Seven Best Practices of Successful Organizations 3

Performance Management Needs to Be Well-Defined

By Daniel Butcher

As crucial as performance management is to make sure that organizations’ decisions about compensation, promotions, hires, and cuts are aligned with organizational goals, it can be difficult to define. Leaders first must define performance before they can measure it and evaluate their organization’s performance-management processes and procedures.

That’s according to Academy of Management Scholar Herman Aguinis of the George Washington University School of Business and author of Performance Management for Dummies, who said executives at various organizations have asked him about performance issues, complaining that their employees weren’t performing at the level they should have been. In response, when he asked them how they define performance, they typically fell silent.

“Sometimes leaders don’t do a good job of measuring performance because they don’t define performance well, so the first advice I would offer is to be able to make sure that you define performance in alignment with the strategic goals of the organization, the performance goals for individuals, units, teams, and departments all have to be aligned with the strategic goals of the organization,” Aguinis said.

Aguinis argued that performance evaluations shouldn’t be a once-a-year event. Organizations need to train supervisors on how to provide good feedback, measure performance in an unbiased way, have honest professional-developmental talks with employees regularly, and use performance management as a tool for spotting star performers, skills development, and performance improvement.

“If you’re a manager, your top responsibility is to manage the performance of the people in your unit, because if they do well, then the company does well, and you look good, so performance management should not be pushed by HR only; rather, it should be something that every manager and supervisor is doing,” Aguinis said. “Performance evaluations shouldn’t be just as a tool for punishing and rewarding past behavior, but also as a tool for motivating future outstanding performance.”

Many Execs Talk a Good Social Responsibility Game but Fail to Walk the Walk

By Daniel Butcher

Whether it was the board, the CEO, or others in the C-suite who decided to put a corporate social responsibility (CSR) plan in place, it’s instructive to examine their motivations. Do their ideologies and values cause them to legitimately prioritize business ethics, sustainability, and CSR? Do they want the company to look good in the eyes of consumers and convince shareholders they’re doing the right thing? Was it a self-serving or cost-saving decision to implement a CSR program? The answers are keys to understanding whether organizations’ CSR initiatives will be perceived as genuine or contrived.

That’s according to Academy of Management Scholar Herman Aguinis of the George Washington University School of Business, who has conducted research for more than 20 years looking at how individuals decide to be involved in organizations’ CSR mission and who actually participates in CSR initiatives, from the C-suite to rank-and-file employees.

“In some cases, there are external stakeholders who see the organization’s CSR initiatives as genuine, while others complain that it’s just ‘CSR-washing,’ an attempt at PR on the part of a company to burnish its reputation,” Aguinis said. “We recently wrote a paper on how to avoid being labeled as a CSR-washer, which is important because it can take a lot of money and time and effort to overcome an incorrect perception, so we describe things that companies can do to minimize that risk and avoid being unfairly labeled as a CSR-washer.

“One is to involve employees: You should not have a top-down process, but rather a bottom-up process to encourage employees to participate actively, not just enacting the CSR process and intervention, but also in strategizing and creating it, because then they will be the best supporters of the CSR initiatives,” he said.

“They will talk to their families and friends about how good the company is, and that will help attract employees to the company, and its CSR efforts will be seen as more genuine and not just a PR [public-relations] plot.”

Translating CSR strategics plans and goals into action

As crucial as it is for leaders to make strategic plans and set objectives informed by CSR, it’s challenging to translate policies or missions into practice.

“Usually these nice, big strategic goals don’t cascade down, because, in many cases, frankly, it is a statement on their website or some memo or email about a strategic plan that employees don’t read, aren’t aware of, or don’t really care about,” Aguinis said. “In fact, if you ask employees about their companies’ strategic goals, not just about CSR, but in general, they typically don’t know them.”

One way to raise awareness about CSR objectives throughout an organization is through performance management. Leaders need to ask themselves, what are the specific goals regarding CSR for each of the organization’s units? And what are the specific CSR goals for individuals in terms of behaviors and results? Then leaders can start measuring key performance indicators (KPIs)and rewarding employees who perform well on those specific criteria.

“A lot of companies need to do two critical things to improve: number one, involving employees bottom-up in the design of CSR initiatives, and number two, embedding CSR goals within the performance-management system,” Aguinis said. “If you do just those two things alone, you will go a long way in ensuring that CSR is taken seriously and embedded, not just peripheral.”

How Sustainability and Corporate Social Responsibility Became Intertwined

By Daniel Butcher

As scientists’ warnings about climate change have become increasingly urgent, environmental issues and sustainable business practices have become more central to corporate social responsibility (CSR). Now, there is much more pressure on companies to track environmental, social, and governance (ESG) metrics, including their carbon footprint, and consider other environmental factors affecting the climate and ecosystems as part of their CSR commitment.

That’s according to Academy of Management Scholar Herman Aguinis of the George Washington University School of Business, who noted that 99% of companies in the S&P 500 report ESG information to some degree, most annually, including:

• 452 that align with the Sustainability Accounting Standards Board (SASB);
• 395 with the Taskforce for Climate-related Financial Disclosures (TCFD); and
• 346 with the Global Reporting Initiative (GRI), with some following more than one set of standards.

“That dimension has become so, so critical that CSR-ESG and sustainability are key aspects of it,” Aguinis said. “In the 1980s, there was a big emphasis on making the business case for CSR, and now, things have changed a little bit, because many companies are saying, ‘This is the right thing to do—if we make money, great, but if we don’t, that’s not that critical—we need to do the right thing.’

“But CSR and sustainability work best when you do good and do well simultaneously,” he said. “For example, by embracing sustainable practices, you can actually save money and make money, and at the same time, you can look good in the eyes of the community, consumers, and very importantly, your own employees, who are your best ambassadors.

“In fact, if you do CSR and sustainability right, you can use that as a recruitment and retention tool.”

Leaders who want to embrace CSR and sustainability as an honest, genuine, strategic core aspect of the business need to embed them throughout the organization, Aguinis stressed.

“If you do not measure these things at all, and if you don’t reward them, then all employees are not likely to take them seriously,” Aguinis said. “They can’t be evaluated as something you do on this side, as a nice-to-have, so it is critical to embed CSR and ESG within the strategic goals and the organization’s operations.”

CSR, ESG, and sustainability becoming intertwined strategically also relates to reimagining the purpose of the corporation. For example, in 2019, Business Roundtable issued a Statement on the Purpose of a Corporation signed by 181 CEOs who committed to leading their companies to benefit all stakeholders, including customers, employees, suppliers, communities, and shareholders.

“The goal of the business in a publicly traded company is to make money and create value for shareholders, but even if you’re not publicly traded, you have a responsibility to serve your customers,” Aguinis said.

“We have expanded the concept from shareholders to stakeholders more generally—not only the customers you serve but also the communities within which you’re embedded. So, to what extent are you adding value—both financial and otherwise—to all of these stakeholders?”

How CSR Became Table Stakes for Good Leadership

By Daniel Butcher

Corporate social responsibility (CSR) has evolved significantly since 1953 when economist Howard Bowen published Social Responsibilities of the Businessman, in which he wrote that companies should focus on business ethics, contribute positively to their community, and do good things for society, not just make money. Urging business leaders to consider stakeholders other than shareholders and look at outcomes beyond profits was out of step with the post-World War II era. However, fast-forward 70 years, and there’s been an explosion of interest in—and research on—CSR as it has influenced many organizations’ mission, strategic planning, and investments.

That’s according to Academy of Management Scholar Herman Aguinis of the George Washington University School of Business, who said that CSR is affected by society’s expectations. Aguinis stressed the need to define it so that the effectiveness of organizations’ CSR initiatives can be measured.

“In the ’70s and ’80s, there was a trend toward first asking, ‘What is CSR, and how do we define it specifically?’” Aguinis said.

Overall, there’s consensus that CSR is about the three Ps—profit, the planet, and people—and that businesses should take care of those different dimensions affecting all stakeholders, not just profitability.

“The concept of CSR has evolved over time as society has evolved—the processes, the measures of success,” he said. “The concept of CSR has become clearer, but also more complex.”

Shifting from Either/Or to Both/And Thinking Benefits Leaders

By Daniel Butcher

“The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function,” American writer F. Scott Fitzgerald wrote. That quote crystallizes related wisdom from Eastern schools of thought such as Taoism and Western philosophers, including Zeno of Elea and Søren Kierkegaard, who explored the implications of shifting from binary black-or-white either/or categorization and decision-making to both/and thinking, also known as a paradox mindset.

Academy of Management Scholar Wendy Smith of the University of Delaware said that understanding the concept of paradox and applying it to creative thinking and decision making are key competencies for effective leadership.

“We face tensions every day in society and our personal and professional lives, making decisions, serving in a leadership role, and spurring innovation,” Smith notes. “Paradox theory invites us to reframe the tensions from problems to opportunities.

“Philosophers have been highlighting the paradoxical nature of our world for over 2,500 years,” she said. “Yet we are only now returning to these ideas to help inform our key tensions in life.”

For years, leaders and academics have sought clear, logical, either/or choices. This analytical approach has advanced scientific discoveries but limited our understanding of complexity.

“Over the last 200 years or so, as our world and challenges become more complex, science is turning to understand paradox,” Smith said. “For example, quantum physics is all about paradox, and it’s hard to get your head around, but essentially, a particle is both there and not there at the same time, and photons are both a wave and a particle at the same time.

“Psychoanalysts argue that the human psyche depends on holding opposing pressures, both being expansive and restrictive, focusing on both the self and the other, engaging the id and the ego,” she said. “Scholars studying leadership and organizations, and all the research that we publish in the Academy of Management journals—we are late to the paradox party.”

Smith believes that it’s now time for us to embrace the paradoxical nature of organizations and leadership. She noted that the Association to Advance Collegiate Schools of Business (AACSB) recently released a new set of competencies that professors need to teach their students, who include future business leaders. AACSB states: Leaders who exhibit a paradox mindset accept that there are multiple ways of knowing and being and welcome such contradictions in their decision-making. In the context of business, paradox requires leaders to refrain from instinctually resolving contradictions, as doing so can eliminate critical differences in thought.

“Leaders are facing more complex challenges,” Smith said. “Both/and thinking offers the opportunity to effectively navigate these issues.”

Profits and Social Responsibility Can Go Hand in Hand

By Daniel Butcher

Current business leaders aren’t only tasked with maximizing shareholder value; they must balance competing priorities, including setting and meeting environmental, social, and governance objectives. Long-term organizational sustainability requires maintaining profitability while maximizing the organization’s positive social and environmental impact and minimizing negative effects. Navigating these tensions entails overcoming various leadership challenges.

For example, Academy of Management Scholar Wendy Smith of the University of Delaware said that Paul Polman, the former CEO of British-Dutch consumer packaged goods company Unilever, is remembered for establishing the company’s Sustainable Living Plan, which had a set of goals committed to health and well-being, enhanced livelihoods, the environment, social value.

“Polman pulled Unilever out of a death spiral and set it on the path of being the top packaged goods company,” Smith said. “Importantly, he doubled profits and ensured success not in spite of, but rather because of a commitment to addressing environmental and societal demands.

“In an interview we conducted with Polman, he noted that tensions between profits and social missions emerged all the time,” she said.

Unilever’s leadership grappled with questions such as whether to create consumer packaged goods products that were in bigger containers to minimize plastic and waste or smaller containers to increase the margins on each item sold. For Unilever, that question introduced an innovation opportunity: Could they rethink packaging to enable them to sell goods with less environmental impact?

“These kinds of tensions come up all the time,” Smith said. “Effective leadership depends on evaluating these tensions and applying a more holistic both/and approach to come up with more effective solutions.

“Doing so depends on building leadership competencies for both/and thinking, where teams can have difficult conversations that value and engage opposing perspectives and seek new insights,” she said.

Leaders’ Paradoxical Mandate of Current Success and Innovation

By Daniel Butcher

Business leaders and managers know disruptive technologies such as AI are going to upend a significant portion of what their company does. But does that mean that they have to throw out much of what they currently do? Many executives struggle to deal with strategic plans for dealing with a future marketplace where AI, machine learning, and related technologies are omnipresent, while simultaneously maintaining their company’s current business model and core competencies.

Academy of Management Scholar Wendy Smith of the University of Delaware said that she’s done research on business leaders who’ve had to grapple with these kinds of tensions and issues balancing the present (the current technology and business model focused on short-term profitability) and the future (innovation and long-term sustainability).

“We teach leaders to face these dilemmas and make really clear choices and move on and be really consistent within their strategy, but that’s not what I found in the most successful leaders,” Smith said. “The leaders who did it well were able to hold both the past, present, and future—yesterday, today, and tomorrow—the short term and the long term, the existing world and the innovation, hold them in their mind simultaneously and commit to both at the same time, and that’s what we refer to as paradox.”

Such issues and tensions related to that paradoxical mandate come up in leaders’ meetings about strategy, innovation, and sustainability. But it also comes up in our personal lives and how we make career decisions.

“There are all these questions that emerge, and we tend to experience them as either/or tradeoffs, but underlying those binaries or paradoxical decision trees are the question of innovation and his relationship between the short term and the long term,” Smith said. “What we mean by paradoxical is that these dual experiences seem conflicting, or they are indeed in conflict with each other creating tension, but they’re also interdependent contradictions that define each other.

“And successful leaders can look at that paradoxical relationship, hold both aspects of it in their minds, and recognize that they have a much more creative, sustainable way of navigating these tensions, and that’s what we call both/and thinking, which is our lay language for explaining how leaders can accommodate the yin and yang, hold both opposing ideas in their mind, and embrace paradoxes.”

Lego’s Leaders Walk a Tightrope to Current and Future Success

By Daniel Butcher

The Lego Group, an iconic construction toy production company, has had to adapt over the years to remain competitive and successful in a constantly changing landscape. Its leaders’ approaches to change management and strategic planning are instructive for senior executives having to keep everyone on the same page while making adjustments to overcome challenges.

Academy of Management Scholar Wendy Smith said that Lego has been adept at navigating change. However, she studied a period when the company’s middle managers were feeling upended as their mandate seemed to be all over the place.

“The question was, how could Lego’s leaders implement the necessary changes while preventing their people from feeling held at bay and uncomfortable with all these changes? Amid the mess of this change initiative, the managers had to figure out a workable certainty,” Smith said. “They weren’t coming up with a global strategy of what they were going to do for the change from start to finish; rather, they were figuring out what’s the next best step.

“We actually find that similar approaches are effective in managing paradox, which I talk about as tightrope walking or dynamic decision making,” she said. “The big idea here is that when people think about both/and rather than either/or, and when people think about living in paradox and accommodating competing demands, they tend to think that there’s going to be this great solution, this great win-win benefit where everybody’s happy.”

Smith uses the metaphor of the mule to talk about that common expectation, which may not be realistic.

“The mule is the oldest hybrid animal that humans have been breeding for thousands of years; it’s stronger than a horse and smarter and faster than a donkey—if you bring the donkey and the horse together, you’ve got this mule, and it’s an animal that’s better suited to its intended roles even if it’s not as strong as a donkey or as smart and fast as a horse,” Smith said. “Lego’s leaders were doing this micro-oscillation in their decision making; there would be all these moments of issues bubbling up for them, like, ‘How do we allocate our engineers at this moment to the existing products or the innovation? ‘What do we do with our sales team?’ How do we think about structuring our senior leadership team?’

“And sometimes those decisions would lean more toward the value or benefit of the innovation, and sometimes they would lean more toward the benefit of the existing product; they would sort of oscillate between investing in the two—that’s tightrope walking,” she said. “If you’re going to accommodate competing demands, one major strategy is to look to the future, a long-term vision, and leaders are on the tightrope, which means that they’re making tweaks in their decisions over time—multiple micro-decisions, sometimes to one side, and sometimes to the other, but you aren’t overextending to one side so that you fall over.

“At Lego, they would have to be making decisions that sometimes were accommodating the novel new world and sometimes holding stable in the existing world, and they were shifting, and that has become a big idea for leaders in navigating paradox and living in the both/and mindset.”

Why Business Leaders Need to Attend the “Paradox Party”

By Daniel Butcher

Paradox used to be considered a peripheral subject of academic study best suited to philosophy, literary theory, or religious studies. However, the concept—often illustrated with the yin-and-yang symbol—has gained prominence across disciplines and recognition as a valuable tool for analyzing business management and organizations.

Academy of Management Scholar Wendy Smith said that when she started to work on her Ph.D. dissertation in organizational studies, senior faculty told her to avoid studying paradox because, in their opinion, it wasn’t a legitimate research focus area that would open a path to career advancement in academia.

“People told me, ‘You can’t publish papers on paradox in management journals,’” Smith said.“They suggested that paradox theory was not clear and linear enough for organization studies, and instead belonged in philosophy or theology.

“They also warned me about using the language of paradox with business leaders,” she said. “They would say that ‘business leaders will be put off by this idea.’’”

Yet Smith pointed to a significant change in the last 25 years. The tide has turned.

“We are now seeing this revolution of academics and leaders wanting to understand paradox, as they experience organizations and our society as complex and filled with tensions,” Smith said. “Paradox theory offers an approach to value these competing demands and transform them into creative possibilities.

“We are late to the paradox party, and we have some catching up to do,” she said.

Smith notes the historic roots of paradox theory dating back more than 2,500 years. Disciplines such as physics and psychoanalysis have had a paradoxical revolution over the past 150 years. She points to physicists such as Niels Bohr, Michael Farraday, and Albert Einstein that embedded paradox into their insights into quantum physics. She also highlights the paradoxical nature of psychodynamics in the writings of scholars such as Carl Jung, Alfred Adler, and Søren Kierkegaard.

“Now is the time for scholars and leaders to embrace and navigate the paradoxical nature of organizations and society,” Smith said. “This paradox approach is not just, ‘How do we solve problems of innovation and sustainability?’—it’s ‘How do we really fundamentally rethink business and our approach to learning about organizations and leadership?’”

Scandals Fueled the Rise of Corporate Social Responsibility

By Daniel Butcher

The accounting malpractice and executive mismanagement of the Enron and WorldCom scandals pointed to a broader failure in the prevailing corporate culture of maximizing profits at all costs—even if that meant throwing ethics out the window.

Academy of Management Scholar Wendy Smith of the University of Delaware said that after Enron and WorldCom went under due to organization-wide ethical collapses, there was a backlash. In the wake of those scandals, some companies’ forward-thinking leaders tried to form a long-term sustainable strategic vision for brand identity centered on corporate social responsibility (CSR).

“I remember at the time more people talking about the purpose of businesses in the language of social responsibility, asking, ‘What does it mean for a company to be socially responsible?’ Many skeptics said, ‘It’s just not possible; leaders can’t focus on more than one outcome, maximizing profits for shareholders and doing right by all stakeholders,’” Smith said.

In 1970, economist Milton Friedman wrote an article titled “The Social Responsibility of Business Is to Increase Its Profits,” distilling the “Greed Is Good” ethos famously satirized in the 1987 movie Wall Street. In the early 2000s, more people in academia and business alike pushed back, instead insisting that businesses have a duty to be a power for good by improving working conditions, reducing their carbon footprint, participating in fairtrade, and other ways to improve people’s lives.

“Companies like Ben & Jerry’s and The Body Shop challenged the notion that the sole responsibility of companies is feeding more wealth to their shareholders, saying that’s not the case,” Smith said. “And in fact, what we saw when the Enron and WorldCom scandals came along is that, by being so single-mindedly focused on just profit, you actually compromise your ethics and your morals, because all you care about is the bottom line—that narrow, singular focus is so problematic.”

In addition to Ben & Jerry’s and The Body Shop, Smith cited Digital Divide Data (DDD) and King Arthur Baking Company as current role models for CSR.

“What we’ve seen over the last 20 or 25 years now is that people are increasingly challenging the assumptions that the purpose of for-profit companies was only to generate profit and the purpose of nonprofit organizations was to do good in the world and asking how leaders can accommodate competing demands within the same organization,” she said.

“Long-term decision making is so much more holistic, so bringing together these competing demands, while hard for managers to do, is really valuable for the company long-term.”