The value of core values: a board’s role in realising the connection between your core values and profitability
May 2015 | SPECIAL REPORT: OPERATING AN EFFECTIVE BOARD
Financier Worldwide Magazine
Any business plan emphasises an understanding of strengths, limitations, opportunities and threats. A vision and mission are standard fare. And any strategic planning process that is worth its salt includes identifying the foundational core values. But even the most meticulous strategy will be derailed if those values aren’t lived.
Why is it, then, we are living in a time when we can’t pick up the paper without hearing of another collapse of a business that can be traced to a lack of values? Why is it when faced with tough decisions, the last thing many business leaders think to consult is their core values? And why is it we seldom hear about the ‘Johnson & Johnson Tylenol’ stories and instead, hear about MCI WorldCom, Enron, Andersen and others, where at the centre of their collapse is a gaping hole where their core values should have been.
Why? Because business leaders don’t understand the fundamental link between living core values and long term profitability. Too often there is a mistaken notion that making decisions consistent with the core values and profitability are mutually exclusive. Faced with pressure for short-term financial returns, corporate boards will sacrifice the long-term sustainable profitability of their organisations for the next quarter’s results.
Every organisation is in business to attract and retain happy, loyal customers. In order for that to happen, business leaders must attract and retain happy, loyal employees who are clear about the organisation’s goals and have the talents and skills to contribute to those desired results. The framework for this success includes four essential elements – strategy, people, process and culture – working in harmony.
A successful strategy reflects a clear understanding of who the customer is, what they need, how those needs are changing, who else is satisfying those needs, what the customer hates about doing business with those people and how you can solve those problems and serve them better than the competition. The people in the organisation need to have the talents and skills to deliver to the customer what the customer wants. Employees must be supported by business processes that are both effective (i.e., give the customer what they want) and efficient (i.e., use the least amount of time and resources possible). Finally, strategy and culture go hand in hand to generate the experiences that lead to customer loyalty. Creating a winning culture is as important to your organisation’s success as the strategy to get there. Cultivating a winning culture is a process based on living your organisation’s core values. The process is systematic, not accidental, and when properly implemented, leads to sustainable success – as you define it.
Profitability is a laudable business goal. Without profits, a company cannot continue to serve its customers, employ its people, reward its investors and contribute to its community. As such, board members have a fiduciary responsibility to the investors of the organisation to develop the strategy, people, processes and culture of the organisation.
Peter Drucker is attributed with saying that “culture eats strategy for breakfast”. Every company has a culture that is comprised of the underlying values, beliefs, attitudes and behaviours that determine their performance. Some of these cultures exist by design, others by default. Successful leaders don’t leave the company’s culture to chance. They identify and define core values that are aligned with the vision of the business. Then they incorporate the core values into the life of the organisation on an ongoing basis.
Much is written about the value of a winning culture, but what is the corporate board’s role in the process? Boards have two key roles in cultivating a winning culture – example and accountability.
In order for a board to provide truly meaningful accountability, its members must be committed to being an example of living the core values of the organisation. Otherwise, conflicts and poor decisions will result as the executives of the organisation try to lead according to the values the board does not understand or share. When the corporate board is exempted from honouring the values as guides to decision-making, their example will flow throughout the organisation and undermine the value of the core values. To avoid this conflict and enhance the board’s effectiveness, commitment to the organisation’s core values should be a primary criterion for selecting board members.
However, many companies recruit board members primarily based on their positions in business or the community and they offer limited, if any, accountability to core values. This is as ludicrous as recruiting a board member that doesn’t share the vision of the organisation. The board is the rudder of the organisation. If you have a weak board, you’re going to have a weak organisation. But if members of the board are all on the same page and committed to the same vision and core values, healthy dialogue happens because iron sharpens iron, and the board holds itself and the organisation accountable to living the core values.
Honouring core values is what leads to a winning culture. It is both the easiest and most difficult thing a values-centred leader will be called upon to do. It is easy because values simplify decision-making by clarifying right from wrong. It is difficult because honouring core values demands courage and conviction, when we may want to gravitate toward convenience and compromise.
Does adherence to core values always result in maximum profits? Sometimes it doesn’t, at least in the short term. When in the midst of a values-based decision, you must be willing to hold fast to your core values regardless. Honouring your core values increases trust, trust increases loyalty and loyalty is good for business.
Customer loyalty increases profit margins. By some estimates, it costs five times as much to attract a new customer as it does to retain an existing one. A company that retains loyal employees builds an experienced, dedicated and productive workforce that can deliver that high level of product and service excellence necessary to cultivate loyal, satisfied customers.
On the other hand, a company with high employee turnover is at a competitive disadvantage. It is estimated that replacing an employee costs on average one to three times the annual salary of that employee. Disgruntled or disengaged employees that remain on the payroll curtail productivity, damage morale and create personnel problems that consume management’s time and energy. In other words, it is costly.
Although we firmly believe, and have observed time and time again, that creating a winning culture based on core values promotes business success – and our definition of success includes profitability – we have observed that organisations that benefit most from living their core values tend to define success in light of their values. They work for rewards that are substantially greater than profitability alone.
Lisa Huetteman is managing partner at Black Diamond Associates. Ms Huetteman can be contacted on +1 (813) 785 9768 or by email: firstname.lastname@example.org.
© Financier Worldwide
Black Diamond Associates