Corner Office-Intellectual Corporate Waste
The term “corporate waste” is sometimes used in litigation to describe the egregious acts that get business leaders into trouble with their shareholders for wasting precious corporate assets. Executive officers spending company money on lavish parties and trips to exotic places in private jets or giving themselves loans that are never paid back are examples of corporate waste.
But while these expenditures are indeed a waste of shareholder money, they pale in comparison to the hidden waste that exists in almost all organizations. I’m not talking about bloated corporate bureaucracy, ineffective production processes, or unproductive delivery systems. Rather, I’m referring to the less-discussed problem of untapped organizational capabilities—the everyday, inexcusable waste of intellectual equity found in your employees, managers, corporate directors, and yourself.
I am somewhat amused when managers complain about the lack of productivity of their employees. I like to challenge them with a few questions such as: Do you have a process and a reward system to promote innovation? Do you encourage your employees to capitalize on new opportunities, or do they need to submit themselves to a bureaucratic process to be heard? Do you teach your employees how to anticipate the effects of external changes and respond accordingly? Chances are, the answers to these questions are not affirmative. If we accept the premise that the intangible assets of leadership, talent, and speed are uncapped, then not answering “yes” to these questions suggests that the organization’s ability to innovate, capitalize on opportunities, and respond to change is a wasted asset.
The collective skills, abilities, and knowledge of your employees are things you can’t see or touch, but they truly are your most valuable corporate assets, so treat them that way. In other words, when the pressure to meet next quarter’s earnings expectations makes you consider “downsizing,” resist the temptation to be shortsighted. Instead, take a longer view and invest in staffing, training, and compensation to beef up your organizational capabilities. Research shows that organizations that make extraordinary investments in people enjoy extraordinary performance on a variety of indicators, including shareholder return. (Read “How’s Your Return on People?” in the Harvard Business Review, March 2004.)
Also, make sure your corporate culture and organizational structure encourage communication and teamwork, so that people and resources are interacting well and getting things done. Are there departmental silos with people protecting their turf, or is there a smooth, timely sharing of important information? Is knowledge perceived as power—so no one wants to share it—or is knowledge considered a critical corporate resource that is important to the team in accomplishing corporate goals?
Next, take a good look at your management team. Is it an effective team focused on accomplishing the strategic plan and objectives? Are they communicating well with each other, or pointing fingers and blaming someone else for problems? Do they make decisions with accurate and timely financial information? Are they hiding behind bureaucracy to ensure that no one is accountable or responsible for anything?
Competitive advantages that other companies cannot reproduce lie in the collective intellectual capabilities of your management team. They need the ability to translate your strategic direction into daily processes, i.e., turn your vision into action. Assess your management team’s ability to manage the right organizational infrastructure and design necessary human-resource teams to motivate employees to get things done.
Be sure to examine the effectiveness of your board of directors. Are you getting your money’s worth out of their collective capabilities? A board chairman recently asked me if it was possible to quantify the value of his board of directors. We sat down and calculated that with seven board members each being compensated $50,000 annually (with fees and company stock), the organization was spending approximately $350,000 each year on its board. We looked at the multiple of earnings the company’s stock was trading at and determined that it was 10. I told him, “You’ve got a $3.5 million asset sitting around a table once or twice a quarter; have they given you any $3.5 million ideas or advice? What would you expect if you had paid a consulting firm that amount?”
Now that the value of the intelligence found in your corporate directors is in perspective, make sure that your board meetings are productive and challenging, not just a management show-and-tell about what they did last quarter. This is one of the greatest wastes around—a room full of very intelligent, capable directors being preached to by management. In the example I used, if the board meets four times a year, then the wasted meeting cost is $875,000. Directors should ask tough questions and should be engaged in an understanding of the economics of the business—the value creators and the value eroders. CEOs should be discussing strategic issues and tough problems facing the company, so that the board can be informed and offer advice to help the management team develop solutions.
Finally, take a good look at yourself. Are you, as the organization’s leader, being as productive as possible with clear communication and decisions? Do your employees know how their job relates to the company’s strategic direction? Do you have a deep understanding of your customers, market environment, and competitive threats? Are you making decisions in a timely manner, delegating authority, and training new management? Do you react swiftly to problems or avoid them until they grow into a crisis? Do you manage your time wisely?
Maximizing the value that your organization gets out of the CEO’s corner office isn’t something to be taken lightly. William J. McDonough, a recent chairman of the Securities and Exchange Commission’s Public Company Accounting Oversight Board, has said that in 1980, the average large-company CEO made 40 times more than the company’s average employee. That discrepancy could be attributed to the leadership abilities, experience, and risk associated with the CEO’s job.
By 2002, the average CEO’s pay was more than 400 times that of a worker—10 times more that it had been two decades earlier. No matter how hard I try, I can’t believe that CEOs have become 10 times smarter in the past 20 years! Employees and shareholders have a right to expect and receive competent, moral, efficient leadership.
I urge you to assess whether your organization is wasting any of its organizational intelligence. Leading business organizations through the external challenges that bombard us every day—rising interest rates, labor costs, and global competition, to name a few—isn’t easy.
Amidst all this turmoil, give yourself and your business a gift by leveraging something that is within your control: maximize your corporate intellectual capabilities. Doing this may seem a bit overwhelming at first, but just remember that it’s like eating an elephant—impossible to do all at once, but feasible one bite at a time.