11

Creating the Right Conditions

141

The steward knocked softly at the compartment door. Opening it, he said, “Gentlemen, I reserved a table for you as you requested, and the two ladies seemed pleased to join you. Your table is ready now if you’d like to follow me.”

The two men followed the steward back to the dining car where they were seated in a spacious booth. Yolanda was already seated at the table.

“Hello, gentlemen—thanks for inviting me,” she smiled. “You saved me from a fate worse than death.” All three laughed as they began to speak about Hank Striker and his approach to managing people.

Yolanda looked at the two men. “You’re not going to believe what I went through. I was about to jump out of the window or slash my wrists, and then the steward came and said that you wanted me to join you. I must apologize for my initial reaction to what you were saying earlier today.” She looked at Kip and smiled, obviously somewhat embarrassed.

“Not a problem,” said Kip in an amicable tone. “I do understand where you’re coming from, and your reactions to my earlier comments are pretty normal. I’m used to getting strong reactions,” he added with a warm and friendly smile.

“So, Yolanda, tell us—what was it like to be locked up with Striker for almost four hours?” asked Pete in a teasing tone.

“The guy’s like a bull in a china shop. I mean, he must have learned his people skills from Genghis Khan. He told me he’s on his fourth wife.”

“Only four?” said Pete, laughing.

“Don’t laugh—he tried to talk me into becoming number five!” said Yolanda, joking. “Seems he’s a big shot in Cleveland, Ohio, where he owns and operates a large parts manufacturing plant for the bathroom and plumbing industry. He built it from scratch and works one hundred hours per week holding onto his empire—says he signs every check. Claims people are stealing from him, so he has guards and lockdown procedures every night. He was complaining about some recent lawsuit. He hates lawyers and politicians. Says they’re all crooks.” Pete shook his head in disbelief.

“What’s the name of his company?” asked Kip, trying to keep the conversation light.

“I think he said it was Friendly Plumbing or something like that,” replied Yolanda in a serious tone, not realizing the irony.

“That may be the biggest oxymoron in Cleveland!” chortled Pete.

“I’ve heard of them,” said Kip, trying to keep the character assassinations to a minimum. “I started my career in Cleveland. It’s a friendly town.”

“So did you sell him an incentive program?” needled Pete good-naturedly, not taking Kip’s conciliatory lead.

“Almost,” winked Yolanda.

“Hi, everyone,” said a woman’s voice.

“Hi, Lucy,” said Pete. “Glad you could join us. Yolanda was bringing us up to speed on our cigar-chomping friend, Hank Striker. And you won’t believe the name of his company.”

“You’ve got to be kidding! You’re in Striker’s compartment?” looking at Yolanda with amusement. “Gee, some people have all the luck!” said Lucy.

By now, only the dim lights of an occasional distant farmhouse were visible outside the dining car window. When the waiter appeared at their table, Kip, who knew the menu by heart, made suggestions to the other three people. Trusting Kip’s judgment, everyone ordered.143

Lucy, all at once, turned to Kip and picked up the conversation where they’d left it several hours earlier: “I’ve been thinking about your comments at lunch. I’d like to know more about your experience at National Stores; I’m always open to new ideas. I know there are limitations to any program, including ours, and I’d like to hear more about freedom-based environments. Tell me about where you start?”

Kip nodded. Pete welcomed the request. He’d expected a more social conversation, but this was perfect.

Kip, concerned with her earlier reaction to this topic, turned to Yolanda and asked, “If I answer Lucy’s question, would that be OK? I know you weren’t thrilled with my comments at lunch.”

“Are you kidding?” said Yolanda, with a wide grin. “I owe all of you big-time for saving me from Hank. And, besides, at lunch I wasn’t ready to admit that you might be right. I still believe in my product. Incentives can make a difference, and I mean that, but I need to be more open-minded. It seemed that the three of you were a lot more on track with each other, and I was the odd man out. Maybe there’s something to what you said, Kip. I just don’t know.”

She turned to Pete and said, “Time heals all wounds—except the wounds Striker inflicted on me in the passenger compartment.” Everyone laughed at Yolanda’s joke, and they appreciated her new openness.

“Great!” said Kip. “But, first, I need to ask a delicate question.” Looking at Lucy, he asked, “Why are you interested in this subject?”

“Kip,” began Lucy, “I know my projects have problems, but I always thought that was normal. Now I’m not sure. And the problems seem to have a common theme—that is the most troubling aspect. We start off great with our clients, but then something happens around the fourth or fifth month.

“We start to get pushback from the managers and from the staff. My boss and the other top consultants in the firm almost seem to expect this pushback. Our solution, as you know, is a systems response. But there’s something missing, and earlier today you made sense. I couldn’t help thinking about when my brother played for a triple A baseball team in the early nineties. He had bad knees that finally ended his career. But before that, they would shoot him up with medication that numbed his knees. Sometimes, I feel that’s what we’re doing to our clients—numbing them up.144

“It’s hard to deny your thesis or the research that supports your argument. I’ve read some of the same case studies in the business review magazines, but I never connected the dots before today.

“I’m not surrendering—well, at least not just yet,” she said, smiling, and continued. “No white flag or anything like that, but I do want to hear more. Who knows, if you convince me, I might become your partner and fight the good fight. Of course, I’d need a bonus,” she added half-jokingly.

Pete was taking this conversation all in. He saw before him two very smart people who were beginning to open up to the possibility that a freedom-based approach might work. Yolanda was interpreting Kip’s ideas from a behaviorist’s viewpoint, and Lucy was looking at it from a systems’ perspective. He was looking at it from a CEO’s vantage point—no one was discounting the freedom-based idea anymore. And the interesting part was the huge divergence of their initial perspectives. “These two women aren’t 100 percent on board,” Pete thought, “but they are no longer fighting with Kip. They want to learn more and then make up their own minds.”

He’d learned over the years that women have a special knack for processing information differently than men. He knew that the best adviser he’d ever had was his wife because she would tell him the truth—even when it hurt. These two businesswomen were interested in what Kip had to say, and they were sharp cookies; they weren’t pushovers. Thirty percent of his management team was women and would probably react in the same way these two experienced women had. He expected them to, and he needed the data points if he was going to be successful in creating change in his environment.

“As Kip and I were talking candidly so far today,” Pete said, “he was telling me about his brother and how he overcame his alcohol addiction.” He looked at Kip for an OK, and Kip nodded his support of where Pete was going with his comments.145

“Kip said something that made all the sense in the world. He told me that you first have to admit to yourself that you’re out of control. And, once you admit you have a problem, you can begin exploring your choices. I think that’s what I just heard from you two ladies, and I’m with you on this.”

Pete took a deep breath and then said, “I have a giant business problem at my company, and it’s all about not being able to get my people to become accountable for their performance.

“Until this train ride and today’s specific conversation, I frankly didn’t have the guts to face the fact that what we’ve been doing isn’t working. Now, I’m ready to admit it!” Pete needed to get this off his chest and believed this forum was both the right time and the right place.

“Also, I’ve been feeling the pressure of being a CEO—something I’ve worked all my life to achieve. But I’m not willing to have a heart attack to force needed changes.”

At this point, Kip interrupted, saying, “I think he’s referring to my wake-up call around twenty years ago—my own heart attack. That’s how I got the message about the freedom-based approach to leading people.”

Pete continued, while looking at Kip: “The personal experiences you’ve related, the evidence you’ve shared, and my own reading confirms what I’ve quietly thought for a long time: that my organization needs a new approach. Now I’m hearing Yolanda and Lucy express interest in these ideas as well. So I welcome this conversation and all your company.

“I’m ready to begin the journey toward a freedom-based operation; I just hope I have the courage to see it through! I know I asked this before, Kip, but, can you give me more details about how I begin?” At that Pete smiled and fell silent.

Kip looked at his three companions and said, “First, you’ve got to create the right conditions for the freedom-based philosophy to take hold. The right conditions are what enable great people to do great work. It took us upward of two years to install the strategies required to establish the right conditions.”146

“But how do the right conditions improve operational results?” questioned Pete.

“In an environment where interpersonal tension is low, where groups work well together, and where responsibility is shared appropriately, improvements in operational results are not only possible but inevitable. And you don’t have to wait two years to see results. We began seeing results as soon as we started employing the very first strategy. Let me share a story that illustrates the power of having the right conditions.”

His three companions looked relaxed yet focused on Kip.

“Campers, hikers, and hunters,” Kip began, “have long known that if they want a lantern they can rely on, they have only to buy a Coleman lantern. One day, old man Coleman, the founder of the company, showed up at the office—even though he was retired—for a production meeting. Upon his arrival, the group was discussing what to do about a defective gas jet that leaked under pressure in one of their products. The question before the group was whether the company, famed for its impeccable quality, publicly admit the defect and launch a product recall.

“It was April, and there were several thousand of the defective units already on store shelves, and the camping season was just around the corner. The production staff estimated that only a small proportion of the lanterns were thought to have the defective jet. One marketing person argued, ‘With so few bad units, and with the cost of a recall so high, why not wait for customers to return the defective products?’

“Up until that moment, Mr. Coleman had been listening quietly, which was his rule of behavior, but this last comment was too much. He slammed the table with his fist and bellowed, ‘What’s the matter with you people? Don’t you understand that every Coleman lantern has to work?’

“To Mr. Coleman, the company’s values were clear. They had built a company where their Shared Values demanded that a defective product be recalled immediately! Coleman customers had come to depend on the reliability of the product, and he was not about to sacrifice their hundred-year, hard-earned trust for any reason.”147

Yolanda asked, “So, one of the conditions to build this kind of workplace is the bedrock values an operation has, isn’t it?”

“Yes,” said Kip.

“But you called it something special, didn’t you?” asked Lucy.

“Kip called it ‘Shared Values,’ right?” interjected Pete.

Kip took the cue. “Yes, that’s what I called it. Shared Values are a part of the Keen Internal Vision of an operation. They are the bedrock values that Yolanda was referring to. A Keen Internal Vision is nothing more than the road map each individual uses to navigate through the dangers we all face every day, recognizing that we all face a political environment as well as a job-related environment.”

A Keen Internal Vision is nothing more than the road map each individual uses to navigate through the dangers we face every day, recognizing that we all face a political environment as well as a job-related environment.

“Sure, and it was the reputation of the business that was at stake that Coleman responded to,” said Pete.

“No wonder he was angry,” said Lucy. They all nodded.

“‘The wrong conditions lead people to do the wrong thing. The right conditions lead people to behave ethically,’”¹ said Kip. “Remember, treating people ethically creates loyalty, and loyalty leads to accountability.”

“And you can’t create an incentive program that would accomplish that, can you?” asked Yolanda. Kip shook his head.

“So an organization’s Shared Values create the conditions for ethical behavior!” said Lucy emphatically.

Kip looked at Lucy expectantly, encouraging her to continue her thought. “Now here’s a very interesting idea,” he said, “and it dovetails well with the kinds of systems you want to put in place, Lucy. The idea goes something like this: Ethical behavior is less dependent on whether the people themselves are predisposed to be ethical than it is on the conditions in which they find themselves, and this runs counter to what many people believe.”148

“OK, so you create a system that promotes ethical behavior,” said Yolanda, “but how do you do that without incentives?”

“Or without a set of policies or rules?” asked Lucy.

Pete smiled, waiting for Kip’s answer. These two women had tag-teamed Kip again.

Ethical behavior is less dependent on whether the people themselves are predisposed to be ethical than it is on the conditions in which they find themselves, and this runs counter to what many people believe.

Kip welcomed the challenge. “To answer that, I need to get somewhat clinical for a moment. I’m going to use two criminologists, James Q. Wilson and George Kelling, to explain how you do it,” he said, looking to Yolanda and then Lucy. These two researchers call their theory the ‘broken windows theory,’ and it’s all about context.”

“We use that term as well in our work,” said Lucy. “Context is a powerful element in people’s perceptions. Context is our reality, isn’t it?”

“Yes, that is exactly correct,” said Kip. “Wilson and Kelling’s theory applies to building a freedom-based environment, and I think you’ll find their argument intriguing, if not enlightening. Unfortunately, their thesis can be applied in both constructive and destructive ways, so it’s doubly important to learn this lesson well if you’re going to begin the journey of building a freedom-based workplace.”

Kip continued, saying, “Wilson and Kelling argue that crime is the inevitable result of disorder. If a window is broken and left broken, people walking by will conclude that no one cares and no one is in charge. Soon more windows will be broken, and the sense of anarchy will spread from the building to the street on which it faces, sending a signal that anything goes. In a city, relatively minor problems like graffiti, public disorder, and aggressive panhandling are all the equivalent of broken windows, invitations to more serious crimes.²149

Wilson and Kelling argue that crime is the inevitable result of disorder. If a window is broken and left broken, people walking by will conclude that no one cares and no one is in charge.… In a city, relatively minor problems like graffiti, public disorder, and aggressive panhandling are all the equivalent of broken windows, invitations to more serious crimes.

Kip paused for a moment, and Pete jumped in before he could continue. “You’re saying that the broken windows theory compares crime to disease, suggesting that crime is contagious,” said Pete.

“Exactly,” said Kip. “It’s not the presence of potential criminals, they conclude, that leads to a crime wave, because these elements are always present. Rather, the power of context is the cause.”

“OK,” said Yolanda. “Let me see if I can capture this idea. Once the right conditions are present, criminal behavior blossoms? So if you create the right conditions, accountability will blossom? Is that what you’re saying?”

“Yes, that’s what the theory says,” said Kip, “and that’s the way you create any sustainable change. But it takes constant work and energy, just like keeping crime off the street.”

Lucy added, “So if the conditions of social decay can lead to a crime wave, then the reverse might be true as well? Is that what you’re arguing?”150

Kip nodded, and Lucy said, “I see.”

“I find this very interesting, but do you have numbers to support it?” asked Pete.

Nodding, Kip replied, “I sure do. A leading American research organization has collected data over the past twelve years on organizational conditions from over two thousand global sites, not just in the United States. The data from this study, called the Values & Attitude Study (VAS), when correlated with measures of operational results, such as turnover rate, productivity, and profitability, demonstrate a direct link between healthy conditions and improvements in these same critical measures.

“The study trends also show that as the work environment improves; that is, as the workplace becomes more freedom-based, so too does accountability improve. In other words, healthy work environments—freedom-based environments—create the right conditions for people to be accountable. Put simply, happy people are more productive, and the data quantifiably confirm this correlation.³

“The broken windows theory and the VAS numerical data suggest that ‘we are more than just sensitive to changes in context. We’re exquisitely sensitive to them.’”⁴

Lucy, trying to clarify her thoughts, asked, “Kip, so you’re saying the data from several reliable sources suggest that by making even small changes in the social conditions, big changes in individual and group behavior can occur without any systems changes or incentive programs?”

By making even small changes in the social conditions, big changes in individual and group behavior can occur without any systems changes or incentive programs.

“Yes, I am,” said Kip, as he repeated himself for emphasis. “Yes, I am!”

Just then, the waiter appeared with plates of salads, placed them in front of the four travelers, and said, “Folks, your dinners will be right up!” As Yolanda and the others sprinkled pepper on their crisp greens, Kip continued.151

“Let me share another story of an organization in Minneapolis with which I’ve personally worked, Ault Inc. Ault’s top leaders had already invested two-plus years in crafting their freedom-based workplace when this particular crisis hit them. As I relate the experience, see if you think that the typical organization that was not freedom-based would have reacted as Ault did.”

“So, they acted the way they did because they were freedom based?” asked Lucy.

Kip shook his head yes as he took a bite of his salad.

“What happened?” asked Pete.

The older man wiped his mouth with the white cotton napkin and said, “Ault is a manufacturing firm that had about 165 employees when this incident took place. Its executives were in the process of obtaining an increase in Ault’s line of credit from the bank. This credit expansion was crucial for sustaining operations at a time when the computer industry that Ault served was going through a painful period of slow sales and declining margins.

“Ault had already filed application papers with their bank and received verbal assurances of approval, when the company received some bad news: one of its largest clients had just filed for bankruptcy. With this new information, the bank no longer had current and accurate information. The critical issue was that with this impending bankruptcy, Ault might not receive the large sum owed to it by the customer or a continuing stream of cash flow. Over 30 percent of the projected annual revenues shown on the forecasted profit-and-loss statement were no longer accurate.”

Lucy cut in, “That’s like being between a rock and a hard place!” Pete agreed, understanding the grave implications of the situation.

“The Ault executives,” Kip continued, “faced a dilemma, just like the people at Coleman had. If they shared this latest information with the bank and revised their financials, the company’s position would not look nearly so strong, and they would almost certainly be denied the increase to the line of credit.152

“Without these new funds the company would have to lay off 20 percent of its valued employees. And that’s not all. Ault executives were anticipating the computer economy would be strengthened early the next year. Without the employees, the company would be less competitive.”

“I understand—boy, do I understand!” said Pete.

“At the same time, Ault’s leaders were confident that news about the bankruptcy would almost certainly not come to the bank’s attention for months. And it wasn’t even a question of lying; they could simply play dumb, wait until the line of credit had been increased and the funds committed, and then let the bank know of the changed situation.

“The good of the company seemed to demand playing it this way. Who would ever know? Despite the strong temptation, Ault’s executives had embraced the freedom-based philosophy, which is steeped in a Shared Values ethic, and they knew from the beginning that their corporate values required telling the truth, not only when it was convenient but in all situations.”

“So what happened?” asked Yolanda.

“The bank’s reaction was not what the company expected or feared,” replied Kip. “One Ault official later said to me that by taking the risk of sharing the information with the bank and telling the truth immediately, they had gained the bank’s respect. Indeed, the bankers were so deeply impressed by the company’s straightforward truthfulness that the relationship was strengthened.” Kip smiled at his table-mates.

“So it was a good-news story for a freedom-based workplace, wasn’t it?” stated Pete.

“Yes, Pete, it was,” responded Kip.

“Kip, what were Ault’s Shared Values, and would these be the same Shared Values that every organization should embrace if they want a freedom-based workplace?” asked Lucy.

“Yes, Lucy, they are,” replied Kip.

“These eight Shared Values are the same ones that Ault and every company I work with embraces to create freedom-based conditions.”153

Having said that, Kip handed Lucy a piece of paper on which the eight Shared Values were printed.

“And remember, too, that these eight Shared Values are the key values to connecting people to their jobs. If you want accountability to flourish, you have to practice these eight strategies every day. Like the broken windows theory, if you ignore any one of these elements, antisocial behavior will occur. Why? Because silence on any one of these implies tacit support that it’s OK to break the rules.

If you want to create the conditions for accountability to flourish, you have to practice these eight strategies every day.

Like the broken windows theory, if you ignore any one of these elements, antisocial behavior will occur.

“These eight values were identified by seventeen million people from forty countries responding to surveys. Let me illustrate them for you using Ault’s experience as my example.”

Getting a paper napkin from the waiter, Kip took the time before explaining each of the eight Shared Values to write it on the napkin. “OK,” he said, “the first principle of Shared Values is ‘Treat others with uncompromising truth.’

“Despite not wanting to disclose the bankruptcy of one of their biggest customers,” he said, “Ault’s leadership team decided that the right thing to do was to disclose this fact to their bank, immediately. While doing so might have cost them the loan they were counting on, they preferred to disclose the uncompromising truth anyway. As it turned out, their bankers were impressed with their truthfulness and made the loan.”

Again, Kip stopped his explanation to write on the napkin: “Lavish trust on your associates.”

“While most organizations would consider their bank an interchangeable vendor, Ault’s leadership team lavished trust on their bankers and treated them as partners. By reporting what they had learned about their bankrupt customer as soon as they became aware of the news, Ault’s leaders strengthened the trust their bankers had in them.154

Kip wrote, “Mentor unselfishly,” while saying, “It certainly was tempting to keep their mouths shut until after their loan had been approved. In fact, this course of action was seriously discussed. But when it came time to make a decision, the CEO mentored his people to stick to their Shared Values, which included being unselfish in offering full disclosure.

Continuing, Kip wrote, “Be receptive to new ideas, regardless of their origin.”

“After all, ‘Business is business’ had once been their motto, but after they’d adopted Shared Values, their point of view changed completely. Even though there was the potentially negative impact of being denied the much-needed line of credit, members of the leadership team were receptive to new ideas regardless of their origin.

“‘Take personal risks for the organization’s sake,’” Kip said as he wrote. “Choosing to disclose the information was more than an ethical dilemma; it meant taking a personal risk for every member of the company. Their livelihoods were on the line! But, more important, so was their integrity. In the end, they chose to risk the possibility of a short-term loss of income over a long-term loss of their reputations and the loyalty of their employees and the community. Here is an example of a publicly traded company that took their integrity seriously and by doing so protected their stockholders. During those years, in the mid-1990s when I was working with Ault, their stock rose by over 1,000 percent.”

“Kip, it sounds like shareholder integrity won out over shareholder value, and it paid off, too!” said Lucy with admiration.

Kip smiled at Lucy as he wrote, “‘Give credit where it is due.’”

“Lucy,” he said, “part of giving credit is giving timely and appropriate feedback when our actions are not up to our individual or group standards. Since their standards called for uncompromising truth, no one on the management team was willing to take credit for withholding the truth. Rather, they were prepared to give credit where it was due for sticking to their values.155

“Number 7 is ‘Do not touch dishonest dollars,’” Kip said as he wrote. “The people of Ault manufacturing had clearly defined their standards of honesty, and those standards were nonnegotiable. Together Ault employees understood the organization’s Shared Values and Keen Internal Vision. Everyone was prepared to support the values they shared. One of their values was to never touch a dishonest dollar. Maintaining their collective honesty and integrity was of far greater value than any amount of money or protecting their stock price.”

Kip wrote, “Put the interests of others before your own,” and said, “The final decision to tell the bank about their customer’s bankruptcy came down to one simple question: Were they prepared to put the interests of the bank before their own? The answer was a resounding yes! The good people of Ault had learned from experience that putting the interests of others first was the only way to build a healthy relationship with their bankers and with their customers.

“Yolanda, Lucy, and Pete, do these Shared Values make sense to you?” asked Kip.

“They make a lot of sense, Kip,” answered Pete. “I’ve got to believe they would make sense to anyone.”

“Yes, Kip, I wish I had them at my incentive company,” said Yolanda.

Laughing, Lucy chimed in, “Boy, would this make a difference with our partners. The competitiveness and withholding of information in my organization are incredible,” she said, shaking her head.

Within a few moments of Lucy’s comments, the waiter and an assistant appeared with the group’s main courses and cleared away their salad plates.

Pete looked at the group. “I think we should all give this a rest for the moment and not let our food get cold.” They all agreed and began their dinner as the conversation turned lightheartedly to family and trivial banter.156

What had started off as a contentious discussion between strangers had become a constructive meeting of minds.