Why Companies Should Put Values First — And How They Can Do It Without Sacrificing Growth

Instead of squabbling over the specific rules and regulations that should restrict corporate behavior, we need to find ways to inspire our companies to behave when regulators and other stakeholders aren’t looking.

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Nearly five years after the U.S. financial meltdown, the soap opera continues as Wall Street, Main Street, and our government continue to grope for ways to forestall future crises.

Unfortunately, the latest episodes – captured in headlines like “KPMG Hit By Insider Trading Allegations” – are beginning to feel like re-runs. The problem is that we’re stuck in a crisis-regulation cycle, trying to avoid future crises by writing rules and regulations aimed at eliminating repeat performances of previous bad acts. Meanwhile, we fail to address the root causes of corporate and financial malfeasance.

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Instead of squabbling over the specific rules and regulations that should restrict corporate behavior, we need to find ways to inspire our companies to behave when regulators and other stakeholders aren’t looking.  Here are five ways to build company cultures that simultaneously protect against crisis and propel growth:

  1. Pursue a long-term vision guided by core values. Too often, short-term planning clouds good business decision-making and causes us to make the wrong move. The only way to meet long-term goals is to root them in missions worthy of our dedication and the kinds of values that meaningfully connect us and enable us to relate deeply to the world around us. Take technology company National Instruments, whose values include respect, integrity, and dedication. The technology company maintains a 100-year plan, unveiled when the company went public in 1995 to warn Wall Street analysts that it could not be goaded into a short-term “raise earnings at all costs” mindset. The 100-year plan focuses on how the company will nurture its culture (by operating with integrity) over the long haul while its 10- and five-year plans delve into specific business strategies and market opportunities.

  1. Incorporate values into the recruiting and compensation processes. Hiring, say, bond traders purely on the basis of their talent — and then “training” them on the values that matter to your company, simply doesn’t work in the long term. Instead, hiring decisions should focus on issues like character from the get-go. That way, you’ll build a community of employees who innately understand your organization’s purpose and will make practical and principled, self-directed decisions day-to-day that put the customer first. And don’t stop there, either: Make sure to reward people for not just getting the job done but for how they get the job done.

  1. Give Trust Away. Many of us have an instinctive drive to meet the expectations of others. But on the job, leaders too often scrutinize others’ actions instead of setting clear goals and trusting employees to rise to the occasion. Think of retailers who require their employees to carry transparent handbags so they can check whether they’re lifting the merchandise. That policy does serious damage to culture and trust in the workplace. Instead, give trust away and you’ll see people giving back more in return. For example, drogeriemarkt (dm) pharmacy in Germany extends trust to store managers by giving them control over budgets and product offerings because they have direct knowledge of local market needs. dm, which has become one of Europe’s most successful pharmacy chains, also lets employees select their supervisors and help set their own salaries.

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  1. Measure your progress based on values – not just profits. The old adage that “what you measure is what you get” remains valid. We’ll always need to track profits and losses, but if we ask only ‘How much’ got done? we miss the even more important How did it get done? Just as quality was quantified in the 1990’s, we can quantify culture in the 21st Century. At Barclays, for example, in the wake of the LIBOR-rigging scandal, CEO Antony Jenkins has proposed plans for integrating ethical behavior standards into his company’s performance management system that determine the size of bonus pay.

  1. Inspire employees, instead of just relying on carrots or sticks. Conventional wisdom tells us that carrots are a better motivational tool than sticks. But even carrots have limits, particularly during tough economic times. Instead, leaders need to inspire their employees. Think about how much we are asking of employees today.  We want them to go beyond merely serving customers to create unique, delightful, experiences; to honorably represent their company and nurture its brand, not only when they are on the job, but whenever they publicly express themselves in tweets, blog posts, emails, or any other interaction; and to be creative with fewer resources and resilient in the face of unimaginable uncertainty. These contributions will not come as the result of threats or even bonuses. Instead, leaders must inspire employees with a sense of deep purpose and shared values.

Relying on values and trust can be scary; it requires that leaders let go of certain methods they’ve long used to tell employees what to do. But this new approach inspires behaviors that CEOs tell me again and again they seek from their employees: more collaboration, more innovation, and more engagement in the workplace.

I’m reminded of the time a financial analyst asked former Southwest Airlines chairman Herb Kelleher if the company’s flat structure made him fear losing control of the organization. Kelleher replied that he did not need control so long as he could inspire devotion among his people:

“If you create an environment where the people truly participate, you don’t need control. They know what needs to be done and they do it. And the more that people will devote themselves to your cause on a voluntary basis, a willing basis, the fewer hierarchies and control mechanisms you need.”

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When a company truly lives by a common set of values, employees feel more comfortable expressing their thoughts and ideas and contributing their creativity. They can function based on their own internal compasses, rather than having to refer to a rulebook and be monitored by bosses. On the flip side, if more companies do not take a more deliberate approach to establishing values-based cultures, we’re all going to wind up with an ongoing procession of more expensive, less effective, and more contentious rules.

DOV SEIDMAN’s career has focused on how companies and their people can operate in both principled and profitable ways. He is the author of HOW: Why HOW We Do Anything Means Everything and founder and CEO of LRN, which has helped shape winning organizational cultures inspired by sustainable values in hundreds of companies. Fortune called Dov the “hottest advisor on the corporate virtue circuit;” Economic Times named him a “Top 60 Global Thinker of the Last Decade;” and TIME named him a “Game Changer.” He’s on Twitter @DovSeidman