Great Leaders Have No Rules Page 13

  Ray—you deserve a “D-” for your performance today in the meeting…you did not prepare at all because there is no way you could have, and been that disorganized. In the future, I would ask you to take some time and prepare and maybe even I should come up and start talking to you to get you warmed up or something but we can’t let this happen again.

  Would you ever send your boss an email like that?

  Now imagine that your boss, Ray, is one of the hundred richest men in the world. He’s the founder and CEO of the company. The company in fact is the world’s largest hedge fund with $160 billion in assets. Would that make it harder or easier to send that email?

  The email above is real. It was sent by an employee of Bridgewater Associates to his boss, Ray Dalio, one of the world’s richest men and most successful investors. Rather than being offended, rather than punishing his employee for insubordination, Dalio gleefully shared this email in his TED talk titled, “How to Build a Company Where the Best Ideas Win” (Dalio 2017). At Bridgewater Associates, sharing everything isn’t just limited to company information; it includes real-time feedback on all your colleagues’ ideas and behaviors. Dalio explained that his experience of being overly confident and eventually wrong in the early 1980s—which cost him his business and all his personal wealth—drove him to build a culture that would foster better decision making.

  I wanted to find the smartest people who would disagree with me to try to understand their perspective or to have them stress test my perspective. I wanted to make an idea meritocracy. In other words, not an autocracy in which I would lead and others would follow and not a democracy in which everybody’s points of view were equally valued, but I wanted to have an idea meritocracy in which the best ideas would win out. And in order to do that, I realized that we would need radical truthfulness and radical transparency…people needed to say what they really believed and to see everything.

  And when he says “to see everything,” he really means it. All meetings at Bridgewater are videotaped and every employee can watch the recordings, which are stored online in their “Transparency Library.” Special manager meetings called “drilldowns” are held to diagnose problems and craft solutions. While the Bridgewater Associates culture is unusual, so are their results.

  RADICAL TRANSPARENCY FERTILIZES GREAT CULTURE

  There aren’t many leaders who are as obsessed with idea meritocracy as Ray Dalio, and not everyone thrives in an environment of real-time group judgment. But the trend is clear: highly successful leaders are now operating in a model of radical transparency. They share everything.

  This goes against centuries-long practices where people believed, “Information is power.” Meaning those who had it had power over those who didn’t. With the traditional view that business is a zero-sum game—we’re both sales reps and only one of us will get promoted to sales manager this year—I’m incentivized not to help you, lest you improve your performance and beat me out. If you and I both run company business units and fight for annual budget allocations, cooperating with you just takes dollars out of my budget for next year. If we’re fellow project managers, and you ask if I know any good freelance software engineers, my first thought would be that if you hire my favorite freelancer, she then won’t be available to work on my projects.

  Yet, in the new world of work, we win or lose based on the strength of the team, not the individual. What’s the point of winning 5 percent more budget dollars or getting that promotion if we’re going to be out of business in two years? As leaders in the twenty-first century we have to realize that radical transparency—sharing everything—is like a fertilizer for so many valuable things.

  First, radical transparency provides the situational awareness your team members need to make good decisions quickly. There is no time for information seeking, information clearance, kicking decisions up the chain of command. We need real-time data so sales reps can answer prospects questions quickly, we need shared goals so employees can align their work, we need financial transparency so our workers spend wisely, and we need to even share our failures for collective learning and to foster a culture of risk-taking and innovation.

  Second, radical transparency directly drives employee engagement. In my own experience as a business leader and based on my previous analysis of over ten million employee surveys, communication is one of the top four drivers of employee engagement. Employees want more information, all the time. It’s impossible to overcommunicate. Transparent companies by default are in total communication mode as standard operating practice. While Ray Dalio takes this practice to the extreme, there is a good reminder from Bridgewater that transparency can and should flow in all directions. What do your team members think of you as a leader? Maybe sending an email isn’t the right mechanism to find out, but transparent organizations will do things like 360-evaluations, employee surveys, and digital idea boxes to find out.

  Third, radical transparency drives trust (which drives engagement). According to the 2017 Edelman Trust Barometer, there has been “an implosion of trust” as public trust in government officials, business leaders, and the media are at an all-time low (Edelman 2017). In fact, the percent of people who say they trust their CEO dropped 12 percentage points in one year, from 49 percent in 2016 to 37 percent in 2017. One way to lose trust is to actually lie and get caught. But a more common way is to only give good news. Too many leaders believe what Colonel Jessup (played by Jack Nicholson) believed in A Few Good Men: “You can’t handle the truth!” When our leaders only share good news, good financial results, wins, strengths, and opportunities, we know we’re only getting half the picture. It’s a lie by omission.

  We need our team members to be fully informed so they can make good decisions quickly, and we need them to be fully engaged so they’ll give discretionary effort to the cause. Radical transparency is the driver for both.

  FROM “KNOWLEDGE IS POWER” TO “SHARING IS POWER”

  The military is not the place you’d expect to learn lessons about transparency and the distribution of sensitive information. The very idea of a hierarchical command-and-control structure emanated from the Roman army, and post-industrial-revolution companies were inspired by the military culture of following orders without question. So, too, in dealing with matters of life and death, information is often considered classified and available on a need-to-know basis.

  Indeed, it was this culture of silos, information hoarding, and lack of trust that existed when US Army general Stanley McChrystal assumed command of the Joint Special Operations Command (JSOC) Task Force in 2003. His mission was to defeat al-Qaeda in Iraq, which was a self-organizing, rapidly adapting enemy unlike any he had faced before. In an interview after his retirement, McChrystal explained that the traditional system of information flowing up the organization and decisions flowing back down was no longer effective. He said:

  To defeat an enemy like Al Qaeda in Iraq (AQI), we had to beat them at their own game—the phrase it takes a network to defeat a network became our mantra. We created radical transparency through widespread information sharing and pushed decision-making down to the lowest levels (Pope 2015).

  In his book Team of Teams, McChrystal goes into greater detail about his goal to achieve a “shared consciousness” among his own team and partnering organizations that would enable decision making at the lowest levels, which he calls empowered execution. He writes:

  Shared consciousness demanded the adoption of extreme transparency throughout our force and with our partner forces. This was not “transparency” in the sense that it is usually used in the business world, a synonym for personal candidness. We needed transparency that provided every team with an unobstructed, constantly up-to-date view of the rest of the organization (McChrystal 2015).

  Over the course of five years, as General McChrystal slowly changed the culture, the fight against AIQ became more successful. In a TED talk, McChrystal
summarized the secret to success: “We had to change our culture about information…instead of knowledge is power, to one where sharing is power” (McChrystal 2014).

  This idea of providing as much information and decision-making authority as possible to frontline operators is echoed also in the work of US Marine Corps general Charles Krulak. In 1999, he wrote an article for Marines Magazine titled, “The Strategic Corporal: Leadership in the Three Block War” (Krulak 1999). The term “Three Block War” served as a metaphor for the simultaneous demands placed on frontline marines. On one block, they may be doing humanitarian work. One block away, they may be in peacekeeping mode. On the third block, marines are in actual combat. To be successful, decision-making power must rest in the field with the lowest level of noncommissioned officer, the corporal. He writes that an outcome:

  …may hinge on decisions made by small unit leaders, and by actions taken at the lowest level. The Corps is, by design, a relatively young force. Success or failure will rest, increasingly, with the rifleman and with his ability to make the right decision at the right time at the point of contact.

  Krulak also points out that the decision made by a young marine on the other side of the world could be headline news the next day, and even have strategic impact. This truth is heightened by the ubiquity today of mobile phones with cameras and the ability to distribute instantly via social media. In order for frontline leaders to make the right decisions, they need to be clear on the strategic intent of senior leaders and they must have total situational awareness—the same information that their generals have.

  OPEN-BOOK MANAGEMENT

  Kris Boesch arrived at work as the new CEO of a moving company. With no prior experience in the industry, she found a workplace so toxic that employees were openly cursing at each other and ready to come to blows. Financially, the company was on the verge of collapse. Over time, with a focus on purpose, open-book management, and workplace culture her employees soon thrived and she was able to save the company.

  Boesch wrote about her experience and lessons learned in her book, Culture Works: How to Create Happiness in the Workplace (Boesch 2017). When I interviewed her on The LEADx Leadership Show she shared how she began to teach her employees about the financials. She described how she gathered everyone and did an activity she called “Connect the mission to the money, and the money to the mission” (Boesch 2017).

  I’d get 100 one-dollar bills and I’d do it in percentages. I’d say, “Okay, you’re my rent, you’re my marketing, you’re my insurance,” and I would hand the money out. I would do payroll last and say, “This is what we have at the end of the day,” and that’s to pay debt, and if we want to buy new trucks.”

  There was just this whole, “Oh, my gosh. That’s where the money goes. No, she’s not lining her basement with gold bricks.” All of a sudden there was awareness of how we made our money and how we spent it.

  I would also tell them, “Listen, to want to grow and increase our revenue is not a greed factor. It comes from our desire to expand our mission. The more money we have, the more people we can serve. The more people we serve, the more money we have.”

  My guys would come back and say, “Oh, my gosh. I can help with truck repairs, and I’m not going to forget a moving blanket because that’s twelve bucks, and that’s two hours of profit.”

  Just make sure you’re always communicating the “why” behind the numbers and the money.

  Open-book management is a practice in which every employee, from CEO to janitor, has access to all the organization’s financial information and is trained in how to understand it. The idea is largely credited to Jack Stack, who bought an almost bankrupt engine remanufacturing company and turned it around by empowering employees with the financials. He later described his process in a book called The Great Game of Business (Stack 2013). Over the years, in books, speeches, and workshops, the system has been taught to thousands of companies. Many coaches of open-book systems claim the one-year financial increase is in the neighborhood of 30 percent. Stack has summarized the system as:

  Know and Teach the Rules. Every employee should be given the measures of business success and taught how to understand them.

  Follow the Action and Keep Score. Every employee should be expected and enabled to act on his or her knowledge to improve performance.

  Provide a Stake in the Outcome. Every employee should have a direct stake in the company’s success and risk of failure.

  With my own businesses I credit open-book management as one of the keys behind just surviving as a company, to thriving with exponential growth. At first I wasn’t doing it right. I was sharing all the financials, but it consisted of me handing out profit-and-loss statements and balance sheets and walking them through it. I’d ask if there were any questions, but no hands went up. It was hard for them to raise their hands when they were asleep with their eyes open.

  What I learned was to basically have the employees teach me what the numbers meant. People would sit together in teams of four, and each group would be assigned a piece of the P&L. For example, one table group would be assigned the expense category of office supplies. They’d have ten to fifteen minutes to prepare and then they’d present to the entire room how much we spent on office supplies in that category. They’d share whether our spending was going up or down, whether actual spending was within budget or not, what the top items were within the budget. And they’d take questions from the audience. There would be natural times when someone wouldn’t understand something, and that gave me the opportunity to teach something about financial fundamentals up at the whiteboard.

  Legendary businessman and former CEO of General Electric Jack Welch, in his book Winning: The Answers, touts the power of open-book management (Welch and Welch 2006). He writes, “the more information you share with employees about costs and other competitive challenges, the better…when people know what they’re up against, they can feel a greater sense of ownership and urgency, often sparking homegrown improvements in processes and productivity.” But he also warns that employees will also see how much of “the pie” you have, versus how much they have, and that could cause problems.

  Personally, I never found that to be the case. In a large company, people who work for you probably already have some sense of what you make for your position in the company, and in fact, that motivates them to be promoted to your level. I’ve always run small to midsize companies, and I was always careful to separate what was my salary versus profits. And when it came to profits, I taught team members what average profits were for public and private companies, and why investors deserved their returns given the risk versus just putting the money into a stock market index fund.

  Speaking of salary information, the original open-book management approach taught leaders to share salary information as a rolled-up total. But what would happen if you shared actual salaries of individual employees?

  BUT YOU DON’T SHARE SALARIES, DO YOU?

  I returned to my office, after being out on a sales call, where I was leading a team of about fifty people at Kenexa. My assistant pounced when I walked into the lobby. She was pale like she had just seen a ghost. “Do you know?” she asked.

  “Know what?”

  She whispered, “The email…”

  I had no idea what she was talking about.

  “HR accidentally sent the employee payroll spreadsheet to everyone in the company!”

  “How long ago?”

  “Like an hour ago. Everyone opened it and is talking about their salaries.”

  Then it was my turn to look like I had seen a ghost.

  I went into my office and pulled up my email in-box. Sure enough, a young woman from HR had sent an “all company” email with the subject line “Employee Salary Spreadsheet” and an attached Excel spreadsheet. Also in my in-box, arriving about f
ive minutes after the salary email was another all-company email from her boss. Subject line: DO NOT OPEN SALARY EMAIL. Obviously everyone ignored the second email and opened the first. I did too. I double-clicked the attachment and sure enough, there was salary information on about five hundred employees. Huh, who knew Bob made $75,000 a year more than I do even though he doesn’t have P&L responsibility? I shook it off. I was reacting the way I feared my own team members would. The days ahead were not going to be good.

  So you’re convinced that radical transparency is the way to lead, right?

  Good! So that means you’re ready to share salary information with all your employees, too, right?

  Yeah, didn’t think so.

  If you’re uncomfortable with sharing salary information, ask yourself, Why?

  Your knee-jerk reaction is probably: that information is private, it’s nobody’s business, people would get jealous. The truth?

  The reason why I was nervous about everyone seeing one another’s salaries back at Kenexa is because I was afraid people would get mad and complain. Or get mad and quit. Neither good. But they’d only get mad if the salary information was unfair. And it probably was because it was totally subjective. It was a black box. Without a salary system, over time, compensation gets out of whack. For example:

  We need to hire our first programmer and after asking around, we are told we should be able to get one for $75,000 per year. So we set that as the average for the role.