It was December 2nd, 2001, when a $70 billion empire, the 7th largest publicly traded company globally, collapsed overnight.
They called themselves "The World's Greatest Company."
Their core values were Integrity, Communication, Respect, and Excellence.
However, as it turns out, hundreds of managers in the corporation were involved in what turned out to be one of the largest accounting frauds in human history. They had built a sophisticated network of offshore companies and performed complex manipulations to their balance sheet. The system was so advanced that it even deceived one of the leading global rating agencies into continually giving this corporation the highest credit ratings for more than half a decade.
In the year 2000, one of the empire's last moves was claiming revenues in excess of $110 billion from a deal that actually lost them money. At that point, the company had quietly accumulated more than $30 billion in debt, and shortly after, they had to declare bankruptcy. The stock fell from $90 to practically zero overnight. Investors lost fortunes, and thousands of employees lost their pensions. In many cases, people lost their life savings.
But there were a few who got away with their pockets full: more than 500 managers of the company had received substantial bonus payments shortly before the collapse.
This is the story of Enron.
With more than 20,000 employees, Enron was one of the world’s major players in utilities. They were named "America's Most Innovative Company" for six consecutive years from 1996 to 2001 by Forbes Magazine. Their market value was more than $70 billion (based on the fake balance sheets they published).
And the big elephantine question in the room is:
How could a company that reputedly held integrity and excellence dear turn into a death star of greed and fraudulent accounting?
To answer this question, we need to take a step back and view the situation through the lens of corporate values and what they truly mean on a day-to-day basis.
It may be uncomfortable to hear, but it’s important to understand that corporate values are - in almost all cases - not worth the paper they are written on.
Even if they are preached in emails, at company events, and in "self-paced e-learnings."
Before we go any further, let me assure you that there is a silver lining on the horizon:
Yes, in the vast majority of companies, the culture develops by itself. It’s seemingly impossible to proactively steer or even influence it.
But it’s entirely possible to intentionally shape and transform an organizational culture. And it’s not only possible, it’s absolutely achievable with reasonable effort and within a reasonable time.
So how do you do it?
To figure this out, let’s get to the bottom of where and how exactly corporate values fail in their mission of guiding employees on how to act.
To sum it up, there is a staggering discrepancy between what company values typically imply and how most people actually behave and decide in business situations.
What’s peculiar is that in most cases, organizations seem to run smoothly… up until the point when things suddenly, and seemingly unexpectedly, explode.
However, when you’re paying attention to the right details, you can see the explosion coming from a mile away.
Here’s the pattern:
As long as things are going well in business and there are not too many things happening out of the ordinary, it seems like the company values are doing their job just fine.
You can observe this in corporations when business is decent: They will host regular team events, often great ones. Training and development budgets are easy to get. And every new event and initiative is celebrated as being an expression of “putting people first”.
This is often lived to an extreme in well-funded start-ups. As long as new funding is coming in and there’s money to be thrown around, values like “loyalty” are easily upheld. The company is “loyal” to people (because they are more focused on growth than on cost management) and people are “loyal” to the company (because who doesn’t like a decent salary and great parties?).
So when do companies and people wander off the path of values?
There are two conditions under which - in many cases - company values are rendered meaningless in an instant:
The rise of tough decisions that have actual consequences for people This is when people would have to endure actual inconveniences, and it would require serious effort to actually live up to the company's values.
Extraordinary opportunities Integrity can be easily and quickly overthrown by greed.
Interestingly, when one of the two conditions applies and actions are taken that go against the company values, it typically doesn't have consequences.
And that's the exact problem.
The reality is that by the time things blow up in a major way, there have always been a variety of issues seething under the surface.
So the big explosion is not something that magically happens out of nowhere. It's when the many missteps have built up pressure to a point so that the lid is flying off.
A prominent example from recent years is Uber:
In February 2017, the founder and CEO, Travis Kalanick, had a meltdown when an Uber driver criticized him for dropping the rates for Uber drivers. The outburst was recorded and made public by the driver. Just a few days later, Kalanick sent an email to all Uber employees stating that:
"To say that I am ashamed is an extreme understatement. My job as your leader is to lead... and that starts with behaving in a way that makes us all proud. That is not what I did, and it cannot be explained away."
At first glance, it seems almost unfair that one angry outburst of the CEO turned into a full-blown shitstorm. But this is a perfect example that it wasn't this outburst that was the problem. There was a long history of reported cases at Uber of managers berating employees, inappropriate comments, and even sexual harassment. What all of these cases had in common was that they had little to no consequences.
And with this example, we're at the very core of what corporate values are:
They are not defined by how people act.
Organizational values are defined by what people will not do. They are defined by the absence of certain actions.
If you have a highly toxic culture, it doesn't mean that in your organization there's non-stop hell on earth. There will always be acts of kindness and compassion. But that's not what defines a culture.
Here's an example from my own company:
One of my employees was telling me about a former employer of hers. The boss was regularly shouting at employees in such an aggressive way that, after those interactions, they would often head to the bathroom to cry. Everyone was facing this from time to time, and so when someone came out of a meeting room with the boss and was heading to the bathroom, others would follow them to give them comfort. Do these acts of kindness mean, that the company had a culture of compassion and team spirit? I'll let you draw your own conclusions, but I'm erring on the side of "Hell, no!"
While this is an example of "us against them," when the team stood together, most of the time cultural issues are magnified when people start mimicking the misbehavior of superiors. In the case described above, when managers begin shouting at people, too.
So another perspective on how values are lived is the question of which behavior people in an organization will default to.
So we have established that company values are not defined by what people do, but by behaviors that are not being tolerated.
The big question remaining is: Can we proactively foster and promote good behaviors?
The answer is clear: Yes, we can!
The challenge people face with corporate values is that it's difficult to translate them into day-to-day actions.
In fact, it goes a step further.
It's not that the right behavior follows by having the right values. It's that how people behave and decide is what shapes the values in the first place.
So what we need is a system that allows people to make decisions independently while still giving them enough direction so that they make them and behave, so that collectively, how they act shapes the company values.
The key to building such a framework is to understand that it is just as much a part of the business objectives as, for example, financial targets.
Have you ever seen the leadership of an organization send out an email stating that:
"We decided that we want to grow the business by 30%. Please, everyone, figure it out."
Probably not.
Then why do many leaders believe that an email with the following will work:
"We decided that we want Integrity and Collaboration to be our new primary values. Please, everyone, figure out how to live them."
When the leadership sets business objectives, they break them down into divisional targets, lay out a roadmap, and launch strategic initiatives. In other words, they make these abstract objectives tangible and actionable.
And by the exact same token, when company values are defined, they require a framework to make them tangible and actionable.
And that is entirely achievable.
While there are many ways to translate corporate values into practice, the following 3-part framework has proven to work:
Virtues A set of qualities that are considered to be good. In contrast to values, virtues are universally accepted to have high moral value.
Principles Concise statements that tell people not what an outcome should look like, but how they can get to that outcome in a way that embodies what their company stands for.
War- & Peacetime Stories Short stories of actual situations that exemplify how the virtues are expressed in these situations, how principles are applied, and which behaviors and decisions would go against either of them. A set of qualities that are considered to be good. In contrast to values, virtues are universally accepted to have high moral value.
For an example for principles, check out our principles at gueth.com!
You may now ask: "This all sounds good and fair, but isn't that still a bunch of paperwork?"
And you are absolutely right. Up until this point, we have produced a lot of theory.
There is another missing piece to the puzzle:
That piece is the leadership, which must set the example.
Because values are really just values if they are actually valued by someone.
If "collaboration" and "respect" are company values, but the leadership promotes people who perform best according to their KPIs, regardless of how they treat colleagues or, even worse, their subordinates, then respect and collaboration are clearly not valued very much.
So the key to actual adoption of values is to sometimes make decisions that, in the short term, may seem to go against some of the company's objectives.
What's important to note is that this doesn't mean that business success needs to be sacrificed. This is not an "either-or" question.
It's not that you either have a successful, profitable firm, or one in which a daily cuddle is more important than business.
The point is that the right answer contains an "and". The answer is to conduct business in a way so that success happens in conjunction with behaving according to the company's virtues and principles.
It's even possible - and common practice in many partnership-based business models, for example in consulting - to add KPIs that measure collaboration to the scorecards of senior leadership and make living the company values bonus-relevant.
But let's take a step back.
Why go through all the trouble?
Is it really worth it to set all of that up and then take one of the scarcest resources in the company, the leadership's time, just to instantiate a system that doesn't even directly contribute to the success of the business?
There are two parts to the answer. The first part is: You may simply want to set all of this up because it's your aspiration. Simply because you may want to.
The question you need to ask yourself in regards to this is:
Do you want to lead a team, a division, or an entire business in which people hate coming to work?
If you want people to enjoy working on your team and to be proud to work there, then virtues and principles are one of the quickest and most persistent ways to build that kind of image and that level of appreciation among employees.
But there's the other, much more substantial and quantifiable part:
Interestingly, even if you couldn't care less about how much employees hate their life at work, virtues and principles can still help you. And that help can be quantified and measured.
In the example of Uber, Travis Kalanick deliberately made "toe-stepping", "working longer, harder, and smarter, not just two out of the three", and "principled confrontation" into company values. In their values, Uber stated, amongst other things, that "the best idea always wins" and that "sometimes the world and institutions need to change in order for the future to be ushered in".
Kalanick was very explicit in prioritizing the company over people. And prioritizing the company over institutions and, as the company has shown, even above the law.
And that worked well for him... at least for a while.
As you may be able to imagine, I am not trying to glorify ruthless corporate values at the expense of people.
The point of having clearly defined virtues and principles is that it helps to attract the right people to your organization. Which means that you don't only have access to more and better talent, but also higher retention rates and, ultimately, lower recruiting costs.
And, even more importantly, clearly defined and communicated virtues and principles improve the performance of the organization as a whole, because you attract like-minded people who share many worldviews, communicate more easily with each other, and, in general, work well together.
In short, by being explicit about what you value, you drastically reduce mismatches in expectations during hiring.
If you are looking for "a ruthless sales shark who will sell her own grandmother to close a deal," you will most likely receive applications from people who fit this description, just as "if you like to work alone, please work somewhere else - we work in teams and share success" will likely get you applications from more team-oriented individuals.
Virtues and principles are a proven way to convey what you truly value to every last corner of your organization.
They align your people and make it easier to steer the organization. They increase overall performance because they provide a clear framework for achieving business objectives.
And they help you build an organization that people are proud to work in.
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