Martin Reeves, Simon Levin and Daichi
Ueda investigated the longevity of more than 30,000 public firms in the United
States over a period 50 year span and the results were stark: businesses are
disappearing faster than ever before. Where they found that “public companies
have a one in three chance of being delisted in the next five years, whether
because of bankruptcy, liquidation, M&A, or other causes. That’s six times
the delisting rate of companies 40 years ago. Although we may perceive
corporations as enduring institutions, they now die, on average, at a younger
age than their employees. And the rise in mortality applies regardless of size,
age, or sector. Neither scale nor experience guards against an early demise,”
(HBR, 2016, p.48).
Reeves, Levin and Ueda “believe that
companies are dying younger because they are failing to adapt to the growing
complexity of their business environment. Many misread the environment, select
the wrong approach to strategy, or fail to support a viable approach with the
right behaviors and capabilities,” (p.48).
But this is a simple failure in modern
day leadership. The business environment hasn’t suddenly become changeable in
the 21st century, business environments have always been changing – less we
forget the industrial revolution, for example.
The problem is that leadership has
become ‘lazy’ and reactive in too many instances. Developing dynamic strategies
is nothing new – good leaders know that they need an agile, flexible
organization to respond to changes in their market place or even outside their market
place, when there’s an option to diversify and expand. This is leadership 101.
Sadly the basic rules of corporate
governance are just being ignored. Look at the UK construction company
‘Carillion’ – who have recently been placed under administration. Fingers are
being pointed in all different directions in the blame game – but if we put our
feet firmly on the ground, it’s the leadership of Carillion who failed their
company, not the UK government, and not anyone else.
Too many leaders today want to earn
‘fat’ salaries but don’t want to take the accountability that comes with the
‘job’. This just makes life way too easy and means, without accountability,
these mostly ‘white middle aged men’ simply don’t care enough and leave their
organizations vulnerable to failure, while living the high life.
Reeves, Levin and Ueda do give some tips
for organizations to be more aware and agile – but this isn’t rocket science –
and the boards of organizations just need to ‘care’ more about their
organizations future.
Tip One: Organizations need to be
realistic about what they can predict and control, what they can shape
collaboratively, and what is beyond the reach of managerial influence. A clear
example is the financial crisis of 2007-2008, during which risk created by
subprime lending in the U.S. real estate market spread catastrophically
throughout the global financial system.
Tip two: Organizations need to look
beyond what their firms own or control, monitoring and addressing complexity
outside their firms. CEOs must ensure that their companies contribute
positively to the system while receiving benefits sufficient to justify
participation. Consider Sony, which brought out the first e-reader three years
before Amazon’s but lost decisively to the Kindle and withdrew from the market
in 2014. Because it failed to provide a compelling value proposition that would
mobilize key components of the publishing ecosystem – authors and publishers –
it could offer only 800 titles when its e-reader launched. In contrast, Amazon
initially sacrificed profits, selling e-books for less than what it paid
publishers. It also invested in digital rights management to spur the growth of
the ecosystem. With the support of other stakeholders, it launched with 88,000
e-books ready for download.
Tip Three: Leaders must embrace the
inconvenient truth that attempts to directly control agents at lower levels of
the system often create counterintuitive outcomes at higher levels, such as the
stagnation of a strategy or the collapse of an ecosystem. They must avoid
relying on simplistic casual models and trying only to directly manage
individual behavior, and instead seek to shape the context for behavior.
Good tips by Reeves, Levin and Ueda
though slightly full of ‘MBA speak’ rather than simple understandable language.
Leadership is not rocket science and using fancy language doesn’t change that
fact. For me it still goes to the concept suggested by Jim Collins of “having
the right people on the bus, getting the wrong people off the bus, and ensuring
everyone is in the right seat” – and this is especially true for leadership.
Sadly I think too many organizations are
in a cycle of bad leaders developing bad leaders – with their employees simply
fed up and just doing what they have to do to survive day-to-day. If
organizations can’t shake themselves up then shareholders need to start taking
some accountability and demanding change.
Until organizations get back to a cycle
of great leaders developing great leaders, organizations will continue to fail
on a regular basis – and the bad, unaccountable leadership will blame anything
else but themselves – and we must stop being naïve and believing them.
There’s a great quote that states “never
push a loyal person to the point where they no longer care” and organizations
have been doing this to their employee base for far too long – and suffering
from the consequences.
Reeves, Levin and Ueda do highlight how
“in society, complex adaptive systems require cooperation in order to be
robust; where direct control of system participants is rarely possible.
Individual interests often conflict, and when individuals pursue their own
selfish interests, the system overall becomes weaker, and everyone suffers.
Trust and the enforcement of reciprocity combine to provide a mechanism for
organizations to overcome this quandary. To leverage the power of trust,
leaders should consider how their firms contribute to other stakeholders in
their ecosystem. They must ensure that they are adding value to the system even
as they seek to maximize profits,” (p.55).
For those that can influence the future
of organizations – owners, shareholders and corporate boards – let’s pause to
assess our leadership and not settle for anything but ‘excellence in
leadership’.
References:
Reeves, M., Levin, S. and Ueda, D.
(2016). The Biology of Corporate Survival. Harvard Business Review, Jan-Feb,
p.46-55.
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