Capitalism cannot thrive if we remain focused on short-term profits at the expense of long-term sustainability.
There is a great divide between bossing—or managing, supervising, or whatever term you choose to use—and leading. Leaders do what they say they will do, take responsibility, follow through, make decisions based on facts, and develop goals that lead to sustainable growth and long-term profitability. In other words, they have integrity.
In my book, Truth, Trust + Tenacity, I discuss how integrity is one of the key characteristics of leading. It sounds obvious, but often isn’t. Those at the top, as well as others within organizations, can feel compelled to cheat, lie and manipulate facts to meet unreasonable goals. Because most organizations are performance-based, there is a built-in temptation to do what you must do to meet goals—even if those actions are unethical or illegal. A perfect example of this is the Wells Fargo Bank scandal, in which bank employees pressured to meet sales goals fraudulently created fake accounts to boost their numbers.
The rising level of duplicity by employees in order to meet performance goals is often, in my opinion, being driven by unreasonable performance expectations. I always developed goals with my direct reports that would certainly stretch and challenge them, but they were not so unrealistic as to encourage cheating.
I am a firm believer in capitalism but capitalism cannot thrive if we remain focused on short-term profits at the expense of long-term sustainability. This is a view I first heard from a professor of mine at CSU-Sacramento years ago.
While there’s no question that for-profit businesses exist to make money, a sole focus on this often ends up having the opposite effect. What’s even worse is that this approach causes business leaders and their team members to make decisions that may not be in the best interests of the organization, its shareholders or its employees. Performance-based compensation should not be designed to encourage employees to engage in dishonest or illegal behavior because they fear for their jobs.
To quote Peter Drucker, “Effective leadership is not about making speeches or being liked; leadership is defined by results not attributes.” Taking Drucker’s observation one step further, the difference between a genuine leader and a boss is that he or she understands that those results are reasonable and lead to long-term growth.
One company I’m familiar with that understands sustainable growth is The J.M. Smucker Company. Profitable for more than 100 years, the organization focuses on sustainable growth and reasonable expectations. There is very little, if any, focus on quarterly results. Their approach to business enables them to focus on integrating new products successfully, and not having to chase trends to keep up with, or meet, quarterly expectations. Employees know they can focus on doing things the right way.
Compare this to Wells Fargo, and what transpires when an organization focuses more on short-term profits that result in unreasonable expectations. The kinds of goals and expectations the financial institution imposed on employees led to cheating and illegal behavior. The result was the dismissal of more than 5,000 employees, Congressional hearings, a tarnished brand, a loss of business from the state of California and others, and the exit of the firm’s CEO. Wells Fargo employees were essentially backed into a corner, and forced to do whatever necessary to meet unrealistic sales expectations. While I do not condone the behavior of the individuals who cheated at Wells Fargo in order to keep their jobs, the buck stops at the chief executive. Unfortunately, it did not—until he was caught.
What can organizations do? Here are several recommendations:
- Stop focusing on quarterly results. There is no good argument for basing your future on Wall Street’s short-term expectations. It’s not good for consumers, employees or shareholders. If Amazon.com had done that, they would never have survived and thrived the way they have.
- Eliminate unreasonable expectations at all levels, starting with the board of directors and shareholders. Expecting organizations to continuously outperform the previous quarter just doesn’t make sense.
- Develop performance plans that not only include realistic goals, but also impact the entire organization. For example, when Continental Airlines offered employees $65 for each month it beat its on-time arrival record, the company saw a huge difference in performance. The amount of the bonus was obviously insignificant, but no employee wanted to risk being the weak link, and all the employees could clearly see the impact they could have. The goal was reasonable, so it worked.
- Reward people for doing their jobs well, not just for exceeding goals. Be sure bonuses and pay are not structured in such a way that they leave employees feeling defeated before they have even started—that just results in poor attitudes, poor performance or worse.
- Provide resources. Don’t expect employees to support you if you don’t support them.
Howdy Holmes, CEO of Chelsea Milling Co. (the folks who make those delicious Jiffy Mix brand products) told me that he makes it a point of developing sensible, fair goals with his team that they can hopefully exceed while feeling fully engaged. Why?As the Wells Fargo debacle reminds us, unreasonable goals almost always fail because they require too much change in one’s behavior—change that isn’t necessarily good for the organization or the individual. Holmes believes leaders need to lead, instead of control. This sometimes can be a hard thing to do because our current system often puts leaders in a position of control instead of being a resource to others.
If you think about it, it’s not rocket science: treat people well and focus on long-term results, and you’ll likely thrive. Engage in an environment of cutthroat competitiveness and short-term results, and you and your organization will eventually crash and burn.
Ritch K. Eich, a former executive in the insurance and hospital industries, an adjunct business professor and a captain, U.S. Naval Reserve (ret.), is a management consultant and leadership author in California. He has served on numerous boards of directors and trustees. The proceeds of his three published books are being donated to charitable organizations.