Leadership Optimality in an Imperfect World: August 2010

Once upon a time, a young plant manager of a heavy assembly operation walked through his plant and saw significant risk of injury to the team members; he instituted a required safety shoe and safety glasses policy (that the company would pay for). Next week, the local union filed a “grievance” (formal complaint) against the plant manager. The parent international union had to intervene (and educate) the local union to withdraw the grievance; the union only withdrew in fear of a future lawsuit that may incriminate them for an accident in the plant. As that plant manager, it felt as if I was slapped on the face for trying to do something good.

Different work experiences have allowed me to observe similar mistakes, negligence and waste, in large or small companies, that are difficult to explain.  As engineers, we are trained to attain process optimality; in many business environments, such optimality often emerges from a series of compromises that managers make, to keep harmony or simply avoid making the tough decisions.

This week, I walked to through a large multi-national plant at the cradle of the spectacular mountains in Northwestern Virginia. Recently, we sold them spare parts, to retrofit a piece of equipment; the young engineer, who gives me the tour, believes that it would have been the best option for their company to have us (the original equipment manufacturer) re-build this product and give them a warranty on the re-built equipment. The job was awarded to a local mom/pop contractor who charged them $50k more than my company had quoted. The frustrated young engineer, signals his hand underneath a table to describe an impropriety in their purchasing behavior.

Later, we walk through areas where the yellowish-brown effluent from the paper making machineries flow all over. You notice many side streams of these untreated fluids flowing into the pristine river by the plant where four elegant swans are swimming on this humid mid-summer day.

In twenty-first century America, such scenes of alleged bribery, gross violations of environmental or safety regulations, are difficult to comprehend. Every day, in thousands of  businesses, imperfect decisions like these, are made in a series of small accidents that add up to create our the imperfect business eco-system.

Human beings, intrinsically, want to do the right things – we are aware of consequences of our actions; we still make imperfect compromises with our every-day lives. Having once walked in their shoes, I know that these engineers and plant managers want to do the right things – meet environmental standards of water-discharge, treat their people right – “do good” for their communities. But in a complex world of running a plant, business or service facility, things are going wrong all the time and your reaction is typically dictated by what you are measured by.  In my past manufacturing experiences,  I was usually measured with one objective – make more product.

As leaders, we must align our organizational incentives to “balanced objectives”.

Early in my career, I was trained that businesses have only two goals: Make as much money as possible – for as long as possible. More often, this goal is misunderstood, misinterpreted and misrepresented. If one keeps the longer term view of “for as long as possible”, we would not pollute our rivers – treat our teams unfairly or the communities we function in, wrongly.

If you ask a stockholder in any company – would you like to maximize profit of your stock knowing that it hurts people and communities – or have child labor in factories – or destroy our environment – versus, given the choice of “balanced objectives” – profit and doing good – the typical stockholder would pick the balanced scorecard.  But rarely are stockholders given such a choice.

The world doesn’t run on binary choices of 1 or 0; making profit does not need be mutually exclusive of taking care of our teams and our surroundings. We can choose the elegant solution and want both – and deliver both. It’s a choice. As leaders, we have to make that choice – and communicate our dual expectations, clearly.

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