479: From Lean Startup to Incorruptible Organization with Eric Ries

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[SPEAKER_00]: If you want to grow the reach, revenue, and impact of your learning business, you're in the right place.
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[SPEAKER_00]: I'm Celisa Steele.
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[SPEAKER_01]: I'm Jeff Cobb, and this is the leading learning podcast.
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[SPEAKER_01]: Mission Drift doesn't happen all at once.
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[SPEAKER_01]: It creeps in and according to our guest, it often happens because organizations are following the so-called best practices for how to grow and govern.
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[SPEAKER_00]: Our guest is Eric Rees, entrepreneur and author of the landmark book, The Lean Startup and, most recently, incorruptible, why good companies go bad and how great companies stay great.
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[SPEAKER_00]: Eric's ideas, including minimum viable product and build measure, learn, have fundamentally shaped how the world thinks about products and innovation.
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[SPEAKER_01]: If the Lean Startup is about how to build something worthwhile, incorruptible tackles the next question.
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[SPEAKER_01]: How do you keep it that way?
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[SPEAKER_00]: Eric shares his provocative argument that the four profit versus non-profit distinction is largely a red herring and he offers a new definition of what it actually means to be a four profit organization that may surprise you.
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[SPEAKER_01]: Yes, and Eric lays out a four-part framework for governance along with a harder is easier principle that reframes what it takes to build lasting trust in an organization.
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[SPEAKER_00]: If you're involved in running any learning business, no matter its tax status, and you want a challenging new perspective on how organizations lose their way and what it takes to build one that doesn't, then you want to stick around for this conversation with Eric Reese.
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[SPEAKER_01]: Well here mainly to talk about incorruptible your new book and I'm looking forward to diving into that, but I don't think I can have you on the show and not ask something about the lean startup, having been somebody who's been an entrepreneur, been involved in startups.
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[SPEAKER_01]: I'm of course very familiar with it.
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[SPEAKER_01]: I've got it on my iPad with many notes and highlights and that sort of thing.
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[SPEAKER_01]: And one of the concepts from it that we use repeatedly,
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[SPEAKER_01]: in our work with organizations is minimum viable product and encouraging them to put that minimum viable product out there, have that build measure learned cycle and what they're doing.
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[SPEAKER_01]: And I love your perspective, you know, from 15 years out from publishing the book, how has that concept held up from your viewpoint?
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[SPEAKER_01]: And how maybe has it evolved over that time period?
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[SPEAKER_02]: Yeah, I think it's held up pretty well.
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[SPEAKER_02]: I mean, people get it confused all the time because people think, oh, if we're just building a minimum product, that's like a post equality or long-term planning or something like that.
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[SPEAKER_02]: But the point of minimum viable product is simply, if we're in a situation where there's going to be a long number of steps that have to unfold in order for whatever the thing is to be successful.
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[SPEAKER_02]: I can tell you stories about.
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[SPEAKER_02]: where the thing in self is like a wisdom gadget, like a cool platform, a deep sea oil, well drilling platform, or like an internal process change or a new curriculum.
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[SPEAKER_02]: I mean, I really have seen every kind of thing you can imagine how this thinking apply to it.
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[SPEAKER_02]: There are two dimensions.
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[SPEAKER_02]: I said this 15 years ago, more I guess now.
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[SPEAKER_02]: Two dimensions of the world are going to make this more and more and more and more difficult.
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[SPEAKER_02]: One is the changes in the technology, technological landscape are going to democratize the tools of production, but also drop cycle times.
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[SPEAKER_02]: So things are going to get faster.
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[SPEAKER_02]: It's going to become easier and easier and easier for more and more people to build things, try things, communicate things.
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[SPEAKER_02]: I think that predictions help that pretty well.
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[SPEAKER_02]: But at the same time, we're going to see a great increase in the level of underlying uncertainty about what's going to work.
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[SPEAKER_02]: Partly because the number one, because consumers, employees, whoever we're trying to reach, students, they all have more options than ever before, and they're facing a bewildering array of experts and advice and best practices and advertising and obviously the fragmentation of social media.
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[SPEAKER_02]: So when we have that combination of fast cycle time capability and extreme uncertainty in the environment, we need a process, a structured way of thinking about what to do with the infinity of things we might do.
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[SPEAKER_02]: And traditional management, general management that has been practiced over the course of the 20th century really was based in two principles of principle of planning and the principle of forecasting.
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[SPEAKER_02]: You know, if you go back and read the foundational works of 20th century management thinking Fred Taylor, like I'm thinking especially of Alfred Sloan's, my years of general motors, because he really lays out how difficult it was to run business without these concepts.
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[SPEAKER_02]: It was very difficult.
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[SPEAKER_02]: The key idea is that in order to make a plan in order to hold people accountable to that plan, we need to have an accurate forecast of what's supposed to happen.
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[SPEAKER_02]: So if you want to claim credit for having done a good job as a manager, you can't just say, well, I sold more cars this year than last year.
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[SPEAKER_02]: Maybe the economy's up and everybody sold more cars this year.
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[SPEAKER_02]: Similarly, you can't say you're fired because you sold less cars in last year.
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[SPEAKER_02]: Maybe we're in a recession.
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[SPEAKER_02]: And actually, if you did slightly less bad than everybody else, that's a win.
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[SPEAKER_02]: So the key is to be able to forecast and beat the forecast.
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[SPEAKER_02]: And that whole system that most of us have taught been taught in our careers, not as an idea, but just as the way work is done.
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[SPEAKER_02]: This is like they hit in assumptions are the killers always so most people that I talked to cannot imagine that this idea ever had to be invented
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[SPEAKER_02]: to them it's like as natural as gravity, but it's not.
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[SPEAKER_02]: It was an idea.
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[SPEAKER_02]: It was invented a certain time.
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[SPEAKER_02]: It has certain strengths and also certain liabilities the biggest one of which is where do accurate forecast come from, accurate forecast, require a long and stable operating history from which to extrapolate.
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[SPEAKER_02]: And who feels like the world is getting more and more stable every day?
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[SPEAKER_02]: Oh, right.
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[SPEAKER_02]: So first of all, whenever we're doing something new, we're doing entrepreneurship, no matter what it says on our business card.
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[SPEAKER_02]: And a lot of people become what I call involuntary entrepreneurs.
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[SPEAKER_02]: when the world changes around them, and all of a sudden they're having to scramble to reinvent something that they've done consistently, maybe for many, many years.
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[SPEAKER_02]: Obviously, parallels to AI, I think are pretty obvious.
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[SPEAKER_02]: So yeah, that is the essence of minimum Iowa product, to figure out what is the structured scientific, least effort way we can discover whether the core business hypothesis that we are operating against is true or false.
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[SPEAKER_01]: Yeah, I just and I love the whole idea of operating against the hypothesis, which means you have to test it.
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[SPEAKER_01]: You have to you have to measure.
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[SPEAKER_01]: You have to learn so that's the whole build measure learned cycle and this is probably paraphrasing language from the the the new book or least how the book is presented to me that the lean startup in many ways was about how to build something worth protecting, but now you're moving into how to protect it because.
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[SPEAKER_01]: Sometimes things don't work, you build it, it's great, and then things go arise.
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[SPEAKER_01]: So can you talk a little bit about what prompted you to write incorruptible and what's kind of at the heart of that book?
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[SPEAKER_02]: Sure, I'll tell you a story, a founder came to see me for help.
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[SPEAKER_02]: But he was not your typical like Y Combinator to kids in a garage.
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[SPEAKER_02]: He was a tenured university professor working in a biology lab.
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[SPEAKER_02]: And he had had a breakthrough in the lab that he was trying to turn into a spin-out from the university.
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[SPEAKER_02]: And to protect his privacy, I'll just call him the professor.
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[SPEAKER_02]: But what the professor was trying to do was a technology that could literally cure dozens of diseases,
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[SPEAKER_02]: or it could unleash like untold and horrific bio-events.
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[SPEAKER_02]: Imagine having a chatGPT, but you could just make me a new molecule, who was that powerful?
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[SPEAKER_02]: So he was having this very unusual problem.
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[SPEAKER_02]: He was trying to recruit other university professors to join his team and leave their tenured lab and join him and they wanted to do it.
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[SPEAKER_02]: It was going very well, except they kept asking him questions that he couldn't answer.
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[SPEAKER_02]: Questions like, how can we trust that this technology will not be used, you know,
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[SPEAKER_02]: And that wasn't getting it done.
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[SPEAKER_02]: You know, they were like, okay, but aren't you making a for-profit company?
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[SPEAKER_02]: Yes, but we're very mission-driven.
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[SPEAKER_02]: Oh, are you?
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[SPEAKER_02]: But what about your investors?
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[SPEAKER_02]: Are they brought into the mission?
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[SPEAKER_02]: They definitely said so.
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[SPEAKER_02]: That's not too satisfying.
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[SPEAKER_02]: What if they were to try to pressure you to do something bad?
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[SPEAKER_02]: Oh, don't worry.
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[SPEAKER_02]: I would say no, but if they fired you.
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[SPEAKER_02]: Oh, I don't know.
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[SPEAKER_02]: They won't do that.
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[SPEAKER_02]: It was like very not really very reassuring, right?
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[SPEAKER_02]: Anyway, so he was like, what kind of I'd be a for-profit company, but still the mission driven.
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[SPEAKER_02]: Meanwhile, if he talked to his investors about it, if he gave them even the slightest hint that he had concerns about the mission, they'd be like, doesn't sound like you're very serious about business.
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[SPEAKER_02]: So we felt trapped, stuck.
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[SPEAKER_02]: Now, at the same time, I happened to be going to an event, so all my way to Inveil is talking to him.
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[SPEAKER_02]: And the event was for a founder friend of mine who was at the end of his journey.
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[SPEAKER_02]: So this guy was just starting his entrepreneurial journey.
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[SPEAKER_02]: The CEO I was going to the event for have been CEO for like 15 years.
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[SPEAKER_02]: Of a company he had built from nothing into a multi-billion dollar success.
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[SPEAKER_02]: And I was explaining that I had to get off the phone because I had to go to this event.
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[SPEAKER_02]: I'm explaining that I'm going to be like 1,000 people here to talk about this CEO and the things that he had built.
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[SPEAKER_02]: And I was watching people trickle into the event.
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[SPEAKER_02]: I saw that there were people that I knew the CEO had even fired, who had flown back at their own expense to come to this event for him.
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[SPEAKER_02]: And the guy was like, wow, mad respect.
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[SPEAKER_02]: That's the kind of CEO.
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[SPEAKER_02]: I want to be one day and I was like, I'm sorry.
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[SPEAKER_02]: You know, I'm clearly not making this clear.
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[SPEAKER_02]: This is not a party.
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[SPEAKER_02]: This is a wake.
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[SPEAKER_02]: He's like, what?
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[SPEAKER_02]: Yeah, he doesn't work there anymore.
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[SPEAKER_02]: He had made literally billions of dollars for his investors, and it wasn't enough.
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[SPEAKER_02]: And he's been kicked out and now the companies and new hands, they're taking the company in a new direction.
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[SPEAKER_02]: So we're kind of going there to celebrate, but we're kind of going there to mourn something that was lost.
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[SPEAKER_02]: And then he was like, wait, are you saying that's gonna be me one day?
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[SPEAKER_02]: I was like, yeah, this is what I'm trying to tell you.
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[SPEAKER_02]: I've been doing this for 15 years.
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[SPEAKER_02]: Now I've watched so many people lose control of the thing that they made, sometimes because they just get fired by their investors, sometimes because they're bored betrays them, sometimes though, because the organization just becomes bureaucratic or malignant or worse.
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[SPEAKER_02]: And they can't control or understand why.
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[SPEAKER_02]: And he was like, but is what I'm asking you for help with possible?
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[SPEAKER_02]: Can I build an organization that is incorruptible?
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[SPEAKER_02]: I said it's kind of a good news bad news situation.
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[SPEAKER_02]: The good news is yes.
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[SPEAKER_02]: I do believe it is possible.
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[SPEAKER_02]: The bad news is that you've already taken steps in the wrong direction.
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[SPEAKER_02]: Because you are following the best practices that everyone says are the very best ways to build their organization.
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[SPEAKER_02]: But actually, our modern best practices about our organization should be built, structured and governed, are in fact value destroying.
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[SPEAKER_02]: Are you willing, I asked him?
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[SPEAKER_02]: Are you willing to go with me and look at the evidence that this is so because I know it's a bold
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[SPEAKER_02]: And he was willing, and thanks to that willingness, after I went to the party, we reconvened, and we put his company on a new and totally different course that ultimately I think is going to lead to that technology being used in a safe way rather than a dangerous way.
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[SPEAKER_02]: But this is the phenomenon we see all across our economy that companies and organizations are being surgically deep on, they're being fed into the meat grinder of financialization and losing their integrity, losing their coherence, losing their values, and I would say even losing their soul.
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[SPEAKER_02]: there is something we can do about it, but it's going to require a radical rethink.
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[SPEAKER_01]: Yeah.
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[SPEAKER_02]: A lot of that dog was that we've all been taught.
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[SPEAKER_01]: Yeah.
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[SPEAKER_01]: And I'll say, I mean, your target in the book is more the sort of for-profit company, the, you know, the corporation that has to, is beholden to shareholders and that sort of thing.
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[SPEAKER_01]: But, but I think anybody who's listening to this and we have a lot of nonprofit listeners recognizes this same sort of,
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[SPEAKER_01]: And just about any type of organization where over time you lose sight of the core mission and where you are really trying to go with the organization and other things sort of slip in and take over.
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[SPEAKER_01]: The core to this book as I understand it is that the corruption is often maybe most of the time.
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[SPEAKER_01]: Really, it's a design failure more than it's a moral failure.
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[SPEAKER_01]: Can you talk about that?
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[SPEAKER_01]: And what are some of the earliest signs that a company on the organization might see that the design is somehow wrong, that they're not on that right now?
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[SPEAKER_02]: Yes.
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[SPEAKER_02]: Let me address both things that you said because actually although this problem we tend to talk about it as a business problem or originating from the for-profit sector, it is kind of a task to size out of for-profit.
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[SPEAKER_02]: And I think part of it is just we have financialized everything.
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[SPEAKER_02]: in our economy.
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[SPEAKER_02]: And the book I actually have discussions and stories and evidence about how the same phenomenon is happening at hospitals, universities, in political parties, in journalism, at sports teams, in so many places, you wouldn't expect it to show up in transit construction costs and public sector stuff.
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[SPEAKER_02]: And I think what's going on is our grandparents really had a lived a life of separately defined civics fears.
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[SPEAKER_02]: The civic sector, public sector was distinct from private sector, was distinct from journalism, the so-called fourth estate.
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[SPEAKER_02]: Like was a separate estate and like sports teams were totally separate.
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[SPEAKER_02]: Whereas today,
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[SPEAKER_02]: Like, if you look at those areas, you'll hear people cynically say, well, once money gets involved, what you're going to do, I think about like the role of a sports course lead commissioner now compared to the days of the great tennis on mountain land as you know, who purged baseball after the black stock scandal now we have scandals like that like.
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[SPEAKER_02]: a couple times a year.
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[SPEAKER_02]: And everyone's like, well, but the commissioner works for the owners.
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[SPEAKER_02]: The owners just want to make money.
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[SPEAKER_02]: What do you expect?
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[SPEAKER_02]: Well, our grandparents expected something very different.
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[SPEAKER_02]: They would have been very surprised to see non-profit hospitals, for example, lobbying against the creation of a national patient safety board.
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[SPEAKER_02]: Right.
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[SPEAKER_02]: Well, you say, well, why?
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[SPEAKER_02]: We would be very surprised to see law firms and universities both bending the knee to outside pressure instead of standing up for their core mission.
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[SPEAKER_02]: Why?
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[SPEAKER_02]: Well, I would say, well, it's the almighty dollar, but our grandparents had plenty of dollars.
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[SPEAKER_02]: There's been a change, a fundamental change in the idea of what leadership and management is supposed to be.
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[SPEAKER_02]: So let's try to understand why that's happened in what it's effects are.
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[SPEAKER_02]: Use US, what are the signs?
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[SPEAKER_02]: The number one symptom of this corruption is that we have found innumerable ways in this society to make money without creating value.
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[SPEAKER_02]: It's really that simple and I'll tell you a funny story.
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[SPEAKER_02]: When I was creating a long-term stock exchange, I used to get calls from journalists when they would be like a funny finance story that they wanted to comment on.
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[SPEAKER_02]: And I don't know how many people remember during the pandemic, the Wall Street Bets era where they were all these online stock traders on Reddit and places like that that we're getting all worked up about payment for order flow and other kinds of corrupt financial practices and they were trying to throw their way around, driving up the value of what it called meme stocks now.
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[SPEAKER_02]: I can't remember what there was a game stop and AMC theaters.
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[SPEAKER_02]: Like it seemed like kind of a random assortment of stocks that were being like affected by this phenomenon.
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[SPEAKER_02]: Anyway, what the finance reporters had a hard time writing the story because they would call me and be like, look, we're trying to write the story, what are people outraged about?
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[SPEAKER_02]: We can't understand it.
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[SPEAKER_02]: And I would explain it well.
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[SPEAKER_02]: I think it's very straightforward like in payment for order flows like a classic example of a conflict of interest between the gatekeeper the intermediary and the end customer.
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[SPEAKER_02]: It's the same as like Paola in radio or stocking fees in grocery.
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[SPEAKER_02]: You see this a lot in our modern economy.
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[SPEAKER_02]: And they're like, but that's been legal and going on for years.
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[SPEAKER_02]: What's the problem?
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[SPEAKER_02]: What's new here?
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[SPEAKER_02]: What's the issue?
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[SPEAKER_02]: And they were really having struggled time that I had to say, listen, stop.
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[SPEAKER_02]: The issue is people get upset whenever they find someone who is making money without creating value.
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[SPEAKER_02]: People for a long time for centuries have understood that to be a form of corruption.
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[SPEAKER_02]: Now, in our modern language, the word corruption has had its definition narrowed almost to the point of uselessness.
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[SPEAKER_02]: Like, maybe if someone creates a really outright investment or fraud, we can still call that corrupt.
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[SPEAKER_02]: But even, I mean, we all think of cases in recent years where we can't even agree on that.
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[SPEAKER_02]: Like, our grandparents were livid about insider trading and gambling.
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[SPEAKER_02]: Now, those things have basically been legalized.
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[SPEAKER_02]: So what's going on?
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[SPEAKER_02]: So the sign of corruption is that someone is breaking the fundamental moral logic of our financial system, which is as follows.
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[SPEAKER_02]: If you ask people to defend financialization or capitalism or anything about our economic system, they always retreat eventually, like a digging, digging the justification down down down until you hit the moral bedrock, which is this.
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[SPEAKER_02]: When two people engage in a fully informed
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[SPEAKER_02]: fully voluntary, uncoerced transaction from mutual benefit.
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[SPEAKER_02]: Both parties are better off.
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[SPEAKER_02]: Because if, by definition, if they weren't, they wouldn't have done the transaction.
16:24.851 --> 16:28.877
[SPEAKER_02]: When that happens, that new value is actually created in the world.
16:28.937 --> 16:29.838
[SPEAKER_02]: It's a magic trick.
16:29.878 --> 16:34.305
[SPEAKER_02]: It's the ultimate magic trick of our modern economy, that we can create wealth without stealing it.
16:34.585 --> 16:36.227
[SPEAKER_02]: Amazing.
16:36.247 --> 16:41.515
[SPEAKER_02]: But listen to how many criteria that requires, fully and slug,
16:42.203 --> 16:42.904
[SPEAKER_02]: Where's the consent?
16:43.866 --> 16:47.454
[SPEAKER_02]: If I mislead you, if I do deceptive practices, where is the fully informed?
16:47.755 --> 17:01.022
[SPEAKER_02]: There's so many kinds of transactions today that we do and celebrate in then for profit and not profit sectors alike, that in our grandparents and great grandparents, I'm not just what have been seen as morally dubious, they would have been crimes.
17:01.846 --> 17:03.430
[SPEAKER_02]: now we've legalized them.
17:03.450 --> 17:09.765
[SPEAKER_02]: So I think we are reaping the inevitable consequence of having done this, kind of civilization scale long-term.
17:10.446 --> 17:12.852
[SPEAKER_02]: And now it's time to make some corrections.
17:13.490 --> 17:18.316
[SPEAKER_01]: Can you talk a little bit about how mission factors into this?
17:18.376 --> 17:23.942
[SPEAKER_01]: And I'm thinking especially for our audience, because they'll say, well, you know, those corporate guys, you know, maybe they don't have a sense of mission.
17:24.243 --> 17:25.384
[SPEAKER_01]: But we have a mission.
17:25.784 --> 17:33.253
[SPEAKER_01]: You know, we have our mission statement, what's the difference between having a mission statement and truly being, you know, mission-controlled mission-driven?
17:33.774 --> 17:40.662
[SPEAKER_02]: I appreciate that because part of my argument in the book is that our current distinction between not for profit and for profit is mistaken.
17:41.148 --> 17:49.582
[SPEAKER_02]: We actually, today we let this like very arcane provision of the tax code be reflected as what we think is the most fundamental distinction of organizational types.
17:49.682 --> 17:50.644
[SPEAKER_02]: I think it's totally wrong.
17:51.185 --> 17:55.392
[SPEAKER_02]: When we say for profit today, we generally mean investor controlled or donor controlled.
17:56.213 --> 17:59.319
[SPEAKER_02]: And when we say non-profit, we tend to mean self-control autonomous.
17:59.960 --> 18:04.027
[SPEAKER_02]: So many of the organizations you're talking about have a mission statement, but they are not mission driven.
18:04.307 --> 18:07.172
[SPEAKER_02]: They are at best what I call mission hopeful.
18:07.152 --> 18:24.754
[SPEAKER_02]: That is, they're operating a very conventional business playbook and giving it the sheen, the patent, the candy coating of talking about mission, but when the chips are down, and we've seen a lot of examples of this in recent years, when their revenue lines are threatened, they have no values at all.
18:25.114 --> 18:28.158
[SPEAKER_02]: They will do what they have to do to preserve themselves.
18:28.639 --> 18:36.028
[SPEAKER_02]: Such an organization is not a trustworthy counterparty, because you have no idea what it's going to do in the future.
18:36.008 --> 18:42.841
[SPEAKER_02]: So I think that the right way to think about this is we have, like, this Smithsonian Institute is a very for-profit organization.
18:43.522 --> 18:47.429
[SPEAKER_02]: And Philip Morris, the merchants of death, are incredibly not for profit.
18:47.449 --> 18:50.455
[SPEAKER_02]: They are destroying value, whereas a Smithsonian is to create value.
18:51.016 --> 18:56.346
[SPEAKER_02]: Once we accept this distinction, it opens up the possibility for what I call the new governance.
18:56.326 --> 19:04.259
[SPEAKER_02]: a new theory of governance that allows us to put mission and purpose at the center of all of our corporate practices.
19:04.279 --> 19:06.222
[SPEAKER_02]: When I say corporate, I don't mean related to corporations.
19:06.282 --> 19:10.229
[SPEAKER_02]: I mean relating to the corporal body of an organization.
19:10.830 --> 19:17.220
[SPEAKER_02]: So today, most board meetings are dry and dull and frankly like so boring.
19:17.200 --> 19:33.663
[SPEAKER_02]: And if there have been to a board meeting, but it's like unbearably boring, because we have reduced board discussions to compliance and what passes for a very meagre sense of purpose today, generally just the self-enrichment and preservation of the financial assets of the thing.
19:33.683 --> 19:43.917
[SPEAKER_02]: We've come to see governance, come to see organizations as illegal and financial contracts, instruments of economic activity, rather than as vital living things.
19:43.897 --> 19:49.547
[SPEAKER_02]: So culture, mission, purpose, these issues tend to have receded from board of genders.
19:49.587 --> 19:50.889
[SPEAKER_02]: I give lots of examples in the book.
19:50.949 --> 19:59.284
[SPEAKER_02]: One of my favorites is like the amount of time that a hospital board someone studied the hospital boards to see how often they like talk about or discuss patient safety or tie.
19:59.865 --> 20:02.931
[SPEAKER_02]: Safety outcomes or health outcomes to executive compensation.
20:02.951 --> 20:05.856
[SPEAKER_02]: And it was like almost nothing.
20:05.876 --> 20:08.841
[SPEAKER_02]: Meanwhile, like talking about how to compensate the executive director.
20:09.968 --> 20:17.941
[SPEAKER_02]: It's like occupying an increasing amount of time and the criteria for being a really good executive director of a non-profit these days, mostly has to do with your fundraising prowess.
20:18.662 --> 20:30.441
[SPEAKER_02]: So when you do that, what you see is the culture of an organization starts to develop corrosion, an illness, an obsession with what investors or donors might want.
20:31.062 --> 20:36.089
[SPEAKER_02]: Now, what they actually do on, forming a long-term healthy partnership with a donor of it, that could be good, what they might want.
20:36.129 --> 20:40.515
[SPEAKER_02]: You certainly, his DB will, like, well, we could do that, but investors might not like it.
20:40.976 --> 20:42.198
[SPEAKER_02]: The market might not like it.
20:42.438 --> 20:50.910
[SPEAKER_02]: Again, going back to hospitals, there's been this push to have more transparency about errors, medical errors, kill, I don't know how you ask, like a top 10 cause of death in the US.
20:50.992 --> 20:59.226
[SPEAKER_02]: You would think, I could be like, well, naturally, I'm sure a private equity owned hospital would be really, have a hard time being transparent about its own mistakes, sure.
20:59.627 --> 21:08.742
[SPEAKER_02]: But it's non-profit hospitals that have led the charge for fear of losing money, losing patients, losing donations, having their mouth practice insurance go up.
21:08.802 --> 21:12.528
[SPEAKER_02]: Legitimate financial fears are driving outcomes, not the mission anymore.
21:12.589 --> 21:17.016
[SPEAKER_02]: Even though these hospitals have incredibly powerful nominal mission statements.
21:16.996 --> 21:32.254
[SPEAKER_02]: So this divergence between an organization stated mission and its actual mission as experienced by its employees and customers that has become a yawning
21:39.473 --> 21:41.838
[SPEAKER_01]: you're really thinking about profit differently.
21:41.858 --> 21:45.847
[SPEAKER_01]: You're sort of defining profit in a different way than would traditionally be the case.
21:46.508 --> 21:48.633
[SPEAKER_02]: Sure, yeah, my definition of profit is as follows.
21:48.793 --> 21:53.483
[SPEAKER_02]: I think to be a for-profit organization is to be one that is trying to maximize human flourishing.
21:54.458 --> 21:58.403
[SPEAKER_02]: So if you're doing that, then you are enacting the core logic of our financial system.
21:58.423 --> 21:59.885
[SPEAKER_02]: You're creating new value.
22:00.345 --> 22:08.816
[SPEAKER_02]: And you are concerned with all the human beings your organization touches, not just the short term ones, not just the ones that are convenient and easy to measure, but all of them.
22:09.477 --> 22:14.323
[SPEAKER_02]: In economics, the bugs with our conventional definition of profit are well known.
22:14.624 --> 22:27.720
[SPEAKER_02]: deferred liabilities, negative externalities, what I call using a human life as an input factor of production, exceeding it kind of as like acceptable losses if somebody has to die or be maimed in order for the engine to turn.
22:28.521 --> 22:33.106
[SPEAKER_02]: Those problems are well known, but generally speaking, we say, well, what are you going to do?
22:33.126 --> 22:33.827
[SPEAKER_02]: That's just how it is.
22:34.248 --> 22:38.573
[SPEAKER_02]: But I say, no, we who build lead, manage an
22:38.553 --> 22:42.743
[SPEAKER_02]: We have a say, we get to decide what these words mean and how they'd be defined.
22:43.063 --> 22:44.627
[SPEAKER_02]: We don't have to listen to some expert.
22:45.269 --> 22:52.866
[SPEAKER_02]: And so what I try to argue in the book and I think this is something that might seem a little bit counterintuitive to your listeners for something to hear it.
22:53.808 --> 22:58.012
[SPEAKER_02]: It sounds very abstract, like what does it matter what our definition of profit is?
22:58.592 --> 23:00.914
[SPEAKER_02]: But it turns out to be extremely practical.
23:01.215 --> 23:07.781
[SPEAKER_02]: And by, I give examples in the book, and I've had a bunch of readers now tell me that this way of thinking is unlocked new opportunities for them, too.
23:08.461 --> 23:19.031
[SPEAKER_02]: Leaders in the book who used this theoretical concept to discover new sources of value and mission attainment, new sources of professional acceleration and career enjoyment.
23:19.852 --> 23:22.414
[SPEAKER_02]: And so yeah, like we can make board
23:22.698 --> 23:26.284
[SPEAKER_02]: in addition to having a lot more positive impact.
23:26.304 --> 23:28.086
[SPEAKER_02]: And making more money for that matter, yeah.
23:28.106 --> 23:30.871
[SPEAKER_01]: Oh, and to go back to that, because I did want to follow up with you on boards.
23:31.131 --> 23:32.613
[SPEAKER_01]: I've served on some myself.
23:32.854 --> 23:41.988
[SPEAKER_01]: I know the environment of which you speak, mean, for a board that is thought mostly in terms of compliance, fiduciary, duty.
23:42.569 --> 23:48.078
[SPEAKER_01]: What's one question that you may be start asking that it probably hasn't been asking before?
23:48.178 --> 23:50.241
[SPEAKER_01]: It might take it down this better road.
23:50.221 --> 23:54.508
[SPEAKER_02]: Yeah, yeah, let me first lay out the four dimensions of the new governance and I'll give you a question for each.
23:55.009 --> 23:59.456
[SPEAKER_02]: So the four dimensions are compliance, purpose, coherence, and integrity.
24:00.477 --> 24:03.622
[SPEAKER_02]: Compliance is well-covered, so we don't need, don't need to compliance tips for me.
24:03.762 --> 24:05.185
[SPEAKER_02]: Not saying left on important, it is important.
24:05.445 --> 24:09.591
[SPEAKER_02]: But purpose, we have to ask ourselves, what is the purpose of this organization?
24:10.032 --> 24:13.798
[SPEAKER_02]: And that people think the purpose is like really vague aspiration, like,
24:13.778 --> 24:27.499
[SPEAKER_02]: I quote this guy, it was an ESG critic from Wall Street who was like criticizing Unilever for saying they're going to infuse purpose into all their products and he was like, man, at the point that we're talking about the purpose of Helman's mayonnaise, I think we've lost the plot.
24:27.759 --> 24:29.722
[SPEAKER_02]: You know, and I was like, okay, fair enough, that's a good point.
24:29.983 --> 24:36.112
[SPEAKER_02]: But what's so funny about that quote is actually that although it may be a very humble product, Helman's mayonnaise is food.
24:37.234 --> 24:41.440
[SPEAKER_02]: So its purpose is actually crystal clear to nourish and delight the people that eat it.
24:42.230 --> 24:44.072
[SPEAKER_02]: And people like, well, what does it matter?
24:44.112 --> 24:51.241
[SPEAKER_02]: Well, it does matter because if an efficiency consultant shows up and says, listen, we can make Helmins Manays three cents cheaper by putting a carcinogen in there.
24:51.281 --> 24:54.325
[SPEAKER_02]: No one's going to get cancer for like 10 or 20 years.
24:54.385 --> 24:58.990
[SPEAKER_02]: No, well, we will all be long gone by the time the bill comes due, but we'll be rewarded in the meantime.
24:59.351 --> 25:08.642
[SPEAKER_02]: It really matters if the category leader, the leader in questions is what a minute, is my purpose of Helmins Manays, is it to extract as much money as possible for more customers?
25:08.622 --> 25:10.025
[SPEAKER_02]: Or is it an errors and delight them?
25:10.045 --> 25:12.209
[SPEAKER_02]: Like this is a substantial important question.
25:12.229 --> 25:17.820
[SPEAKER_02]: So I ask people to think about purpose this way, not as what is our aspiration or intention of two cares.
25:18.481 --> 25:23.090
[SPEAKER_02]: Rather, what are we legally committed to maximise?
25:23.110 --> 25:30.023
[SPEAKER_02]: If you're a for-profit company and most of the industrial world today, you are legally required by default to maximize shareholder returns.
25:31.032 --> 25:40.218
[SPEAKER_02]: go to an idea called shareholder privacy and that idea has kind of metastasized into a lot of nonprofits who basically think the growth of the nonprofit itself is the thing we're trying to optimize for.
25:40.519 --> 25:46.155
[SPEAKER_02]: If that's the case, if you want to put growth at the top, be prepared to read the whirlwind.
25:46.591 --> 25:49.475
[SPEAKER_02]: But if it is not growth for its own sake, what is it?
25:49.796 --> 25:50.216
[SPEAKER_02]: What is it?
25:50.236 --> 25:51.198
[SPEAKER_02]: So that's if the purpose question.
25:51.218 --> 25:53.161
[SPEAKER_02]: What do we legally obligated to maximize?
25:53.341 --> 25:58.028
[SPEAKER_02]: The coherent question is this, to what degree are all of our resources?
25:58.288 --> 26:05.899
[SPEAKER_02]: Human, financial, political, social, all of our resources aligned towards one common goal.
26:05.879 --> 26:11.868
[SPEAKER_02]: In the book, I tried to reintroduce the world to one of the most pioneering management theorists of all time her name was Mary Parker Follett.
26:11.928 --> 26:17.717
[SPEAKER_02]: She wrote in the 19 teens and 20s, and then she was utterly erased from the management record.
26:18.378 --> 26:25.930
[SPEAKER_02]: When at the same time that Frederick Winslow Taylor was celebrated and lauded, you can draw your own conclusions for why he was celebrated and she was erased.
26:25.910 --> 26:32.977
[SPEAKER_02]: But if I told you a bunch of the things that she said, you would think they were written by a contemporary person and you'd be like, wow, that person is cutting edge.
26:33.378 --> 26:35.199
[SPEAKER_02]: She was really a century ahead of her time.
26:35.240 --> 26:39.404
[SPEAKER_02]: She said things like, she believed in power with not power over.
26:39.984 --> 26:42.086
[SPEAKER_02]: She said the purpose of a leader is to make more leaders.
26:43.108 --> 26:46.891
[SPEAKER_02]: She said that she would go around and she would say things like this.
26:46.911 --> 26:55.360
[SPEAKER_02]: Mr. Roundtree, the owner of the Roundtree Chocolate Factory, is not the leader of the Roundtree Chocolate Factory.
26:55.897 --> 26:57.680
[SPEAKER_02]: People go like, lady, what are you talking about?
26:57.981 --> 27:00.204
[SPEAKER_02]: His name is right on the door, his family is on that factory.
27:00.284 --> 27:03.229
[SPEAKER_02]: Everyone works for him, like, it what possible way is he not the leader?
27:03.690 --> 27:05.934
[SPEAKER_02]: And also, you're just praising him as a great leader.
27:05.974 --> 27:06.515
[SPEAKER_02]: What's going on?
27:06.535 --> 27:07.697
[SPEAKER_02]: She's like, well, he is a great leader.
27:08.418 --> 27:11.203
[SPEAKER_02]: But when people follow, they do not follow him.
27:11.503 --> 27:16.512
[SPEAKER_02]: Rather, he is really skilled and instilling in his employees, a sense of common purpose.
27:17.093 --> 27:18.656
[SPEAKER_02]: The common purpose and not Mr.
27:18.716 --> 27:21.921
[SPEAKER_02]: Round Tree himself is their invisible leader.
27:22.508 --> 27:29.718
[SPEAKER_02]: And I think it's one of the most powerful ideas in management, because this is a description of how things actually work, rather than how we wish they worked.
27:29.738 --> 27:39.292
[SPEAKER_02]: People generally speaking, in for-profit non-profit's government, it doesn't matter, most people follow their intuitive inner sense of what is required for the job.
27:39.312 --> 27:42.616
[SPEAKER_02]: What is my, what is the organization's purpose in having me do this job?
27:43.257 --> 27:50.828
[SPEAKER_02]: And quite often, we see situations where they are commanded to do something different and nonetheless keep following that invisible instinct.
27:50.808 --> 27:59.245
[SPEAKER_02]: So, having, I think, most of our discussions today about culture and stakeholders in blah, blah, blah is like vague, useless and lame.
28:00.187 --> 28:03.974
[SPEAKER_02]: When, in this book, I talked not about stakeholders but about fiduciaries.
28:04.756 --> 28:06.138
[SPEAKER_02]: Who are you a fiduciary to?
28:06.218 --> 28:08.563
[SPEAKER_02]: Who would you rather die than betray?
28:09.370 --> 28:09.610
[SPEAKER_02]: Okay.
28:09.891 --> 28:20.069
[SPEAKER_02]: If for a hospital, if you tell me that's patients, then I want to see that everything in the organization, every person, every incentive, everyone is aligned around patient, safety, and health outcomes.
28:20.670 --> 28:26.861
[SPEAKER_02]: And I don't want to see even one place where you could even conceivably be paid for doing an unnecessary procedure.
28:27.522 --> 28:28.223
[SPEAKER_02]: Uh-oh.
28:28.203 --> 28:48.287
[SPEAKER_02]: really well that's not how the insurance companies we partner with work right so are we coherent or incoherent what is our primary purpose the last is integrity and this is the one I think that gets people really irritated the most because for a person if I say you're a high integrity person you know ask your friend think of a friend who when you I see the word integrity does it conjure someone's name in your mind
28:48.622 --> 28:49.323
[SPEAKER_02]: Mm-hmm.
28:49.343 --> 28:55.634
[SPEAKER_02]: Yeah, you know someone you don't say the name, but you don't want to talk about if that friends says they'll meet you at a place at 215 Are they gonna be there at 230?
28:55.654 --> 28:57.097
[SPEAKER_02]: They gonna be there at 4 o'clock.
28:57.117 --> 28:58.179
[SPEAKER_02]: No, they're gonna be there at 215.
28:58.279 --> 29:00.503
[SPEAKER_02]: It probably bet 213 waiting for you, right?
29:00.864 --> 29:05.071
[SPEAKER_02]: If that person wasn't sure if they could be there at 215, would they tell you they're gonna be there at 215?
29:05.251 --> 29:07.255
[SPEAKER_02]: No, they would tell you I don't know if I can be there or not
29:07.235 --> 29:09.998
[SPEAKER_02]: This is a person who, when they make a promise, it's good as gold.
29:10.299 --> 29:14.604
[SPEAKER_02]: We treasure that attribute in people and in organizations it's the same.
29:15.145 --> 29:19.850
[SPEAKER_02]: If an organization can make a promise and keep it, it can earn the most valuable asset in the world.
29:19.890 --> 29:22.413
[SPEAKER_02]: What's called trustworthiness, but here's the problem.
29:22.894 --> 29:37.191
[SPEAKER_02]: For an organization, no individual person can ever really make a promise on behalf of the organization, just through their own personal will and determination.
29:38.048 --> 29:49.451
[SPEAKER_02]: And even in a non-profit context, imagine, I get a promise from the whole board and these active director and every person, we promise promise, what if the organization's large as donor comes in and says, I won't fund you anymore if you do that.
29:49.831 --> 29:54.741
[SPEAKER_02]: Do they have the structural integrity to say, sorry, when we make a promise, we keep it.
29:54.721 --> 29:58.087
[SPEAKER_02]: So for an organization, these two senses of integrity are the same.
29:58.527 --> 30:05.619
[SPEAKER_02]: An organization that is weak, that can be pressured from the outside, can never, ever be trusted to make or keep a promise.
30:06.160 --> 30:10.367
[SPEAKER_02]: So the integrity question for governance is.
30:10.347 --> 30:16.215
[SPEAKER_02]: What are we committed to that no outside force could prevent us from doing?
30:16.836 --> 30:20.300
[SPEAKER_02]: And it requires boards to be much more savvy about power.
30:21.001 --> 30:23.265
[SPEAKER_02]: Who has the power over this organization?
30:23.325 --> 30:28.812
[SPEAKER_02]: What are the underlying, what I call the fundamental forces that act on this organization?
30:28.792 --> 30:50.631
[SPEAKER_02]: And unfortunately, most boards are oblivious to this, you know, very famously when back when open AI was a non-profit, we got a really abject lesson in this, the board fired the CEO because they had the on-paper power to do so, but they did it at a moment when the organization was like literally about to engage in this multi-billion dollar financial transaction.
30:50.898 --> 30:53.802
[SPEAKER_02]: And the employees really wanted that in transaction to complete.
30:53.822 --> 30:55.265
[SPEAKER_02]: They had a stake in its outcome.
30:55.745 --> 30:57.648
[SPEAKER_02]: So the employees went into revolt.
30:58.049 --> 31:02.175
[SPEAKER_02]: Their biggest supplier, which was Microsoft, objected to this action.
31:02.676 --> 31:09.527
[SPEAKER_02]: So it's like if the employees, the investors, and your biggest supplier all come and say, no, we don't accept this outcome.
31:09.847 --> 31:11.490
[SPEAKER_02]: Do you really have the power to do it?
31:11.650 --> 31:12.591
[SPEAKER_02]: Turned out, no.
31:12.832 --> 31:15.015
[SPEAKER_02]: Sam Alman was back at work like five days later.
31:14.995 --> 31:23.726
[SPEAKER_02]: So integrity requires us to look not just as our on paper power, but to have real understanding of what is the power that the organization has and who has power over it.
31:24.347 --> 31:33.219
[SPEAKER_02]: So those conversations are tricky because you know, do we really want to talk about our vulnerabilities, our weakness and the face of a powerful donor?
31:33.579 --> 31:37.024
[SPEAKER_02]: Do we really want to contemplate having to defy a powerful person or ally?
31:37.044 --> 31:40.328
[SPEAKER_02]: It's it's it's a little bit frightening, but I said a lot more interesting.
31:40.308 --> 31:41.950
[SPEAKER_02]: and just a compliance checklist, you know?
31:42.030 --> 31:45.253
[SPEAKER_02]: So those are the four dimensions, compliance, purpose, coherence, integrity.
31:51.719 --> 31:55.123
[SPEAKER_01]: Can you talk about the role of incentives and all of that?
31:55.343 --> 31:59.687
[SPEAKER_01]: Because a lot of times incentives are out of alignment, it seems like so, the same more about that.
32:00.108 --> 32:05.553
[SPEAKER_02]: Sure, in the academic literature, this is called surrogation, where the number becomes a surrogate for the thing itself.
32:05.573 --> 32:09.437
[SPEAKER_02]: I give you ever wondered why as customer service so bad in this country.
32:09.417 --> 32:13.443
[SPEAKER_02]: And we have data that's like roughly twice as bad as it was 50 years ago on average.
32:13.964 --> 32:20.715
[SPEAKER_02]: Even though the customer service function has been professionalized and we spent untold billions on improving customer service.
32:20.895 --> 32:21.917
[SPEAKER_02]: We're actually making it worse.
32:21.977 --> 32:22.278
[SPEAKER_02]: Why?
32:22.318 --> 32:26.825
[SPEAKER_02]: Because we've allowed metrics like average hold time to become a surrogate for the thing itself.
32:27.205 --> 32:34.136
[SPEAKER_02]: We noticed 50 years ago that if we answer the customer's question promptly and quickly, they get off the phone quickly, then they're more satisfied.
32:34.257 --> 32:35.779
[SPEAKER_02]: That's good service.
32:35.759 --> 32:39.304
[SPEAKER_02]: But now we made the exhaust from the process, the goal of the process.
32:39.324 --> 32:43.510
[SPEAKER_02]: It's like taking the exhaust engine and sticking it in the intake valve for a combustion engine.
32:43.931 --> 32:50.380
[SPEAKER_02]: We're polluting with carbon monoxide around thinking, we started to think, oh, anything that makes average hold time better makes a customer service better.
32:50.420 --> 32:54.606
[SPEAKER_02]: But actually now we've discovered there's lots of ways to get people off the phone without actually solving their problem.
32:54.626 --> 32:56.089
[SPEAKER_02]: Have you called your cable company recently?
32:56.349 --> 32:58.652
[SPEAKER_02]: So I'll tell a story of Johnson and Johnson.
32:58.672 --> 33:01.436
[SPEAKER_02]: I think this is very relevant with the kind of on a health care kit for some reason.
33:01.617 --> 33:03.319
[SPEAKER_02]: And my answer is here today.
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[SPEAKER_01]: I feel a John Care Payton, so that's a good one.
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[SPEAKER_02]: Yeah, yeah, we know this one, we all effects all of our lives in a very visceral way.
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[SPEAKER_02]: So Johnson and Johnson was a family-run company, and the second generation leader was Robert with Johnson a second.
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[SPEAKER_02]: He worked his way up from the boiler room.
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[SPEAKER_02]: He became chairman of the company when his father died during the Great Depression.
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[SPEAKER_02]: And he was a really high integrity leader, but also like a iron-willed like seems like a very old school chairman, you know, corporate shell like you imagined like just you did not cross him, he very famously fired his own cousin and his own son from the business for improprieties like he person you did not cross.
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[SPEAKER_02]: So he would do things like during the Depression.
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[SPEAKER_02]: He raised wages when everybody else was lowering them.
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[SPEAKER_02]: He would open factories when others were closing them.
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[SPEAKER_02]: And he was just like, look, we need to be, we have a commitment to the purpose of our organization that even in bad economic times, we, this is what we do.
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[SPEAKER_02]: And as a result, once the Depression ended, Johnson and Johnson rocketed to the top of corporate success in the 1940s.
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[SPEAKER_02]: So much so that he took the company public during World War II.
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[SPEAKER_02]: Okay, like the market environment of 1942, right?
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[SPEAKER_02]: So, it's, and before it took the company public, he was worried even then.
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[SPEAKER_02]: At the company would fall to short-termism and start to become a greedy company.
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[SPEAKER_02]: A company that was only interested in its investors.
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[SPEAKER_02]: So he created the very famous Johnson & Johnson Hour Credo, which was a statement of purpose for a for-profit company that went as follows.
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[SPEAKER_02]: Our first priority, our first fiduciary obligation, is to our patients, then to doctors and nurses, then to our employees, then to our communities, and last.
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[SPEAKER_02]: to our shareholders.
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[SPEAKER_02]: The exact opposite of today's best practices.
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[SPEAKER_02]: He was so worried that people would forget the credo that he had it carved into ten foot high limestone blocks and installed in the company headquarters, where they still exist to this day.
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[SPEAKER_02]: They are a monument to his idea, Aussie-mandia style.
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[SPEAKER_02]: And the idea was that every person who worked at Jane Jane would have to walk by the credo every day on their way to work to remind them what their purpose was.
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[SPEAKER_02]: And while he was alive this work great, because he was judged jury and executioner of interpreting the corporate purpose of Jane Jane, like I said, if you crossed him, you were fired.
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[SPEAKER_02]: But when he died, the company slowly and gradually began to drift from those principles and fall into the gravitational pull of this massive celestial body we call shareholder
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[SPEAKER_02]: So over time, the credo never changed.
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[SPEAKER_02]: In fact, it's still on the walls to this day.
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[SPEAKER_02]: But the actual metrics, the thing that people got aligned to, was more and more and more about quarterly growth, about earnings, about consistency, about the stock price, about shareholders.
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[SPEAKER_02]: so much so that eventually Johnson & Johnson was rocked by the kinds of scandals that that rubberwood Johnson would have found utterly in baffling.
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[SPEAKER_02]: You know they they and I won't go people know the scandals over and over again the worst of them I think by far is the time they put asbestos in the baby powder causing thousands of people to get cancer and then they covered it up.
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[SPEAKER_02]: We know they covered it up because it was litigation and the documents all came out.
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[SPEAKER_02]: So these breaches of trust eventually come back to bite you.
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[SPEAKER_02]: But the CEOs who oversaw this cover up, who oversaw the years and even decades of these scandals, walked away with hundreds of millions of dollars in compensation personally.
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[SPEAKER_02]: So we are paying people to engage in this practice.
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[SPEAKER_02]: Anyway, the reason I bring this up when you ask about alignment is you have to understand that the people who put the
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[SPEAKER_02]: every day on their way to work.
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[SPEAKER_02]: So human beings are infinitely capable of the cognitive distance of claiming obey a sense to some mission or mission statement.
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[SPEAKER_02]: While actually understanding what the organization really wants me to do, the thing that drives my compensation, my promotion, my rewards, I think I'm really aligned to, is the surrogate metric of
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[SPEAKER_02]: dollars or growth or share price or whatever.
36:52.362 --> 36:55.747
[SPEAKER_02]: So if we want to avoid that, we have to have a corporate discipline.
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[SPEAKER_02]: And I think this is a board that will respond to ability.
36:57.970 --> 37:11.128
[SPEAKER_02]: We have to have a significant responsibility organization to use what I call holistic metrics that actually track the full range of human impacts that our organization creates, so that we never allow any financial metric to become a surrogate.
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[SPEAKER_02]: therefore we become trust worthy and again this is not about giving up on profit or growth or success or even money.
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[SPEAKER_02]: The trust worthiness asset is what gives us the competitive advantage we need for our organization to grow in thrive.
37:24.075 --> 37:28.200
[SPEAKER_01]: I'll say that as somebody with a long literary background, I love the Azimandi as reference.
37:28.220 --> 37:32.004
[SPEAKER_01]: They might have to quote the point in the in the show notes here.
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[SPEAKER_01]: To wrap up if there's one thing that you would want a leader of a mission driven organization to
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[SPEAKER_01]: on the proverbial monday morning after hearing this conversation, just one shift in how they think about building or governing or protecting what they've created.
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[SPEAKER_01]: What would that be?
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[SPEAKER_02]: Gosh, what would I have when we talked about yet?
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[SPEAKER_02]: Okay, here's a really simple principle.
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[SPEAKER_02]: It's called a harder is easier.
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[SPEAKER_02]: And this is maybe the easiest thing in the book, actually.
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[SPEAKER_02]: Easiest to understand, I don't know if it's easiest to do.
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[SPEAKER_02]: Here it is.
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[SPEAKER_02]: So when people talk to me about this, I've been trying to get leaders to up their game for like 20 years.
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[SPEAKER_02]: Okay, so I've got a lot of experience telling people, look, if you do this new technique, it will help you.
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[SPEAKER_02]: And the most common answer I get, especially in recent years, is people will be like, oh, Eric, man, I hear you, but business is already so hard.
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[SPEAKER_02]: Leadership is already so hard.
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[SPEAKER_02]: I can't get my employees to do what I want.
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[SPEAKER_02]: We're under all this pressure.
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[SPEAKER_02]: We're dealing with budget cuts.
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[SPEAKER_02]: We're dealing with this.
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[SPEAKER_02]: You know, I've got this team running off and doing that.
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[SPEAKER_02]: That team running off doing that.
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[SPEAKER_02]: I'm my board telling me I got to embrace AI.
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[SPEAKER_02]: My employees don't want to do it.
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[SPEAKER_02]: They're being recounted.
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[SPEAKER_02]: You know, you're not talking about business is too hard.
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[SPEAKER_02]: I can't add one more thing to my play.
38:48.022 --> 38:52.626
[SPEAKER_02]: Now I say, I hear you, I'm very compassionate, it is hard, but I want you to consider this possibility.
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[SPEAKER_02]: Is it possible that the reason business is so hard, is that nobody trusts you?
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[SPEAKER_02]: Think about how much easier your life might be.
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[SPEAKER_02]: If your employees, your customers, your donors, your board of what if you actually all had true mutual trust?
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[SPEAKER_02]: Now, unfortunately, most people have never worked in a mission driven organization, the real thing.
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[SPEAKER_02]: Where when management says something,
39:16.507 --> 39:20.433
[SPEAKER_02]: when your boss tells you that something's a corporate priority, it actually is the priority.
39:20.914 --> 39:28.246
[SPEAKER_02]: If someone tells you this is the merit-based system we use to get for people to get ahead, this is actually, there's not some secret, right, there's not some secret political other thing.
39:28.767 --> 39:33.334
[SPEAKER_02]: So most people have never seen this, so they don't realize that when you take the harder road,
39:33.314 --> 39:39.022
[SPEAKER_02]: You actually make a bunch of the most nasty problems in leadership way easier for yourself.
39:39.323 --> 39:43.789
[SPEAKER_02]: A line-up becomes automatic and in order to activate this harder, these are principle.
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[SPEAKER_02]: You only really need two things and they don't require your boss's permission or the board.
39:48.836 --> 39:54.985
[SPEAKER_02]: You as a leader, any leader can just do these two things any day of the week.
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[SPEAKER_02]: one, you need an aspirational mission aligned with human flourishing.
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[SPEAKER_02]: Without that, you can't activate the heart of the people you choose to lead.
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[SPEAKER_02]: They have to really intuitively understand, well of course, of course we do it that way.
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[SPEAKER_02]: I tell a story in the book of a company who's literal directives, all their employees, is to love your customer, treat them like you treat your own parents.
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[SPEAKER_02]: people hear that and they're like, oh, come on.
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[SPEAKER_02]: You got to be kidding me, right?
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[SPEAKER_02]: What is this kind of vague?
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[SPEAKER_02]: Oh, we're all a family here.
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[SPEAKER_02]: No, they've made that into an operating handbook that is extremely practical, but also extremely easy for normal people to understand.
40:33.811 --> 40:45.665
[SPEAKER_02]: And so much of corporate strategy is a waste of time because of people being asked to execute the strategy, do not understand what is being asked of them because it is out of alignment with their own inner wisdom, their own sense of value and common purpose.
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[SPEAKER_02]: So we need to ask for additional mission alignment with human flourishing.
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[SPEAKER_02]: And the second thing we need is a commitment to make principal decisions no matter what.
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[SPEAKER_02]: It's an ethos, a character.
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[SPEAKER_02]: And I give a bunch of examples in the book of people who's harder than easier mission, forced them to make a principal decision that was really very painful and difficult.
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[SPEAKER_02]: but they stuck with it because they understood that that would ultimately be what makes them trustworthy.
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[SPEAKER_02]: And the reason I bring it up is that one thing a leader can do of all the things in the book, this is the one that is most in the control of a leader.
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[SPEAKER_02]: The greatest leaders I know that people I really admire in government, in for-profit and non-profit, they all share this characteristic.
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[SPEAKER_02]: They have an ethos, a personal sense of mission and principles and values, like they have a
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[SPEAKER_02]: and they understand that by doing that it makes life more difficult.
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[SPEAKER_02]: It will increasingly bring them into conflict with the conventional business practice or with the fact that they're now there's a partner who's being recalcitrant and like it just creates difficulties on purpose and they love it.
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[SPEAKER_02]: they love the difficulties because every time they encounter one of these difficulties, it's a teaching opportunity to instill that ethos into the organization.
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[SPEAKER_02]: And if you've ever had a leader who says good stuff, but then their actions don't seem to back it up, you know how corrosive that can be.
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[SPEAKER_02]: The good leaders are hungry to find opportunities to prove that their rhetoric matches reality.
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[SPEAKER_02]: So they'll go out of their way to get involved to show, to teach.
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[SPEAKER_02]: This is how we resolve.
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[SPEAKER_02]: this conflict because the resolutions are not A or B.
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[SPEAKER_02]: We always have to find a synthesis resolution that achieves the mission and keeps the organization of financially viable and backs is backed by our principles.
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[SPEAKER_02]: And that requires often breakthrough thinking, even in the smallest details, that again makes everyone's job more interesting.
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[SPEAKER_02]: I'm addition to being more competitive, more trustworthy, having all these other benefits.
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[SPEAKER_00]: That wraps up our conversation with Eric Reese, author of The Lean Startup and Incorruptible.
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[SPEAKER_00]: But stick around another minute for our recap.
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[SPEAKER_01]: You'll find show notes and a transcript for this episode at leadinglearning.com slash episode four seven nine.
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[SPEAKER_01]: Eric's new book is available wherever books are sold and you can visit incorrectable.co to sign up for his newsletter and to make use of the bookstore finder to shop local.
43:10.951 --> 43:21.190
[SPEAKER_01]: signing up for the newsletter will get you access to bonus content, including a secret chapter cut from the original manuscript, an implementation guide tailored to different sectors and job titles.
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[SPEAKER_00]: If you found this episode valuable, we'd be grateful if you'd share it, that helps more people find the show and benefit from the conversation, and it supports the work we do.
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[SPEAKER_01]: So Eric connected his now classic book, The Lean Startup about how to build something worthwhile to his new book and corruptible, which asks the following question, how do you keep organizations from losing their soul over time?
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[SPEAKER_00]: He's suggested that the standard for profit versus non-profit distinction is largely misleading.
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[SPEAKER_00]: an offered a contrarian definition of for-profit as any organization committed to maximizing human flourishing, not just shareholder returns.
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[SPEAKER_01]: Eric also walked through four dimensions of what he calls the new governance, compliance, purpose, coherence, and integrity, and used the stories to show how mission drift can happen even when the right values are literally carved in stone.
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[SPEAKER_00]: and he left us with his harder is easier principle.
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[SPEAKER_00]: When leaders commit to an aspirational mission and make principal decisions no matter what, they build trust.
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[SPEAKER_00]: And trust makes everything else and leadership easier.
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[SPEAKER_01]: Thanks again for listening and see you next time on the leading learning podcast.