy is a hidden barrier to change within companies. Unfortunately, many of us don’t know how to successfully navigate controversy, and because it is potentially upsetting, we have many mechanisms to help us avoid dealing with it. This short essay discusses two common mechanisms and describes different personality types and what makes each of them avoid controversy. In reality,

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the brain is actually hardwired to deal with controversy and its escalation, conflict. Preparing to do battle is part of our evolutionary brain. We are also hardwired to enjoy the endorphin rush of the successful resolution of controversy and conflict. This essay ends with strategies to face and resolve controversy productively. Controversy is almost inevitable whenever choices exist. In fact, research shows that the more choices there are, the more difficult and controversial the decision making. Controversy in any interaction, when not resolved, can readily turn to conflict. It is the successful resolution of controversy that is a hallmark of a successful marriage, business relationship, or friendship. But it is not difficult to understand why controversy is avoided. During a controversial interaction, stress hormones are released into the bloodstream. Blood vessels narrow, heart rate goes up, and we prepare to flee or fight. Studies show that even thinking about a controversial topic can significantly raise blood pressure and release stress hormones. These hormones act similarly to steroids, so over time, having constant controversial interactions can break down the body’s immune system. Working in a business environment where controversy is avoided may appear to be less stressful. As humans, we have a number of defenses that inhibit our motivation to confront controversy. They can block and distort reality in such ways that we think we can avoid dealing with controversy. Avoiding controversy can, however, block creativity and potentially evolve into conflict. Two primary psychological defenses are denial and rationalization. DENIAL

Denial shields us from admitting unpleasant truths and allows us the comfort of preserving the status quo. Denial usually collapses when things go badly wrong and it becomes clear how obvious the situation actually was.


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RATIONALIZATION

Rationalization is another powerful defense protecting us from the discomfort of controversy. Studies on cognitive dissonance show that once we make a difficult decision, we have a tendency to rationalize that it is the best decision we could have made. Consequently, we can avoid controversy by rationalizing to ourselves that we are in fact acting wisely and judiciously, keeping the peace and not being pushy. In one study, managers were given difficult management choices in which there was no clear answer. Once they made a decision, they argued for its wisdom even though after the experiment new subjects could see the benefits of a different choice. (Once people make a decision, they tend to build a case for it retroactively.) In the case of Avoiding Controversy, many people rationalize the need to get more data or wait and hope the problem resolves itself. ROLE OF PERSONALITY

People are born with a certain personality type, and experiences shape and enhance it. Three broad personality clusters (among others) are predisposed to Avoiding Controversy. 1. Agreeable Conict Avoider On the positive side, Agreeable Conflict Avoiders are consensus builders who have long fuses and go the extra mile to avoid controversy. When they problem-solve, they think about how everybody can win. The downside of this type is that they avoid controversy at the expense of efficiency and sound problem solving. 2. Conscientious, Detail-Oriented, Compulsive Type On the positive side, these individuals think through decisions carefully, are highly attentive to details, and take their responsibilities

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seriously. The downside is that they don’t want to make a mistake; they are risk avoiders who will avoid controversy for fear that they will be proven wrong and then feel humiliated. They rationalize the need for more data and time before making decisions. 3. Sensitive Type The positive side of the Sensitive type is an ability to fit in and play the right role in different situations and to be vigilant to keep things on track. However, the negative side is that Sensitive types can make mountains out of molehills, hold grudges, and overreact in crises. Regardless of personality type, people find Avoiding Controversy easier than dealing with it. For that reason, we have evolved rituals and rules of behavior, such as etiquette, to minimize controversy. At the same time, humans are wired to feel the reward of successful controversy resolution. When a controversy is successfully resolved, the endorphins that are released into the bloodstream lead to pleasurable positive emotions that promote human bonding. Research shows that teams that resolve controversy successfully become bonded, creative, and loyal to one another. However, people need a structure that can help them manage controversy. If they can be made to feel safe and rewarded for seeing new and creative ways of doing things, they will want to do so. Fear, whether of looking foolish or of creating controversy, creates tunnel vision. The change process outlined in this book, the PGI Promise®, encourages people to identify controversy, highlight it, and resolve it with fact-based analysis. If people are encouraged to do so in a safe and transparent environment, they will work hard to contribute and experience the endorphin rush that comes from successfully resolving controversy.


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IT IS NOT JUST CEOS Controversial ideas are not just the domain of the C suite. Every manager has to make decisions about what ideas he or she is going to act on, often employing, on a smaller scale, the same mental gymnastics as the CEO. The person who makes controversial decisions may well be doing the right things for the company but could lose a lot of influential friends in the process. While the CEO and other senior managers likely will know about the big ideas with the largest potential for financial impact, they will not be aware of ones farther down the line. But other managers will. When you add the impact of the big ideas at the top of the pyramid with the impact of the countless ones farther down, you can see that unwillingness and inability to deal with controversial ideas is costing your company a great deal of money.

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