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When Just Focusing On The Money Works - And When It Doesn't

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A few years ago I coached a senior executive who works for a large company ($15B in revenue), where it's pretty clear to everyone that the CEO is focused solely on shareholder return, and holds his people accountable only for profitability and not at all for how they get there. In other words (although he and his HR people make noises to the contrary), he doesn't care what kind of a culture they create; whether people are happy working there; whether people feel loyal to the company or proud to be a part of the enterprise.  It's all about the Benjamins.

This executive asked me: Will this work? Can a leader succeed if he or she only cares about the bottom line/shareholder return? Many people have asked me that over the years - especially since I've written books about how important it is to manage people well and to be a followable, high-integrity leader.

If someone is asking me on a moral level; that is, do I think it’s OK not to care about the welfare of the people who work for you, and to look at them purely as an expense and/or an impediment to your quest for high profit, then my personal point of view is - no.  I believe business leaders have a moral obligation to look for ways to do well while doing right; to create businesses that make the world a better place (or at least don’t make it a worse place) while making a profit. I also believe that leaders have a moral obligation to establish an environment of mutual benefit with their employees – to create a fair exchange of value – and that it is morally wrong to attempt to get as much from your employees as possible while giving them as little as possible.

But those are simply my personal values, and I can’t claim that they’re more or less than that.  Instead, let’s talk about a pure bottom-line-focus as a business model, and whether it can lead to sustainable business success.  Here are my observations:

Yes, if: all that’s required is short-term profit. A good operator who’s purely profit-focused can come into a company, take out tons of cost and focus on turbo-charging productivity, and thereby  drive shareholder return in the near term. Unfortunately, this approach generally involves both legitimate cost reduction and cutting-into-the-muscle reductions that will hamper future growth. Reductions in essential headcount, in R&D and marketing, or in employee benefits and development are some of the cost-cutting measures that tend to backfire in the long run. And if the bottom line focus relies on fear as a motivator (“do this or else’), as it all too often does, that will generally goose results in the short term, but tends to lead to attrition of key employees and a culture of malingering and active sabotage in the long-term.  However, if the leader’s intention is to come in, drive up profits, make a killing, and exit: yes, this will work. 

Yes, if: the product or service is a commodity. When a company is in the business of making or providing something that is truly a commodity – that is, the customer doesn’t care about service or innovation, but only wants to buy the thing at the lowest price, then the only-profit-matters approach will work (much of Michael Porter’s strategic advice is applicable in this situation).  Make the thing as cheaply as possible, corner the market, if possible, pay the lowest possible wages, charge as much as the market will bear.  If the employee base is largely unskilled or semi-skilled (as tends to be the case with commodity products), then the low morale and high turnover that tend to result from this approach are not a huge problem – just keep shoveling in the new minimum-wage workers, idiot-proof their jobs so you can get them up to speed quickly, watch them like a hawk so their unhappiness doesn’t yield too much "shrinkage" (HR-speak for employee theft)…and, yes, the leader of such a company can rake in piles of money.

Yes, if: the employee base shares the CEO’s philosophy. In a company where everyone is playing by these same rules; that is, everyone is out for him or herself, and doesn’t care what happens to anyone else, the company can be hugely profitable – especially if that’s all the customers care about, as well. (Until the whole system collapses under the weight of its own greed and self-indulgence, as we witnessed in the 2008-09 recession.)

Yes, if:  the CEO creates a layer of people-oriented leaders. Some profit-only leaders hedge their bets by hiring people below them who focus on the ‘people stuff.’ (This is actually the case in the company I referenced at the beginning of the post.) The leader then says, in effect, ‘Sure, fine – hire good people and keep them happy – but don’t let it get in the way of the bottom line.’ This will work, at least for awhile – but it’s hell on those one-level-down leaders, who are caught in the middle: providing continuous air cover for their folks, shielding them from the CEO’s you-don’t-matter-to-me-at-all philosophy, while having to claw and beg every nickel of resource needed to keep a talented workforce reasonably motivated and productive. How long this approach will work depends in large part on how much those leaders love their people and/or the business, how much BS they’re willing to put up with, and how golden their golden handcuffs are.

So yes, under any of the preceding conditions, a profit-is-all-that-matters approach will work. But, under circumstance other than those above, it probably won’t work. In other words, if a leader needs to build a sustainably growing and profitable enterprise in an industry that requires a high degree of innovation or creativity, and/or if the organization must provide excellent customer service – then no. I’ve seen profit-only leaders fail time and time again under such circumstances.

And the core reason – from my observation – is that delivering innovation, creativity or extraordinary customer service demands talented, hardworking employees who are loyal and motivated, and who will stick around.  And in this day and age, such employees are in high demand. As soon as they realize that the leader only sees them as a means to the end of raking in the dough - and will therefore consistently look for ways to give them as little of that dough as possible – their resumes will be on the street.

If you want to work in the kind of business that's focused on both doing well and doing right, then I’d suggest the following approach: look to see whether the company you work for (or one you're considering working for) has a great product or service and focuses on continuously improving both their offer and their approach to serving customers; hires the best people; supports their development and their creativity; and establishes an environment that both demands and rewards great results.  I predict that the enterprise will grow and thrive, and you along with it - all without you having to lie to your mom about how your CEO runs the business.

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