The One Essence of Great Leadership

Great leaders, regardless of the arena they lead within, share one absolutely essential trait.

“I’ve got your back.”

It is, without a doubt, one of the most satisfying things to hear from one’s leader.

In a single phrase, a leader can differentiate him or herself from the managerially mealy-mouthed “we’re all in this together” to the semantically and substantively different “I’m backing you.”

Such is the embodiment of the single trait–and it is a trait–that differentiates great leaders from all the also-rans.

Put simply:

Great leaders underwrite the risks their people take.

It’s the essence of great leadership. It encourages, extends, and drives people to levels of performance that the individual would not have thought possible.

What it means to underwrite risks

In the financial world, the underwriter is the one who bears the residual risk of non-performance. Underwriters back insurance, loans, mortgages and equity offerings.

The word derives from the 17th century birth of the insurance trade. In those early days, members of the Lloyd’s of London insurance market would write their names under (therefore underwrite) the risks being undertaken by ventures (usually ship voyages) that they would insure.

The underwriters, in exchange for a premium, backed the risks they underwrote.

Because of this insurance, shipping companies were freer to engage in commerce individually than they otherwise would be.

That’s what great leaders do. They explicitly backstop the risks their people take.

Sure, they extract a premium from their teams in the form of performance and value.

And, sure they don’t underwrite all risks. That would be absurd.

But, they provide cover…protection…a backstop.

And, their people know it; because it’s explicit.

Great leaders underwrite the risks they ask their people to take. In doing so, they quite literally enable people to accomplish more than they could alone.

Why this matters

Why does the backing of a leader allow for out-performance by followers?

The reasons are many. Here are a few:

  • It inspires confidence – Dwight D. Eisenhower, in his letter to the Operation Overlord troops prior to the D-Day invasions in Normandy in 1944, told each man of his “full confidence in [their] courage, devotion to duty, and skill in battle.” Confidence is a tremendous asset when pursuing risky ventures.
  • It encourages action – Leadership underwriting allows people to try new things more easily. Think of it as the social venture capital of innovation and initiative.
  • It encourages stretch – Like the safety net for an acrobat, leadership underwriting allows for a more complete exploration of one’s talents. It encourages people to take on stretch roles.
  • It neutralizes doubt – Doubt can be healthy. Doubt can be paralyzing. A strong leader underwriting his or her people takes the doubt and bundles it up; like any good insurer does.
  • It apportions risk appropriately – Great leaders own risks commensurate with those owned by those they lead. At the same time he drafted the words of confidence in his troops noted above, Eisenhower also drafted his “in case of failure” letter. Though it was never required, it famously ended with the words “The troops, the air and the Navy did all that Bravery and devotion to duty could do. If any blame or fault attaches to the attempt it is mine alone.”

Eisenhower knew the risks he had asked his troops to take, and stood ready to take the blame in the case of failure.

He did not equivocate.

That’s why this matters.

So, how do you know if the risks you take are being underwritten by your leader?

The answer to this one is easy. Ask yourself one question.

Do you feel that you are freer while within the sphere of influence of your leader, or do you feel that you have more freedom outside of it?

Because, put simply, it should not feel freeing to leave the sphere of a great leader.

It should feel risky.

Because they have your back.

Parting thought

One of the most important choices we all will make in our careers is the choice of risk sharing relationships between us and our people and between us and our leaders.

How we apportion risk between ourselves and our teams or allow it to be apportioned between us and our leaders essentially shows how much we respect our people and ourselves.

Choose wisely.

Try it today… Underwrite somebody’s risk.

I’ve got your back.

How to Assess Your Next Leader

On objective measures, leaders can be easy to vet. Subjectively, I suggest one diligence question that trumps them all…

We talk and read a lot about professional values…Values that range from exceptional and humane performance to basic and simple ethics.

In many cases, it is just that: Talk and writing. Just like the platform I’m standing onright now, it’s far too easy these days to publish a bullet point list of things you thinkothers should do.

This article is for those who expect it to be more than words.

Leader evaluation…Some background

Having been a part of a few organizations that are styled more as talent markets–professional firms that dynamically mix management and subordinate talent into short term teams–than as classical hierarchical organizations, I’ve gained a point of view on leadership evaluation that is perhaps helpful to those who have spent their lives living in the lines and boxes world of static organizations.

One of the benefits of firms styled as talent markets is that people–particularly junior people–get to vote with their feet. They learn that working with a bad manager is not a bitter pill they have to swallow for career advancement.

Bad managers and leaders are weeded out either through formal processes (surveys, 360s, and feedback), or simply through word of mouth.

Another of the benefits is that people actually learn to do their due diligence on a leader. They learn to ask about style and substance in polite but penetrating ways, and to judge the reaction accordingly.

Most corporate environments operating with a hierarchical organization lack this component of “churn.” And, that can be a good thing. People become masters of their work more readily.

But, those same people can also become resigned to their own fate.

In a corporate environment, the vast majority of a person’s job satisfaction is based on the leader/manager/supervisor they work for. That can range from the CEO to a front-line supervisor leading a work team.

So, when considering a new job, a transfer, or a new company, employing some talent market-style due diligence tips can help you avoid a bad experience that can last a very long time.

The diligence list…

First, the basics of leader evaluation. All of us should investigate basic performance and ethical values before joining a new leader.

Ideally, we do it with a mix of people who currently work with the leader, and who have previously worked with the leader.

In today’s world, it’s very easy to track down a few people who have close knowledge of an individual leader through prior interaction.

Some of the basic questions to ask include the following:

  • Does the leader perform?
  • Is the leader accountable to others?
  • Does the leader develop people?
  • What’s the leader’s style in conflict?
  • How does the leader handle competing factions?
  • How does the leader manage big and small things?
  • What is the leader’s track record of advancing peoples’ careers?
  • How does the leader engender trust?
  • Is the leader a clear thinker and direct communicator?

These are all “good” questions that anyone considering a new job should ask.

But they all leave out the litmus test of leadership: The re-buy.

That’s where my best advice comes in.

The kicker…One question to rule them all…

Here is the critical question. You might say I’ve buried the lead in this one, because it really is the one that matters.

The question you should consider asking when evaluating a new boss is this:

Would you want your son or daughter to work for this leader?

That’s it. That’s the simple question.


It creates emotional distance for the person answering it: They don’t have to admit they are an idiot for choosing or staying in a bad situation directly. They get an ego “out” by being able to say how different their situation is than what they would want for others.

It overcomes the endowment effect that we all suffer from when evaluating our current circumstances: We value where we are right now more than we would value it if had a clean slate to choose from. It’s a proven psychological fact. We make excuses for why we stay with our bad leader.

It gets to a fundamental question of humane values: A lot of people will walk through fire to provide for their families, and they will make every excuse and fully martyr themselves on their way to it.


When you ask them if they would put their kids through it, it gets personal and protective.

Most people look for better lives for their kids; not lives lived making up for bad leadership.

How to use the responses

Listen for the nuance in the response.

A lot of leader diligence is about the meta knowledge you will gain. The more senior you are, the more politically savvy the respondent, the more you have to listen.

Namely, if people cannot answer your questions or will not offer a reference, you should wonder why. It tells you something if a person, particularly a very senior person, refuses to give a perspective on prior leaders.

In that case, keep asking others who have been on the path.

One caution: You can always, of course, ask the question about whether a reference would work with the leader again; but remember that chemistry matters. Sometimes people leave for good reasons that don’t have to do with bad leadership.

A parting thought:

I’ve used this sort of litmus test question in countless diligence discussions; and it has been used on me in even more of them. I view both of those things as a good thing.

I’ve gone against poor “mood music” on this sort of question in only a couple of instances.

Knowing the outcome of those choices, I can only say:

Take my best advice.

The New England Patriots and Uncanny Perfection

As the New England Patriots may be showing, the best evidence of a poseur, cheat, or a fraud is uncanny perfection.

This article is about how outlying behavior without explanation demands scrutiny. Perfection, or near perfection (especially if neatly calculated) is so uncommon as to be an indication of ill-dealing.

The NFL’s New England Patriots are only a prop. This applies to all of us.

Watch out for it.

Logical links to prior thoughts on this topic

Last year, I wrote on the use of Bayes’ Rule to uncover when enough evidence was enough to make a decision.

Link: When Enough is Enough

The thesis in that one was that one powerful indicator of deviant behavior or a long history of slight deviances were equally enough evidence to underpin a decision to promote, accelerate, or move on.

Last week, I wrote on the interesting (to me) ethical questions raised around the New England Patriot’s winning big while allegedly cheating in the AFC Championship game.

Link: Deflated Footballs and Minor Ethical Lapses

Many, many people claimed, and still claim, that the alleged cheating didn’t matter because it didn’t affect the outcome of the game.

My point was that process matters.

Nothing new there.

Now, there’s a fascinating bit of information on the New England Patriots that has come out that brings another ethical insight to light that combines these two theses.

Today, I get this link in my inbox. It’s an article picked up by and written by a sports handicapper named Warren Sharp.

The link is to an analysis of team fumble rates in the NFL under different conditions. In a nutshell, it says that the New England Patriots have an uncanny and longstanding ability to avoid dropping the football. Here’s the operative quote:

Based on the assumption that fumbles per play follow a normal distribution, you’d expect to see, according to random fluctuation, the [fumble rate] results that the Patriots have gotten over this [2010 – 2014] period, once in 16,233.77 instances.

To quote Lloyd Christmas’ question: “So, you’re telling me there’s a chance?”

Yes, but a shockingly remote one.

The bigger chance is that the Patriots are different from other teams. They have figured out a competitive advantage. Conjoin that with the newest revelation of potential cheating by deflating balls, and a clear history of cheating in the franchise in the past, and?

The most likely explanation is that they have been cheating for years, acquiring a competitive advantage that is as immense as it is unlikely.

This isn’t about a single game whose outcome didn’t matter…But rather about longstanding, likely ill-gotten gains.

Sound familiar? Enough is enough.

Because it’s a global audience…a digression for the un-versed…

For those who aren’t versed in the cheating accusations against the Patriots, let me give the one sentence explanation:

The Patriot’s alleged use of deflated footballs would enable better grip by those players who handle the football, resulting in better control–especially in wet or slippery conditions–when throwing, catching, or running with the football and therefore a lower probability of drops, fumbles, and subsequently turnovers.

For those who don’t know, an American Football team’s turnover margin (that is the net number of times the ball is relinquished to or recovered from opponents through error) in a given game is an extremely powerful indicator of win likelihood. An advantage in grip on the ball is therefore significant.

The shocking, interesting, and applicable analysis

Mr. Sharp, in the midst of multiple cuts at the data, compiled this view of the NFL offenses’ fumble rates per play from scrimmage. I’m reproducing it here for commentary. The analysis is fully Mr. Warren Sharp’s.

Fumbles are the small circles, fumble rates (per play) are the orange boxes. New England is on the far right. Two things you notice immediately:

First, that New England (the far right side team) has a fumble per play rate that is in the stratosphere. They have a fumble every 187 plays. That’s truly exceptional (as the chart shows).

Second, as the article outlines, is that the next three best teams–the ones who even approach being outliers–are dome teams.

Not only is New England great at protecting the football, but they also do it better than teams with structural advantages that New England doesn’t have.

All of this is over a very long period of time (5 years) so “noise” should be shaken out of the analysis to a large degree.

Impressive? Yes. Fraudulent? Probably.

What the message is…

Such an analysis has real world applicability beyond the game of American Football. And, I’ll tell you why: If I told you that a team was so good at a key aspect of the game over the long run so as to be a near statistical impossibility, and then told you they had possibly been caught cheating in a way that would directly affect that aspect, what would be your conclusion?

The Patriots’ out-performance on fumbles is striking. Especially when you consider the conditions they often play under (in New England and outdoors). It’s akin to a company in a mature, commodity industry constantly and significantly outperforming companies in high value added, high growth industries. It can happen easily over the short term, and could possibly happen over the long term if the company were doing truly special things within the rules; but it deserves some scrutiny.

Statistical, financial, job performance, or any other kind of perfection should raise your fraud antenna in the first place. Combine it with observation of ethical “grayness” and you’d better watch out.

The message is that practical perfection should be applauded, but also scrutinized. The more perfect your investments, subordinates, or superiors are, the more you ought to ask the penetrating questions on why. The moment you observe lying, cheating, stealing, or (note this) aggressive isolation of people who decide to ask questions; you should be careful.

That isolation point is an important one: Remember when Jeff Skilling at Enron called an investment analyst an “asshole” on an investor conference call? The analyst only asked a practical question: Why couldn’t Enron produce a balance sheet?

Here’s a link to that episode.

It’s a fascinating moment in the unmasking of a fraud.

Interesting isn’t it?

This is especially important if you are the senior executive or board member who is benefitting from current ethical grayness.

Earnings look too perfect? Ask the question.

Reports on operations or people or sales too rosy? Ask the question.

I can assure you that Robert Kraft, owner of the New England Patriots, now wishes he would have asked a few questions over the past few years.

3 practical applications

I guess there’s a message here for people looking to ferret out or avoid being entangled within a fraud…Look for the quiet successes–individual or organizational–that lack any semblance of failure. Perfection is great, but not common.

A few more points:

  • Watch out for “tsk tsk” behavior by those who benefit from the perfection. Righteous indignation is the first and scariest refuge of the fraudster. When you ask someone about their methods, and they give you the “how dare you” act, you have a powerful indication. The Patriots tried this early last week, but the situation quickly got beyond their control.
  • Statistics matter. If someone is “perfect” or winning by a lot and can’t really explain what they are doing so well, take that as a hint. A “perfect” executive likely buries a lot of skeletons. A company with “perfect” financial performance likely carries a lot of fat or a lot of creative accounting. The Patriots’ statistics show how creative they are, we just don’t know how (yet).
  • Observations matter. Ask around. If others indicate ethical grayness exists in the historical record; or they simply won’t talk, you probably have your answer. Closed ranks or a history of crushed complaints provide you the indication you need. The Patriots were branded cheaters years ago, and such a track record will be in the record during this current “scandal.” If you are a board member or executive, all you have to do is ask, but you might have to ask the second order question… There have been no ethical complaints? What if the environment is such that nobody would dare complain? Go to the source at least once or twice at decade.

I have no particular axe to grind when it comes to the New England Patriots. I do, however, think that there are lessons to be learned from the “Deflategate” scandal both in the behaviors of the Patriots franchise and in the peculiar reactions to it by fans and pundits.

The Patriots’ statistical “perfection” is starting to look more and more like a fraud, and while it pales in comparison to famous frauds like Enron, Worldcom, Tyco International, or AIG; it provides some of the same human elements that all these others had in common.

The lesson? Be vigilant, especially when things are too perfect.

8 Things Your Consultants Say About You

The presence of consultants in your organization is a powerful indicator of your strength or weakness as a leader.

It’s basically impossible to move through life without using a consultant. From the haircut you get to the type of shoes you buy to the grand strategy for your organization, chances are you have tapped knowledge outside your own head in order to inject perspective, organize choices and expedite success.

But, in the business world, the presence of consulting talent in an organization provides an interesting barometer on the organization itself.

The “right” consulting model

Transient talent is a useful thing for both efficiency and effectiveness. Even in the most autonomous leadership cultures, adopting temporary talent can be a make or break proposition.

Think about the merchant shipping industry. The captain of a ship is exactly that–the absolute authority at sea.

Yet, captains readily relinquish their authority to harbor pilots every day in every part of the world. The harbor pilot is a consultant of a specific kind: One who has

very specific knowledge useful in a very specific circumstance during the life of the ship. The harbor pilot is far more versed in the navigation of his specific harbor than any oceangoing captain could be.

His experience allows for safer navigation of the port regardless of conditions that might not show up on a chart or radar. And, while the captain maintains command of the ship, he or she smartly relinquishes control to the pilot as a matter of course (or, in many places, law).

Thus, the captain brings a pilot aboard to ensure effective navigation with superior knowledge and talent; but not to replace his own command or the need for talented crew members at all times. The pilot boards incoming ships as they approach the port and leaves outgoing ships as they leave.

He’s a consultant.

Such use of transient talent is the “right” model of management consulting: Specific talent applied judiciously and precisely.

But, you and I both know that isn’t always the reason or approach to retaining consultants.  The way consulting talent is engaged–and the objectives for engaging it–says a lot about the executive engaging the consultant.

The interpretation is made by the organization–and that matters.


8 things your consultants say about you without using words…

First, The Good.  To your organization, effective use of outside talent signals some pretty cool things; such as:

  • You are seeking the right knowledge at the right time: Engaging consultants is sometimes an admission that you and your organization can’t possibly know it all. So, you hire consultants who bring sources of knowledge to renew your own.
  • Your recognize that time is of the essence: You know that without augmentation, your existing staff may not have the bandwidth or tools and approaches to managed a rapidly paced project. So, you bring on management talent in a bounded manner to get “over the hump.” There’s no time to waste.
  • You care about developing your organization: You believe that development matters. You recognize that your team and organization can benefit from seeing new ways of doing things. So, you provide outside support to them as a means of developing them along in their careers. They get to see by doing alongside those who have been there and done that.
  • You are good at managing SG&A expense: Just as it would be impractical for every oceangoing captain to learn the intricacies of every possible port he or she will visit, no organization needs to staff against every contingency. Hiring talented consultants during peak times or against peak needs shows that you value great talent, but also solid bottom line performance. You are willing to pay a premium in the moment; but are good at getting lean and mean without having to fire people.

The consultants in your midst may say these things about you; and I hope they do.

However, there’s just as much a chance that consultants represent some brokenness around you…


Here’s the bad, along with a little more narrative on some ways to sniff it out.  

Done inartfully, engaging consultants can telegraph to your organization that:

  • You lack confidence: You lack confidence in your professional capability. You lack vision. The desire for “more study” and slow playing–a result of vacillating indecisiveness–is sometimes an inefficiency that consultants thrive in. Worse yet, your organization may get the sense that you require the ego-stroking presence of high profile consultants in order to make it through your day. Finally, there’s the potential signal that you lack confidence in existing staff. Consultants can feed off of a lack of confidence in very dangerous ways. If the last several consulting engagements you contracted basically confirmed what you already knew, then take a hint.  If your trusted consultant (or any corporate confidant, really) spends more time massaging you than working the problem, you have a further hint that your confidence is being played.
  • You lack action orientation: Bringing in a consulting team to analyze the un-analyzeable in the name of seeking cover with your senior management and board is only sometimes okay. If you are in a position to “bet the company” then taking a deep breath and seeking a second opinion is fine; but you’d better let the organization know you are choosing to over-study the situation; because risk averse navel gazing is contagious. How many times do you hire a specific consultant just because they are the one your boss or the board will listen to? To a degree that’s just good politics, but sometimes it’s politics spelled C.Y.A.
  • Your talent strategy is off: It goes without saying that if you continuously engage outsiders at an arms-length premium to do recurring, especially generalist work; then you are probably missing an opportunity to upgrade your own talent base and save money to boot. When outsiders get all the sweet gigs, your inside talent base gets grumpy. Keep that in mind next time you engage a consultant to do work that could be a stretch for your insiders. Also, watch out for instances where you constantly re-engage “retired” employees you haven’t been able to back-fill. It may be an indicator that your talent strategy is bumbling.
  • You have a bad place to work: This is the bottom of the barrel. You have the Las Vegas of workplaces. People may visit and try to get rich, but nobody really wants to live there because of its false front and seedy underside. How many times do you attempt to hire the consultant but get rebuffed? How many times have outsiders with a good taste of the inside of your organization voluntarily re-upped as a full time employee. Worse yet, how many of your consultants have recommended (non desperate) people to come work for you without collecting a search fee? If the answer to these questions is “few or none,” your consultants may be feeding off of an awful company environment. You might have an organization that is a “nice place to visit, but you wouldn’t want to work there.”

So, there you have it…8 things that consultants may be signaling to your organization.  The good is good. The bad is ugly.

I recommend the good.

A parting thought…

As someone who has scoped, negotiated, and managed many millions of dollars worth of consulting projects and engaged consultants and advisors for millions more, I clearly believe that management consultants can provide exemplary value as hired guns aimed at specific, impact-oriented targets.

It just requires a high professional standard on both sides of the engagement.

It’s important to know what your consultant may be saying about you, if only through the words of the observers in your organization.

Watch out for the bad stuff…

Deflated Footballs and Minor Ethical Lapses

If a lapse of ethics can’t be connected to the outcome, does it matter at all?

There has been an interesting meme accompanying the “deflategate” news about the New England Patriots possibly cheating in the AFC Championship game by using under-inflated (and therefore easier to grip and catch) footballs. The Patriots won the match against the Indianapolis Colts in a rout.

The score was 45-7.

It wasn’t close.

The meme that is emerging on many commentaries on the situation goes something like this:

The Patriots still would have won, so anybody whining about cheating just doesn’t get it.

Translated a different way: An ethical lapse that underlies a big win doesn’t really matter if you can’t draw a direct line to the win.

I won’t pass judgment on the Patriots because the facts of the case are only just now trickling out. I suspect that there will be some grand repercussions if the current reports of 11/12ths of New England’s game balls being artfully deflated are fully confirmed.


The meme deserves some discussion.

Practical Pillars of Ethical Behavior

There are really only a few practical pillars of ethical behavior. Ethical behavior really is simple enough for a child to understand.

In the simplest form, the Golden Rule suffices.

Do to others as you would have them do to you.

A slightly more in-depth examination (and I’m musing with an hour to write this, not attending a philosophy class) brings a few more things to mind:

  • Informed Consent: Ensuring that the players at least know that it’s a game where cheating is possible. In the NFL case: The Colts knew cheating was possible and complained about a similar issue in November after losing to the Patriots 42-20.
  • Rule of Rules: When there is a social contract, a policy, a rule, or a law, it gets followed or changed. Enforcements and rule changes don’t happen ex post. The NFL rules are quite precise as to what compliant football inflation is.
  • Duty of Care: Leaders have a duty to uphold the same ethical and fiduciary standards that their leaders have. Senior leaders and boards rely on subordinates to uphold standards, not to secretly break them when it’s advantageous. The head coach and others will receive stiff fines and likely suspensions if violations are proven…Not just the ballboy and equipment manager.
  • Avoidance of Ignorance: The appearance of impropriety should be a motivation to know more, not less. Ignorance is not ethical bliss.Unfortunately, we already see some high profile Patriots glossing over the seriousness of the allegations. New England QB Tom Brady calls this burgeoning scandal the least of his worries and TE Rob Gronkowski made light of it with a joking tweet.

Note that I don’t bring “fairness” and “equality” into the mix of ethics. Power and comparative advantage are real things.

Live with it.

When to apply or not apply the pillars

With those things in mind, when is a minor or remote lapse of humane ethics ok? When does personal advantage trump the ethical duties outlined above?

Is it when the ethical slip is so small or far removed from the win that nobody can possibly link it to the win itself?

Is it when the actions are in secret? If contracts prevent others from talking about the ethical cracks that exist? If the people who know the truth are powerless or discredited?

When is it?

I’d argue that it’s worth examining one’s approach to life, profession, and leadership with these lenses; and working not only to be in alignment when them, but also in league with others whose ethics are similarly aligned.

Doing this examination, even (and especially) when in the midst of a big win is the mark of a humane leader.

But, why? Why not just take the win and shut up?

Why is it important to examine one’s self even when winning big?

The first reason is this: When ethical lapses are buried under big wins as “irrelevant,” they create cracks. Over time those cracks become holes you can drive a truck through. Those holes destroy lives, reputations, families, and organizations.

The Global Financial Crisis was allowed to reach its catastrophic crescendo because a profound number of “minor” ethical lapses in underwriting, ratings, and personal financial standards were ignored in the fantastical run-up to the crisis.

Thousands of people knew that the lapses present would result in a crash. Greed being what it is for all of us, it was too costly to examine the realities and step off the machine.

The second reason is this: When suspected ethical lapses are ignored due to organizational distance, plausible deniability, or other comfortable but specious buffers, they form the same cracks as knowingly buried lapses.

A fantastic example of this is evident in the Bernard Madoff Ponzi Scheme. No, not because of the deplorable Ponzi scheme itself. The learning comes from the the legions of people investing with Madoff. Many of them suspected that Madoff was doing something illegal or unethical. Some of those were warned outright by the likes of Harry Markopolos. However, they were far too comfortable with their clockwork-like 12 – 16% annual “investment” returns.

In the Madoff case, a cynic would say that the people benefiting from the scheme while it was running knew they were dealing with a crook. But, he was “their” crook. He was making “returns” for them that others couldn’t access.

A slightly more generous take would be that while people suspected wrongdoing, they had no evidence of it, and so all was well.

Some might say that there is no such thing as a minor ethical lapse. I disagree. I think there are minor ethical lapses all the time–many of them unconscious or inadvertent.

Absolute standards are hard to find in the world.

The disaster comes when the minor lapses are allowed to survive, replicate, and grow.

Back to the Beginning

I’ve probably whipsawed between two very different standards of ethical care in this quick article: Deflated footballs to trillion dollar systemic disasters.

The key point of this article is that if a dominant meme can emerge in a day or two that excuses an alleged break of a fundamental rule because “the Patriots would have won anyway;” then it’s worth stopping and examining whether that kind of thinking is pervasive in our own professional lives.

I’m not sure it’s possible to treat all people with every possible connection to us with the same, conscious approach to humane ethics. There’s always the next cause, care, or critique that will arise.

But, as Socrates said: The unexamined life is not worth living.

The One About Performance

Performance is the prerequisite for any professional or organization.  It is the heartbeat of the body.

In December I posted an article on the lights of leadership. In the midst of a lot of feedback I receive on the writing I’ve done, one bit of feedback stood out on that particular piece.

It came from a gentleman who has been both a corporate leader and entrepreneur. In referring to the ways I listed to “light the lights of leadership” he said simply: “I’m glad you started with performance.”

It’s not clear to me that performance “sells” on LinkedIn or your average blog quite like a list of 5 things that will bring you wild success.

But, people who know, know.

I’ve had the privilege to write about a broad set of topics. I enjoy thinking through and sharing on strategy, leadership, entrepreneurship, innovation, and ethics. I view those topics as worthwhile to anyone looking to advance their careers and organizations.

However, there’s a point of fact that sometimes gets muddied up in all the organizational development, touchy/feely, and “strategic” thinking.

Performance is the prerequisite.

No matter what the collective business and organizational intelligentsia write and speak on, it all must relate back to performance–short term and/or long term.

That’s not to say that it does.

That’s to say that it should.

A leader with the best ideas on and reputation for people leadership, organizational development, and customer care but without a track record of performance might as well change careers.

To borrow a turn of phrase from the apostle Paul: If I have leadership ability that can move mountains, but do not have performance, I am nothing.

That may sound harsh and cold, but that’s reality.

It’s true whether you are a concert pianist or an investment banker. It’s true for athletes, doctors, and police officers.

It’s true whether you are trying to carry a football across a goal line, or seeking 20 basis points of alpha.

How often we forget this simple reality.

Performance is the currency of our careers and the building block of our professional names.

But, performance itself may be insufficient

If you look at the body of any leader’s work, the heartbeat is performance.  Results delivered by that person matter that much!

But, even a comatose patient has a heartbeat, so there’s much more to leading a than simply meeting objectives. The heartbeat is a critical necessity, though it may not be sufficient for a thriving, vibrant organization.

In my experience only very rare business cultures can hang their hats on performance alone. They look like professional sports teams and trading desks. I’ve been a part of both; and I’ve been around dozens of other corporate and organizational cultures.  I’ll just assert this:  It’s unlikely that your organization can rise (or fall) to this level of Darwinian objectivity.

Thus, we discuss results and leadership and vision and integrity all within the realm of the performance ethic.

The Performance Ethic

Show me a person who has a strong performance ethic, and I’ll show you someone who will likely contribute every day.

Show me someone with a strong performance ethic layered over with people skills and “other-oriented” values, and I’ll predict career success.

Performance ethic.

That is a concept that his highly distinct from work ethic.

Lots of people work hard and don’t perform.

It’s also highly distinct from smarts, intelligence, savvy, and the like.

Perhaps shockingly, it’s also highly distinct from a desire to “win.”

Winning matters, but it’s the definition of the contest that matters more.

As anyone who has participated in high stakes negotiations can tell you: Some of the best “win-preventers” are people who focus on winning the minutiae and lose sight of directional victory.

In American football, a lot of 15-yard penalties come from guys trying to win the little things (like that fight with the guy across from them) while losing sight of the bigger things.

The same thing happens in professional life.

A short win is just as easily part of a long defeat as a long victory. Ask any endurance athlete what constitutes effective performance, and the answer is most certainly not going to be “run every moment as fast as your body will go.” It just isn’t possible. You run the race so that you will win; but that does NOT mean winning every lap, stage, or heat.

None of us wants to be a part of a long defeat.

So what?

Let me outline a few ideas for what constitutes a performance ethic for leaders. This list will be incomplete. Trust me. Please help me round it out if you like.

  • A strong concept of performance: In short: What is the race? Is it quarterly financial performance or an enterprise positioned for success 3 years from now? How do you manage some of the tensions inherent to the two? What’s true north and do executives, rank, and file align on it?
  • A superior understanding of others’ concepts of performance: Do you understand what “winning” is to those around you and those who are instrumental to the race? One person’s concept of “performance” is earning the highest bonus possible. Another’s is building for the future. Yet a third person’s concept is simply staying employed or protecting position. Another wants only to advance her career. A person with a solid performance ethic assesses these things and determines whether he or she can “win” with the team they have or are a part of.
  • Daily delivery and ownership: Strong delivery today against the vision for tomorrow is a hallmark of a person with a performance ethic. Performers know that daily improvement underpins performance. Procrastination doesn’t.
  • An expansive view: Making performance an expansive thing shared by more vs. a contractive thing shared by fewer is an indication of a strong performance ethic. People who know business performance know that the pie grows with performance. The stereotypical bureaucrat only looks to divide the pie as it exists today.
  • Ability to attract others to a performance vision: The more senior you are, the more you must inspire others. Being able to attract talented people, inspire them, and have them deliver on a performance vision aligned with your own is certainly an aspect of performance ethic.
  • Transparent performance contracts: Allow others to get on or off the boat with real informed consent and high integrity risk sharing. An underlying theme to “Enlightened Strategic Leadership” in my practice is that social contracts within a firm should be transparent, particularly when they are in conflict. If you have a policy, follow it. Most (not all) organizations start this with their employee handbook.

Let’s talk performance.

Without performance, all the focus we see on LinkedIn about people, personalities, and career is just noise.

Performance is the prerequisite.

Author’s note:  Just as in most things, there is more than one way to “success.”  I hold out performance as the prerequisite. Many, many people hang their hat on patronage and politics for “success.”  I suggest we peer through those things and look at performance. 

Where strategy gets real

A company’s budget shows what its strategy really is.

Geoff Wilson

Imagine a world where you have full view of all budgets and resource allocations in every organization you could possibly want. You could read any company’s press releases, strategic statements, and marketing collateral—and then immediately assess whether that company is doing anything special with its resource allocations to reflect its “special-ness.” What do you think you’d find?

Let’s take a topic like share buybacks. What if a company told you its strategy was to accelerate share buybacks when prices are high, and to slow them when prices are low? Would you call that company crazy? Of course. Nobody says that. Yet FactSet publishes this:

Here’s the CliffsNotes version of this chart: S&P 500 executives and boards execute vastly more share buybacks (blue bars) when share prices are high (purple line) than when they’re low. Though there are many explanations for this seemingly nonsensical reality (most importantly the timing of capital availability in the cycle), the fact remains that corporate leaders exhibit the exact same pro-cyclical bias that any investor on the street does. It turns out that manias for tulips, dot-com stocks, real estate, and share buybacks have this in common.

Now, suppose an honest CFO were to slip up and say “We’re going to budget to buy back shares when everybody is really excited about our stock because that’s when we are excited about it, too!” Would you be impressed with the company’s strategic acumen? No. You’d just have the truth.

The practical insight

Because executives, managers, and employees would be crazy to admit their biases and lack of certainty publicly, a deft analyst or owner has to find other ways to unveil strategic intent. Here’s one to live by:

An organization’s budget is the honest expression of its strategy.

It’s Occam’s razor for discerning strategic intent. More than words. More than magnificent manifestations of PowerPoint prowess. More than organization charts and stated goals. The budget is the message. It’s the narrative applied. Follow the money.

Corporate finance practitioners are reading to this point, nodding vigorously, and probably wondering why such a concept merits a full article. Here’s why: The vast majority of stakeholders in and around an organization place a lot of weight on the words and fancy marketing messages that come with strategy. All the statements of intent to “be the best at” this and “compete the hardest on” that accompanying a typical organization’s vision get delivered liberally.

Those minor messages are extremely important to align and encourage the organization. They are the audio of the strategy. However, the video of a strategy is an organization’s resource allocation. And any stakeholder—employees, board members, executives, owners, and sometimes investors—needs to discern strategy from it as a sort of check on the words. Just like the old Russian proverb: Trust, but verify.

A side note on results

Note that I don’t confuse an organization’s budget or resource allocation with its “results.” A company’s prospective budget or resource allocation is the expression of strategy. Results, on the other hand, come from the confluence of position, potential, competitive actions, regulatory changes, customer idiosyncrasies, fluctuations in weather and commodity prices, luck, happenstance, and any number of noisy and ambiguous factors.

Results are measures of performance, but not of a healthy (or even discernible) strategy. They can be spun into a hindsight strategy, but aren’t necessarily the results of a prospective strategy. In other words, organizations with bad or nonexistent strategies can deliver good results, but not for long. The key is to find executives who recognize when they’re lucky.

Results are real and provide for the present. They are a must have. Strategy, however, aligns resources for the future. It’s a must have, too.

Unpacking the insight

On one level, a budget is simply numbers. It’s not strategy. Saying that you’re going to grow earnings or tamp down costs or grow the revenue line through a budget does exactly that. It shows those things mathematically. It doesn’t establish how you intend to use the resources.

More importantly, a budget shows what you expect to achieve, but it doesn’t show the opportunity cost of that achievement. Strategy is about choices. A budget isn’t a choice. It’s math. It’s the scoreboard, not the game, and certainly not the playbook. Math isn’t strategy. But on the other hand, the math is the simplest view of an organization’s aims. In this basic view, budget is, in fact, strategy.

Let me rephrase that: A budget, and the actions it enables, is the most honest expression of strategy. Show me a company’s three-year plan and budget, and I’ll be able to articulate the company’s strategy to an 80/20 approximation—though it may not match what’s printed on the marquee.

The really interesting part is when you put the strategy and the budget together. Your strategy says you want to grow. OK, what’s your investment in growth? The budget shows that. Your strategy says you expect to be a superior marketer. OK, what’s your allocation to marketing spend? The budget shows that.

A leader who truly expects growth but cuts productive growth spend is suffering from cognitive dissonance. He’s living two lives, but only one can survive. One side of the argument will win.

And these days, with incentive structures being what they are, what wins? It’s often the spreadsheet. It’s the budget—the accounting—that wins.

How to apply this knowledge

All of this is easy if you see the resource allocation and statements of strategic intent and can make the comparisons. If you’re on the outside looking in, it can be tougher. Here are a few practical points.

To test strategy and budget alignment, consider the following hot spots:

  • Capital allocation: How is the company allocating its capital investment? Is the company in a mature market yet overspending on growth capital? Is the company pursuing a cost-driven strategy but starving assets of even minimal maintenance capital in order to drive earnings? These things can be discerned in most cases through even the highest-level financial reviews.
  • Overhead allocation: Does the company allocate overhead to the right places within its strategy? Is overhead allocated to administrative and risk management activities more than growth and renewal of the franchise? Is that what is supposed to happen?
  • Capability building/initiative spending: Can you find strong evidence of investment in capability building or renewal toward the stated strategic intent of an organization? If the organization is pursuing cost leadership, do you see evidence of investment in cost-leadership capabilities? Ditto for growth and innovation. Do you see it? Do they walk the talk?

Often, strategic discussions focus on the words of a strategy. Financial discussions frequently center on the math—forecast amounts of spend and investment vs. types.

In order to understand strategy applied, seek out the allocation of resources in the companies you own, serve, or work for.

Executives should use this sort of check on the strategies and budgets of their organizations. Avoid fooling others with and being fooled by clever narratives overlaying misaligned operations. Shoot for integrity.

Employees can use this as a test of whether the direction their organization is taking is actually the direction stated. That’s an important inkling when deciding where to ply one’s trade. They can vote with their feet. (Side note: Candidates can use this notion effectively as well. Does the company you’re interviewing with understand its resource allocations toward its aims vis-à-vis the competition? Does the audio match the video?)

Owners, board members, and investors simply need to ask the question and look for a satisfactory answer: What are the ways and means being applied to meet the ends being stated. They can also vote with their feet or, of course, with the stage hook.

The budget is an honest interpretation of strategy. It’s not the strategy, but it’s close. It’s Occam’s razor—the most direct path to strategic intent.

Follow the money.

What do you think?