CULTURE

- THE CONSEQUENCE OF
GOVERNANCE AND THE
TEAM AT THE TOP

NIGEL A.L. BROOKS

THE BUSINESS LEADERSHIP DEVELOPMENT CORPORATION

Article reprint
 CULTURE - THE CONSEQUENCE OF GOVERNANCE
AND THE TEAM AT THE TOP

Whereas entrepreneurial enterprises have few internal barriers, larger

institutional enterprises risk forming organizational silos that cause
fragmented communications, and foster internal competition among
members of management. To build a sustainable enterprise with a strong
positive culture, the Chief Executive Officer must establish a team at the
top. When stated and enacted values are consistent among members of
management as a team, a positive culture will emerge throughout the
enterprise. However, the reward system impacts both performance and
culture.

The Chief Executive Officer (CEO) has the overall responsibility for the
administrative and operational activities of an enterprise, and is
accountable to the board of directors, which in turn is accountable to the
shareholder investors. Collectively, the CEO and the board comprise the
Governance function, from which all constituencies expect leadership, and
to which the investors look for results. Top management consists of
executives with major areas of authority and responsibility for functional
or business units, supported by other managers, supervisors, and staff.

If the CEO is an effective leader, the enterprise will follow, and the
appointed leaders will be respected. If not, emergent leaders will develop
from within the organizational units based upon needs.

Entrepreneurial enterprises have limited resources and are focused on

survival and growth. Institutional enterprises risk becoming large
bureaucracies operating according to multiple internal agendas instead of
the needs of the marketplace. To build sustainable advantage, the CEO
must focus the organizational units and the individuals within them on a
common agenda in line with enterprise's objectives, goals, and longer-term
targets. The process starts by ensuring that the executives are functioning
as a team.

The culture of the enterprise is the consequence of governance. Culture

comprises knowledge and skills learned from leaders and role models, and
consists of shared values, attitudes, behaviors, and beliefs that influence
future behaviors. Culture cannot be manufactured. Every enterprise forms
its own culture over time, which is hard to change.

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The CEO must strive to ensure that the organizational units and the
individuals within them are aligned with the values, mission, vision, and
value proposition of the enterprise, and with each other. Alignment is a
function of leadership - the ability of the CEO to:

● Aspire - communicating purpose

● Inspire - influencing the achievement of results

● Establish an environment for motivating teamwork

Ideally, the enterprise is one team with shared values and vision. In reality,
the notion of an enterprise as a team is hard to achieve, especially in large
institutional enterprises. Teamwork is harder to establish at the top of an
enterprise than at the bottom because of competition between
organizational units. Even though the leaders may preach teamwork, it
will be hard to achieve if the performance evaluation and compensation
policies reward individuals over teams and the enterprise itself.

The more the evaluation and compensation policies skew towards

individual performance, the more competitive and less collaborative the
employees become. The more the policies skew towards the enterprise, the
greater the likelihood of team motivation. Therefore policies must be set in
terms the enterprise's objectives and goals, the expectation for teamwork,
and for results that are individually controllable.

Effective performance evaluation and compensation policies have fixed

and variable components. The fixed component is a salary or wage; the
variable provides performance incentive awards including bonuses,
commissions, profit sharing, option and stock awards, and phantom stock
programs. The variable component has three attributes: the individual, the
organizational unit, and the enterprise. The role and responsibility of the
individual, and their influence on others, affects the proportion of fixed to
variable compensation, and the weightings between the attributes. For
management, awards based upon organizational unit and enterprise
performance must reflect long-term value building versus purely short-
term gains, and therefore may be paid out over several years. For tipped
employees, the payout is immediate.

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For individual contributors, the weightings skew towards personal
contribution. For salespeople who are operating truly autonomously, the
variable component should be high to stimulate continued performance -
periodically raising the bar for expected performance helps too. Incentive-
based competition should always be encouraged among salespeople,
provided such programs are not detrimental to the enterprise and other
individuals within it.

For those that influence the ability of the enterprise to achieve its
objectives and goals, the weightings should be blended. Compensation for
executive management should be heavily incentive-based, reflecting both
the performance of their organizational units and the enterprise as a whole.
Unless the enterprise attribute has a significant weighting, it is difficult to
encourage teamwork at the top. Almost all of the CEO's compensation
should be incentive-based, solely reflecting the performance of the
enterprise.

The integrity of incentive-based compensation policies is based upon the

effectiveness of the managerial accounting and reporting system. The
policies within such systems must be clear, especially with respect to cost
allocation and transfer pricing. Endless debates about managerial
accounting policy should be avoided. Care must be taken to ensure that
incentive compensation programs and the managerial accounting and
reporting system are not being abused to favor specific organizational
units, or individuals within them, at the expense of others. Attention
should also be paid to out-of-pocket expense management policies.

If management is not functioning as a team, the enterprise will fracture

and organizational silos will form. The employees will become cynical of
management, trust will be lacking, and the culture will be weak. Learning
within the enterprise will be based upon the limited sharing of "tribal
knowledge" on a need-to-know basis within political camps. It is difficult
for an enterprise to be sustainable when fragmentation exists. However,
teams will form under emergent leaders for anywhere within the enterprise
in order to get work accomplished, even on a cross-functional basis.

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The CEO can take several actions to build teamwork within the
management and throughout the enterprise:

● Ensuring that roles and responsibilities of each member of

management are clearly defined, understood, and communicated

● Ensuring that policies for performance evaluation and compensation

are aligned with accountability, and balance individual,
organizational unit, and enterprise performance

● Ensuring that the managerial accounting and reporting system is

aligned with performance evaluation policies

● Regularly communicating values and guiding principles, mission,

vision, value proposition, and performance updates throughout the
enterprise via town hall meetings, newsletters, cross-functional
employee round tables, and an intranet (ensuring that sensitive and
confidential information such as competitive strategy is protected)

● Ensuring that new employees are rotated through multiple functions

according to predefined career paths adjusted for individual
preferences, and that cross-functional experiences and learning are
shared

● Ensuring that exceptional performance that benefits the enterprise

and its constituencies is recognized and rewarded

● Encouraging feedback from employees through suggestion programs,

an ombudsman, and values surveys, because not all employees
express their views and opinions publicly for fear of retribution

The CEO must encourage the executive team to take the same actions and
cascade the process throughout the enterprise. When the team at the top
"lives the values" and "walks the talk," role models will emerge from
which a positive culture will form.

Executive team building is an enterpriship (entrepreneurship, leadership,

and management) competency.

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About Nigel A.L Brooks...

Nigel A.L Brooks is a management consultant to entrepreneurs, business

enterprise owners, executives, and managers, and the enterprises they
serve. He specializes in developing the entrepreneurial, leadership, and
managerial competencies that build sustainable advantage from vision to
value. He is an author and a frequent speaker.

He obtained his professional experience as a partner at Andersen

Consulting (now Accenture, Ltd.), as a vice president at Booz Allen
Hamilton, Inc. (now Booz and Company), as a senior vice president at the
American Express Company, as president of Javazona Cafes, Inc., and as
president of The Business Leadership Development Corporation. He has
been a contributing editor for the Bank Administration Institute magazine,
and has served on boards of entrepreneurial networks. He was educated at
the University of Exeter, Devon, United Kingdom.

His clients are in the financial services, food services, high-tech,

manufacturing and distribution, pharmaceuticals, oil and gas, professional
services, retail and wholesale, transportation, and government industries.

He has experience in North and Latin America, Europe and Asia-Pacific.

www.nigelalbrooks.com

About The Business Leadership Development Corporation (BLD)...

The Business Leadership Development Corporation is a professional

services firm that works with entrepreneurs, lifestyle business enterprise
owners, executives, and managers, and the enterprises they serve.

BLD develops entrepreneurial, leadership, and managerial competencies

that achieve performance excellence by building sustainable advantage
from vision to value through:

 Strategic Management Consulting

 Executive Coaching and Mentoring
 Professional Training via The Center For Business Leadership
Development (CBLD)
 Motivational Speaking

www.bldsolutions.com

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