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Thursday, March 28, 2013

How CEOs Sustain Higher-Ambition Goals 03-29

How CEOs Sustain Higher-Ambition Goals

by Dina Gerdeman

At a recent Harvard Business School conference, dozens of CEOs committed to the idea of working toward "higher-ambition" goals that go beyond just short-term shareholder value.

Inspired by the book Higher Ambition: How Great Leaders Create Economic and Social Value, by HBS Professor Emeritus Michael Beer and his coauthors at the Center for Higher Ambition Leadership, the executives underscored the importance of higher-ambition goals, including engaging with and developing employee and customer commitment, contributing to the community in which they operate, and creating sustainable environment strategies.
They also acknowledged the difficult challenge inherent in balancing the effort needed to achieve these goals with the central need to generate profit.
"There's this natural tension," said Douglas Conant, former president and CEO of Campbell Soup Co. "We're trying to raise our sights and help build a better world while we are still striving to deliver high performance for the enterprise. Managing that tension is difficult."
HBS invited the executives to the second Higher Ambition CEO Leadership Conference, held January 14-15, to support them in running their companies while also encouraging them to participate in case studies and other research. The School hopes that highlighting these higher-ambition efforts could act as a template for other companies to follow.
"I do think you are very important," HBS Professor Rebecca M. Henderson told the gathering. "I think we're potentially at a moment of inflection."
Turbulent economic and social conditions look like they could become even rougher, she said. One response by many companies would be to "pull up the drawbridge" and focus solely on core business issues, but "you represent a group that's a signpost to a different response."
Henderson is the John and Natty McArthur University Professor at Harvard and is a member of the General Management and Strategy units at HBS.
Many HBS students hope to land with companies dedicated to this dual focus, said Henderson, who teaches the second-year MBA elective Reimagining Capitalism. "I thought perhaps 30 students would sign up [for the course], but I got more than 300, roughly half the second-year class," she said. "Students are looking for hope. They are afraid they're going to have to put on the suit, make money, and conform.


Many of the participants have led higher-ambition efforts at their companies for years.
Office supply company United Stationers started a foundation to connect employees with charitable activities, including raising money for a children's hospital and hand-delivering school supplies to elementary school children who could not afford them.
The executives were far from naive, however, about how tough it can be to create the corporate conditions that also foster social good. When a CEO tries to extend the company mission beyond short-term quarterly earnings, resistance from board members and shareholders may soon follow.
"If you want to put resources toward helping the local community—fix the housing problem or whatever it might be— [stakeholders] might look at you and say, 'What do you mean? Where's the bottom line in that?' " said retired United Stationers CEO Richard Gochnauer (HBS MBA '74).
The key comes in demonstrating how the company can actually benefit from achieving higher-ambition goals. One payoff might come in the form of greater motivation and commitment on the part of employees galvanized by a common mission.
"People within an organization want to be able to look to something they can believe in," said Joseph R. Swedish, then president and CEO of Trinity Health.
"What we're talking about is bringing meaning to people's lives at work," added Peter Dunn, cofounder of Activate Healthcare. "Instead of getting 60 percent of the person, you get 95 percent of the person." Unlocking these high levels of employee engagement "turns around and pays back multiple times what you invest in it," Gochnauer said.

And sometimes, boards do get it.
"I find that boardrooms are filled with people who want to be proud of what they're doing as well," said Magdalena Gerger, CEO and president of Systembolaget AB, a retailer of wines, beers, and spirits. "I've never had a problem finding that ambition on the board."


When companies are humming along and benefiting from their higher-ambition efforts, CEOs have an easier time balancing these goals with the ever-constant push for profits. The challenge comes when companies encounter lean times or reach certain tension points when faced with the possibility of layoffs, mergers, or other difficult transitions.

Employees are "watching you as CEO not when things are going well, but when you have to make a decision that comes at a cost to you or your organization," said HBS Professor of Management Practice Bill George, former chairman and CEO of Medtronic. "[They'll say,] 'He's missed his numbers. Now we'll see what he does.' I see a lot of CEOs who don't pass that test."

Even when rough patches are encountered, it's important that higher-ambition efforts not be abandoned completely, some participants said.

"We have to think about how we keep the culture as higher ambition while we're taking tough cuts," observed Gretchen McClain, president and CEO of Xylem, which offers water technologies and services. "Sometimes it's one or the other, but we're trying to integrate the two. We don't want people to see it as turning away from higher ambition."


What kinds of strategies do executives use to help build a higher-ambition culture within their companies? Several ideas discussed during the conference included:
Be clear about the mission. A CEO must be clear about the company's mission and make sure that employees understand the higher-ambition goals they are being asked to work toward.

"Clarity is essential," said Fran Kelly (HBS MBA '83), vice chairman of advertising firm Arnold Worldwide. "It takes longer than you think to get everybody on the bus. And even then, is your vision clear? Does everyone know where they're going? Sometimes you think everybody is on the bus, and then you realize not everyone is."

Getting employees to understand the mission takes time, patience, and without a doubt repetition. At times employees need to hear the goals spelled out several times before they sink in. "You need to be a broken record," advised Conant.
Leaders also need to build an atmosphere of trust and openness, and emphasizing employees' input is critical.

Model the mission. A CEO needs to be involved in planning and executing a higher-ambition mission, Conant said, including modeling the right behavior.

It helps if leaders make themselves physically accessible, added Kenneth Freeman (HBS MBA '76), former chairman and CEO of Quest Diagnostics who now serves as dean of Boston University School of Management. Freeman said that when he became dean, his plush CEO-like office was on the top floor, so he decided to move to a small windowless office in close proximity to students and faculty at a high traffic-generating Starbucks on the main classroom floor.

"We have to make it easy for our colleagues to show up," he said. "We can't put the blinds down and shut the doors if we want to change the culture."

Sometimes the CEO needs to step in and handle a problem in a way that shows both the staff and the public that the company is concerned with more than making money.

Mark Bertolini, chairman, CEO, and president of health insurer Aetna, pointed to his own experience in social media, recalling a note he received from a 26-year-old student fighting colon cancer whose insurance policy had topped out. Bertolini knew he had to handle the situation carefully so the company wouldn't set a precedent, and he was able to announce on Twitter that he had solved the student's problem.

"We got 30 million impressions in two days," he said. "How much advertising do you have to do to get 30 million impressions? It was an amazing experience."

Make sure staff is committed to mission. Once the company's mission is clear, a CEO needs to ensure that employees are given specific guidelines on how to work toward higher-ambition goals. Not everyone will follow. The new benchmarks can be tough on some employees because it upsets the status quo—and those uncomfortable with any kind of change are bound to resist. If that's the case, those folks might be better off working elsewhere.

"People who aren't walking the talk need to be few and far between, and they need to be carefully managed," Conant said. "Eventually they need to drink the Kool-Aid and buy into the agenda or move on."

On the flip side, the executives noted that employees who embrace the mission should be rewarded in a variety of ways, whether in terms of glowing performance evaluations, extra compensation, or promotions.

Put the right people in leadership roles. The top executives agreed that it was important to put the right people in leadership positions, particularly those who support the mission and spread the word. Performance evaluations can be a useful tool to help find employees with high commitment levels. "The leaders are the ones who make it happen," said HBS's Bill George.

Scott Griffith, former chairman and CEO of Zipcar, said that the company crafted its mission statement around responsible urban living in part with the hope of attracting a committed team of leaders to come on board. Griffith said he thought "career path" was an even more powerful reward than compensation.

Stick to your convictions. Professor Henderson told the group that it's important for CEOs to feel personally committed to the higher-ambition cause. "You have to really mean it and believe it," she said. "That's fundamental. If you do it just to make money, just for the cold reasons, it's not going to work," acknowledging that is often easier said than done.

"You have to think creatively, work across silos, and focus on the good of the whole. If you do these things, you'll get ahead," she continued. "But this is hard because every time you do this, there's a temptation to cheat, to defect. Times are tough, [and you might feel the need to] lay off 20 percent of your staff. You need to be authentic. When the going gets rough, follow through."

If higher-ambition leadership is going to be achieved, it is up to the CEO to keep the company from veering away from its mission.

"If it weren't for the CEO thinking about getting it done, it wouldn't get done," Aetna's Bertolini said. "You have to decide, is this a moment we can exert our leadership in a way for a broader social good? There aren't that many people doing that these days, so you have to stay the course and make sure it happens. We have an opportunity to show that we can make a difference."

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