Organizations emit warning signs before breaking down, but the financial signals, such as revenue declines, shrinking margins, and deteriorating working capital ratios, are lagging indicators. Leading indicators are much more important because you can address them before the financials go south. Using our triple-crown framework, here are 20 indicators of organizational breakdowns:

1. Focusing too much on strategy shifts instead of accountability for results
2. Creeping complacency
3. Cutting ethical corners when the pressure is on 
4. Not building ethics into day-to-day processes and decisions
5. Falling prey to short-termism
6. Neglecting integrity, cultural fit, and emotional intelligence in talent selection and promotions
7. Failing to invest adequately in developing leaders with character
8. Not seeking input from everybody in the organization regarding purpose, values, vision
9. Failing to inculcate values into daily decisions
10. Leaders staying in their comfort zones and not flexing between the hard and soft edges of leadership
11. Excessively tight controls
12. Leaders being too soft because they want to be liked
13. Excessive deference to the top authorities
14. Leaders assuming they must make all the decisions and have all the answers
15. Failing to unleash other leaders throughout the organization 
16. Reluctance to challenge authority 
17. Constantly changing priorities
18. Poor communication and secrecy with people operating in silos
19. Insufficient understanding of how efforts across the enterprise fit together
20. Lack of discipline and follow-through

Triple crown leadership sometimes entails constructively challenging people to do what they think is impossible. Often they produce astonishing results.

When the challenge is to make the numbers short- and long-term, and to do it ethically, while operating sustainably and honoring obligations to all stakeholders, that is when people really dig in and find a better way, a new way, and refuse to settle for the easy way out.

Triple crown leaders find a better way.

Practical Applications
• Evaluate your organization or team using the 20 indicators above.
• If you answer 4 or more with negative responses, your organization is headed for a breakdown. It is time to implement the five practices of triple crown leadership.

Bob and Gregg Vanourek, father and son, are co-authors of Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations, a 2013 International Book Award Winner (Business: General).

New Graduates,

Congratulations on your big achievement. The exams are now over, the assignments all in. As you celebrate and revel in the memories of achievements, experiences, and friendships, we advise that you also pause to reflect on some important questions.

Many of you have made a big decision about what comes next—often in the form of a job or further schooling that signals a career direction.

So here’s the question: Why?
Why did you choose that? Where will it take you?

How does it fit with your values and aspirations for who you will be and what you will do with your life?

Does it fill you with a sense of purpose? Does it provide you with opportunities to learn and serve?

Will you get to work with great people whom you admire?

What is it you are seeking? Money? Status? Recognition? Approval? Control?

These questions, when pursued down to genuine root motivations, are revealing. Too many aspiring leaders skip over these questions. They put their heads down and get buried in the day-to-day grind and lose sight of the bigger picture.

In the social and competitive context of our peer groups and job fairs, our choice about what comes next can become a parlor game of comparison and prestige, not a thoughtful process of discovering the path that best fits our interests, aspirations, and sometimes quirky dispositions.

Too often, we choose for the wrong reasons.

We choose educational and career pathways not based on sampling, experimentation, dialogue with confidantes, and deep reflection, but instead based on expectations, status, pressure, and fear.

Some sell to the highest bidder, as if maximizing income is the only game in town, as if paying off student loans as quickly as possible is the main deal.

Some set off on an ego trip of epic proportions, restlessly chasing status and recognition. Some are under tremendous pressure from parents or peers (or think they are) and jump on a hamster wheel just to prove themselves or gain approval. Others are their own harshest critic—and worst enemy.

Here’s the kicker: as we walk down a certain path, it gets harder and harder to change. Commitments and investments have been made. It can be hard to go back and start over. The “switching costs” of all sorts—financial, educational, social, reputational, emotional—get higher over time.

Some people get locked in. Some find themselves on pathways chosen for shaky reasons—or by default, through the path of least resistance. Ask yourself tough questions:

Will your decision stand the test of time? How much does it truly resonate with who you are and aspire to become?

As you consider your options, did you factor in not only practical matters like income, stability, and opportunity but also guidance from confidantes and mentors, the stirrings of your heart, and the whispers of your dreams?

Can you stick with the pressure and uncertainty a little longer—even in this tough job market—holding out for a good fit, and designing some smart pilots and probes? Can you creatively explore and experiment until you find yourself in your “sweet spot,” where your strengths and passions merge powerfully with opportunities for service and reward?

Our initial pathways are more important than we realize when we are young. They play out over time with accumulating impact. We are wise to search and explore more before we commit, and to mine the riches of these big questions. When approached the right way, they are not riddles but our guides.

Who are you and how will you make a difference?

Bob and Gregg Vanourek, father and son, are co-authors of Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations, winner of the 2013 International Book Awards (business: general). Twitter: @TripleCrownLead

Many ask, “Don’t we have to sometimes tilt toward the short-term results just to survive, thereby, sacrificing the long-term?”

Others may wonder, “In my business everyone is cutting ethical corners. How do we survive?”

Of course, sometimes temporary “tilts” are required between the “three Es.”

Sometimes short-term considerations must take precedence in order to save the organization. Heavy criticism may follow, but it will be moot if the organization goes out of business. At other times, the reverse is needed: leaders must be willing to dampen expectations for short-term results to make the critical, long-term investments needed.

In each case, it is essential to be transparent, explaining to all stakeholders the rationale behind your actions, and why your temporary tilt is essential. If you have built credibility and trust with your constituents, many of them will understand, appreciate your candor, and likely ride along. The short-term day traders may abandon you. Let them go.

But triple crown leaders never compromise on the ethical imperative.

If they did, they would be failing their organization, setting a bad precedent and undermining their credibility.

Harvard’s Clayton Christensen says,

“It’s easier to be ethical 100% of the time.”

Why? Because once you comprise your integrity, it is so much easier to rationalize further unethical behavior.

Better to fail with honor than succeed with disgrace. And there are real benefits to ethical behavior, though they make take a while to bear fruit.

Infosys competes in India where corruption is rampant. Infosys set out to be India’s most respected company, delivering on promises, treating employees fairly, operating with transparency and accountability, and upholding all laws. Since then, Infosys has been among the world’s fastest growing large companies and most respected companies.

When Infosys imported its first computer in 1984, they ignored a requested bribe, paying a duty ten times higher than normal. It took six years to recover the funds through a protest process. Similarly, Infosys paid a 40 percent premium for its Bangalore headquarters land after refusing to pay a bribe. The company’s rivals manipulated their imported software invoices to pay lower duties. While lawyers advised that such actions were not illegal, Infosys leaders refused to operate with such deception.

Infosys co-founder N.R. Narayana Murthy said,

“It took just a few years for corrupt officials to stop approaching us for favors. Because of Infosys’ ethical image, our clients entrusted us with increasingly bigger projects. Our values have thus become our advantage…”

Leaders must decide when short- and long-term tilts are necessary, but the ethical imperative is sacrosanct.

Practical Applications:
1. Do you explain your short- or long-term tilts to your stakeholders?
2. Have you decided always to uphold the ethical imperative?

Bob and Gregg Vanourek, father and son, are co-authors of Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations, winner of the 2013 International Book Awards (Business: General). Twitter: @TripleCrownLead

Harvey A. Wagner was the turnaround CEO of Quovadx from 2004 through 2007.

Harvey Wagner

Quovadx was a $100 million, NASDAQ-traded software and services company with offices in the U.S. and Europe as well as some outsourced R&D in China. Customers were in the hospital and telecommunications markets as well as large financial institutions. The company was accused of accounting improprieties, went into a tailspin, and Wagner, ultimately, was asked by the board to turn it around. Quovadx merged with a subsidiary of Battery Ventures in 2007.

Wagner is currently the managing principal of H.A. Wagner Group LLC, a strategic and business consulting firm. Previously, he served as a CFO or CEO of numerous firms, including Caregiver Services, Mirant Corporation, Optio Software, PaySys International, and Premiere Technologies.

Here are excerpts of our interview with Harvey A. Wagner for Triple Crown Leadership:

How would you describe your leadership approach at Quovadx?

Wagner: I changed the leadership approach of the company when I arrived. It was a company that was run by dictates and fear. The company was in financial difficulty, as well as difficulty with the SEC and had several shareholder lawsuits. I was brought in to turn it around, so I used a completely different leadership approach using a methodology that I had used in the past many times: setting up a vision, a mission, and goals and objectives, getting everybody involved in that process to build a real team approach and to change the ethics of the company, the culture of the company, and the values of the company.

I was much more of an inclusive manager, not just telling people what to do, but asking people for their opinions, getting better input, discussing the pros and cons, and then, when we had decisions to make, if we could get consensus on those decisions, fine. If not, then obviously I was the CEO, and I had to make a decision to move forward.

What were the new values of the company and how were they created?

Wagner: We went out to all the employees with a list of values I had gathered, about twenty-five, and asked them for their input, what they thought was more meaningful to them within our organization, and for the issues that we were trying to solve, and the culture we were trying to build.

We included things like a relentless focus on improving quality, customer focus, honesty and integrity, continual process improvement, a team-based environment, accountability, consistency, reliability, enjoying what we do, and open, honest, and timely communication. They were the primary ones. I took input from people and tried to incorporate a lot of what the employees were saying so they felt a part of the process, which was what I was really driving for.

The company had revenue recognition issues and an SEC formal investigation going on for alleged fraud. People were reluctant to stand up to the prior CEO and CFO for fear of getting fired. We had a delisting notice from NASDAQ, which we were able to overturn because we gave them a recovery plan. Part of that was going over our vision, values, and mission to show them that we were changing this company. We had three shareholder lawsuits going on. We couldn’t file our SEC documents on a timely basis, and the company was running out of cash rapidly.

So, I needed to have the employees engaged in this process, or else we would never have been able to survive.

We had to change this culture of this company.

How did you change the culture of the company?

Wagner: It was a process called VOGI, an acronym for vision, objectives, goals, and initiatives. The senior management team developed a vision for the company and a BHAG: a “big, hairy, audacious goal.”

The vision was to be the preeminent and most trusted name in the software services business for healthcare. We set up major, high-level objectives for the company, such as to increase revenue, deliver excellent financial performance, and develop and enhance a professional staff. Tied to those objectives were detailed goals to achieve the objectives. Then we drove those goals down to individual initiatives within the company by employees. So the people in the marketing department would have very specific initiatives that needed to be achieved. It was all linked together.

Then we put the VOGI on the company Intranet with all of the individual initiatives with the various steps that had to be achieved. Some were over six months, some over a year, so anybody in the company could go in and see all the individual initiatives, because a lot of these had to be worked between different organizations. Some of the initiatives might cross the marketing organization because we had developed some new products and then marketing had to market those new products, so they had some initiatives that had to be worked together. That way, everybody could see who was on schedule and who wasn’t.

It really was successful, and we got people really talking. We would say, “How’s your VOGI doing?” VOGI became a word that we used throughout the company. Everybody knew what it was. If somebody that you were working with to achieve your VOGI wasn’t supporting it, then they got some pressure from the ones who needed their help. I would randomly pick some of these out and have the VOGI team on a specific project come into the staff meeting with the senior staff and present what they were doing and how they were progressing.

Everybody was involved in a VOGI. We were able to bend the focus on what was important in the company and not have people running around doing things that were not specifically agreed to all the way up the line.

We had VOGI put into a brochure, and you could have a separate vision and mission by your organization. So, the CFO would have a vision and mission for his organization, as did Legal, HR, Development, Marketing, and Sales. They each had a brochure, and there was a letter from me explaining the whole process. Each organization had theirs so they could give them to all their employees or whenever we hired a new employee. We also had a macro-VOGI for the whole company, so whenever we hired a new employee, part of their welcoming was a copy of all of these documents. When they came in, they knew exactly what the company was working on and where they fit in. It really perpetuated a team environment.

We came up with something called “Rights and Obligations.” As a member of the Quovadx team, you had the right to do certain things, but you also had an obligation to do certain things.

Sample Quovadx Rights & Obligations

Did the board bring you in to do this kind of turnaround?

Wagner: I was first brought in as an interim CEO. I gave them four names of people I thought would be good permanent candidates. Then the board came and asked if I would be willing to stay. After four months of doing a complete colonoscopy on the company, I saw the foundation was very good. We just had to rebuild some walls and the roof and fix some leaks, but the business we’re in, the products we have, the markets we serve were very good. We had some very good employees, so it was just a matter of getting the company focused in the right direction, getting people to really want to be here, to feel good about what they’re doing, and to believe what they’re doing is meaningful.

Did the board understand the kinds of cultural changes you intended?

Wagner: Yes, I walked them through what I thought after the first 30 days. After 60 days, I gave them a 60-day report of what needed to be done, and what I thought the best approach was to get the people on the team. The board agreed and gave me the full authority to go do it.

What were some of the results of this culture change?

Wagner: We did grow the business, but it was not dramatic. The fact was that the company was losing revenue in the past, and we stabilized that and grew it just a few percent, but not where we wanted to grow it. We’d like to have grown 10-15-20%, but we weren’t able to do that.

From a cash standpoint, the company had raised about $100 million back in 2000. At the end of December 2003, they had $32 million left. I got there in April 2004 and the cash was down to $10 million. They had no credit lines at all.

I had to stop the bleeding. I laid off about 12 percent of the workforce. I fired five senior people because they were involved in some of the bad things that were going on, or at least they knew about it and should have raised their hands.

So, we had to clean that up and clean it up fast.

After the first 30 days, we never had a month that was not positive operating cash flow. We grew cash to about $30 million by the end of 2004. When we sold the company in 2007, we had about $50 million in cash. Our customer retention rate was in the mid-90s. We hardly ever lost a customer.

Were there any particular leadership practices that were important to the turnaround?

Wagner: Being open with one another, not being afraid of making a mistake or stating a contrary opinion, and working as a team. I didn’t want to be a dictator if I didn’t have to be, but if I have to be, I could be. But I always felt that when you have a team of people, you ought to listen to them. A lot of these people had more experience in this business. This was my first foray into health care, so I had to listen to them.

It was important for us to sit around, discuss problems, issues, and opportunities, and then bat those things around to come to a consensus. We had to have a team of people who weren’t afraid to be open and to disagree in a professional manner: people who are open, willing to listen to other points of views, massage the pros and cons, have a discussion, and then come up with a consensus and a decision. “Rights and Obligations” got people to participate in the debate, and once the debate was over, they supported the team decision.

You can’t go around and backstab because you didn’t agree with a decision. Sometimes that’s hard because people are nervous, or they don’t trust you, they don’t know you, and they may be suspicious.

My door was always open. I didn’t care if it was the janitor who had the problem and walked in. We all had different jobs and responsibilities, but we were all here for a purpose. I wanted to listen to those opinions, because the people down in the bowels of the organization knew a lot more of what’s going on, and what the issues were, than the senior management does. They’re in it every day, and they talk among themselves, and you need to listen to them.

A lot of people are nervous about walking in and asking a question. People look up to you as the CEO and put you on this pedestal, which I try and knock down, but it’s hard to do.

What about the focus on values and ethics?

Wagner: In the beginning, because of the issues the company had, honesty and integrity were huge values that we stressed. In the software business, there were a lot of companies that got into trouble because of how they would recognize revenue.

I said I will go to the board of directors and tell them we had no sales this month rather than have one sale go out of here that is not right. I said we would never, ever recognize revenue that is not revenue, period, end of story. If it’s zero revenue that month, that’s what it’s going to be.

That’s just the way I am. I was in finance for over 40 years, and I never had a revenue recognition problem in my career.

There is one thing that you just can’t take away from somebody and that’s personal integrity. That’s yours, and only you can make sure you keep it. Don’t ever let anybody destroy your personal integrity.

I learned a lesson a long time ago. When I first graduated from college, I went into public accounting, and one of my very first audits was in a bank. Our first job was to seal up the vault and all the cash drawers behind the teller windows. One of my very first tasks was to go into the vault and count the cash. I was literally in this vault myself, a 23 year-old, and stacks of cash, banded $100 bills, surrounded me. I had just bought a house for $15,000, and I had a $13,000 mortgage. And here I am in this vault with all this cash, and I said to myself, “My god, I could take one of these banded $100 bundles, put it in my pocket, write up how much cash was left in the vault, and I could have $10,000 to pay off my house. Nobody would really know. That went through my head. I then realized that would be the most stupid thing I would ever do in my life. That was a very defining moment in my belief in my personal integrity.

You said you wanted other people to make the decisions, but if you had to be a dictator, you would. Can you expand on that?

Wagner: I can get into a debate on certain things that I feel very strongly about because of experiences I’ve had in the past. Other people come up with all the reasons why we shouldn’t do it. You’ve had a lot of experience, you’ve heard all the same stories, and you just don’t want to spend all this time debating it because nobody’s going to change your mind. That’s when you have to have a hard edge, and say, “Okay, I’ve listened to everything you’ve said, I said, but we’re going this way, that’s the answer. March.”

How would you define great leadership?

Wagner: Being able to have people respect you and follow you, even though they don’t like you, and feel they are learning from you along the way. You’re not always going to be liked. All I want is that people will respect me, and that they believe that I am doing the right thing, and we’re making progress. 

I would love everybody to think I’m a great guy, but I just want them to think of me as somebody they will follow, who they will look up to, and who, at the end of the day, feel good that they’re learning something along the way, saying I worked in a decent company.

What I need is approval from my board that I’m doing the right thing for the shareholders. To be successful in doing that, you have to do the right thing for the employees. Without employees, you have no company. You can have a bunch of customers, but if you have nobody to take care of them, then you’re in deep trouble. So, you have to treat your employees very well and take care of them as best you can.

Leadership is trying to do the right thing for your customers, your employees, and your shareholders.

Bob and Gregg Vanourek, father and son, are authors of Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations (a 2012 USA Best Business Book Awards finalist), based on interviews with leaders in 61 organizations in 11 countries.

Steve Mushero is Founder, CEO, and CTO of ChinaNetCloud, a leading global provider of Internet Managed Services. Headquartered in Shanghai, China, ChinaNetCloud is a private company founded by Silicon Valley technology entrepreneurs, with a team of system experts and support staff in Shanghai and Beijing. ChinaNetCloud offers server management and cloud computing, running mission-critical servers for over 150 Chinese and international customers. The company specializes in complex, multitier architectures for Internet-facing businesses, including e-commerce, gaming, SNS, new media, Web 2.0, mobile, and other web sites and systems.

Steve Mushero has over 25 years of technology management experience across a wide range of industries in international contexts. He previously served as CTO at Tudou (China), Intermind, New Vine Logistics, and Advanced Management Systems, as Chief Architect or advisor on many global projects, including the World Health Organization, Grameen Bank Foundation, and Fortune 500 companies.

Steve Mushero, ChinaNetCloud

Mushero has a Bachelor’s of Electrical Engineering degree from Rensselaer Polytechnic Institute (RPI) and an MBA from RPI and International University of Japan. He holds numerous patents in digital data exchange and has written a book on Globalization and Trade.

Here are excerpts of our interview with Steve Mushero for Triple Crown Leadership:

How would you describe the leadership approach at ChinaNetCloud?

Mushero: We are a China-based company, but as Silicon Valley guys, we try to structure it like a Silicon Valley company, which sets us apart from local companies here and other places.

Silicon Valley is about “open door,” service, merit, honesty, teamwork, and much more. We are certainly all of these things and relatively informal. We’re also still a small company, as we now have 75 people, but we started from nothing.

When did you begin?

Mushero: We sketched our ideas in the summer of 2008 and started raising money in the fall, just as the world economy fell apart, which was a lot of fun.  We really got going with employees, customers, offices, and revenue closer to the end of 2008.

Tell us more about your culture: is it hierarchical or more collaborative and participative?

Mushero: I think it’s a mix. Chinese culture tends to be fairly hierarchal and structured. For example, people really don’t like to work for more than one boss or matrix. In fact, I’ve had employees practically quit because, “Oh my God, I have two people telling me what to do and I don’t know what to do.” A flat structure can sometimes create real problems here.

So, we’re sort of a mix, still trying to be collaborative, but also we’ve got a lot of young people and very junior staff that we’re hiring and training, so we also have to be a bit of, “I need you to do this. Here’s the right structure. Here’s the process. Here’s the procedure. We sort of need you to follow it. Obviously, give us feedback. How can we improve it?” A little bit more structure, I think, than a typical startup would have because of the nature of the workforce and also of our work in the managed service sector.

It sounds like there’s a fair amount of a tailoring of your leadership approach both to the Chinese culture and to the particular workforce you have. Is that fair to say?

Mushero: Yes. We’re a service organization, so we’re very customer service-oriented. We’re also very process-oriented. In that sense, we’re very close to a bank in many ways. In a bank, certain things have to happen a certain way or things get lost–money and so on.

We’re very similar to that, but I think we’re much more open and flexible than a bank. It’s definitely not a “sit around on bean bags, have coffee and dream about writing software for the latest iPhone” type of business. It’s much more structured and, I suppose, a little more hierarchal than that.

We also have to build for scale, since other companies in this space, such as Rackspace, have 5,000 employees and we’ll get there eventually, too, in several countries around the world.  So like them, Starbucks, and McDonalds, without structure and process, we’ll never be able to scale or reproduce our services in the ways necessary to properly serve our customers.

What are the most important results that the organization strives to achieve?

Mushero: The measure when you think about results is customer success. We’re a service business so, just like a hotel, you want happy customers to come back and pay us. We want customers to be happy, to have a good experience, and recommend us to other people.  We have a direct impact on their success, so their success is our success.

On the technical side, we’re a server management company, so we want stable, high-performance, efficient servers and infrastructure, because that’s what they’re paying for. So, two parts: technical success first, which then leads to customer success. That’s really how we think of success going forward.

How do you think about financial results?

Mushero: Well, we have no competitors, and we have a huge market. Thus we broadly assume that, if we do well with the customers, financial success follows. Our business actually is fairly profitable on a per-customer basis. If we do everything right, financial results flow naturally. Broadly, as we start off, we want to grow and do well and do well for our investors.

How do the leaders there ensure those results are achieved?

Mushero: A lot of it is making sure people understand the goals. Since we’re in a fairly technically demanding and detailed business, it’s just working a lot of the details or seeing a lot of things personally early on. And then training and growing teams and people as you grow and get bigger and need to delegate. What we do is fairly difficult, and trying to figure out how to have the right amount of pressure and personal involvement and/or expert involvement is an on-going process.

Is there anything distinctive about how you approach training?

Mushero: China is a big country, so most people outside are surprised to learn about shortages of people. In many cases, there aren’t enough people to do a number of jobs. That includes most professions, because there aren’t enough sales, marketing, legal, and some of the technical people to go around, as a lot of these things have only been around for ten or so years. Therefore, you can’t very easily get a twenty-year veteran of anything. Thus finding people is hard. Plus, people who have done this work for a long time have bad habits that you have trouble with.

So we tend to hire people who are young, often right out of school. We have some unique intern structures here in Shanghai that help feed people to us. And then we train people intensely for a month and then weekly for additional months. We don’t actually care that much about their technical skill initially as much as we care about their thinking, trouble-shooting, and overall trainability. And then we add training and process / procedure on top of that.

Has the organization documented its values?

Mushero: Yes. Here they are:

• Customer service: that’s very important, the customer and remembering you service them.
• Communications, because we’re a big team environment and it’s very important to communicate across a lot of things, inside and out.
• Teamwork, for the same reason.
• Being proactive, because we’re a service organization, and we have to proactively deal with issues and avoid them because we’re paid to avoid them.
• Discipline, because you have to do the right things in the right order and the right sequence. Otherwise, it gets all screwed up.
• Quality, for the same reason, because if we don’t do a good job, we’ll have a lot of problems.
• And being efficient, because we need to do all of the above in a way that’s cost-efficient and that we can make money.

So, it’s Customer Service, Communication, Teamwork, Proactive, Discipline, Quality, and Efficiency.

What do you do to inculcate those values?  Do you build it in training?  And what do you do to make sure they’re actually upheld in practice with your staff working with the clients?

Mushero: They are covered in new employee training, and more broadly in soft skills training. I think we should do more about more formally conveying them, though of course a lot boils down to how management and leadership actually acts on a daily basis, since if we don’t do these things, no one will. They will be integrated as screen savers. We have them on the walls, on posters around. We have a quality department. A lot of these things are built in.

Have you ever encountered a breakdown in the values, where you had to take action and address it somehow?

Mushero: Yeah, a lot, actually. Like any growing company, and with relatively young junior people in a multicultural environment, you can imagine these relatively high aspiration values are a problem sometimes. I’m pretty sure we’ve had problems with every one of these. So, sure, sometimes we don’t provide customer service. Sometimes communication breaks down. Teamwork is pretty good. On a bad day we can’t seem to do any of these things.

We actually track a number of these. We had a process on the weekend that broke down, and the engineer didn’t do what he was supposed to do. So, he gets to write a report about that, essentially an After Action Report (AAR), something like the military: what happened, how we got there, how can we improve, what were the issues, what were the missed opportunities and all that.

He asked me a little while ago, “Am I being punished? What’s wrong?”  I said, “No, this is really about how do we understand the situation and find out where we can improve it.”  

It’s not about punishing. Our leadership values are not about punishing people or blaming people. It’s really all about identifying improvement. Because if we don’t continuously improve, we won’t get where we need to be.

We have no competitors, and that’s because what we do is very hard–and very challenging to scale. So we really have to focus on that continuously, including driving ourselves since no one else will do it.

Have these kinds of instances been handled individually and discretely, or do you feed it back so that the whole company or a large group gets exposure to the issue?

Mushero: We do that a lot. In China, you really have to watch out about losing face. But we do that a lot. We try to draw general conclusions. I had a meeting today with a manager about this and I said, “Find me three good examples for the operations plan this week and put them up there. Give them face and make them look good and feel good, and also show what we’re asking to be done really can be done by new people in the right way. At the same time, find me three bad examples and take the names off those and show where this is a problem and why, showing where there can be improvement.”  

We’re trying to do more of that and think in that vein.

How do you address the tensions in a startup between short- and long-term issues?

Mushero: Our need to grow is particularly acute for us. The way our business is structured, that is extremely difficult because we’re providing semi-customized service to a very wide array of customers. And though eighty percent of what we do for our customers is the same, twenty percent is different.

And we try to do that 10,000 times. And so it’s not all standard for all customers in the middle, which is a very hard place to be. Because of that, we have to continuously think about the systems, process, procedures, and training to get it there because no one else really does this. To us, that’s the long-term issue.

I am constantly telling people, “Today, we have twenty engineers and two hundred customers, but in a few months we’ll have double that. In a year, we’ll have five times. When we have five hundred engineers, how are we going to do this?” The natural tendency is to think short term and solve today’s problems, I spent almost all my effort dragging toward the long term: How are we going to grow? What are the systems, processes, and training we need to get to scale?

Actually, sales is not our problem. We have more sales than we can deal with in most cases. It’s: How are we going to handle all the work?

We’re going to have a hundred people, then a thousand, then ten thousand. If you don’t think about that continuously, when you get there, you’ll just explode.

The more junior people tend to think, “What do I need to do to get through the day?”

I actually have full-time people whose only job is to plan for the next six months or year. And that’s not strategy. Big companies have a strategy person, but I have people who are just full-time process and improvement people. Their job is really to think about a month, three months, six months down the road. They have no day-to-day responsibilities at all. In a small company, that’s not that common.

I had a conversation with one of my managers who’s working half-time on day-to-day issues. Even in that job, he’s supposed to be thinking, “How do I improve this?  How do I get this better? How do we scale this?”  

It’s really drilled into people’s heads, because we won’t succeed if we can’t do that. And remember, we need to succeed on a big scale. So I think we’re much more long term than that because my partner and I are always thinking process, standardization, growth. None of that stuff helps you tomorrow. It’s a pain in the butt. But it helps you in two months, three months, and a year.

Are there others in the organization who also serve as a kind of steward of the long term? Your business partner? The senior management team?

Mushero: I’d say that it’s my partner, partially. However, his responsibility is sales. Of course, he’s trying to close deals every day. And so that’s fairly short-term focus, as it should be. But at the same time, hiring people to manage that and take care of it so he can have the time to think more. I have that luxury because I have more staff in Operations. But if he does too much of it, we’ve got no money. So he’s just transitioning to that focus on longer-term.

Beyond that, we try to teach people and the more senior engineers: “How do we do this correctly? How do we think about this long-term?” I think we’ve been reasonably successful in that.

What is particular about leading a startup?

Mushero:

In a startup, you have to be everything as a leader. Often, it’s your idea, and so it’s very much your baby, plus you’re responsible for taking out the garbage, cleaning the bathrooms, doing everything from the beginning. And our job is really to get everybody else to do that in a scalable way.

Any final thoughts about leadership at ChinaNetCloud?

Mushero:

Startups need to scale and change a lot over a relatively short amount of time, compared to a larger organization. Getting bigger is the number-one problem. That requires more long-term thinking.

Number two is technically following up and doing a good job. And number three is sales and marketing process and all that.

This is the first time we have managed in China. You kind of feel your way through and sort out how to do that. Just trying to match all the Western leadership approaches onto something that can work here is a never-ending journey.

You need to scale really big–well, China can do that–but in lots of ways that are really complicated and with inexperienced folks. It’s a significant on-going challenge.

Bob and Gregg Vanourek, father and son, are authors of Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations (a 2012 U.S.A. Best Book Awards finalist), based on interviews with leaders in 61 organizations in 11 countries.

Many people self-select out of leadership. They lean out. They view leadership as the province of others, the ones with confidence, or the answers, or charisma, or vision. Sound familiar?

Many people don’t even consider leading,
because they don’t think of themselves as leaders.

And so it is that incredible potential is wasted due to a simple but powerful misconception: “I am not a leader.”

But here’s the good news:
We all have the capacity to lead.

The way we’ve been thinking about leadership is all wrong. It turns out the biggest barrier to leadership is in our heads.

“Leadership is your choice, not your title.”
-Stephen R. Covey

With all the problems around us, we all have a responsibility to lead at certain times—to step up and assume a role that may not be comfortable but that serves a higher purpose or fills an urgent need.

Most people think about leadership from the top down, conflating leadership with authority, position, or title. There’s a wonderful Italian expression that offers a different perspective:

“Once the game is over,
the king and the pawn go back into the same box.”

 Too many people focus on the king and disparage the pawn. But what we call “triple crown leadership”—leadership that builds excellent, ethical, and enduring organizations–works up, down, and sideways. It requires leadership from everyone in the organization at times, regardless of their title or position.

After all, where would Shakespeare’s Henry V be without his “band of brothers”? Where would Lincoln be without his “team of rivals”? Where would the Hobbit Frodo Baggins be without Samwise Gamgee, Merry, Pippin, and Gandalf?

Triple crown leadership unleashes the extraordinary potential latent in people that languishes in far too many organizations. David Barger, CEO of JetBlue Airways, advises, “Be mindful that there is incredible leadership all around you. Go find it. Go tap it. Go mine it.”

Once activated, such leadership can be transformative for the organization and life-changing for the people involved.

Yet the old ways of thinking about leadership persist, despite their damaging consequences. Too many workers forego their own initiative and leadership potential as they defer to their leaders, awaiting direction. Too many leaders step on the initiative and leadership potential of others, assuming that, as leaders, they must always have the answers and provide direction.

“The old organizational model where a few people decide things, and then ‘manage’ everyone else, just can’t function in today’s environment…. A team is characterized by the fact that every single person takes the initiative and is a ‘changemaker.’”
-Bill Drayton, Founder and CEO, Ashoka

Triple crown leadership is a group performance, enlisting anyone and everyone to lead at times, regardless of the organizational hierarchy.

Food For Thought:
• Have you self-selected out of leadership?
• What more can you do to step up and lead?
• Are you stepping on the leadership of others, or encouraging their leadership?

Bob and Gregg Vanourek, father and son, are co-authors of Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations, a 2012 USA Best Business Book Awards finalist.

Stephen Von Rump is Co-Founder and CEO of Giraff Technologies AB. Giraff brings people together in the care of those living at home (e.g., the elderly). Giraff allows you to virtually enter a home from your computer via the Internet and conduct a natural visit by moving a robotic device with a video screen. You can move freely about the home simply by moving your mouse, and interact with the people there via videoconferencing. Those in the home don’t have to do anything.

Stephen Von Rump, Giraff Technologies

Von Rump has extensive consulting experience in startup and turnaround organizations, and has also held various R&D assignments at MCI and AT&T Bell Laboratories. He has served as the CEO of Be Here Corporation, Metreos Corporation, and VTEL, Vice President of MCI’s data and Internet services business, and co-founder and General Manager of internetMCI. He has spent much of his career in Internet communications, including the launch of numerous audio, videoconferencing, and streaming products and services.

He and his wife Paula relocated from their home in northern California to Västerås, Sweden to launch Giraff Technologies. The company moved from Silicon Valley to “Robot Valley” (an enclave of robotic startups in Sweden) to enter the Scandinavian market as its beachhead.

Here are excerpts of our interview with Stephen Von Rump for Triple Crown Leadership:

How would you describe the organization’s leadership approach?

Von Rump:

My leadership style is really pretty simple: lead by example.

We are a small company right now. There are just four of us plus some various part-time people who come and go. I’m able to have direct daily contact with everyone. More than anything, they pick up on my cues for whatever it may be: passion for the application, the market that we’re going after, intensity of going after the results, passion for customer support, a sense of urgency to get the next production run finished.

Whatever the task is, more than anything they’re watching me and looking for my cues. So I try to make every interaction with the team meaningful. I try to advance the ball in some small way in every interaction by getting them to adopt those same values and take them as their own and push the ball forward themselves.

What are the most important results that Giraff strives to achieve?

Von Rump: There is a short-term and a long-term answer to that question. In the short term, for a company at our stage, right now we are striving to build our products, our “Giraffs,” get them out in the field, and sell them to customers. So we’re trying to grow the business, not just from a revenue point of view, but also in terms of gathering knowledge. We’re trying to gather experience in the market and see how various organizations and users use the Giraff and how they react to it.

There are many, many details that are required to make that happen. There’s development work, production work, marketing work, but the overall goal is to get Giraffs out into the world.

How about longer term?

Von Rump: In the long term, our goal is to be part of what we believe will be the future smart home: a home that allows elderly and others being cared for at home–but primarily the elderly–to live in their home safely, independently, and with a good quality of life for as long as possible. That’s the goal of this industry, if not a major goal of today’s society, when you think about the aging population.

Our long-term goal is to be a centerpiece of the smart home of the future, and we think we have the road map to do that.

How do you ensure you’re making progress towards those outcomes?

Von Rump: It’s a matter of continuing to drill down on the details, the execution steps, continuing to break them down into smaller and smaller pieces while at the same time keeping everyone’s eye fixed on the bigger target.

I use our weekly staff meeting, for example, as a way to try to pull us back up for a moment and make sure that what we’re doing is still consistent with the big goal. It is very easy for these things to slide off track when you’re stuck down in the details, which is where you have to be on a day-to-day basis. It’s easy to say, but the discipline to do it is rare. You’ve got to take the time on a periodic basis–daily, weekly, monthly, whatever–to pull the team back up above the trees and make sure that we all still understand the bigger goal and are aligned to it–often enough to keep the alignment, but not so often that it distracts everyone from the daily grind, which is what’s necessary to drive a business.

Have there been conflicts between the results imperative and some ethical line or some core value that would potentially be violated?

Von Rump: Yes. Most of the conflicts are what I would call at the tactical or operational level. It’s maybe a disagreement over priority. I make a decision that we’re going to provide support for a particular customer event and someone else may question whether that is really the best use of our time. We have those kinds of operational conflicts on a daily basis.

In a small company, you have the luxury of being able to afford some debate on them because you can all gather in one spot and have the debate and make the decision.

But it’s also important, in terms of culture, that everyone understands when it’s time to align. There’s a time when the debate is over now and this is the decision and then everyone gets behind it. There’s no malicious compliance. Everyone gets behind it heart and soul and gets it done.

They’re not only expected to get behind the decision, but they’re expected to abstract a little bit from that and, when we come to the next similar customer situation, they already know the answer.

Then there are the strategic conflicts that are more about the higher level vision for the company. Those sometimes bring ethics into question.

Giraff had a recent crisis in which we were making a decision about whether to accept an investor deal or not and there was clearly a misalignment amongst the founders about what their real vision for the company was.

There was a fundamental misalignment among the owners about fundamental values and vision. There was a conflict between, on the one hand, the passion for the business and what we are doing for the world and, on the other hand, the financial value. We all do this at some level because we hope to make a lot of money, but I happen to think we are doing something extremely important for the world right now. This was a case where clearly those values came into conflict. There was no common anchor point. The only resolution, unfortunately, was to part ways.

[Von Rump and the new investors bought out the other founders.]

How do you approach it when you’ve got a misalignment?

Von Rump: If the alignment is anywhere but at the most fundamental level, if the alignment is anywhere down the food chain, there is always a higher goal that you can agree on, and you can use that as your anchor point to resolve the conflict. At least there’s a point of agreement that we can start from: “Yes, we agree that the goal is passionate, rabid customer support. If a customer has a problem, we’re going to be all over it. We’re going to swarm to the ball. We agree on that.”

Now, we may have a conflict underneath that about how to deal with a particular situation, but at least we have a common reference point. If you can point to a higher goal, that’s how you resolve it. You start from there and you can resolve the conflict even though the CEO may have to make the call in the end.

Sometimes, though, you have a misalignment of vision that is so fundamental that there is no higher goal that you can point to. That, unfortunately, is what happened in the case of Giraff.

Earlier you used the term “malicious compliance.” Have you faced that here or in other ventures where you had to deal with people who were sabotaging or undermining in some ways?

Von Rump: Yes, there have been situations in which we have agreed that a particular feature of a software release was really important because our customers told us it was, but the developer writing the code wasn’t behind it. He would say, “Okay, if that’s what you want, I’ll do it,” but then suddenly the time needed to complete the release increased by thirty days because of this feature. They say, “Yeah, I’ll do what you say, but you’re going to pay for it.”

What kind of actions do you take to address these situations?

Von Rump: Usually the answer depends very much on the chemistry of the relationship between you and that person. Whenever possible, I try to go straight into it and just say, “Hey, look, I know this was not your vote, but this is what we’ve got to do and I’m frankly having a hard time believing that we are really going to let this thing slip thirty days because of this feature.”

I can’t challenge him on the technical details, so all I can really do is challenge him on the value and say, “Are we aligned that this release is important for our customers?” (Yes.) “So we align that customer support is our number one priority?” (Yes.) “Okay, why don’t you go back and see if there’s another way to do this that will take less than thirty days?”

Have you had to remove people from the organization because you couldn’t ultimately get them to go along?

Von Rump: Yes. It’s especially difficult, because it’s relatively easy to remove someone if there’s an obvious competence issue, where they’re not experienced enough in that programming language or in this particular area of design, whatever it might be. That’s one thing, but the harder thing is when there is a misalignment of values or attitude, because that’s obviously a much softer criterion but, again, you have to.

I think that’s where it really matters: to be quite clear about the objectives and requirements for the organization–whether it is about results or the manner in which we go about achieving those results.

Startups have so many immediate pressures. As a leader, how do you address the tension between the short-term imperatives and the long-term vision? How do you keep the right balance in a startup?

Von Rump: I can point to any number of examples in Giraff and other companies where there’s a conflict between a long-term vision and the expediency of getting a particular short-term thing done (for example, agreeing to take a shortcut in a particular design feature or consciously making the decision to do something that makes the product less reliable or less robust, knowing that you’re going to have to come back and fix it later).

When you’re in conflict, move back up the food chain until you find a common anchor where you can make the decision from. That’s the process, but it doesn’t always mean you’re going to vote in favor of the longer-term goal. Sometimes there are things you have to do to survive in the short term, especially where money’s involved. “It’s going to cost us a lot of money to do this fix right now, cash that we just simply don’t have.” So sometimes you do compromise. “Yes, we agree that support and product reliability are everything. If this thing doesn’t work, we’re sunk. Nevertheless, in this case it’s cash we do not have right now, so we’re going to make the decision and we’re going to put in place all the processes we possibly can to get around it and minimize the impact to customers.”

What are the things that tend to cause those breakdowns, to cause things to stop working the way you want them to?

Von Rump:

In my experience, breakdowns come because misalignment creeps into the business over time, and that is inevitable. The question is what does the leadership of the company, the CEO in particular in small organizations, do about that? The CEO’s job in that case is to realign the team and take that team up to whatever level is required to get that realignment.

In small organizations, the CEO is also an individual contributor and the CEO is also required to be in the mud at times and be focused on very specific tasks.

So, often the CEO is as much a part of the misalignment as anyone else. It’s got to be up to that person to realize it. I think that’s one of the key skills of a leader: to be able to sense that misalignment in the organization even though it may not be directly detectable. The actual problem could be something as simple as who was expected to get a certain task done in the factory or with customer support.

You have to be able to detect those things and be able to sense and recognize patterns that point back to a misalignment of the goals of the company. That’s a treasured skill of any leader to be able to recognize that, especially if you are part of the problem.

Certainly that has happened to me before. I have gotten off in my own little world and forgotten about the rest of the team.

In those instances, did you have a trusted colleague, maybe a senior manager, board member, or investor, sit you down and say, “Hey, you’re taking us off track?”

Von Rump: Absolutely, I’ve had it come from both directions. I’ve had it come from above, from the board, where they say, “Hey, Stephen, I hate to say this, but you might be part of the problem right now.” I’ve also had it come from underneath, from someone within the organization, where someone says, “Hey, Stephen, I just feel like we are kind of flapping in the breeze a little, so maybe it’s time to get the team together and review things.” I’ve also had it done not as tactfully where someone basically says, “Hey, I think you’re screwing up.”

Have you ever been able to get to the point where the board and your senior team were regularly playing this role for the organization—being a steward of the purpose, values, and vision, embracing the stewardship role for aligning?

Von Rump: Especially in a small company, perhaps the single most valuable function that a board can serve is to help pull the CEO out of the forest from time to time, understand that he is also an individual contributor, and that it’s not realistic to expect him to be able to see when things are getting off track all the time.

The single most important thing a board can do for a young company is provide that stewardship for the CEO and help him keep focused on the big picture.

In the case of Giraff, I do not think there’s a single board meeting that we have ever had that I did not walk away from with a feeling of refreshment, of rejuvenation. I’ve enjoyed being pulled out of the forest for a brief time to look at the bigger picture and then it gives me clarity. Problems that seemed so complicated and so much in conflict–should we do this with customer support or should we do that–now suddenly are quite clear. I wonder why in the world we were ever debating it in the first place.

I’ve been in a number of companies in which the board was only able to enforce process: let’s see the financial report, let’s see this report, and everyone does the dog and pony show, but then when it’s done, you don’t really feel like you got anything out of it. I think that is an extremely dangerous situation for a small company.

You’ve had leadership roles both in startups and larger companies. What is different about leading a startup versus a larger corporation?

Von Rump: I think about my own strengths and weaknesses. In a larger organization it’s much easier to plug your own gaps, things that you know you’re not good at. If you’re not a particularly good day-to-day organizer, in a larger organization you can bring aboard a COO who kind of runs the shop and is good at that. In a smaller organization, you can’t always do that.

In a small organization, you’ve to recognize your weaknesses and you’ve got to find a way to manage or deal with them–at least until you can get the right person on board. You have to be willing to go out of character or do things that do not feel comfortable for you.

People sometimes refer to CEOs as outside versus inside people. I’m definitely an outside person. I would much rather be out making deals with customers or partners or investors and so on. That’s great, but it also means that it’s easier for the company to go off the rails internally, and that’s something I have to be very attentive to.

In a startup, you can’t hide behind the organization. You’re “on” all the time, and everything about you is revealed–the good and the bad. Your weaknesses are going to be revealed, so you might as well deal with them.

Any final thoughts about leadership?

Von Rump: For me, leadership is about having a clear vision and being able to communicate that vision clearly to others, so that they become aligned with it and change the way they think and act. That’s what I try to do.

Bob and Gregg Vanourek, father and son, are authors of Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations (a 2012 U.S.A. Best Book Awards finalist), based on interviews with leaders in 61 organizations in 11 countries.

Nancy Tuor (Picture: CH2M.com)

CH2M HILL, founded in 1946, is a global provider of consulting, design, construction, and operations services for corporations and governments. Headquartered near Denver, the employee-owned company has revenue of over $6 billion and employs over 30,000 people worldwide.

CH2M Hill manages large, complex projects around the world such as reconstruction efforts in the wake of Hurricane Katrina, relocation of American military bases in Korea, expansion of the Panama Canal, and projects for the London Olympics. In 2013, the firm was named by Fortune as one of the “100 Best Companies To Work For” for the sixth time and was named one of the “World’s Most Ethical Companies” by Ethisphere Institute for the fifth time.

In 2005, leaders from CH2M Hill successfully closed the Rocky Flats toxic nuclear facility near Denver in record time, at record-saving costs, and with aggressive environmental standards achieved or exceeded. It was an extraordinary accomplishment.

From the 1950s through the 1980s, Rocky Flats produced 70,000 plutonium triggers for the U.S. nuclear arsenal. This top-secret complex, occupying three million square feet in eight hundred buildings, was surrounded by razor wire, and patrolled by armed guards with shoot-to-kill authority. At its peak, the site employed more than 6,000 workers, including almost 4,000 members of the United Steelworkers of America.

Nancy Tuor, a senior leader at CH2M Hill, worked at Rocky Flats throughout the closure and was CEO at its culmination.

Here are edited and recently updated excerpts of our interview with Nancy Tuor about the remarkable Rocky Flats turnaround for Triple Crown Leadership:

When did CH2M Hill get involved in Rocky Flats?

Tuor: We were awarded the first performance-based contract for the complex from the Department of Energy in April 1995 and took over site operations in July 1995. The workforce had worked for a series of government contractors since the site began manufacturing the triggers for all of the atomic weapons in the U.S. arsenal in the early 1950′s. It was basically the country’s blue-collar bomb shop.

Our company was a joint venture, called Kaiser-Hill, consisting of Kaiser Engineering and CH2M HILL. We bid to replace the existing management company. Under this contract structure, the government hires a management company to manage the facility, becoming the employer of the existing site’s workforce

The plant had been shut down since 1989, when the FBI raided it after allegations of environmental problems by the contractor that was running the facility. When the Cold War ended in 1992, the production mission ended, and the site began to plan for environmental cleanup and closure. However, after 3 years of spending around $850 million per year, no noticeable cleanup progress had been made, and the government decided to change both contractors and the contract mechanism.

Traditionally, these contracts had covered costs incurred, and profit was based on a quarterly subjective evaluation of how happy the government was with the contractor’s performance. Under the new “performance-based” contract, profit was to be based on the accomplishment of quantitative performance metrics, including cost control and schedule adherence.

We won the new contract in a national competition and brought a management team of about 200 to the site in July 1995. This was a significant departure from past practice, as previous contractors usually brought only about 20 people to manage the staff of over 6,000. We believed that culture change would be the key to our success and knew that we needed a stronger leadership contingent to accomplish that goal.

Their schedule was that the cleanup would take seventy years and cost $36 billion.

Why did they think it would take 70 years?

Tuor: This type of work at this scale had never been done anywhere in the world. Neither the environmental capabilities nor the project management capabilities existed at the site to know how to proceed. They really didn’t know how to do it, and they placed a lot of constraints on themselves. For example, they assumed that they would have no control over the identification and readiness of receiver sites for the 21 tons of weapons grade plutonium and that the government would take decades to get this done. Given the inability of the U.S. to open a disposal site for commercial nuclear waste over the past 30 years, that was not an unreasonable assumption. With the annual operational cost over $500 million needed to keep the decaying, contaminated buildings safe for people to work in and to keep the weapons-grade plutonium out of the wrong hands for decades before real cleanup could begin, the costs racked up pretty quickly.

The workforce there had produced highly proficient products. The quality of the work they did, as we came to know later, was really top notch. But in 1995 a lot of people hadn’t worked for seven years since the FBI raid and shutdown. They literally sat in the cafeterias each day doing nothing. We came into an environment that was totally broken. Payroll was the only thing you could count on working. The organization had forgotten how to succeed. Because there was no clear path forward, plans changed constantly. As a result, the staff was incredibly demoralized, and many stopped doing good quality work. They just delegated upward, figuring by the time it got to the top it wouldn’t be needed anymore.

What was your role in this joint venture?

Tuor: I held numerous roles. When we bid the project in 1994, I came on to help with the bid. My original role was head of HR, labor, communications, workforce transition, training, and organizational development. The reason I was selected was because I had run a business unit for CH2M Hill. The team wanted a businessperson in this role because they viewed it as key to achieving culture change. Also, the relationships with the local stakeholders were abysmal. I’d had a lot of previous experience in working with difficult political and community issues in the hazardous waste business. I was in that role for two years, and then in 1997, I became head of strategic planning and project controls.

In 2000, I took over one of the major projects, which was the cleanup and demolition of about 700 buildings, site operational services, and all environmental remediation. In 2002, I became the COO, and in 2004 the CEO. Except for the health and safety position, I pretty much held every level of management position over the 10 years. I was the CEO when it was closed.

What was the leadership context early on?

Tuor: After we’d been there for about eight weeks, Bob Card, who became our COO and then CEO, walked into the office and said, “How can this possibly take this long? It’s not a project. This is a career. Our children will retire before it is done.”

Under his leadership, we put together a “skunk works” team, half internal people on the site, half external people we brought from our parent companies, plus one member of our client’s management team. They were told to assume they had $5 billion and five years with no rules or constraints. The challenge was to tell us how much work they could get done. They had eight weeks to develop a plan. At the end of their effort, they reported that for a total of $7 billion and seven years they we might be able to get it done.

They had some overly aggressive assumptions, but their effort totally changed the terms of the debate. All of a sudden, it wasn’t closure in 2065 anymore. It was, “Maybe if we put some constraints back on, it’s 2015.” So, we set a whole team aside to develop a detailed plan and determine what constraints would require resolution to achieve accelerated cleanup and closure.

How did the client react?

Tuor: The Department of Energy had recently changed leadership at the site. The new site manager was an African American woman, a nuclear engineer, very young for such a position, extremely visionary, and thoughtful. She was in strong agreement with what we wanted to do. She gave us a two-track mission: put the plant back to work, while developing a detailed accelerated closure strategy and implementation plan.

Getting the workforce engaged was job number one, as they had not been doing much in the way of meaningful work for a number of years. Given that we had the first performance-based contract the Department of Energy had ever awarded, it was critical to show that it would result in measurable progress. Our client and we set solid performance metrics for each quarter, like moving a number of waste containers to final disposal. Accomplishing and celebrating this work was vital to rebuilding workforce confidence and pride.

We went to what I would call a cottage-industry approach in which we’d focus a work team on a project, get them working well, then split that team up, and spread them out to other teams to change attitudes at the floor-level of the organization.

We did a lot of praising of success. I used a weekly public address system to get brief announcements out quickly, like: “Let’s congratulate this work team for having done this because it’s never been done before.”

We said, “We’re not going to do any slogans. We’re just going to focus on basics and safety first. We’re going to build an excellent safety culture.”

Once you teach an organization to be excellent in one area, it can’t just be excellent in that one area. You can actually map the improvement in our safety processes against the improvement in our schedule. As our safety improved, our productivity went up exponentially over the ten years. If you are working safely, it means you’re doing it right the first time.

At first we were really emphasizing schedules, because we had a schedule-driven contract, and then there was all this grousing that schedule mattered more than safety, and we were going to hurt people.

Finally, we said, “Don’t worry about the schedule. Have the crews do everything right the first time. No matter what that takes. No matter if that means you don’t start today because you discovered you can’t meet the procedural requirements or you don’t have the right equipment.

Do it right the first time and the schedule will take care of itself.

I’m sensing that this is a story of organizational transformation.

Tuor: Absolutely. They hated us when we got there. Hated us. Some of the people were third generation at the plant. They expected their children would work there. They expected they would retire from there. They thought the country had made a huge mistake in stopping weapons production and that any day there would be a change in policy, and they would be back to making weapons again. Then we show up and say we are going to accelerate the cleanup and closure and put them out of their well-paying jobs before they reach retirement age. They were angry and confused and faced with a mission that they didn’t believe in or support.

When we took over the management, we did not initially understand how much pride the workforce had in the role they played in the Cold War. They firmly believed that the reason there was no open warfare with Russia was because of the deterrent they produced. When we finally figured that out, we redirected that pride, focusing them on being the ones who brought the plant full circle, taking the environmental liability that had been left as the result of the Cold War and turning it into a community asset. We talked about going from “weapons to wildlife”.

That unlocking of pride gave us a tremendous resource.

Did you craft a new mission statement?

Tuor: Yes: “Make it safe, clean it up, close it down.” It was written at a large stakeholder meeting shortly after we began in 1995, as we were trying to focus the community on the outcome we all wanted.

What was the general leadership approach in this transformation?

Tuor: At first we fumbled around to figure that out. We brought together a collection of project managers. I was the lone non-engineer. None of us had ever tackled anything like this. Bob Card and I were both on CH2M Hill’s board of directors and had come up through the project management ranks. However, the organizations we had run were groups of highly skilled professionals. CH2M Hill typically takes the top 10% out of the graduate schools. Now we were faced with a workforce that included 2,500 unionized steel workers and another 1,000 construction trades.

We focused on getting people back to work and on employee communications. We totally revamped all of the communication mechanisms. We did a lot of random 10- or 20-people sit-downs over lunch to find out what they were thinking. We did all-hands meetings of 300 or 400 where they could ask a lot of questions. We tried probably every technique in the book over time to try to get people to talk to us. As we listened and understood, we became more sophisticated. The first few years were ugly, just ugly. About five years in, we really started to solidify our management and leadership approach.

The leadership approach was very strategic at the executive level, but all of the executives were expected to be hands-on with their workforce and very visible in the workplace. When Bob Card became the CEO about a year and a half after we took over, he was the first CEO who was actually certified to go into the building in a breathing-air apparatus to see how the work was done. Then we required that every one of our line managers spend at least half a day on respiratory protection on the work floor with the workers, understanding the work and solving problems.

There had always been an incredible disconnect between the senior leadership and the workforce.

We focused on building a safety culture, and then letting that safety culture flow over into the rest of the work. We expected the senior folks to really engage in the work and understand it because the only way we were going to continue to make these strategic leaps was to understand how the work got done.

How would you describe the organization’s culture?

Tuor: In the former days, it was a very collegial culture between mid-level management and the workforce. It demanded “command and control” because of the strict compliance nature of nuclear work, but it was very collegial with joint problem solving with the skilled steel workers.

After the FBI raid, they brought in a new site-management company with an approach that communicated, “Just sit down and shut up. Check your brains at the door. Don’t do anything I didn’t tell you to do.” There was no respect for the workforce. So, for over six years the people just sat around and played cards or read the paper, and when they were told to do something, they did it.

We instituted a real culture of respect. I had a management firm come in at the end of the project to analyze why we had been successful. They said, from the workforce’s perspective, the biggest thing we did was to respect them. That was evidenced by our 100% safety commitment and the way we brought them into how we achieved safety, not by telling them how to achieve safety, but by involving them in how we achieved safety.

We had a tremendous respect for their capability that unlocked their willingness to be problem solvers.

How was that culture built?

Tuor: The culture change started with us figuring out what it took to be an executive in that environment. We ran a fair number of people through executive positions in the first five years. We just couldn’t figure it out, because it was a strange set of skills we were looking for. You had to be really tough–I don’t mean tough in the way of behaving, just internally tough–because it was hard. Nobody had ever done this before. Trying to figure out how to get folks to engage and follow was demanding.

It started with really developing leaders who modeled the behavior that we wanted to see everywhere: respect safety, follow the rules, but be very creative in the strategy and problem solving. We needed leaders and managers who were constantly thinking about how to do it “better, cheaper, faster, safer,” yet who could instill in their workforce the demand that once work began compliance with safety and work procedures was mandatory. If you wanted to change anything in mid-stream or you came upon unexpected circumstances, you had to “back-out” and replan.

We had some work that was so exacting that you actually had a “procedure reader,” who read the procedure out loud, word by word, to the person doing the work to ensure that every step was done exactly as written. The leadership met a couple of hours every week just to review non-compliances and determine whether we were responding correctly.

At first, we couldn’t get them to work. Then we couldn’t get them to stop work.

This workforce was very skillful and developed great confidence in their problem solving skills. As they got better and better, they wanted to solve problems on the spot. We had to continually emphasize compliance and the need to stop work when conditions differed from those outlined in the work plans. We developed rapid-response teams in every building. If a team had to back out, the rapid-response team was to get there and within thirty minutes lay out a solution and get the paperwork signed so that the workers could get back to work.

What was the role of the board in this transformation?

Tuor: They were very engaged. At CH2M Hill, we distribute about 25 to 30% of our earnings to employees through incentive pay. CH2M Hill is employee owned and has a very strong corporate culture. We brought that culture with us.

We made a commitment to share 20% of all our earnings with the employees. We distributed $100 million in employee incentives over ten years.

Originally, there was no incentive pay for hourly workers because the union wouldn’t consider it. In our first union negotiation, the one thing we cared about most was getting incentive pay into the union contract. It was based on our ability to accomplish our performance measures: if we accomplished 100% of our performance measures, then each member would get $1000. We wanted to give more, but the union was very cautious at first. Our board really drove us to focus on effective ways to distribute these incentives.

What else did you focus on as a leader at Rocky Flats?

Tuor: We didn’t do a lot of outside hiring. It was figuring out how to get the right people in the right job and then create a team environment, modeling the behavior you wanted to instill.

We tore down the central administration building and housed with our workers, trying to create that connection that was so important. I was the external storyteller and an evangelist, both internally and externally. All the leaders were culture officers. That was really a team role.

Was there a lot of leadership versatility involved?

Tuor: Yes.

I spent a year and a half in a trailer that had no indoor plumbing. I worked in jeans and work boots, spending the day with the laborers.

In their book, Making the Impossible Possible, Kim Cameron and Marc Lavine described the biggest leadership versatility we had to use: to be incredibly strategic, creative, constantly testing, constantly changing, no matter what the problem, never accepting boundaries; yet at the same time building a culture that was absolutely by the book. How do you create a culture that can do both of those extremes in the same business environment? We were doing that on a daily basis.

During management meetings, we closed the door and people would fight because we had a difference of opinion. But when it came to time to make a decision, I made the call, or Bob Card made the call, and you knew everybody in that room was going to do it. There was never a question.

When the management firm came in and did this analysis of why we were successful, one of the things they said was that they hesitated to use the word “love” because we had a bunch of real crusty field guys, but the trust level between the leadership team was stronger than any they had ever seen. Once a decision was made, everybody had the back of his or her counterpart. They made a commitment to them and were going to keep that commitment.

Were there any shared values that were developed by the group that helped build this trust and culture of pride?

Tuor: Safety was the first one, and then our continued mantra was “better, cheaper, faster, safer.” How do we do this better? Cheaper? Faster? Safer? Respect was so tied to safety that you couldn’t say safety without saying respect too, because safety was respect.

We did a lot of symbolic things. One of the first buildings we demolished was the administration building because it had been where the workers always clocked in. Management had been in that building for fifty years. One of the first things we did was to take the executive parking places away. We did that the first week because we wanted people to know right away that we were different.

The culture was: if you’re a leader, you got your name on a parking place. Oh, I’m sorry, not anymore.

How did you deal with people who didn’t fit the new culture?

Tuor: We brought in a couple of people who had enormous egos. We had some very significant conflicts with them. They stayed awhile and made some enormous contribution, but eventually we moved them out because the cost of the ego was overriding the value of the contribution.

It sounds like some people had a latent capability that wasn’t recognized until the culture had changed?

Tuor: Many of the managers that we inherited at the site now have key positions at CH2M Hill. One of them is now running one of thirteen business groups, and another was responsible for major elements of our work at the London Olympics. In 1995, we brought an entirely new executive team to the site. When I became CEO in 2004, almost every one of my direct reports was someone who had been in leadership at the site before we arrived. They had moved down a few rungs when we arrived at the site, and then worked themselves back up to the top due to their capabilities and commitment to the mission.

Was the leadership widely distributed or concentrated in a few key people?

Tuor: We distributed leadership fairly widely. It is a command and control environment in the sense that the key decisions had to go up the chain. There were certain requirements that only senior leadership could sign off on. But as we built capability, especially in the second- and third-level managers, we distributed authority very broadly, which was critical because those people had to be thinkers and doers.

We were constantly looking for innovation. There were so many unique circumstances that we needed people at the floor level to be creative problem solvers. For example, one of our schedulers was working with a team trying to accelerate removing large pieces of waste equipment out of the upper floors of a building with very narrow stairs. She was on an airplane one day and saw how they cater things up to the airplane door on a moveable platform. She brought the idea back to the site and we implemented that solution immediately.

We had an hourly worker who was laboriously dismantling equipment and putting the small parts into large containers for offsite shipment. The containers were becoming unbalanced due to the loose parts shifting as the container was moved. At home he figured out how to build interior boxes that would allow greater packing stability. With the scrap from every ninth box, we could make a tenth box. At first, he couldn’t get anyone to listen. He insisted I look. The next day we had a ceremony for him and handed him a $2,500 check. His manager apologized for not listening to him right away. I told him that if I’d ever had to be a prairie homesteader I would want him to be my neighbor.

Was this a high-performance organization? How did you measure performance?

Tuor: Definitely. The primary metric I would use is that we cleaned up the site to beyond the anticipated environmental standards in ten years for $7 billion (versus the original estimate of seventy years and $36 billion). We received a rebate on our worker’s compensation insurance for the last two years because our safety record was so phenomenal. We did not have a single lawsuit or labor claim at the closing. We received a $240 million lump sum fee payment thirty days after declaring physical completion. That was not a check the government really wanted to write, but we had done such a thorough job of organizing the compliance requirements that they couldn’t argue.

What else should we know about leadership at Rocky Flats?

Tuor: We grew and changed into different people. We’re tougher. We had to do hard things. You build courage doing that. I think courage becomes stronger by using it. If you never have to use it, you don’t know it’s there.

We learned the importance of modeling behavior. You’ve got to behave the way you want the organization to behave.

We learned about taking bounded risks, and that standing up for what you believe is essential, especially on ethics issues. You have to do right by the people. Sometimes you just have to step back and say, “You know what, what we really thought we wanted just isn’t going to work, because it’s just not the right thing to do.”

Every day was so much fun: the ability of the team to work together, the constant questioning and pushing, but knowing that if you chose to go right, 4,000 people would go right behind you, and also the camaraderie.

When we first got there, nobody would look you in the eye or smile at you. But it got to the point where everywhere you went people wanted to talk about what they were doing. They were proud; they were happy. It was also knowing that no matter what the problem was, people were going to take the responsibility to figure it out.

About six months before we closed, we were surprised to find a large amount of buried waste that nobody had known was there. It was a unique combination of waste materials that had no clear disposal solution. Nobody in the country had dealt with it before, and it had huge potential cost and schedule implications. I remember the leadership meeting in which the environmental team laid this bad news in front of us. Instead of laying blame for a last minute problem, the head of the waste organization said, “Okay, don’t worry about it. We got it, Nancy. Everybody, go do your job; we’ll figure it out.” And they did.

I think this demonstrated two important characteristics of the team: First, each member respected the difficult work their counterparts were doing and the commitment they each were making to get it done. Second, we had built a problem solving capability that they had confidence in.

The team really took ownership of problems. We always said it wasn’t about the first horse that got over the finish line; it was the last one because everybody had to get done. We all felt the responsibility to help figure out how to carry the last damn horse.

How would you define great leadership?

Tuor: It is the capacity and strength to conceive and deliver a vision.

What happened to the 8,000 people after the closing?

Tuor: It varied widely. We put together a very aggressive workforce transition plan. We got the government involved and the Chambers of Commerce. We did outreach to the industries. The governor wrote a letter to all the major industries in Colorado saying, “This workforce has contributed huge things. Let’s look for jobs so they can continue to contribute to Colorado’s future.” We set up direct access to job-search websites with major employers in the state. Every single one of our security police officers was placed at either another Department of Energy facility or locally. We provided tuition to many to get advanced degrees or technical training for new careers. The union worked in concert with us to help workers do financial planning. Many of the hourly workers were putting in lots of overtime. Union leadership encouraged them to pay off all their credit cards, put money in the bank for their kids’ education, and pay off their mortgages. We put early pension plans in place, including retiree medical programs. We tried to attack it from every possible angle. What we really tried to get them to focus on was not leaving Rocky Flats, but rather going to the next stage of their lives: “What next stage are you going to?” When the site closed in 2005, the average age of the workforce was in their mid-50′s so they had a lot of life left to live.

Supervisors knew it was their responsibility to stay connected to their workers and get help if someone was showing signs of significant stress. The doctor who led our medical program was particularly helpful in counseling individuals and getting them the help they needed.

How did the employees feel at the closure?

Tuor: Proud of what they had done and sad to be leaving the site and the people they had worked with for so long. We held a big final celebration to thank the community, the regulators and the employees for this incredible achievement. We had about 1,000 people in attendance.

I’ve never been in a room so electric. They were so proud of the job they did. We created a culture of respect where average people produced extraordinary results. We grew and changed into different people. It was not about me; it was about them. It was the job of a lifetime.

Rocky Flats, July 1995, prior to cleanup (Source: Wiki Commons)

Bob and Gregg Vanourek, father and son, are authors of Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations (a 2012 USA Best Book Awards finalist), based on interviews with leaders in 61 organizations in 11 countries.

North Castle Partners is a leading private equity firm headquartered in Greenwich, Connecticut, committed to creating extraordinary value for its companies, employees, investors, and communities. 

Charles (Chip) Baird, Jr., North Castle’s Managing Director, founded the firm in 1997. From 1989 to 1997, Baird served as a Managing Director of AEA Investors LLC. From 1978 to 1989, Baird was Executive Vice President at Bain & Company, an international consulting firm. From 1975 to 1977, he worked at The First Boston Corporation. Chip received an A.B. from Harvard College and an M.B.A. from Harvard Business School.

Chip Baird, Founder and Managing Director, North Castle Partners

Here are excerpts of our interview with Chip Baird for Triple Crown Leadership:

What is North Castle Partners’ approach to private equity?

Baird: North Castle thinks of its mission as “value & values”: how can we be a successful private equity firm and accomplish that goal consistent with our own set of values? We operate in a competitive arena where there aren’t a lot of people living by a set of values we would be proud of. The recent meltdown of the financial services industry gives you some sense of what happens on Wall Street and in the private equity business.

Our values have to do with both how we act and how we invest. The product that our investors are looking for is a rate of return on the money they’ve invested. Most investors don’t want to know about how you do what you do. They just don’t want to be embarrassed by a front page Wall Street Journal story. They care much more about the value than the values. At North Castle, we believe in the “genius of the &” and care both about the value and values.

We do not want to become social engineers of the cultures of different companies, because those cultures are inculcated deeply in those businesses. But, on the other hand, we would definitely not invest in a business where we saw violations of North Castle’s values.

What are North Castle’s values?

Baird: We went through a process about nine months into our history. I had thought a lot about how one creates a performance-driven, values-based organization. I took out 3 x 5 cards and wrote down the values that I wanted to inculcate into this company that I was starting before I hired the first person. But I understood I couldn’t come down from mountaintop and say, “Here are our values.” That would be silly, and those values would not be authentic to or embedded in the organization.

So, the values became ingrained in North Castle by the selection of the people who joined the firm. Ultimately, people who were hired into North Castle were people for whom “value & values” resonated, for whom things like integrity, or respect, and support for people were important, in addition to people who could do deals to finance companies and have good business judgment.

Then that team of about fifteen people worked together for a period of time before we went to a five-day retreat in 1999. We went through a series of exercises ultimately creating a set of operating principles and then the values that were underneath those operating principles. Those values were almost the same as those I wrote down before North Castle started. It was a process of taking a team through an identification of those values. Words like “integrity” are just words unless they are deeply embedded in the group.

Our values are Integrity, Balance, Excellence, Partnership, Respect, and Development (both individually and organizationally). Each of those had a lot of thinking and discussions go into them before there was buy in. We actually have white papers on what each of those values means.

How would you describe the organization’s leadership approach?

Baird: Leadership has lots of components. The coefficients of each of those components differ by person and by circumstance. The fundamental responsibility of the leader first is being a custodian of the organization’s purpose and values. Everything starts from those two foundation stones: First, a sense of purpose: “What are we here for beyond just making money?” When I talk about purpose, I’m speaking to that core ideology of something beyond making money. And second are values that provide the guardrails that keep behavior on track as you pursue your vision.

We’re trying to do something quite unusual in the private equity business, which is to be successful while caring about something beyond just value. If you ask me, the most fundamental responsibility of leadership is to make sure that people understand down to their bones the values and purpose of the organization.

What does that mean for you personally?

Baird: Most importantly, you have to be authentic to those values. They can’t be words on a plaque. You have to live and breathe those in everything you do all the time. People very quickly see through someone who talks a good talk but doesn’t make decisions that way. People are watching all the time whether your values mean something and whether you lead and manage consistently with the values.

Have you ever had one of your colleagues call you on something that was not consistent with your values?

Baird: Things like being open, honest and direct, respect and support for people, those are operating principles that emanate from the values. The organization’s ability to live within a set of values is all about how they treat breakdowns of values and operating principles.

We have a culture where people are constantly calling others on any breakdowns in our values or operating principles. If you don’t have a culture where people are able to call each other, including me, on a breakdown, you quickly devolve to hypocritical values on the wall.

One example that comes to mind was a situation in which we wanted to replace a CEO of one of our portfolio companies. I had a thoughtful and appropriate idea of how I wanted to do that. Then the press of business got in the way, and ultimately I let the CEO go in a fashion that I would say in retrospect was clearly not consistent with our partnership values. This person had sold his business to us partly because of our values. He called me on it and said “What you’ve done here may or may not be the right thing, but it certainly wasn’t done in a way that was consistent with your partnership values.”

What was he objecting to?

Baird: It was in too compressed a timeframe, driven by the logistics of the day. In the original conception, there had been a process long enough to appropriately explain the reasoning, the process forward, his participation, his new role, and it just was truncated by a whole series of extraneous events. It was more, “We have to make a change.”

What did you do?

Baird: I acknowledged it. I said he was exactly right. I said I was sorry. I said that over the course of time I would make sure that he believed that North Castle didn’t sacrifice its values and that he would respect us for making this change, if not how we made the change.

Then I came back at our next staff meeting, and I described it as a rather thoughtless, crude breakdown of our partnership values. The group acknowledged the mistake. They all thought about what I’d said.

A big part of values leadership is being able to talk about your own mistakes so that everybody can learn from them and avoid making them in the future.

It’s only the openness with which you can talk about them that makes an organization feel that it’s okay to talk about mistakes and have everybody learn from them. Part of the job of leadership is to get people to talk about those mistakes, and then talk about alternatives and to talk about what one could have done differently. There is a part of leadership that requires vulnerability.

How would you describe North Castle’s culture?

Baird: We have a values-driven culture. “Value & values” is the way we think about what we do. It is not something that anybody here takes lightly. It is woven through the way we do everything at the firm, from strategic planning to compensation to performance reviews. The value side of the equation is very much on a par with the values side of the equation. Our performance reviews are as much about values and operating principles as they are about value. I think everyone here would describe us as a performance driven, values-based organization.

Even people who’ve been here and left feel the same way, that this is an extraordinary place and the sorts of people who are attracted to it and stick it out here are committed to the way North Castle operates.

How was that culture set?

Baird: It came from me, but I think it was all about ultimately who was brought into this organization. And not everyone initially hired worked out, and why people flushed out, as much as anything, was because their values weren’t consistent with ours.

Values at North Castle became inculcated by the screen used to hire people. And with some yield loss from that group, you then get a group of people who totally buy into an approach to this business. It’s not just the partners; it is the entire organization.

Values start from the top. You live those, and people watch. If you’ve hired the right people in, it’s a self-reinforcing positive loop. It’s very important to create mechanisms that identify breakdowns in an environment where people can talk about those.

You have to put in place mechanisms that focus on values so they don’t become stale. Over the course of the year, the principals and partners will score each other, and then we’ll sit down as a group, or sometimes I’ll sit down with people individually, and just talk about what those results were. Or, I’ll ask people who clearly have some issues around values or operating principles to sit down and talk through those issues. You don’t take values for granted. You are forever working on them.

It sounds like there was a need to replace some people?

Baird: Yes, we’ve taken casualties on both the value and values side. You can create a 2 x 2 matrix of positive and negative along those two dimensions. And someone who’s operating totally consistent with your values but isn’t particularly effective may be better than someone who’s creating a lot of value but violating every principle you have along the way. The easy one to let go is the person who’s neither affective nor effective. The people you want to keep are people who have high scores along both those two dimensions.

Over the course of time, we’ve lost people from all four quadrants. The only ones that hurt are losing people who leave for greener pastures, who are both capable and committed to North Castle’s values.

How does this then translate into the screens that you do of portfolio investments?

Baird: You do your due diligence. The culture of an organization is part of how you evaluate a prospective investment. Culture and values aren’t things you come in and say, “Okay, we have a new set of values, everybody read this page.” It starts with the CEO of that organization, what our partnership relationship is with that person, what our joint vision is of what this company can become.

If you have those things right, then go back to what we talked about with North Castle. It’s which people are on the bus, and which people are in what seats. You go through the same sort of screen around value and values that we did around North Castle. I would say in the companies that we invested in over the course of time, we’ve replaced probably 50% of the senior management either for issues of values or capability. Values are something that can’t be talked about outside of the people. It starts with the CEO and works its way down.

How do you monitor that on an ongoing basis in the portfolio companies?

Baird: The good CEOs are doing that on their own and are talking to us about what the results are. If what you’re focused on with the CEO is quarterly earnings, gross margins, and operating expenses, and that’s all you talk about, then you’re not setting the example you’d like.

Most of the CEOs we hire or develop powerful partnerships with are people who understand this conversation. So, it is as much us supporting them as anything. That doesn’t mean every one of our companies has the same balance as North Castle. There are businesses that we’ve invested in whose culture we would find a little inconsistent with the conversation we’ve had. Some are top-down, command and control, not vision- and values-based, and it takes a long time to change that. We don’t manage these businesses. We make investments in them.

We develop partnerships with CEOs. We make sure the right teams and incentives are in place. But in terms of day-to-day operations, we don’t tell a CEO how to run his businesses. And that means there certainly are businesses that we would give a low score to. We wouldn’t say they’re unethical; we’d say they perhaps don’t quite have the respect for the people in the organization. They’re not spending enough time on long-term investment and human capital.

Cultures don’t get changed overnight, and our investment horizon is three to five years. We’re not the last investor or owner of these businesses, so we try to make progress. But I wouldn’t say we get everybody to the goal line.

How successful has North Castle Partners been with this approach, and what metrics do you use to evaluate success?

Baird: It’s a good question. It’s a lot easier to measure the value side of the equation than the values side of the equation. On the value side, ours is a business where you can measure internal rate of return to the third decimal point. You can quantify multiples of money returned to investors down to the penny. What you can’t measure as well is the commitment to values, integrity, people, and the community.

For us, one important metric is ultimately who appreciates what we’ve built. We buy entrepreneurial businesses. We help and partner with managements to transform them into professionally managed organizations. And then typically we sell those businesses at the next stage of their development when we’re really reaching levels where the incremental rate of return doesn’t justify us owning them. We sell them to strategic buyers. And for us the metric of the business that we built is whom we sell it to.

We have over time sold businesses to a lot of the most respected companies in the country. So, we sold Naked Juice to Pepsi. We sold EAS to Abbott Labs. We sold DDF to Proctor & Gamble. We sold a company to Nature’s Bounty and a company to Hain. In their industries, they’re the most respected firms, and selling to them gives us a small indication that we’ve invested in and helped build something of quality.

How about the rates of return for your investors versus the nominal averages of private equity firms?

Baird: Over my career, the rates of return have been extraordinary, rates of return far superior to public markets. The rates of return keep me committed to trying to operate in a way in which value and values are both important, and keep our limited partners, our investors, coming back to us.

But we’re not perfect. I look back on 2000-2001 and the dot-com era, and we made some shortsighted investments. So, I don’t think a values-based organization is a guarantee of superior results. That’s just not possible. Like everyone else, we learn from our mistakes.

So, why do you do it then? Why is your mission “value & values”?

Baird: Because I think we’re playing for something beyond just the numbers. We’re playing to show that it can be done that over the long term the results are there on both value and values. I think we’re an example of how that’s borne out. For our firm, values and value both coming together drive results. But it’s not a panacea. There are many things in our business you have to get right. Just saying you’re a values-based organization is an important foundation, but there are an enormous number of technical skills and judgments that you have to make, and the environment has to be in your favor. There are things that are exogenous to your business that can impact you.

It is easier in the short term to achieve results in our business without thinking a lot about integrity, without thinking a lot about people and values, cutting the corners around a bidding process, putting in place a leveraged structure which is way beyond what is responsible.

And the hallmark of the boom and busts on Wall Street is the decoupling of risk from return. I would say irresponsible risk is directly related to a breakdown in values. Take 1988-1989, take 1998-1999, take 2007-2008: those are periods where people pushed the envelope playing games with other people’s money.

I don’t do this because I think everyone’s going to come over to this way of thinking. I do it because I believe it’s the right way to operate, and I believe ultimately it will lead, and has led, to superior rates of return.

But there are people who may do better over some time frame by throwing integrity to the wind, and there are many examples of that in Wall Street and the buy-out business.

Do you see more private equity firms moving in this direction, or do you think North Castle is unique?

Baird: Well, I wouldn’t use the word unique. I would say that most private equity firms’ coefficient in front of value is dramatically higher than the coefficient in front of values. The extent to which people will cut corners differs across firms, but I believe there are a lot of extraordinary people in this industry, and a lot of them are committed to acting ethically. Right now, there are a lot of people retrenching and thinking about some of these issues.

But in our world there are large institutional investors who give money to the private equity business. Our product is internal rate of return and multiples of money. That’s the way they see us. They don’t want to know about the “how.” When the industry will turn is when there’s much more time spent by our customers on these sorts of issues. The manager at that institution doesn’t have in her/his performance review, I’m guessing, a boss who spends a lot of time on the values of the people with whom (s)he’s invested the money. Probably they are told, “Your portfolio was up 300 basis points above the average, therefore your bonus this year is this much.” And as long as that’s the world they live in, their attitude towards values is not going to change.

Do your managers exercise leadership versatility depending on the situation?

Baird: Yes, the concept of situational leadership is a really important one. The effective leader looks at the situation, the shot, and like a good golfer pulls out a different club appropriate for what they’re trying to do. Sometimes it’s driven by the situation, but since leadership is so much about people, it’s often driven by what’s the appropriate way to encourage a course of action by an individual.

Leaders have dominant genetics. They can lead with people skills, technical skills, or formal authority—sometimes ordering, sometimes inspiring, sometimes cajoling, sometimes placating. I think an effective leader has to be able to use all those skills, regardless of what their core leadership genetic is.

Is the leadership in North Castle widely distributed or concentrated in the hands of a few people?

Baird: Well, there are four partners and two principals that comprise the leadership of the firm. The values leadership and the decision-making are spread across all six of us. On the values issues, everybody can make a comment and call a breakdown, and that’s a strength of the firm.

Who have been the most important influences on your personal leadership over the years?

Baird: People from parents to teachers to bosses to consultant-mentors, who each in their own way fed my appetite to learn and understand about leadership. That’s a journey that’s far from over. I learn things every day.

There was one thing my dad taught me that I remember quite well. I was nine years old. We had just moved to Paris, and every day my dad and I would go out to walk the dog. He was just so incredibly nice to the doorman. I said to him, “Dad why are you so nice to the doorman?” He said, “Because you can learn something from everyone.” Those words have always struck a chord with me.

I don’t think there’s one person who is the ultimate teacher on these sorts of issues. I think there’s something you can learn from everybody.

What is great leadership in a few words?

Baird: I think great leadership has to do with both attributes and results. We really haven’t talked about those in the same balance, but I don’t think you can talk about all these wonderful attributes of leadership and such things as inculcating values or leadership style without also talking about results, because ultimately leadership has to be about both.

The ultimate responsibility of a leader has to do with values and establishing the guardrails of values they put on an organization. Then it has to do with the vision that compels people to move forward. Then it has to do with the iterative process and the situational leadership, the rebooting, not of values, but sometimes of vision and most often of strategy and tactics.

But the thing that is immutable is the values, those guardrails. You can change the vision and where an organization is going, or how you’re going to get there in terms of strategy and tactics, or even the team. But the thing that I think is the primary responsibility of leadership is values.

The people around here, 24 hours a day, they’re acting on their own, and if they are not doing it within the boundaries of a set of values, who knows where this organization would go?

Have you ever experienced the great leadership of a high-performance organization in your career? If so, what did it feel like?

Baird: The highest performing organization in terms of value and values that I’ve participated in is North Castle. The experience I have of North Castle as it developed this approach is exhilarating both on the doing good and doing well spectrum.

You feel liberated every day to come to work. You feel that you are proselytizing your approach to the rest of the world. You’re getting positive feedback in terms of results. And you’re doing this within a community that has an incredibly supportive, powerful culture.

When you don’t have this, you go to work every day complaining about one thing or another, feeling powerless to change things. There are fissures in the organization and an enormous amount of time is spent moving sideways and backward as opposed to forward.

Any final thoughts?

Baird: Part of leadership is the concept of continuous improvement. In our organization, that’s development, personal and organizational, which keeps us going forward and morphing but always consistent with our values.

Successful organizations have entrepreneurs or leaders who put in place the building blocks that get an organization on the right path. That’s necessary but not sufficient.

What you need to have are other individuals who take up the mantle of leadership, the responsibility to the broader groups to continue moving the organization forward.

As a leader that’s perhaps the most exciting piece of it: the idea that others have taken up this mantle that you started.

Bob and Gregg Vanourek, father and son, are authors of Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations (a 2012 USA Best Business Book Awards finalist), based on interviews with leaders in 61 organizations in 11 countries.

Image: Photo of Tiger Woods 2011, Source: Angela George, Creative Commons

The latest online ad from Nike shows a photo of Tiger Woods with the text, “Winning takes care of everything.” The phrase has long been used by Woods, and he recently regained his #1 ranking in golf after suffering through headlines in 2010 about his extramarital affairs. 

Woods’ behavior and infidelity were appalling, but our focus here is not on whether his current win streak redeems him. Some will forgive and forget; others will not. 

Our point is that the message of “winning takes care of everything” is both wrong and dangerous. It fits in a long strain of similar quotations, including one of the most common sports sayings: “Winning isn’t everything. It is the only thing.” 

Nike dropped biker Lance Armstrong from its sponsorship lineup after the doping scandal. Armstrong’s wins were dishonorable.

What matters is not only winning but also how you win. If you violate the rules, then you are a cheater.

Winning is not the only thing, and it doesn’t take care of everything. Not by a longshot.

We make the case in Triple Crown Leadership that you should aspire not only to be excellent (indeed, to win) but also ethical and enduring. But if you can’t win ethically, you’re left with a Pyrrhic victory.

Sorry, Tiger, winning does not take care of everything. Nike’s ad disappoints.

Bob and Gregg Vanourek, father and son, are co-authors of Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations, a 2012 USA Best Business Book Awards finalist.