Have you got your hands on this year’s HOW report? Published annually by LRN, it always garners media attention, and this year is no exception. Fortune Magazine got first crack at the report and announced the most compelling takeaway: businesses that perform best really are the ones whose employees are “empowered.” That is, they are “inspired by a desire for significance and encouraged to act as leaders regardless of role.”
We’ve all suspected as much. Now there’s empirical data to back it up.
Corporate Compliance Insights got an early glimpse of the report as well, and we recently published an excellent enumerated summary by LRN senior leader Michael Eichenwald. I’ve reprinted it below.
This is important stuff, folks. Taken to heart – and applied at every level in our organizations – it represents a (needed) shift in how we prepare and inspire the people on whose shoulders the success of the organization rests.
By: Michael Eichenwald
Here are eight takeaways from the How Report, which is based on comprehensive data gathered from more than 16,000 employees at for-profit, not-for-profit and governmental institutions in 17 countries.
- Purpose-inspired, values-based organizations are increasing in prevalence. In LRN’s road-tested framework, all organizations can be classified as either Blind Obedience (task-driven and power-based), Informed Acquiescence (process-driven and rules-based) or Self-Governing (purpose-inspired and values-based). In the four years since we published the inaugural 2012 HOW Report, the portion of Self-Governing Organizations in our study has increased from 3 percent to 8 percent. LRN predicted this result, for one specific reason …
- Purpose-inspired, values-based organizations outperform. For example, 94 percent of employees in Self-Governing Organizations report recent increases in market share for their employers, versus 74 percent and 32 percent of employees in institutions characterized as Informed Acquiescence and Blind Obedience, respectively. This trend holds across financial performance, competitive positioning, levels of innovation, customer satisfaction, risk of misconduct and brand reputation, among others.
- Business performance is enabled by strong corporate character. Every organization has a character, and those with a strong moral center are home to employees who are more likely to think and act based on shared principles that enrich human relationships, e.g., respect, truth, humility, passion and integrity. Such employees are also more aware of the consequences of their actions on others, near and far, and thus more likely to focus on making a positive impact on the world, doing the right thing and emphasizing long-term over short-term success. Roughly three-in-four (77 percent) Self-Governing Organizations score high for character in our study, versus 21 percent and 2 percent of Informed Acquiescence and Blind Obedience organizations, respectively.
- High levels of trust are the key to innovation. Organizations that score high in trust are characterized by employees that are free to experiment, to fail and to speak their mind, and at the same time, they are more likely to share information and collaborate across silos. This suite of behaviors fuels risk-taking, the launching pad for innovation, and leads directly to business outperformance. Our research shows that employees who work in high-trust environments are 32 times more likely to take risks that might benefit the company.
- Employees at Self-Governing Organizations are the most engaged. This is true by many conventional metrics. For example, 99 percent of people who work in Self-Governing Organizations would recommend working for their employer, versus 85 percent and 31 percent of employees at Informed Acquiescence and Blind Obedience organizations, respectively. Likewise, employees at Self-Governing Organizations report a greater willingness to exert effort on behalf of their employer (99 percent versus 85 percent and 47 percent, respectively).
- Engaged employees, though, aren’t nearly as important as inspired employees. The 2016 HOW Report suggests that engaged employees do not guarantee success in today’s world. Nor are conventional measurements of employee engagement sufficient tools for workforce analysis. Rather, we have learned that attracting and developing employees who are fully “inspired” is more important. Inspired employees demonstrate three key characteristics: They are authentically dedicated (e.g., proud of the way their organization acts in the world and driven internally to uphold that standard), deeply accountable(e.g., motivated to seize authority and meet obligations without oversight) and fully responsible (e.g., inclined to stretch themselves and help colleagues do the same). Our research showed that at least 97 percent of employees at Self-Governing Organizations describe their colleagues as exhibiting each of these three qualities, versus no more than 72 percent and 23 percent at Informed Acquiescence and Blind Obedience organizations, respectively. More crucially, inspiration is 27 percent more predictive of business outperformance than employee engagement.
- Managers who emphasize shaping character and fostering freedom are more effective leaders. Specifically, when managers embody these qualities, 96 percent of employees score them effective leaders, versus 52 percent when they do not. These managers, as a result, are also more than three times as likely to deliver high business performance. Employees respond more enthusiastically—and with better outcomes—to managers who seek to inspire them through their authenticity and behavior, than to those who incentivize or order them.
- Building purpose-inspired, values-based companies at scale requires new systems. In our study, people at organizations with fewer than 2,000 employees were on average almost twice as likely than those at organizations with 10,000 or more workers to describe their leaders as possessing the qualities necessary to shape character and build trust. This makes intuitive sense. Scaling inspirational leadership is more challenging as the size and complexity of the organization increases. Additionally, our research finds that the presence of trust, transparency and other key behaviors falls dramatically as you move down an organization’s hierarchy—executive leaders are much more likely to consider their organizations to be self-governing than employees on the ground are. These challenges highlight the need for leaders to go beyond “modeling” the right behaviors to designing and deploying new systems and processes that enable and foster the behaviors they want, at scale.
Michael Eichenwald is a senior leader at LRN. Mike works with organizations to measure the how of what they do: how colleagues behave and relate to each other, how they forge interdependencies, how they pursue their missions and objectives. Mike leverages a set of quantitative and analytic tools grounded in LRN’s Governance, Culture and Leadership Framework to help organizations chart the path to better performing, values-based cultures.
Mike spent the bulk of his career advising and working in large, complex corporations. This background provides a wealth of real world experience and perspective that he applies to help partners better understand “how things really work” in an organization.
Prior to joining LRN, Mike held a series of senior roles across strategy, operations, and business management at Bank of America. He also held strategy and operational roles in the capital markets division at Merrill Lynch. Earlier in his career, Mike was a management consultant with Booz Allen Hamilton.
Maurice Gilbert is Managing Partner of Conselium Executive Search, which specializes in placing Compliance Officers and Legal Counsel for clients in the U.S., Europe, Latin America and Asia Pacific. Maurice is also CEO of Corporate Compliance Insights, a worldwide publication devoted to governance, risk and compliance issues. Maurice can be reached at maurice@conselium.com or maurice@corporatecomplianceinsights.com.
