Today’s blog is a guest post from a friend, colleague, fellow rabble-rouser and senior VP at a huge company we’ve all heard of.
Let’s call her “Merrilyamour”
Textbook strategy and our own logic always makes us believe that shareholders, the board and senior executives are the ones looking after the long-term interest of a company – and the peons on the bottom – middle managers, programmers, analysts, sellers and even product leaders – are to focus on short-term delivery. As it’s been said, long-term “strategy” is for leaders, while short-term “tactics” are for everyone else. Switching to a nautical metaphor, visionary Captains stand on the ship’s bow and chart the voyage while the crew keeps its head down below and rows to a drumbeat.
CEO's and boards are pressured to focus on short-term quarterly results with a couple years of forward thinking at best. Their jobs, deliverables and paychecks are mostly tied to quarterly share value and capital gains. Meanwhile its rank–and–file employees who have the most to gain (and lose) in the long-term, and work the most fervently – often with crushing resistance from senior leaders - in order to steward the company's enduring interests. This won't surprise some people at first blush, but consider this - it's the literal opposite of what leaders, analysts and strategy gurus have been telling us for over a century.
CEO’s and boards are pressured to focus on short-term quarterly results with a couple years of forward thinking at best. Their jobs, deliverables and paychecks are mostly tied to quarterly share value and capital gains. Meanwhile its rank–and–file employees who have the most to gain (and lose) in the long-term, and work the most fervently – often with crushing resistance from senior leaders – in order to steward the company’s enduring interests. This won’t surprise some people at first blush, but consider this – it’s the literal opposite of what leaders, analysts and strategy gurus have been telling us for over a century.
Employees are fundamentally motivated to ensure the longevity and survival of the firm – by making it more competitive, investing for long term product growth and innovation etc. They don’t necessarily own enough stock to be motivated purely financially to improve share price quarter to quarter. Their bills are paid mostly by base salary and cash incentives tied to results. Unlike senior executives with huge salaries and exit packages, everyday employees are also the most personally and financially injured if things take a turn for the worst. Ever heard of a CEO being laid off to cut costs when things get tight? I didn’t think so.
In actual fact, the ‘troops’ are MOST motivated by the longevity and survival of the firm; both out of sheer job security but also because they are more likely younger and more motivated to want to evolve new products for a new generation. They can be more comfortable with change than most senior management in a company.
This disconnect can breed real frustration between workers who genuinely want to ensure the corporation’s long term vitality and the much more risk-averse, shorter-term horizons of senior leaders who have a different set of incentives.
This doesn’t fit the theoretical framework we consciously assume. The reality is that the stock market (and analysts who are measuring short term metrics and rewarding growth multiples only to younger companies promising massive long term growth, even at the expense of near term earnings) rules a lot of strategy. Are investors really banking on legacy company “A” to compete with disruptive start-up “B”? Probably not. They reward the successful company of today (legacy) by continuing to generate shareholder returns in the form of dividends, profits and buy backs. They reward ‘hot start-up with massive reach “B”’ with huge growth multiples based on the long term gamble they can turn momentum into profits.
Status quo is extremely addictive. And change is hard. Remove some of the processes, systems and organizational complexity that invariably lead to bureaucracy and hierarchy and you can actually unleash the talents and interests of your MOST motivated employees (those below executive VPs for example) and empower them to collaborate and drive that change and evolution themselves. Not necessarily at the expense of destroying the core business, but by inherently understanding the need to do both: protect and defend the castle that produces the near term wealth, while also planting seeds for growth beyond.
Unlike the Captains – who don’t go down with the ship anymore – the crew is tied to the vessel and most intimately vested in whether it sinks or swims. It’s time to rethink who steers the boat.