Michael Beer is Chairman of TruePoint, a research-based consultancy he co-founded. He is also the Cahners-Rabb Professor of Business Administration Emeritus at Harvard Business School and award-winning author or co-author of nine books. His latest, of which he is a co-author, is Higher Ambition: How Great Leaders Create Economic and Social Value
(Harvard Business Press). Dr. Beer recently discussed his book with AMA as part of the Edgewise podcast series. The following has been excerpted and adapted from that interview.
AMA: What is the intent of Higher Ambition?
Michael Beer: The intent of our book is to reframe what management and leadership are all about in the 21st century. We have observed over time that the conventional wisdom of seeing shareholder value as the only objective of business and business leaders is fatally flawed. All we have to do is look at the 2008 meltdown to see the consequences of a sole focus on shareholder value. If we focus excessively on profit and miss the larger picture, miss the larger good that business can potentially do, it leads to unsustainable performance over a long period of time.
So we went out in search of leaders who, in our view, defined a different way of managing. We qualified them by their above average performance over a 10-year period. We defined them by looking at their leadership values, the culture of their companies— whatever we could find on the public record—and we went out to interview them. In that interview process, we discovered what kind of leaders they are and how they go about managing and leading firms in a dramatically different way, which we believe is the new way, the next way, in the 21st century.
AMA: How many leaders did you interview?
MB: We interviewed over 40, but 36 remained in the cut, because even based on our preliminary qualification, we found that in a few instances we were wrong, once we got in and talked with the leaders and learned more about the company.
AMA: Just what is a higher ambition leader? Is it someone who combines economic and social value?
MB: Yes. These are leaders who, for a variety of reasons—personal background, values, experience in the companies they’ve worked with, maybe being mentored by former higher ambition leaders—frame the job of management differently than the average leader. It starts with how they begin to think about the job of leading. They think of it as much broader than shareholder value. They have multi stakeholder goals. They want to add value not only to shareholders, but to employees, customers, society, and community. And they manage in a way that optimizes those multiple goals.
These are definitely not transactional managers. That is, they don't think about the job of business as a single transaction. They think about building long-term relationships, building commitment among their stakeholders in those relationships, and employing a collaborative mutual benefit kind of relationship—a relationship of trust—with all these stakeholders.
AMA: Why are there are so few of these higher ambition leaders?
MB: I think the main reason is that for a long time we’ve been captured by a way of thinking about business that starts and ends with economic values. This has been exacerbated considerably in the last 20 to 30 years because the field of management has become dominated by economists. A lot of business schools are now populated largely by people with an economics background. And economists have narrowly defined business as shareholder value. With capital markets and financial service firms being much more open with information, essentially what happened is that CEOs are increasingly caught up in a circle of demands that focus primarily on short-term quarterly earnings, with very little emphasis on any other goals.
In fact, if you went to Wall Street and you said, “Here’s a great company. The CEO cares about more than just shareholder value,” they’d say, “This guy is doing the wrong thing; we’ll disinvest.”
The CEOs we talked to were able to go beyond that. It’s not that they didn’t feel those pressures—they did—and not that they didn’t respond to some of those pressures, because they knew they had to create quarterly earnings or sustainable earnings over a period of time. But they saw and looked for ways to integrate the interests of the other stakeholders as well.
AMA: What are some of the characteristics common to higher ambition leaders?
MB: These leaders are different in some ways—not in their style so much or in their personalities, but in their perspective. And that is what leads to a different way of managing. They’re different in the sense that they think of themselves as being part of a team and enabling a team, as opposed to thinking about themselves as heroic or as the center of decision making. They are anchored in a set of values and there is a large degree of authenticity in the way they go about managing. They know who they are, and they continually understand that to reach for strength, they need to back into themselves as opposed to looking outside to ask what to do.
They have integrity not only in the sense of honesty, which obviously is necessary, but in the integration of their internal values and their actions. So they walk the talk. There is an integrity in the sense that they integrate many aspects of the firm. They do what’s called the simultaneous solve, which is solving a problem in a way that meets the goals of shareholders without undermining the needs of employees, and which builds value for them and for customers.
For example, Southwest Airlines, which is one of the firms in our sample, basically sees their job as serving people. They don't start with, “Our job is profits,” or even “Our job is to run an airline.” Their job is to serve people. And by people, they mean that broadly. Of course they mean customers, but also their employees, whom they treat as customers. They developed this notion of who they are and what they want to do, and what they want to contribute, and it’s deeply connected to the passion their people have about what they do, and it’s deeply connected to their capabilities. So, they manage strategy from the inside out. Once they identify who they are, they obviously have to look to the competitive environment, and they have to look to what the opportunities are, and the financial returns, and all of that.
Another great example that we cite in our book is Nokia, which was at one time a very multi business organization, selling rubber boots and so on. They called in a well-known consulting firm to ask what they should do strategically, and the firm said, “You should never go into the cell phone business because that’s surely where you’re going to lose.” The CEO at the time basically ignored that advice, looked inside and said, “Well, that’s what we’re really passionate about. That’s what we’re good at doing. We’re going to get rid of all the other businesses.”
AMA: What are the hallmarks of higher ambition leadership?
MB: Strategic identity is one of them. These companies also generally follow relatively conservative business policies around debt and growth. The second way in which they drive sustainable performance is to create goals that are worthy, large, and visionary. A good example is Doug Conant, at Campbell Soup. When he took over the company, he basically set out three goals: we’re going to be great in the marketplace; we’re going to win in the marketplace; and we have to contribute to community. Setting those kinds of goals energizes people. It creates meaning for what they do.
Third is building a community of shared purpose. These CEOs work very hard at defining and being clear about their values and their broad vision for the company.
They do this by spending a lot of time communicating with people. They encourage people to live by those values, promoting the ones who do and replacing people who don't.
AMA: Is there any other key point you’d like to make?
MB: One thing we didn’t touch on is that while these leaders are extraordinary in the way they operate against what I call headwinds from capital markets, in the book’s conclusion we start a dialogue that needs to be continued, and that is the need for institutional changes. We need boards that are much broader in their perspective, looking beyond shareholder value, economics, and financial elements. We need business schools that develop leaders who are more oriented to high ambition. And we need some reform in our capital markets, to have markets that operate beyond just shareholder value on a quarterly basis. There’s a lot of institutional change that’s required to support what I think is a better way to manage, the way of managing in the 21st century, that will add value not only to companies and their investors, but also to the larger society. And I think that’s essential for business and business leaders to regain their legitimacy.