Corporations Need Democracy
The last two years—the pandemic years—have brought much in the way of employee discontent, protest, and activism. Last January, for example, when the omicron variant had left one-third of the staff at a Starbucks in Buffalo sick or isolating at home, the remaining workers asked for KN95 masks, better protocols for knowing when co-workers tested positive, and the right to deny service to illegally unmasked customers. These requests were refused without honest and open discussion, surprising in a company founded by retired CEO Howard Schultz who prided himself on the human centric culture he built.
Google has been roiled over the past four years by a wave of activism by employees challenging management over issues including treatment of sub-contract staff, and handling of sexual harassment among other matters.
A strike at King Soopers, a grocery chain owned by Kroger, highlighted the fact that Kroger employees have reported being homeless or relying on food stamps and food banks even as the Fortune 500 company’s stock has risen about 36 percent over the past year.
Why is all this happening? A recent study of the “Great Resignation” is instructive, finding that “toxic culture”—a culture of disregard for employees’ health, diversity, equity and inclusion, unethical behavior, financial security, and self-respect—is a far more accurate predictor of attrition than compensation is. Even some of the other causes identified in the study—such as layoffs, continual reorganizations, and poor response to COVID-19—were arguably the results of an ineffective organization and a management culture uninterested in employees’ views or concerns and/or not giving them a voice.
To me and many others who have studied organizations up close for decades, none of this is surprising. Underlying such toxic cultures are leaders who do not care about employees and who prioritize profits and shareholder value over employee well-being.
Intra-industry comparisons reveal substantially different average attrition rates among competing companies. For example, companies with healthy high-commitment, high-performance cultures—such as Southwest Airlines, Johnson & Johnson, and Enterprise Rent-A-Car—have had comparatively less attrition during the pandemic. What makes them less vulnerable to the Great Resignation and allows sustained high performance?
1. Leaders Who Care
First, these companies have CEOs—and, indeed, leaders at all levels—who care about both employee well-being and profits. They make these goals clear and understandable to everyone and do not see them as competing or incompatible. And they are humble listeners.
2. Repeatable Governance and Learning System
Second, these CEOs—often founders —have institutionalized a repeatable governance and learning system, which enables truth to speak to power at the corporate and unit levels by means of honest conversations about the extent to which the company’s system of organizing, managing, and leading is aligned with its stated strategic performance goals and human and customer-centric values.
While governance processes differ in each of these “healthy” companies, they are all intentionally designed practices that are repeated annually and for which managers at all levels are held accountable. Thus, over time, these practices are embedded in the culture. That, in turn, ensures continuous improvement in policies and practices and a positive culture that ensures sustained commitment and performance.
Southwest Airlines, for example, uses a “Culture Committee” of key people that periodically assesses company culture and reports its unvarnished findings to senior management. This practice was instigated in 1967 by the company’s founding CEO and has survived ever since. It is one of the main reasons that Southwest employees are so positive about their employer and that Southwest has outperformed its industry over many years.
Johnson & Johnson’s founding CEO created a Credo and the “Credo Challenge,” requiring senior teams at every level to foster repeated honest conversations between themselves and lower levels about whether their unit is practicing the corporate Credo to “put the needs and well-being of our customers and the people we serve first.” According to Alex Gorsky, J&J’s recently retired CEO, the Credo Challenge has been a key the company’s ability to sustain its high-commitment, high-performance culture over decades, and that leaders are selected and promoted who practice the Credo and implement its findings.
Thus, these companies are democratic in the sense that they seek the “consent of the governed,” as articulated in our Declaration of Independence. Their leaders realize that commitment of their people rests on their legitimacy in exercising their power to decide, and this ultimately relies on consent from their people.
Of course, contrary to a democratic society, companies are hierarchical, which allows them to make rapid decisions. Accordingly, employees do not vote on what the company will decide. But that hierarchy is suspended during the “honest conversation.” Even then, employees do not vote, but they speak—and are heard—about whether the company is living up to its stated goals, beliefs, and values. And by introducing a governance and learning system, corporate leaders make themselves accountable to their people for acting on what they hear and for explaining why they will not. This is the very same principle that the U.S. Army employs in its after - action reviews.
If your company did not develop such a practice at its founding, is it too late? Not at all. My colleagues and I have developed a governance and learning process that enables an honest, collective, and public conversation we call the Strategic Fitness Process (SFP). And we developed underlying principles for those companies that wish to design their own. It is a way for companies that don’t already have such a disciplined and repeatable process to give employees a voice.
Becton Dickenson where the process was originally developed, institutionalized the Strategic Fitness Process, and four successive CEOs have used it to assess what needs to be done to achieve their strategic and cultural values and goals.
The company transformed itself, in part due to SFP, from a company whose employees once described it during a corporate SFP in 1990 as having “no human values” to a company widely recognized as a “higher ambition,” high-commitment, high-performance company that consistently outperforms its industry peers. Surprised and shocked by the assertion, Ray Gilmartin, BD’s CEO, began the transformation of the company that his successors sustained and strengthened for three more decades.
SFP has been applied by hundreds of organizations around the globe and our research has shown that it works—improving trust, commitment, and performance as I show in my recent book Fit to Compete. People who are involved love it; they tell senior management that people want it continued and those who have not been involved want to be because they like the idea of working with—not for—senior management to sustain the efficacy and values-based culture of the company that they like or would like to have.
The key to SFP’s adoption and maximum impact is a CEO with human-centric values who is humble enough to welcome feedback so he or she and the senior team can learn how the organization and its culture can improve. CEOs and business unit leaders who have adopted SFP have an ego and ambitions, but the ambition is for the success of the organization and people, not themselves—what we call a “high ambition.”
As companies wonder what to do about the challenges to corporate policies and practices, it makes more and more sense to get ahead of the crises by becoming more democratic through the introduction and institutionalization of a system of governance that gives employees a voice from which senior management can learn the truth about barriers to effectiveness, trust, commitment, and ultimately performance.
Our research finds that the process itself—that is, leaders’ demonstration of humble listening by: a) asking for feedback and making themselves accountable to share what they heard, whether good, bad, or sometimes ugly, and b) acting on it—develops respect for the leaders and trust in and commitment to them and the organization.
We also find that leaders and leadership teams who repeat the process regularly continue to peel the organizational onion, identifying emerging problems and new ways to improve how the business is organized, managed, and led.
Commitment to obtaining the consent of the governed requires a well-designed practice, a leader committed to creating a great organization, and the courage to hear the truth from those over whom he or she has authority. Do you have that commitment and courage?