Financial Transparency is Good, Performance Transparency is Even Better

It’s barely spring but the temperature is already getting hot in CEO suites throughout the corporate world. Thanks to the creative accounting shenanigans cooked up by the End Run’s and World Con’s (a.k.a. Enron and Worldcom) of the world, companies are now required to be far more transparent in their financial reporting and operating processes than ever before. Sarbanes-Oxley (in the U.S.) and Basel II (in Europe) are at the head of a cavalcade of legal and regulatory requirements enacted to protect shareholders, employees and customers from financial fraud and accounting sleight of hand.

Some executives, academics and consultants feel these measures are too draconian particularly those that they believe place top executives and board members in jeopardy of going to jail if the financial statements on which they sign off are the slightest bit inaccurate, let alone intentionally fraudulent. While the typical CEO is only too happy to pocket the lucrative financial rewards that come with the mantle of leadership, some seem reluctant to accept this degree of accountability - especially if it means personally taking the rap for non-compliance with the law. I guess not many corporate heads are convinced that a minimum-security sabbatical in an orange jumpsuit will be as good for their careers as it seems to have been for Martha Stewart’s.

While many might argue that passing laws like Sarbox is overkill, few would disagree that the principle of financial transparency is a good thing for all corporate stakeholders.

But there is another kind of transparency that is also enormously important for organizations. I call it 'performance transparency'. Companies with performance transparency know explicitly what they must do to excel with customers and to outperform their competitors. Most importantly, everyone in the organization knows this as well. Indeed, individual employees can connect what they do in their jobs to the bigger picture of how the organization performs overall and how their customers are affected.

Want to know how performance transparent your organization is? Below are some questions to help you make this determination. Be forewarned – these questions are devilishly difficult to answer precisely. They are also likely to generate heated debate if addressed in a group context. So much the better in my view – stimulating a passionate debate about what drives your organization’s performance should be the first order of business in the quest to discover what really matters.

1. How do we make money? This may sound like a dumb question to be asking but I’ll bet in the majority of organizations surprisingly few people can answer it accurately. In the performance transparent organization no one has to guess how the company makes money or how what they individually do in their jobs affects bottom line performance.

2. Why do our customers do business with us? What are the reasons customers buy from your company and not your competitors? Price? Convenience? Quality? Fit to need? Aesthetics? Habit? Lack of choice? In the performance transparent company customer traits and behaviors are deeply understood and the value proposition to them is continuously assessed and improved, not merely to keep pace with customer expectations but to stay ahead of them.

3. What determines the best performance of our employees? What factors inside your organization have the greatest impact on the individual performance of workers? In the performance transparent corporation the specific skills, attitudes and behaviors needed to produce excellence are visible and well understood and the organization and people management practices of the company are explicitly designed to create, nurture and sustain these drivers of performance.

4. What characteristics and experiences make the best leaders of our organization? Do we know who the best leaders are and why they are best? Performance transparent companies do and they go out of their way to encourage, develop, assess and reward leaders at all levels of the organization based on the qualities of their most successful leaders.

5. What are the keys to getting promoted? What factors drive promotions within your company? Is the process fair, objective and merit-based? Does everyone understand how it works? Do the most qualified and deserving people advance? In the performance-transparent organization, no one is left wondering how or why people are promoted or terminated. These decisions are based on well known and well understood performance parameters and metrics.

6. What makes our organization truly different from others? What’s in your organizational DNA that makes your company unique? Is it a source of pride and advantage? If it isn’t, why not? These differences should matter positively and if they do, they should be the focal point of resource investment and management attention.

7. What is the one thing about our organization that we must protect at all costs? This may be the hardest question of all to answer. Is it something your organization possesses? Something it knows? The way in which people think and act? A combination of all three? Indeed if it’s more than one thing – so much the better. It will be that much more difficult to copy.

One possible downside of the increasing trend toward regulatory-driven financial transparency is that CEO’s may be even less inclined to share important information about financial and operating performance with employees. That would be a shame. Organizations that are intent on achieving marketplace excellence are far more likely to succeed if they practice performance transparency.

Is it Prague Spring for Talent?

Spring is in the air, well at least that’s what the picture of tulips on my calendar bravely suggests. This time of year I am reminded of an event that took place in the late 1960’s that gave our then highly polarized world a brief but tantalizing glimpse of what the future would bring. For a few fleeting months in 1968, Czechoslovakia’s part of the Iron Curtain was drawn back. People rallied in the streets demanding political and artistic freedom. The government recognized these grassroots calls for change. But soon the Soviet Army and it Warsaw Pact allies deployed tanks and troops into the country. What came to be known as the ‘Prague Spring’ was suddenly flash frozen back into winter.

This was not the end of the story however, it was just the beginning. Despite the brutal crackdown, the forces for massive change had been unleashed. Twenty-one years later – popular uprisings and demonstrations in places like Budapest, Bucharest, East Berlin, and again, Prague, precipitated the fall of the Berlin Wall and ushered in a new and lasting democratic spring for all the peoples of Eastern Europe. The ‘Velvet Revolution’ of 1989 was the culmination of a series of events started in Prague during that fateful spring of 1968.

My conversations over the past few months with executives and workers in major corporations suggest that a Prague Spring for talent might be subtly unfolding. Some HR executives are beginning to notice a change in what high caliber talent are looking for and valuing. For example, one executive in a large multinational company recently told me that she is observing a distinct shift from the ‘War for Talent’ to the ‘Search for Meaning’. An increasing number of talented individuals are apparently asking whether money and positions on the upper wrung of the corporate ladder are what they really want out of life. Many are looking for more meaningful work and organizations with a mission and purpose they can believe in.

I got a first hand glimpse of this phenomenon recently when I met a bright and accomplished executive working for a highly regarded global company. I’ll refer to him as Ted. Despite several years of exciting jobs offering loads of opportunities for achievement and growth, Ted felt compelled to make a dramatic change. He decided to leave his company to join a not-for-profit organization with a health-related mission. Like me, you are probably wondering why make such a move in the prime of your career just when you have ‘made it’?

For one thing, Ted could no longer get excited about his employer’s business and mission. He wanted to be associated with something deeper and more meaningful. But there was another factor - the urgent need for a sustainable work-life balance. Ted was burned out by the long hours and grueling travel. One wonders how many other highly talented and accomplished workers like him are leaving lucrative positions in large corporations to seek meaning and balance in other pursuits or organizations. These individuals have one thing in common with the people who marched through Prague that fateful spring of 1968 – the desire for freedom and control over their lives and destinies.

Ted’s story leads me to wonder whether companies are providing enough of what talented individuals like him desperately want from their work and life. Meaning and balance add up to an even bigger desire – sustainability. Many workers across the age spectrum – Gen Y, Gen X and Boomers – crave sustainable work-life balance yet few organizations offer it. Why not? Is business so unforgiving that an individual must give up a huge part of one’s self and one’s life to be successful in one’s work? Or does this tradeoff represent a systematic flaw in the ethos of corporations that can only be changed via fundamental transformation of the culture that dominates these organizations?

Perhaps like the decline and fall of the old Communist system, change will be wrought not from within but from outside. Voices that cannot be heard within the system will leave to express their views and pursue their dreams outside of it. After the Prague Spring was crushed some 150,000 Czechs and Slovaks fled to the West. Included were many of the best and brightest minds of the population. Today, corporations may be losing some of their best and brightest talent, not to direct business competitors but to organizations in the not-for-profit sector or new businesses built on premises and beliefs different than the shareholder value über alles ethos of most public corporations.

The warm winds of change are beginning to stir in the corporate world and like the Prague Spring of 1968, a long process of transformation may indeed be starting. As more people seek alternatives to the unbalanced and unfulfilling employment deals offered by many corporations, the pressures for change will continue to grow. Like the notion of a free and democratic Eastern Europe, what seem to be the most far-fetched of dreams, if pursued by enough people, eventually becomes reality. Are you one of those people seeking meaning and sustainability from your job and employer? Take heart, spring will soon be here.

Is America Prepared to Win the Global Skills Race?

Alan Greenspan, Chairman of the Federal Reserve Bank is famous for, among other things, saying things no one understands (and sounding smart doing it). Recently however, he managed to speak quite plainly (by Greenspan standards) about the skills problem that now exists within the American workforce. Here’s what the Fed Chief said about it during his semi-annual report to Congress on February 12, 2005 (For his complete statement see: http://www.federalreserve.gov/boarddocs/hh/2004/february/testimony.htm), “….For the past twenty years, the supply of skilled, particularly highly skilled, workers has failed to keep up with a persistent rise in the demand for such skills. Conversely, the demand for lesser-skilled workers has declined, especially in response to growing international competition. The failure of our society to enhance the skills of a significant segment of our workforce has left a disproportionate share with lesser skills. The effect, of course, is to widen the wage gap between the skilled and the lesser skilled….In a democratic society, such a stark bifurcation of wealth and income trends among large segments of the population can fuel resentment and political polarization. These social developments can lead to political clashes and misguided economic policies that work to the detriment of the economy and society as a whole.”

Although the term ‘bifurcation’ may sound strange, the problem that Greenspan describes should be quite familiar to anyone paying attention to the world around them for past twenty years or so. We are simply not turning out enough people with high-level skills nor are we ‘up-skilling’ enough lower-skilled workers to fill the gap. It is especially notable that the oracle of the American economy is concerned enough to raise this as a looming issue for the future of our economy.

Few doubt that this is a serious issue, but what should we be doing about it? Here’s what Greenspan had to say about the solution:

“As I have noted on previous occasions, strengthening elementary and secondary schooling in the United States--especially in the core disciplines of math, science, and written and verbal communications--is one crucial element in avoiding such outcomes. We need to reduce the relative excess of lesser-skilled workers and enhance the number of skilled workers by expediting the acquisition of skills by all students, both through formal education and on-the-job training.”

Okay, so we need to do better at making sure that as many people as possible develop the higher level applied and conceptual skills that the good-paying, wealth-creating jobs of the future will demand. But who should be taking the lead in tackling this problem head on? Well the rationally non-exuberant Mr. Greenspan cops out on this hot potato question – he finished his remarks to the committee by saying merely that the Federal Reserve will play its part by continuing its efforts to ensure price stability (i.e., fight inflation).

No worries - the Fed has fiscal policy covered. But who should be responsible for fixing the skills problem - government, schools, businesses or individual workers? The answer is all of them – indeed each one has an important role to play. Here are a few suggestions regarding what each of these stakeholders can do to reduce the high skills deficit:

· Government – State and local governments have yet another excellent reason to create communities that are compelling places to live for high-caliber talent. They must not only attract high-skilled talent but grow this level of talent as well using their educational institutions and assets. A key challenge is helping lower-skilled and even some higher skilled workers displaced by the global economy to repurpose and reskill themselves. They should either be directly provided with training and learning opportunities or given access to the financial resources and social support necessary to pursue new skills and career paths on their own.

· Educational Institutions – Few learning institutions have been able to ignore the skills problem, but despite a huge amount of attention and pressure, too many schools are still not equipping students to competitively vie for high-skill, high wage jobs once they enter the workforce. Many states have introduced standardized tests to measure basic proficiency and pressure schools to turn out students prepared to become productive citizens in the 21^st century global economy. These steps are necessary but not sufficient. More must be done to elevate student proficiency beyond the basics.

· Businesses – While companies are directly affected by the skills mismatch, many look to government and universities to solve the problem. Businesses however need to be more proactive in partnering with educational institutions and localities and contributing their financial resources and knowledge to craft curricula and create learning environments that will produce the types of educated and skilled workers needed today and in the future. Corporations also need to do more to help their workers upgrade their skills and retrain and repurpose themselves when necessary.

· Workers – Individuals should be proactive and self-reliant in finding opportunities to acquire the skills they need. Expecting training and learning opportunities to find you isn’t acceptable. Actively seek them out from schools, government agencies and corporations.

The future well-being of the American economy and our society depends increasingly on our ability to create high-skilled, high-paying jobs and our proficiency in preparing an ever greater proportion of our workforce to fill them. Each of us should put our ideology aside and start working together now.