LRN's 2016 HOW Report shows number of purpose-driven, values-based firms slowly growing and logging better performance
For all the sports analogies business leaders continually invoke to motivate their employees, from building team spirit to going for the gold when shooting for quarterly performance targets, it’s a wonder more companies haven’t more deeply embraced the philosophy of legendary coach Phil Jackson. Holding the record for taking his teams to an unmatched 11 NBA championships, Jackson is renowned for coaching from a place of deep values. His approach helped players such as Michael Jordan and Dennis Rodman transcend their egos and dedicate themselves to something greater than their personal interests.
This kind of values-based approach is slowly catching on within a growing number of companies globally, according to LRN’s 2016 HOW Report. LRN, which provides ethics and compliance advisory services and education, identified three organizational archetypes and predicted one would outperform the others and become more prevalent over time in its first HOW Report, released in 2012. ‘Worldwide, the prevalence of this ideal archetype – which we refer to as self-governance – increased to 8 percent from 3 percent in our initial research of 2012,’ LRN says in the new report.
Each archetype prompts distinct kinds of individual and organizational behavior, LRN says. Companies defined as self-governing are led with moral authority, operate with a set of core principles and social imperatives, encourage employees to act as leaders regardless of their roles and strive for sustainable performance. Companies characterized by informed acquiescence operate through processes and hierarchy, motivate employees based on performance-based rewards and often set aside long-term goals they’ve identified to pursue short-term success. Firms based on blind obedience rely on command-and-control-based principles and policing, coerce employees with the threat of adverse consequences and focus on short-term goals. LRN asserts that self-governing companies are the only ones that can survive in a world quickly shifting toward expanded transparency and a greater reliance on values.
Surveying more than 16,000 full-time employees at firms in 17 countries across all major industries and occupations, LRN finds that 97 percent of employees at purpose-inspired, values-based organizations report high performance, compared with 80 percent of employees at rules-based, process-driven organizations and 30 percent at organizations driven by power and tasks. Performance is measured by separate scores for business performance, innovation, employee engagement, sustainability and misconduct. Self-governing companies have higher scores in the first four and lower scores in the fifth category than those defined by informed acquiescence or blind obedience.
Ethics and compliance programs are likely to operate differently at self-governing organizations than at other types of organizations, says Michael Eichenwald, a leader in LRN’s advisory services practice. Leaders are more likely ‘to make ethics and compliance and doing the right thing part of the operating fabric of the company,’ he says. ‘That includes everything from the strategy of the company to decision-making to calling out bad behavior. I don’t think a top-down ethics and compliance program is consistent with a self-governing organization.’ A self-governing company can also figure out how to make ethics and compliance a core part of how everybody does his or her job, as well as allocate as much time to opportunities for nuanced discussions about what the right thing to do is as to putting controls and processes in place to ensure people have the protections they need if things go wrong, he adds.
Eichenwald doesn’t believe companies in highly regulated industries, such as finance or healthcare, are less suited to the self-governing model. ‘Certainly if you’re in a regulated industry, you need to be more clear and concise in making sure you have processes and controls that meet the standards of what’s expected of you,’ he says. ‘But that doesn’t necessarily inhibit your ability to also rely on judgment and discretion to get people to do the right thing. In fact, you’re even more reliant on them.’
One of LRN’s key findings suggests Phil Jackson may yet come to be regarded as a role model for business leaders ‒ managers who emphasize shaping character and fostering freedom are more effective leaders. ‘These managers are also more than three times as likely to deliver high business performance, scoring 85 percent versus 25 percent for their peers,’ the report says. Another finding that calls Jackson’s method to mind is that trust is a key enabler of innovation, with high-trust organizations experiencing 11 times greater innovation than low-trust ones.
In his 2013 book, Eleven rings: The soul of success, Jackson writes: ‘If you place too many restrictions on players, they’ll spend an inordinate amount of time trying to buck the system. Like all of us, they need a certain degree of structure in their lives, but they also require enough latitude to express themselves creatively.’
A sharper look at the outperformance numbers for self-governing companies reveals that ‘number one, they’re ahead on that innovation curve, and number two, they’re creating freedom and potential for their colleagues within that company to figure out, if they’re not there, how to get there,’ says Eichenwald.