Thursday, September 27, 2012

Back to Values


Back to Values

A couple of days ago I lamented that all too often values take a back seat to goals and processes in all too many aspects of our business lives.  However, I didn’t describe any values other than “integrity”.  So I sat on my couch and started to make a list of business values in my notebook.  After about five minutes I grabbed my computer, and after checking my email, yet again (bad habit), and my Facebook page (new bad habit), I decided to look at the values statements of financial companies: my former industry.  I delved into the annual reports of some of my former employers (Legg Mason and Bank of America), some of the casualties of the financial collapse (Lehman Brothers and Bear Stearns) and a few of the biggest names in the business (Goldman Sachs and JP Morgan).  Here’s how one firm begins its annual report to shareholders.  All the other statements are variations on the same themes, whether they were written before the credit crisis or this year:

A FIRM COMMITMENT to provide superior service to our clients, best-in-class returns to our stockholders and a superior workplace for our people.  Our commitment is backed by our guiding principles. More than words on paper, they are the CORNERSTONES of our culture.  Although [the company] has grown and changed dramatically in the 83 years we have been in existence, these FUNDAMENTAL beliefs still serve as the foundation of our success: Respect, Integrity, Meritocracy, Innovation and Philanthropy. [company name removed and italics added]

It turns out that this statement comes from Bear Stearns in the year that it failed.  It follows a similar pattern.  The statement espouses three laudable goals that mention the three key constituencies (clients, investors and employees).  It tries to foster credibility by saying that these are long-held views and aren’t mere words.   Then we get to the values.  Other firms add cooperation, dedication, confidentiality, fair dealing, or professional excellence.  It all sounds great.

Napkin #1 (1999)

I sat in countless meetings (and, drew a lot of pictures) where we debated and adopted value statements; selecting one value, and rejecting others.  It seemed hugely important at the time.  However, in my former world the words we selected now ring particularly hollow and laughable given the industry’s behavior in the run up to and aftermath of the credit crisis. 

As I look back, any combination of these values would have produced ethical, measured and acceptable corporate behavior, if we were only willing to live by these principles.  At least in my world, I guess we really didn’t mean it, despite our statements, glossy brochures and high-minded speeches (In thinking about this topic, I read Lehman Brothers ex-Chairman Richard Fuld speak about his firm’s values in a Harvard Business School publication: it reeks of sincerity).

In my experience, there are two problems with value statements.  First they are crafted when business is going well, and it’s easy to agree to be ethical and moral.  As competition heats up and it gets harder to make sales targets or earnings goals, the values start to fray.  The values aren’t abandoned, they are merely loosened as employees struggle to bring in business or keep down costs.  Inevitably things go wrong, and the values are largely abandoned, and anything goes to save the day, or hide the problem.

My second observation is that most financial services companies expect their employees to live by the values published in the annual report and posted in the break room, but the bosses get to live by a different set of rules.  As result, there’s a failure of leadership, which makes it quite easy for the rank and file to abandon values in favor of reaching a goal or violating a policy without regard to values.

The key to making values work in business is living them, not just writing them down.  Over three decades I have seen how hard it is difficult to operate by those lofty values, whatever they are, when the decisions become difficult.

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