Don’t Let Profits Replace Purpose
August 23, 2007 4 Comments
In this past Wednesday’s (Aug 22) USA Today, there was an article called “Firms, investors tend to prosper with founders at the helm” that showcased some interesting findings:
Shares of companies that retain their founders as CEOs, even after they become large corporations, have enjoyed gains that top the market by four times on average, according to a USA TODAY database study.
The article presents explanations for these results from a number of different experts (no, I was not one of them).
My take: I see two key reasons why companies with long-term founders tend to out-perform the overall market:
- The poor performers don’t last. Let’s face it, if a firm wasn’t doing well, the founder would have likely been replaced. So the founders that last are, almost by definition, running companies that are doing much better than average.
- The founders provide vision. Founders provide something that many other CEOs don’t — an unrelenting commitment to a clear mission. They know why the company was created and they often retain a very strong point-of-view about where the company needs to be heading. For the founders, it’s often more than just business, it’s personal.
Let’s focus on #2 , because that’s where firms can learn a key lesson.
Most large companies have some vision statements floating around their hallways. But when it comes to the decisions that they make on a day-to-day basis, the vision is nowhere to be found. It plays NO ROLE in how the company is actually run. Instead, companies make decisions based on individual goals and objectives, a handful of hard metrics, and by finding compromises across conflicting executive agendas. And that’s the best case. Often times decisions aren’t coordinated at all.
But the presence of a founder can change that dynamic. How? He/she often has both a clear picture for where he/she wants the firm to go PLUS the passion to constantly evangelize that vision. This clear and constant communication aligns everyone across the company about what’s important. The result: this vision becomes an integral part in how employees make day-to-day decisions.
After a founder moves aside and lets another executive run the business, it often becomes more “professional.” A clear vision and the supporting values gets replaced by structured processes and metrics and the company becomes more focussed on growth and profits.
Interestingly, this connects back to a previous post in which I wrote about this quote from Mohatma Ghandi:
All compromise is based on give and take, but there can be no give and take on fundamentals. Any compromise on mere fundamentals is a surrender. For it is all give and no take.
The clear vision provided by a founder can make it clear what decisions represent “a compromise on fundamentals.” Non-founding executives that focus intensely on profits and growth often don’t recognize these compromises — or understand their significance.
The bottom line: Founders help companies focus on something that is much more aligning than profits — a raison d’être. Non-founding senior executives need to provide this same compelling purpose in their organizations. How? By following 3 steps: 1) Have a clear vision about how the company adds value to its most important constituency — often that’s its customers; 2) Proactively communicate the vision ALL THE TIME; and 3) Always make decisions that are consistent with that vision – “walk the talk.”