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Foreign. Hello and welcome to another episode of the Power of Balance after a fairly long lapse. Actually, I've done some teaching in the interval which actually prompted this episode today. I want to talk about balancing leadership, which I've been thinking about a lot recently. It is, I believe, and I hope, a way to try and maximize the effectiveness of organizations while ensuring that they understand their place and obligations to society as citizens. It doesn't cover all the bases, but I hope it's a start. So here we go. Balancing Leadership Whenever I talk about partnering leadership or balancing leadership, in effect the central theme of the power of balance, there will invariably be someone in the conversation or the class who'll interpret that to mean a quote unquote soft approach. Leadership by consensus, unanimity by committee, by the endless quest for agreement. And of course, that isn't balance, that's handing over power to the middling Take the eu, where consensus is supposedly the practice. In reality, it often just hands power to whoever's the strongest in the room. Agree with me and you'll get the subsidy. Or let's fudge it in case we upset a troublesome member. Both it and unanimity can also, of course, be the do nothing option, the power of veto in the UN Security Council being a prime example. After all, unless all the permanent members formally agree, nothing moves. Balancing leadership is a process, not a fixed point. It needs to be constantly readjusted to make sure that the flow towards the success of the whole has as few choke points as possible. And those choke points can range from conflicting interests and the system pulling against itself to good old fashioned personal resentments. So balancing leadership identifies and works with all the stakeholders who can accelerate or throttle the progress of the organization. And that's a lot wider than what's currently happening. These are the people and the organizations who share some of the benefits and the risks of the institution. You have to be able to manage them as interested parties who are affected by your decisions and more important, whose decisions can materially affect you even if you don't know it. But who are they? Well, it all depends on how the company or institution sees itself and its purpose. Does the corporation see itself as just the core players, its owners, its employees and its customers? Or is it a larger system that includes suppliers, subcontractors, unions and distributors? And do all stakeholders have equal sway in the company's priorities at all times? Every enterprise, even a home based trader, depends on relationships. Squeeze your supplier too hard and you'll be the last in line when its product or component is in short supply. Don't be in regular contact with your subcontractor and it'll be your reputation down the plug hole when his workers whistleblow. The value of your organization lies in the strength of its relationships. Gaps in those relationships can leave your business or institution very vulnerable. As for whether those stakeholders should all have parity, it's a bit like asking whether, at a time of war, your Defence Ministry should have equal funding to tourism. It all depends on the context and the need of the entire country. In this case, however, if you simply focus on your military and neglect to look after your farmers for your food supply, or you don't make sure that your energy grid, your transport and distribution run as smoothly as possible, you're going to have some severe problems. The war effort, to continue the analogy, is not just beating the enemy on the battlefield, whatever that is nowadays, it's keeping that entire network of relationships running to ensure the survival and success of the entire country. The point is, as I said earlier, you're working in partnership with all interested parties towards a goal that is better beneficial to all. So, as the leadership, you have to decide what are the priorities, at what time and in which context. You have to decide which one could create a choke point and which an accelerator, and which is fairly neutral at the moment. And the second question, what's the purpose of the organization? What is it there to do? Why is it there? Is it just to generate profits for its key stakeholders? Or is there another dimension to purpose its place in society? Is the sole obligation of the company to return the highest possible value to its owners, as Milton Friedman insisted? Or is it a responsible member of its community, society or markets? Is it a corporate or institutional citizen? Is that a soft question, do you think? Well, look at it this way. Whether you like it or not, that profit you have at the moment is inevitably going to come under pressure at some stage. So something will have to give to make sure that you keep up those earnings. You could cut salaries or training, or you could cut back on both staff numbers and customer service. And of course, as so many businesses have found, cut your training and your service quality goes down. Cut your service quality and your customers start walking away. And that applies whether you're a supermarket or a university, an AI provider or a brewery. Then you could think, as many have, well, I know how to break this cycle. I'll just offshore these expensive bits. Manufacturing or customer service or even electricity prices, if you're a data center. Which means, of course, that local employment drops, sometimes dramatically, which means that local buying power drops, which means if you're still selling back into the local market, that your prices are going to be squeezed, which means that your profits will be too. You might be thinking, but I'm an investment fund manager. I'm not involved in all this nonsense at all. True, but both your investors and your investees may well be. So the question is far from being soft. It asks whether thinking clearly about your role as a corporate citizen is essentially good for business. Balancing leadership demands that leaders clearly understand what they're leading. What is its purpose as an enterprise and as a member of society? And what is its neighborhood, the network of relationships it needs to manage and nurture in order to keep thriving once those ground rules have been set. Now any leadership needs to make sure that it creates a system, and I do mean a system of consistency and trust. Starting off by making sure that those ground rules are clearly communicated to all stakeholders and keep on being communicated. And of course, leadership needs to identify what succeeding will look like within those ground rules. Not success. But succeeding success is another thing that isn't fixed. It may be true for a boxing match, but not for an organization. Today's success may be tomorrow's not enough, or even too far. You may have seen last year's record dividends as a success, but this year you realize that if you'd plowed more of those profits back into innovation, then maybe your market wouldn't now be eaten up by that revolutionary product you didn't even see coming. Short term profit is short term success. Succeeding continuously asks the questions, now what? In this process of defining and identifying balancing, leaders will inevitably find themselves having to express the values, the governance, and the behaviors they intend to follow. After all, if you've decided there's no benefit to being a good corporate citizen because it doesn't align with your definition of the company succeeding, then that will certainly affect your governance, your corporate communications, and I believe, even your systems and processes. What that means is that the organization's entire trajectory has to align to that purpose. Its strategy, its assets, its processes, behaviors, values, all of it. And it doesn't matter whether you're a startup or taking over an established company. It has to be done. It's not just maintaining the system, it's much more than that. It's making sure that all the moving parts are always being updated and are constantly aimed in the right direction. It's the laser beam incessantly adjusting to the moving target. Balancing leadership is not soft. It's just incredibly hard, too hard for a single leader. Even if that single leader is a genius at delegating, she or he is never going to be able to have an unfiltered view of what is happening where it matters. Some delegates will invariably protect their own interests, or the entire top team will protect itself. As in group think or will take your pick. Delegated rather than balancing leadership creates bubbles. And as we've all experienced, bubbles, whether made of soap or top teams distort vision. Combine group think with distorted vision and what you get is not too far from fantasy. And that's when you're blind to those choke points. Top teams align themselves with shareholders to maximize dividends and their own bonuses. Unions working with management to slow down innovation that may affect the incomes of both. So what I'm arguing is that pyramidical delegated leadership is problematic because the risk of distorted information and multiple choke points is too high. And consensual leadership, as we've seen, may be better for transparency, but is the supreme choke point. So how can leadership make sure that there are no choke points, either in the form of endless debates on the way forward or distorted realities? Historically, of course, a number of leaders, political, corporate and institution, tried to solve the problem by bursting the bubble by getting rid of what they thought of as troublemakers or resistors. But what may have started as protecting the so called revolution or the company vision ended up protecting the power of the leader and their surviving acolytes, destroying the vision and certainly smothering innovation. So should we simply get rid of the single dominant leader, the CEO, the President or the Chairman? Or am I starting in the wrong place? Should the question be what does a balanced organization need to, how did I put it? Make sure that everything is constantly aimed at sustaining its prosperity, its purpose and its relationships? Well, it certainly needs clear and accurate intelligence. That's one of the things it needs. Another is it needs a holistic joined up view of its market stakeholder interests, and so on. It also, by contrast, needs to be able to make sound timely judgments in multiple specific areas, ranging from resourcing and channels to product development or R and D. In essence, in execution, everything depends on accurate intelligence and well judged decisions affecting both the strategic whole and and operational specifics. So how would any leadership ensure they receive that accurate intelligence or at least minimize its distortion, I'm oversimplifying somewhat here, but there are basically two kinds of intelligence needed, input and output. What new information do I need to plan and act and and then what specific data do I need about the results we're achieving or not achieving? So that I can adjust the way we're doing things. The first, let's call it input for convenience sake needs to be both accurate and joined up. What's happening in the market? What are the risks and opportunity with both our products and services and with cheaper, faster lookalikes? What about our stakeholders, both internal and external? What are the risks there? What have we missed? As I said, it needs to be accurate and joined up and you're going to get neither. If that intelligence only comes from your own internal sources. It needs to be gathered from multiple sources and weighed up critically, questioning your and their assumptions and the differing vested interests at play. Too much bother. Well, if a 22 year old student working on a master's thesis needs to base her work on rigorous research, then you running a business on which hundreds if not thousands of people depend need to be just a touch more thorough. I would say perhaps if that work had been done more painstakingly, the European and US car industries wouldn't be in the doldrums that they are now. What about output? Well, there's the KPI, that measure beloved by HR and canny sales directors alike. My issue with KPIs is that they're pretty easily gamed so that they either misrepresent the value of what is actually being achieved or or become an escape route from accountability. They can distort real value by e.g. front loading agreements to bring in the majority of revenues into 1/4, often the final quarter, to make sure the books close on a high. And they can provide cover for avoiding accountability. Tell me you haven't heard this one. The targets you set were totally unrealistic, especially considering the run of take a pick, heat waves, floods, the World Cup, Wimbledon and tiger mosquitoes. And more often than not those targets are then reset as long as performant measures are evaluated in the same place where the performance occurs. They will be flawed. I was going to be count and say is a danger that they will be flawed, but they will be flawed. Take that front end loading. It's in the interests of both the salesperson and the sales director to end the year on a high. And you know what? It's also in the interests of the CEO, but it's not in the interests of the value of the company. And it may be camouflaging a dangerous flaw that could have been addressed in time if it hadn't been hidden. So the first change that needs to be made is to ensure that performance outcomes, and particularly revenue related outcomes become only a part of any measure we can't just judge a company's success by individual or even divisional performance alone. People need to be also measured by how they've sustained the organization's purpose, value, relationships and strategy. And the second change, I believe, is to take the entire evaluation process out of the hands of the CEO. In fact, out of the hands of the entire executive leadership. The idea that the people responsible for executing can also influence the evaluation of their level of achievement is ridiculous and dangerous. So who evaluates the executive? I've put it in the hands of a small board subcommittee. The chair, the senior independent director, the audit chair, three people. They hire the evaluation agency by majority vote. That's the easy part. Firing them is deliberately hard. It takes all three agreeing, and only for serious cause, clearly defined in advance. Why make it that hard? Because the entire point of this agency is that it can't be leaned on. If a CEO having a bad quarter could get two friendly board members to quietly replace the people marking his homework, he'd be back to Square1. The EA also decides what actually gets measured. It proposes the scope of these key indicators and then takes it to the full board for approval. The impact of these changes is that those evaluations are broadened to ensure that they align right down to the individual level with what the organization itself has established as its purpose, its key relationships and its success measures. Macro to micro. The second real benefit is that independent evaluation minimizes, if not removes, the whole issue of vested interests and groupthinkers. And the third, and this is the one that CEOs I've known really fret about, is that it maximizes the chances of the leadership getting accurate, trustworthy information on which they can base their judgments. Does it squeeze the C suite? Does it wrap them up in more bureaucracy? No, I don't believe so. It clears away the thing that can really crush them. Bad information. And it also helps to increase trust. One of the ironic consequences of minimizing the opportunities to game a system is that you maximize the opportunities for trust to be established. So now we come to judgments and decisions. How does balancing leadership deal with that? The expectations we currently mostly have of CXOs is that if they're any good, they should lead from the front. We really haven't moved on from the heroic leader, have we? We still see leadership in our mind's eye as Alexander the Great leading the charge, or Wellington triumphant at Waterloo. And that image is still the model for the ideal corporate leader, male or female. Despite their excesses and landfill of screw ups. We forget that Alexander may have been an extraordinary general, but his inability to decentralize authority, his draining of the Macedonian coffers, and his lack of succession planning meant that Macedonia, and in fact Greece, descended into chaos on his death, and his empire fragmented amongst squabbling generals off the battlefield. Alexander was a bloody disaster, as was Wellington when he became prime minister. We also forget that military chiefs in modern wars not only assign significant power to their subordinates, but rely on them to both formulate strategy and to act decisively in battle. Good political and institutional leaders rarely, if ever, take decisions without baking them beforehand with advice and guidance from those around them and with independent evaluation of both input and output intelligence. Hopefully that advice will be a little more sound. There's still a problem. Because of the pressure on the leader to lead from the front, the concept of asking for advice outside a small cabal of supporters is still quite alien. And that small cabal is particularly vulnerable not only to group think, but to small think. Here's a thought. Would it be so stupid for leaders, individually or collectively, to to regularly sit down with their wider stakeholders, their neighborhood, as I called it, and ask them for their perspective? Not just the shareholders, consultants or non execs. It also means your distributors, your suppliers, your subcontractors, and where it's valid, your local government. Would it do any harm? Would it do any good? The thing about external stakeholders such as suppliers, is that they have to be balanced in their approach to you. On the one hand, they need you to prosper so that they can continue to do business with you. On the other hand, they don't want you to be so powerful that you can squeeze their prices. So somewhere in the middle of that tension, you're going to be able to glean some pretty valuable information. You'll also learn, if you listen carefully and consistently enough, how some of your practices are creating those dreaded choke points. And finally, as you know, the more you include the people that matter in your tent, the less likely they'll piss in it. Okay, so since I've been advocating balancing leadership, what have I said it is in practice? It's essentially leadership that refuses to be captive to any vested interests or assumptions. It balances clarity of purpose and success with a strong focus on relationships on its neighborhood stakeholders. It balances alignment of all its assets to its business with its obligations and benefits as a corporate citizen. It balances decision making authority with thoroughly analyzed intelligence from multiple sources. It balances the power to execute with independent assessment of its results. And finally, balancing leadership ensures that it keeps on balancing the balance. If you'd like to hear more about what I've been talking about, drop me a line. I'd love to hear from you. In the meantime, I'm Stephen Barden. This has been another episode of the Power of Balance. Sa.