Imagine what your company could deliver if it rewarded performance based on more than just quarterly earnings?
It hardly seemed fair to be filling in the board evaluation form when she had only been a director for three months, but Alice Peckham had never been one to shy away from offering a clear articulation of what she thought. It was, after all, that quality that had endeared her to the governance committee of Fairfield Athletic, when they first approached her to join the company’s board. She was certain they had meant it when they recognized that quality as one of the reasons they had selected her. She was less certain that they would be enthusiastically receive the thoughts that she was about to put to paper, or rather, enter into the evaluations database in the new digitized “board book” on the iPad that had been issued to each director.
Alice had carefully read through the consent agenda materials that had prompted little debate amongst her peers. The management team of the privately-held global business had done a good job of preparing the board materials, as usual, and in the two meetings that Alice had attended, they had successfully managed to keep the board away from the more contentious issues that now perplexed Alice. The board had completed these evaluations for a few years now, but the evaluations were conducted in such a way that Alice was not at all sure that it was more perfunctory than intended to really challenge the behaviors that now preoccupied her attention.
At the last board meeting, only one issue had raised a few eyebrows around the table: management’s planned closure of three old and rather inefficient plants and a dividend distribution. Beyond a few polite questions, Alice thought her fellow directors seemed unwilling to challenge management’s assertion that the planned dividend distribution should go ahead and that it could not be achieved without a substantial reduction in operating costs and a critical increase in asset utilization that management said could be achieved by closing those plants.
It was during her orientation day that Alice had glimpsed what lay beneath the well-publicized rhetoric about the famed Fairfield culture. The company founders, long since dead, had always built their manufacturing facilities in small towns where they became integral parts of the community fabric. She could see how this very successful integration had led to a consistent competitive innovation, as Fairfield employees in these towns solved problem after insurmountable problem through the added strength of communities that knew one another, knew how to work hard together, and sensed how important the Fairfield presence was in their towns.
And yet, during board discussions this company hallmark never even came up. Alice had decided to hold her tongue, as it was her first meeting as a member of the board, but on her way home that day she had a sinking feeling that she might one day live to regret that choice. By the time the board concluded the meetings, they hadn’t touched the plant closure issue again.
Once the management team left, and the board had a chance to deliberate on its own, they focused on resolving some outstanding issues in the CEO’s compensation. In sorting out that issue, Alice noticed that they never even touched the subjects of culture, values, or beliefs, or anything other than the very traditional financial metrics despite the recent debates in both the media and business press about the growing nuance required in setting senior executive compensation.
It irked Alice that the company had quite a collection of strengths that were ripe for inclusion in the formula for how they might structure compensation and reward success, and yet those strengths never surfaced. Fairfield had built an enviable reputation for its work climate, and its employees were unusually loyal to the company, a factor that Alice was sure was a real source of competitive advantage because it made recruitment and retention so successful. Because Fairfield had always maintained close relationships with the small communities that were the foundation of its manufacturing efforts, it had always been concerned with caring for the environment, and had undertaken several recent efforts to reduce its footprint, bolstering its already good reputation for sustainability. Furthermore, the recent reformulation of the brand promise had won creative awards at the Cannes festival celebrating advertising and marketing excellence, and the CMO expected to win several “Effies” for its impact on the business as well. Perhaps most obvious of all, the company had always had a strong sense of itself, which they had recently expressed with the purpose statement, “we bring people together and equip communities of sport.”
All those important areas of organizational success through which to tie performance to compensation, and the audit committee that Alice had sat in on while she got oriented didn’t touch them. Perhaps most worrisome of all, the performance metrics they did end up deciding on made no reference to the company purpose. The bonus structure that the board had just approved was more of the same – no reference to the key values that had been the hallmark of the founders.
Alice wondered about the notion called “performance”. What did it mean to “perform” like Fairfield? Was that only about the rather prosaic variables of financial performance? Something much deeper than mere dollars and cents was at the heart of the Fairfield culture and values. People were fairly paid, generally, but that did not account for the depth of commitment she had already discovered in the company. She had come to the unfortunate conclusion that this was a business whose employees understood much better than its governors what great performance looked like at Fairfield, and they had gone about delivering it addition to – or in spite of – the areas in which their performance was managed.
Considering the long list of positives in the ways that Fairfield’s people performed individually and as a group that the board had never even asked for or rewarded, a staggering thought crossed her mind that she wanted to shout to her fellow board members:
“Imagine what this company could deliver if we rewarded performance based on more than just quarterly earnings?”
She realized that she had paused in her evaluation for quite some time as she reflected on the state of affairs, but as she felt her ire rising she stood up and stepped away from her iPad, as if to physically intervene and quell the temptation to simply type in that incendiary question and then emphatically close the evaluation, come what may.
Alice knew she needed to be careful what she wrote. She could feel that she was getting angry, a condition that often made her more blunt than she wished. As she returned to the board evaluation form, she wondered about how to share these observations. Would they be welcomed and considered, or simply ignored as naïve, and distracting attention from the “real” issue of business: delivering a healthy financial return? There was a lot more to Fairfield than that, from Alice’s point of view at least. What she didn’t know was how much her perspective differed from the rest of the board, and if it was quite a divergence, whether they would be able to see what she did even if she pointed it out clearly and flawlessly raised the issues and observations that supported her conclusions.