What does it mean to run a company with strong values? How does a commitment to "do the right thing" as it's applied to employees, customers, and other stakeholders affect an organization's daily decision making?
Consider the dilemma faced by Harry M. Jansen Kraemer, Jr., chairman and CEO of Baxter International (Deerfield, IL), in August 2001, when several dialysis patients in Spain died mysteriously. One possible cause was a filter made by Baxter, a medical equipment and supplies company with about $8 billion in revenue.
Baxter and an independent testing company evaluated the filters but could find nothing wrong; yet several days later, there were more dialysis-related deaths, this time in Croatia. A team of Baxter experts finally determined that a fluid, made by another company, that Baxter used in testing the quality of the filters during manufacturing turned to gas when heated in the bloodstream, causing a pulmonary embolism.
Instead of hiding its findings or blaming others, Baxter publicly apologized, ceased manufacturing the products, shut down the two plants that made the filters, and has since settled with virtually all the families involved. The company took a charge of $189 million, and Kraemer recommended to the board that since the filter problems had occurred on his watch, his 2001 bonus should be reduced by 40 percent and other executives' bonuses should be reduced by 20 percent.
I always say that we're fortunate to be in a business where you can do well by doing good. |
"What we try to do is do the right thing," he says. "I think there's a tendency to make things more complex than they are. If we live the values we profess, we'll add shareholder value. I don't see a conflict."
Baxter's commitment to corporate values cost Kraemer, his leadership team, and the company a lot of money in 2001. But even when a commitment to values comes at great immediate costnot only to management but to a firm's shareholdersthere are leaders who argue that this is solid business because an articulated set of values that focuses on doing good by employees and customers creates a stronger company that rewards shareholders over the long term.
Developingand living witha set of principles that guide decision making throughout an organization is no simple task. It involves the kind of soul-searching that not all firms are prepared to engage in, but for some companies, it has proven a potentially powerful and unifying attribute. "You have to constantly ask yourself, What kind of company do we want to be? What do we want to stand for?" says Dawn Gould Lepore, vice chairman of technology, operations, and administration for Charles Schwab (San Francisco). "If the company has a well-communicated vision that encompasses its core values, management and employees can better answer these questions," she says. That, in turn, contributes to the strength of the organization.
Schwab has had its own value-testing dilemma as the company has managed through the current bear market. With trading volume having dropped precipitously by the end of 2000, it became clear that dramatic steps had to be taken to preserve jobs. "We felt our employees were our competitive advantage," says Lepore, and so the company tried a number of innovative plans to avoid layoffs: Employee pay and executive bonuses were cut, and employees took voluntary time off without pay. Chairman Charles Schwab's decision to forgo a bonus and divert that money to give employees a bonus instead sent a powerful message. "Actions speak louder than words," Lepore says.
Still, layoffs became inevitable, and there have been three rounds so far as the company struggles with the reality of not being a growth company for the first time in its history. Recently, Schwab has gotten some negative press for suspending its contributions to its employee 401(k) planironic, detractors commented, given the company's business. "But it's allowed us to keep people and balance shareholder needs and employee needs," Lepore says.
The value of a clear vision
Most successful companies can articulate their vision, says Lepore, who sits on the boards of Wal-Mart and eBay. "Wal-Mart's vision is improving the standard of living for people who could not otherwise afford" the products the company sells, she says. "And for eBay, it's creating a community exchange," so far-flung people can better their economic status by having the ability to conduct commerce no matter where they live.
Baxter's Kraemer agrees that articulating the vision throughout the company is key. "I always say that we're fortunate to be in a business where you can do well by doing good." And if a manager is doing his job, he will articulate and reinforce that vision whenever possible. For instance, Kraemer recently received an e-mail from a woman who thanked Baxter for creating a product that had extended her father's life by fifteen years. Kraemer shared that e-mail with the company, telling employees, "This is part of what we do."
For Kraemer, in good or bad times, the key to keeping values top of mind with employees is communication. He estimates that 40 percent of his time is spent communicating with Baxter's 55,000 employees. Driving values throughout the company "is one continuous communication," he says.
Driving values throughout the company "is one continuous communication". |
To be effective, communication must be two-way, says Kraemer. Baxter employees are encouraged to raise questions to superiors in person or via e-mail, and Baxter has an ethics officer with an 800 number capable of taking anonymous calls who reports directly to the chairman of the board's public policy committee. This mechanism not only sends a message that the company is serious about its values and wants active employee participation in carrying them out, Kraemer says, it also acts as a deterrent. "If people understand that this kind of mechanism is in place, the probability of them going off the road is reduced. Guardrails are helpful."
Balancing work and life
Another way that a company can send a strong message to employees about its values is by stepping up to the thorny "quality of life" issues, such as balancing one's work and personal lives. "Twenty or twenty-five years ago, if you'd talked about anything but the job, some would question, 'What, aren't you committed?'" Kraemer says. But most people are trying to balance their business lives with their personal lives, their professional needs with their health, social, and spiritual needs, he says. "If we're all trying to do it, why don't we openly talk about it?"
On the one hand, shareholders might legitimately want a firm to squeeze as much out of workers as possible, but Kraemer doesn't think a company's productivity must come at the expense of employees' private lives, and thinks that the company and the shareholders are rewarded when employees are more motivated and committed. One way both Baxter and Schwab cope with these issues is to embrace technology and the flexibility it offers employees.
"A third of my team members don't work a typical day. They leave early, or arrive late, or work at home one or two days, or job-share. The question is 'Are they getting the job done?' That's all that matters. Everyone in the organization needs to know that balance is OK," says Kraemer, who, when not traveling, leaves the office most nights by 6:30, but spends several hours on voicemail in the evening after he puts his kids to bed. "My oldest child is fifteen and my youngest is one. I don't want to be one of those sixty-five-year-olds who say, 'I wish I'd spent more time with the kids,'" he says.
Managing for the short term as well as the long
As much as both Kraemer and Lepore believe in managing for the long term and keeping employees happy, both are realists that a company must manage for the short term, as welland that's proven tough in the current economic environment. By early May, investors in Schwab had seen their shares drop about 16 percent for the year, and Baxter shareholders had seen a similar 17 percent drop. "You have periods that go well and periods that don't go well," Kraemer concedes, pointing out that Baxter's compounded annual returns for the nine years previous to this were 28 percent.
Just as people must manage their personal and work responsibilities, so, too, must companies balance their priorities, Lepore and Kraemer say. While many companies during the bubble were lambasted afterward for focusing too closely on the extreme short termthat is, endeavoring to hit analysts' quarterly revenue and earnings estimates at all costsall companies must manage for the short term to some degree. "The team needs to understand the tradeoffs," Kraemer says. "I would love to work for a company that only manages for the long term," he quips, noting that a CEO at such a company could continually dismiss current poor performance by reminding shareholders he's managing only for the long term.
Ultimately, Lepore said, ethics stick when they originate at the top of a company and are effectively diffused throughout the organization. Thus she takes a somewhat dim view of enacting regulations to promote ethics.
"There needs to be transparency. Investors need to know what they're buying. But you can't legislate good morals [or] good values. Some of the things that went on at Enron weren't illegal, but were they right?"