Leading Wisely

Listen to Ricardo Semler's Podcast

David Burkus is a professor at Oral Roberts University and is author of The Myths of Creativity: The Truth About How Innovative Companies and People Generate Great Ideas. He also has a new book called Under New Management. His goal is to poke around for which innovations exist only in people’s minds and which ones actually create something new. David is also interested the impact on company size on innovation - things are very different for a bunch of young people in a small startup as opposed to a company with thousands of employees. Our conversation centered on ways for larger companies to accept change and maybe find some ways to innovate.

Ricardo Semler (RS):

David, you’ve been watching new management structures develop and find their way into our organizations for quite some time. Do you think that our larger, older companies will be able to react in time to the changes that are coming or do you think that things will change so fast that they’ll be left unprepared?

David Burkus (DB):

It is a great question, but I don't know. I wish I was an optimist and I could say, "Yes. They're definitely going to catch it and make those changes in time." But, I actually lean more towards the idea that a lot of the more establishment companies take a look at some of these new ideas as new age-y and untested. And so they’re not going to make the switch. And I mean that's really where I try and lend my voice. I'm trained as an organizational psychologist, so I you know it's not just a collection of crazy ideas that companies are doing. There's research behind why these ideas might actually be better than what has happened in the past. I am seeing inroads with bigger companies - there is a lot of experimentation going on.

I think a lot of these companies view a management change like this as a binary thing - like a switch that you have to flip. They think that you just have to suddenly go from what you're doing now to total transparency, for example. I like to try and encourage them to think of it as a continuum. So, there's where you are now, but then there's a long stretch to get where you want to go. You can make incremental progress as you experiment and figure out what works in your company and that's what I see a lot of them doing - they’re just dipping a toe in the water. I will say there are definitely some that have no interest in changing and I'm trying to get the word out and help them as much as possible, but I think the thing that will probably help them is the realization that all of their talent is going towards these companies that are using these newer and better models. And you know eventually they may change. I fear that for some of them it will be too late to get a lot of their talent back.

RS:

Do you find that your that your students are much more open to these new, more open ideas or do you also find that there's a conservative streak that comes inherited in all of the young people who are looking at companies?

DB:

I think that depends on the students. The majority of classes that I teach are among management majors and they are very, very open to this. But, I also teach marketing and accounting majors and I definitely think you can see that the accountants lean more traditional while the marketing and management students are a bit more open to these ideas.

In terms of generational differences, I don't generally like to ascribe a lot of stuff to particular generations because I think the research that we do comparing one generation to another is actually really poorly designed. But I will say from anecdotal experience I definitely think that, as we look at this millennial generation, they're the ones that grew up understanding the value of transparency - that idea that privacy is a lot smaller than their parents or, even in some cases, their older siblings thought it was. They're definitely more open to these ideas and I think more in support of them. So, I think that’s going to be one of the big drivers of change.

RS:

I’ve spoken to people around the world who say that they have hard time filling positions for people under 30. I’m also seeing young people all over the world who don’t want to work for a classical company under any circumstance. Are you seeing a cultural change in how younger people perceive what a job should be?

DB:

Absolutely. I think one of the interesting things about the economy and our time is that, on one side, there is this kind of unemployment challenge and, on the other side, there is this "unwillingness to be underemployed" challenge. And I think that's what's going to drive a lot of the changes that we’re going to see.

One of the the most encouraging changes we see is that millennials have a little bit different opinion on shared roles in a marriage and childrearing; and companies are having to make accommodations for that. They’re realizing that paternal leave is as important as maternal leave. Maybe it isn’t as long, but it is certainly an important thing that this generation wants from their employer. And I think companies are going to change because they need the work to get done and they can either offer the benefits that the best talent wants or they can try and go outside the company to get the work done.

It's interesting to look at the cultural changes that are happening and how that leads to a different set of expectations that people have for their company. Fifteen years ago, people still expected some kind of high level pension plan that was going to take care of them if they stayed there for a really long time and they didn't care about the paternal leave. And now it's probably the opposite right. People say, "I can handle my own retirement, but I could use a little help with seeing my family before it’s time to retire." So, it's funny how things change in culture and the fact is that companies have to keep up with those changes.

RS:

Okay, so how are companies doing in terms of making some of these changes in regards to transparency and openness that we’re talking about?

DB:

What we have found is that it takes about two weeks for a company to adjust from keeping all of the salary information a secret to being more open and transparent. For about two weeks, it’s a really big deal and then it’s not. This all assumes that the company has a fair salary system to begin with. So, this is just an opportunity to show everybody that the system put in place by the company is fair. You could simply show what everybody makes or you could just share the formula for determining salary and, for about two weeks, people will be curious and investigate what people make, but then it just becomes another aspect of the culture. It's interesting to me to see how quickly the adaptation is.

The immediate thing is that there's actually a decrease in strife because most of what I've found is that employees simply make assumptions about how they’re overpaid or underpaid in relation to the people around them. But, once there’s some transparency, somebody can look at the system and, if they feel like there's a pay discrepancy, they feel they some some recourse and an invitation to make it more fair.

RS:

If you share with employees all of the information about what a company makes, what all of the employees make, what the owners make, what the profit margins are and stuff like that… then why can’t an employee set their own salary? If I suggest that to a Fortune 500 CEO, then we’d have to get the smelling salts out! But, in truth, it’s not such a bit step forward because once that information is out there, then the organizational chart is less important - people will start to take care of more things on their own. Despite all of this, the idea of setting your own salary feels like science fiction to most companies. Why do you think that is?

DB:

I wish I had a solid answer for why we don't want to trust those people and I think a lot of times the companies simply default to not sharing that information. What actually appeals to me the most about the idea of setting your own salary is this idea that people in their role are probably going to have a better idea of what other companies pay for a similar role - or they’ll know how much is spent on the entirety of the HR department of a competitor. Organizations spend a lot of money on competitive analysis to understand what other companies are doing and how much they pay, but if you turn this information over to the people, they’ll do a lot of this work for you.

RS:

Speaking of compensation, there seems to be some short sightedness from shareholders in regards to CEO salaries. Often times, shareholders have set-up situations where the CEO can behave very differently from any other employee - they can literally run a company into the ground through a series of decisions, then take a golden parachute and buy themselves a house in the Hamptons, right?

DB:

Roger Martin has done a bunch of work on why using stock price as a pay-for-performance metric is actually a bad idea and that it’s a myth that we should be subservient to shareholder value among all other things. It’s pretty easy to raise a stock price in the short-term - you just have to you know cut your expenses, then get the CEO out there talking to the media about amazing things that are going to happen in the next quarter, and then you can you can raise your value for a little bit. And if that's all that we sort of care about then we're not making the long-term decisions that are much better for the company.

A lot of people are realizing this. The Harvard Business Review just released their annual ranking of CEOs and what I love about their ranking is that it looks at the value of the stock price over the entirety of the CEO’s career - not just their performance over the last 6-12 months. Our goal ought to be to build a company that can last for a very long time and that does good work for all of its stakeholders. If you can do that, then the stock price will naturally go up over time. It may not spike as much quarter to quarter, but that growth compounded over time is actually going to be a lot more.

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