Harvard Business Review

Among companies that offered programs, employee loyalty increased not only among those who volunteered but also among those who did not. HUMAN RESOURCES Making volunteering mandatory. Once corporate volun- BEST PRACTICES teer programs are formed, companies often feel compelled to engage as many people as possible and then continually Although companies should avoid pressuring employees expand their initiatives. Unfortunately, this can put pressure to volunteer, they can still take steps to encourage engage- on employees to volunteer—creating de facto “mandatory ment. My research provides some guidance on what to think volunteering.” Research by pyschologists Edward Deci about when designing or refining corporate volunteering and Richard Ryan shows that a problematic contradiction programs. then ensues: If people perceive that they’ll be rewarded for participating in a task or punished for choosing not to, their Prioritize meaning. A study I conducted with the United intrinsic motivation and satisfaction with the activity are Way and the Junior League found that volunteer experiences often diminished. must be seen as meaningful in order to create a natural draw for employees. We heard time and again that people sought Corporate pressure may also lead to what researchers to make a difference. “It was more meaningful that we were call “virtue signaling” in employees, as they participate just able to do things that were literally helping,” one participant to make a good impression on coworkers and supervisors. noted. “Not monetarily—you can put two dollars in a jar and In theory, this could result in a virtuous cycle of employ- be blind to what you’re doing. But when you’re thinking it’s ees’ cheering each other on, but that’s not what happens going to be cold soon and there are homeless people who in practice. When employees respond to pressure from need blankets—or those children need blankets—that’s really management to volunteer, their efforts are often perceived meaningful.” In a study for the American Cancer Society, by coworkers as insincere attempts to ingratiate themselves sociologists Jean Grube and Jane Piliavin found that people with higher-ups. In a longitudinal field study of U.S. employ- devoted more time and effort to volunteering when they ees, my colleague John Lynch and I found that employees believed that their efforts “contributed in important ways.” who volunteered in order to make a good impression were often stigmatized rather than applauded. Far from being How can companies ensure that volunteer opportunities viewed as moral paragons, they were characterized by their are viewed as meaningful by employees? According to Roy coworkers as distracted from their work, self-righteous, and Baumeister at Florida State University, people derive mean- narcissistic. Employees in our study noted how they com- ing from situations in three ways: when they see purpose and monly avoided or shunned colleagues who drew attention to value in what they are doing, when they have a sense of per- their volunteering in this way, resenting what they felt was sonal efficacy and control, and when they feel a sense of self- a subtle attempt to push the activity on others. Even super- worth. The best volunteer programs offer some combination visors were more likely to overlook those individuals when making important decisions, such as recommendations for promotions. Companies often measure volunteer-program success in terms of the percentage of the workforce that participates, but my research suggests that the mere existence of volun- teer opportunities can help employees feel more engaged. In our study with the United Way Worldwide, we discovered that among companies that offered programs, employee loyalty increased not only among those who volunteered but also among those who did not. People who chose not to volunteer made comments such as “It is great that [my company] offers volunteer programs” and “I am happy that volunteering is available.”  99Harvard Business Review January–February 2021

HUMAN RESOURCES of the three. For example, when building homes with Habi- bottom up, by giving employees an active role in shaping tat for Humanity, volunteers have the satisfaction of seeing its focus and features and then bolstering their efforts with a house going up as they work, they interact with Habitat corporate support and structure. Suppose a company sees representatives who come to the building site to explain that a growing number of employees are showing a passion how volunteers drive the organization, and they often get for charities focused on sustainable food sources for those in to hear directly from the recipient of the home, who is often need. The company could encourage this grassroots interest also on-site to talk about his or her personal situation and and increase impact by working with the group to articulate experience. This raises a critical question: Is the goal of cor- their goals, for example, or offering resources such as funds porate volunteering to make an impact on society or to make to purchase materials or space to store supplies. Allowing an impact on workers? For example, it would likely be more corporate volunteering programs to grow in this fashion may impactful for the community if an employee spent a day ultimately lead to a better-organized program that brings in organizing supplies at the food pantry and ordering neces- more volunteers. sary items, but the employee might find it more rewarding to hand out meals to people in need or deliver them to people’s Alternatively, companies may provide the basic scaffold- homes. The truth is that corporate volunteerism must strike ing for corporate volunteering, allowing employees to create a balance between impact and meaning. and build specific opportunities that both fit the broader corporate vision and appeal to their personal passions. Take, Well-designed programs find ways to infuse even quotid- for example, Timberland’s Path of Service program. Consis- ian activities with meaning. Suppose a company organizes tent with the company’s mission—“founded on the outdoor a volunteering initiative to prepare mailers for a charity’s lifestyle”—the program emphazises opportunities where major fundraising campaign. The task is critical to the employees can pull on their boots to help address environ- charity’s survival but may be mind-numbing for employees. mental issues. The medical-technology company Stryker The company could, for example, invite a beneficiary of the has similarly introduced a program that allows employees charity to come and speak about his or her personal experi- freedom to pursue volunteer activities of their choice within ence while volunteers are working. This transforms a boring five mission-oriented focus areas—for instance, involve- task into something more. Indeed, a 2008 study led by Adam ment in Operation Smile, a charity that performs cleft lip Grant, an organizational psychologist at Wharton, found and palate surgery. that when call center agents soliciting donations for college scholarships actually met some of the students their work Providing loose direction in this way has the additional supported, their productivity and persistence skyrocketed. benefit of resolving the “paradox of choice” for employees seeking to make a difference. There are more than one mil- Balance bottom-up employee passion and top-down lion public charities in the United States, according to 2016 corporate structure. When deciding whether to structure a IRS registration reports. And as psychologist Barry Schwartz volunteering program or take a more laissez-faire approach, has argued, having too many options can be debilitating and executives face a trade-off. Employees’ interest and sense harmful to people’s decision-making. The scaffolding of a of meaningfulness are maximized when they get to make volunteering program simplifies the process, potentially choices for themselves and focus on projects that appeal to encouraging more employees to participate. them personally. Yet structured, coordinated programs are more likely to encourage employee interaction and shared A word of caution, however: When management selects experiences, increasing morale and improving teamwork. programs that align with the company’s purpose and In our study with the United Way Worldwide, we found that mission, the distinction between normal work and vol- the strongest volunteering programs include both upper- unteering can become blurry. Consider a coffee company management and employee input. that asks its employees to train independent farmers to use more-sustainable agricultural practices. The initiative offers There are several ways to make this work in practice. benefits to the farmers—but it also helps the coffee com- One is to create a corporate volunteer initiative from the pany improve its own supply chain. If the volunteer work 100 Harvard Business Review January–February 2021

We found that engagement by customers in corporate volunteer programs improved their connection with and opinion of the company. A Different Way to Find were unable to get government assistance because of their Purpose at Work homes’ modular structure. A group of retired engineers from a local construction firm worked through its volunteering Although managers should do everything they can to give program to design and build custom wheelchair ramps that all their employees a sense of purpose and autonomy in worked for the homes. This program took advantage of the their work, some jobs are more routine than others, or so the company’s area of expertise, engaging an unexpected narrow or specialized that it can be hard to see the bigger but useful group of stakeholders. picture. Corporate volunteerism can have especially powerful benefits for those employees who do not find My research team and I also worked with a microbrew- their regular jobs personally fulfilling. ery, Creative Comforts, to examine its involvement of customers in its corporate volunteering initiative. Employ- In a 2013 study, I surveyed 172 employees in the ees and customers worked side by side one evening a week southeastern United States who volunteered for five months on a variety of projects including making for a variety of charitable organizations— blankets for a local homeless shelter, assembling hygiene including the Humane Society, Boys & Girls kits for homeless adults and children, and painting and Clubs, Habitat for Humanity, March of maintaining signs for community gardens. Dimes, and the United Way—to examine whether the meaningfulness We interviewed and surveyed customers throughout of their jobs influenced their volunteering the process and again more than a year later. We found levels. I found that employees who felt that their engagement in those activities improved their a lack of variety or impact in their paid connection with and opinion of the company. One customer work were more likely to sign up for reflected: “As I found out that they were giving back in the what they viewed as meaningful community, I thought that was great, and I will go there volunteering activities. By offering over other places.” The program not only made customers such programs, my research suggests, more loyal to the company—as evidenced by their purchas- companies can help less-engaged ing decisions more than a year later—but also motivated employees fill a void—an unmet desire for them to spread the word to others. meaning—in their day-to-day work. BY FOS T E R I N G E M P L OY E E productivity, improving is wrongly classified by management as purely charitable, employees may rebel against what they perceive as a cynical employee engagement, and deepening a company’s ties to corporate ploy. In my experience working with compa- nies in such situations, I’ve found that transparency and the communities that they serve, corporate volunteering communication are key: Senior leaders should address any ambiguity up front, acknowledging that the volunteering is can unlock substantial intangible value for companies. Like part of a business strategy that will benefit the company’s bottom line. anything else in business, however, reaping such powerful Involve other stakeholders. Another way to increase rewards requires thoughtful planning and consideration. the effectiveness of volunteering programs is to extend their boundaries beyond traditional employee involvement. Companies should avoid taking the easy route to creating I have seen companies include customers, suppliers, retired workers, and even board members in their volunteer activ- their volunteering initiative—such as mimicking others, ities. For example, in one community I studied, some resi- dents needed to make their homes handicap accessible but focusing on pet projects, and forcing employees to engage. Instead, they should consider their company’s specific situ- ation and strengths, capitalize on employees’ interests and engagement, and build the most meaningful volunteering opportunities possible. HBR Reprint R2101H JESSICA RODELL is the William Harry Willson Distinguished Chair at the University of Georgia’s Terry College of Business.  101Harvard Business Review January–February 2021

C O M P E N S AT I O N P H OTO G R A P H E R  KEVIN TWOMEY Compensation Packages That Actually Drive Performance Principles for designing executive pay AUTHORS Boris Sarah Michael Metin Groysberg Abbott R. Marino Aksoy Professor, Research Managing Managing Harvard associate, Business Harvard director, director, School Business School FW Cook FW Cook 102 Harvard Business Review January–February 2021

 103Harvard Business Review January–February 2021

C O M P E N S AT I O N Decisions about executive pay can have an indelible impact on a company. When compensation is managed carefully, it aligns people’s behavior with the company’s strategy and generates better performance. When it’s managed poorly, the effects can be devastating: U.S. stocks by market capitalization, from its 2019 Annual the loss of key talent, demotivation, misaligned objectives, Incentive Plan Report, and from its 2018 Global Top 250 and poor shareholder returns. Given the high stakes, it’s Compensation Survey. We’ll also draw on Harvard Business critical for boards and management teams to get compensa- School’s extensive research on boards of directors, including tion right. quantitative data from a survey of 5,000-plus global board members. We’ll share some perspectives we gained from Many struggle with this challenge. One problem is that in-depth interviews with more than 100 directors of public only a few best practices work in all situations. So it’s imper- and private companies from over a dozen countries. Last, ative for companies to start with clear strategies and for their we’ll discuss how the recent pandemic and economic crisis leaders to understand the basic elements of compensation will inevitably change the thinking on compensation. and ways to link it to desired outcomes. How Boards Approach Executive Compensation In this article we’ll describe how firms approach execu- tive compensation and how some have used it to improve When making decisions about compensation, many directors performance, sharing insights from our research and expe- look at the large amount of data available on executive pay. riences. Two of us (Boris and Sarah) have studied compen- U.S. regulations require every publicly traded company to sation for over a decade. The other two (Mike and Metin) disclose the amount and type of compensation given to its have more than 30 years of combined experience advising CEO and CFO and other highly paid executives, as well as the a broad range of companies on executive compensation. criteria used in setting it. We’ll draw on FW Cook’s analysis of executive comp at companies in the Russell 3000, an index of the top 3,000 IDEA IN BRIEF THE CHALLENGE THE RECOMMENDATION Many firms struggle to achieve The company must start with a clear strategic THE FINDING this alignment, and only a few best objective and then consider several trade-offs When executive pay is structured practices work in all situations. as it designs compensation packages. to align with corporate strategy, it can drive better performance. 104 Harvard Business Review January–February 2021

Most companies try to keep up with what their peers are offering, but some directors felt that benchmarking had created a “race to the top.” Most companies try to keep up with what their peers are CEO Compensation offering, but as one director told us, “Obviously, there is some Across the Globe balancing. If you want your CEO to stay, you’ll probably err on the side of paying more. But in a public company, we can’t Because the Russell make up 36% of median go wildly off the rails because there’s enough data out there.” 3000 is made up of U.S. CEO compensation. Another director commented, “You need to look at what companies, it’s worth other firms are doing with their incentive programs because examining compensation → Long-term incentives that will set the expectations of your people. And if your practices in other aren’t meaningful for CEOs people are being poached, you need to know what they’re countries. Recently at Asian companies. This being approached with.” Many others echoed the belief that U.S.-based FW Cook, UK- is partly because some the market determines executive compensation levels. based FIT Remuneration of the largest companies Consultants, and Pretium in China and Hong Kong However, directors also argued that there are complex Partners Asia Limited are state-owned. At them nuances to setting compensation. They pointed to challenges published the 2018 Global compensation is regulated, in finding suitable companies to use as benchmarks and in Top 250 Compensation base salaries and bonuses ensuring that that selection isn’t manipulated to achieve a Survey, which looks at are not market-driven, certain outcome. The obstacles are even greater for smaller trends in CEO and CFO pay and long-term incentives private companies, for which data is less available. Some at the 250 largest public generally aren’t offered. directors also felt that benchmarking had created a “race to companies worldwide. It the top.” One commented, “The problem is that everyone highlights a number of key → The median CEO base always says, ‘We want to be just above the midpoint in this.’ regional differences: salary is 20% lower in And when everyone does that, then the midpoint keeps mov- the Americas than in ing, right?” Other board members explained that deviations → Long-term incentives Europe and Australia and from benchmarks are often necessary to align executives with account for 75% of median meaningfully lower in Asia unique corporate strategies and organizational cultures. CEO compensation in the than in other regions. Americas. According to FW Cook, 83% of the 250 largest S&P 500 → The median total firms use a formulaic annual incentive plan, or one that → In Europe and Australia, cash compensation (base includes predefined metrics and weightings. These plans long-term incentives salary plus annual bonus) tend to incorporate multiple metrics; 76% have at least two. of CEOs is 4% lower in The most common are profits (used by 91%) and revenues Median CEO total Europe and Australia than (used by 49%). Seventy percent of the companies also use compensation, by region in the Americas and is nonfinancial (both strategic and individual) metrics, though lowest in Asia. they’re usually weighted less heavily than financial goals. Asia → When long-term Twenty-six percent of the companies with formulaic plans $1.1 M incentives (such as options, include at least one environmental, social, or governance performance-based cash (ESG) goal. In some cases targets are attached to those goals, 63% 37% awards, and restricted and in others the goals are part of an assessment of strategic Europe and Australia stock) are factored in, CEO performance. Among the companies using ESG measures, compensation is higher in 43% set human capital goals (such as diversity, employee 31% 33% 36% $6.2 M the Americas than in the engagement, and a positive company culture); 25% set rest of the world. health, safety, or environmental goals; and 32% use both types. Utilities and energy companies have the highest prev- The Americas 75% $16.7 M alence of ESG goals (81% and 77%, respectively), typically 9% 16% related to health, safety, and the environment. BASE SALARY ANNUAL BONUS LONG-TERM INCENTIVES  105Harvard Business Review January–February 2021

Because of the Covid-related economic crisis, many performance targets won’t be achievable and will no longer be effective incentives. C O M P E N S AT I O N Thirty-three percent of companies with formulaic annual expect. But particularly outside the United States, companies incentives incorporate a performance modifier, which may have to take into account other factors, such as seniority. provides a check on the primary metrics by adjusting payouts up or down. Some modifiers only tweak results (increasing Fixed versus variable. Total direct compensation is made or decreasing payouts by 5% or less) while others have a up of a base salary (set in advance and paid in cash) and short- meaningful impact (altering payouts by 20% to 25%). They’re term and long-term incentives. Both kinds of incentives are commonly based on nonfinancial metrics—like safety, variable or at-risk elements and may be contingent on the customer service, and employee engagement—and often achievement of certain organizational or individual goals. incorporate elements of individual performance. Awards can be based on an established formula or at the dis- cretion of management or the board’s compensation commit- As organizations work their way through the Covid- tee. Our analysis of the compensation of the five highest-paid related economic crisis, we fully expect to see changes in executives at Russell 3000 companies shows that on average approach. Many companies, for instance, have cut pay for 82% of their compensation is variable; the rest is base salary. senior executives—though these cuts are largely temporary The mix of fixed and variable components is driven primarily and apply just to base salary. More pressing will be how to by company size and industry, and to some extent, company- think about the goals embedded within incentive plans. specific factors like culture and risk appetite. Many targets won’t be achievable given the new financial realities and thus will no longer serve as effective incentives. The breakdown between fixed and variable comp is relatively consistent across industries, although telecom, In light of this, companies have begun considering a range technology, and energy companies pay a slightly higher of moves: adjusting performance metrics but capping pay- percentage of variable compensation. Financial services, outs, revising goals for the year, and committing to monitor materials, and utility companies pay a slightly higher the situation but not take action yet. For multiyear plans, the percentage of fixed. The balance is also relatively consistent options being discussed include deemphasizing 2020 results across U.S. and non-U.S. companies. But there are notable in award calculations, adjusting the payout curve, shortening differences across market caps: Small-cap companies put the performance period, instituting new awards with relative 69% of compensation in the form of variable payments, and performance metrics, adding relative total shareholder large-cap companies 87%. returns as a modifier, and paying out awards in cash rather than shares. Discussions about whether or not to reprice The directors we interviewed insisted that variable pay options, a controversial practice, have also taken place. was an important component of executive compensation. As one commented, “I’m a strong believer that CEO compensa- The silver lining here is that the crisis offers companies tion needs to be in large part at risk. I would like to see at least an important opportunity to revisit incentive programs and 70% to 80% of the CEO’s pay at risk, with less emphasis on incorporate metrics that serve stakeholder interests in a building too high a base salary that insulates the CEO from broader and more meaningful way. the effect of poor performance.” The Four Dimensions of Compensation Design Short- versus long-term. A second dimension is the extent to which variable compensation is paid out in the year Modern compensation systems can generally be analyzed it is awarded or deferred and paid over some future period. along four dimensions: fixed versus variable, short-term This applies to awards where the amount (a specified cash versus long-term, cash versus equity, and individual versus payment or a fixed number of shares) is established up front group. The factors that drive choices include the firm’s stra- and where it’s based on meeting specified future hurdles. tegic objectives, ability to attract and retain talent, ownership Short-term variable compensation generally takes the form structure, culture, corporate governance, and cash flow. of cash; long-term generally is delivered in equity, through Within the Russell 3000 Index, companies focus on aligning instruments such as stock options, restricted stock, and pay and company performance—something stakeholders performance shares. (See the sidebar “The Elements of Long- Term Compensation.”) 106 Harvard Business Review January–February 2021

ABOUT THE ART Kevin Twomey photographs the complex inner workings of antique calculators, using his training in theatrical lighting to discover the objects’ emotive appeal. On average, 28% of senior executives’ variable compensa- tion is paid the year it’s awarded (or immediately thereafter), and 72% is paid in future years. At the high end of the spec- trum, technology companies pay 83% of variable comp in long-term awards, health care companies 81%, and telecom companies 80%. At the other end, financial firms pay only 60% of variable compensation in long-term awards. Long-term compensation generally involves multiple overlapping cycles. Awards earned in 2018 may be payable in 2018, 2019, and 2020, but the executive receiving them may also get payments in 2018 from plans put in place in 2016 and 2017. Some companies, however, choose to make all grants up front (for example, giving three to five years of awards upon hiring or after another significant event without subsequent annual grants). Companies undergoing a transformation usually empha- size short-term rather than long-term compensation to encourage fast change. The mix may also reflect other busi- ness practicalities. Companies with less cash, for example, may focus on long-term compensation. Business cycles are another factor. A director we talked to described his experience with designing executive com- pensation at his company this way: “It’s a long-cycle capital business, and most of the management team’s compensation is three to five years out.” He added that while executive compensation is to some extent set by market practice, the makeup of it should be determined by the company’s strat- egy. “Is the compensation incenting sustainable long-term behavior that gets the organization where it wants to go, or is it really short-term-oriented?” he said. Cash versus equity. Our analysis showed that on average 41% of senior executive compensation is paid in cash, and 59% in equity. The mix is often determined by business matu- rity. Young companies tend to rely a lot on equity to attract and retain key employees if cash is scarce. The percentage of equity compensation is notably higher for large-cap compa- nies (63%) than for small-cap companies (48%), however. Technology, telecom, health care, and energy companies put the largest percentage of pay in the form of equity. One director we interviewed noted that equity compensa- tion encourages executives to think like owners. He detailed two experiences he had—one with a CEO who had a signifi- cant equity stake in the company, and one with a CEO who  107Harvard Business Review January–February 2021

How Industries Compare on the Four Dimensions of Compensation Design When setting executive pay, companies must decide how much will be variable or fixed, awarded in the short term versus the long term, delivered in the form of equity versus cash, and tied to group versus individual performance. Compensation committees often use the pay practices of their firms’ peers as benchmarks. Here are the norms in selected industries. Composition Variable vs. Fixed Long-term vs. Short-term Equity vs. Cash Group vs. Individual of compensation, by industry Direct compensation is Incentives may be paid the Stock and options usually Organizational culture and made up of a fixed base year goals are achieved or represent a larger share of values will have an impact salary (paid in cash) and compensation than cash incentives contingent upon deferred and paid over does. The business’s maturity on how much pay a achieving certain goals. several years. Companies and geography often affect company ties to achieving that want to promote fast change tend to emphasize the mix. group goals and individual ones. short-term rewards. INDUSTRY VARIABLE FIXED LONG-TERM SHORT-TERM EQUITY CASH GROUP INDIVIDUAL 14% 83% 17% 71% 29% 79% 21% Information technology 86% 15 81 19 68 32 77 23 15 80 20 66 34 75 25 Energy 85 17 77 23 66 34 74 26 17 70 30 58 42 70 30 Telecommunication services 85 18 70 30 57 43 70 30 18 70 30 55 45 69 31 Consumer staples 83 21 69 31 55 45 67 33 21 69 31 55 45 67 33 Real estate 83 21 67 33 55 45 66 34 22 60 40 47 53 63 37 Consumer discretionary 82 Health care 82 Financials 79 Industrials 79 Materials 79 Utilities 78 Note: Data reflects the compensation of the five highest-paid executives at each of the companies in the Russell 3000. Source: FW Cook proprietary research didn’t. He recalled, “The person who owned a much more because you really want something that gives value if your substantial stake in the company generally took the view company does better than its peers.” For that reason several ‘We should do the right thing. We’ve got to grow the value directors we spoke with argued that stock awards should be of the business and the value of the equity, and that will be linked, in part, to outperforming comparable firms. my compensation.’” The CEO with a smaller stake tended to have “much more of a professional-manager orientation, Individual versus group. On average 29% of comp is with an eye to cash compensation. And there was always a based on individual performance and 71% on the perfor- little bit of a tussle around whether the objectives were truly mance of the organization (such as a division) or company. achieved or not.” A firm’s culture and values will have an impact on the amounts tied to the two kinds of performance. “I” compa- Other directors argued that while stock rewards have nies—in which there’s a high degree of personal accountabil- benefits, they’re not perfect incentives. One commented, ity and individuals have the ability to influence results—tend “If you gave somebody stock options in 2008, 10 years later to link more compensation to individual accomplishments. those stock options were hugely valuable no matter what the Such companies tend to be human-capital-centric and highly company did, because the market came up. A rising market competitive—think of consulting, law, investment banking, floats all boats. But if you gave somebody stock options in, and asset management firms, where partners are often val- say, 2006, no matter what the company did, no matter how ued for bringing in business. “We” companies tend to focus well it grew or how profitable it was, by 2008, those options more on organizational results—typically financial goals or were significantly underwater. And it probably took almost shareholder returns. In those companies—often manufac- the next seven or eight years for them to get back to where turing, technology, or other product-driven businesses—firm they were. So stock options are a very flawed instrument, performance is more stable and predictable. 108 Harvard Business Review January–February 2021

C O M P E N S AT I O N When discussing performance benchmarks in their PRIMARY OBJECTIVE plans, the directors we interviewed focused largely on organizational metrics, including total shareholder return, Promote Profitable Growth revenue growth, and profit margins. However, some also brought up individual objectives, which they believed To achieve this goal, a large consumer-goods company worked well. “These personal goals include things like adopted a plan with both short-term and long-term incen- maintaining a detailed succession plan for yourself and the tives. It rewarded increases in annual sales and gross margin top 10 managers,” one director told us, “and like attempting equally and tied equity awards to the achievement of eco- to choose two new specific acquisitions over the next 12 nomic profit (profit after a capital charge) and long-term stock months or improving the company’s public image.” Direc- appreciation. Given that the firm wanted to generate growth tors also wrestled with the drawbacks of holding individuals over a period of several years, the long-term incentives were responsible for metrics they can’t always control—which, the largest component of compensation, and economic profit they argued, is frequently the case with organizational and was the most significant metric in determining it. company metrics. At the beginning of each year the company set numerical Linking Compensation Design and Outcomes targets for all the metrics. The targets didn’t function as triggers (hit them and achieve 100%; miss them and receive A good compensation system always begins with an organi- nothing); instead a payout curve was established for each, zation’s strategic goals. When compensation is misaligned providing for a full range of outcomes. Executives could with them, trouble ensues. Consider what happened when receive from 50% to 150% of their target bonuses. one company based the bonuses of its CEO and CFO entirely on growing earnings per share—because it assumed that was One key aspect of this plan was that it was based on the what investors wanted. As a director explained to us, this achievement of companywide objectives. A modifier allowed incentive encouraged management to make acquisitions the payout to be slightly adjusted according to each execu- with debt, boosting EPS growth but also the company’s risk. tive’s performance for the period, but the overall size of the Eventually the debt grew too expensive to service, and the bonus pool was based on organizational targets. company had to put itself up for sale. PRIMARY OBJECTIVE Now we’ll explore five common strategic objectives and how companies can put the four dimensions to use in Drive a Successful Turnaround achieving them. Note that this is not meant to be an exhaus- tive list of strategic goals; nor are we presenting the only or In a turnaround situation a company’s strategic focus can even the best ways to reach them. The examples are simply shift from growth to survival. The two are often in opposi- meant to suggest potential approaches. When contemplating tion, because growth typically involves investment, which them or other pay programs, you should answer the following can result in cash burn, while survival requires solvency, questions: which requires cash generation until the business’s environ- ment or operations improve. • How is the business strategy reflected in the reward program? An oil-and-gas company facing cash flow challenges after oil prices tumbled used a redesign of its compensation system • Are the right metrics being used given the current to address them. Its annual incentive plan shifted its empha- circumstances? sis from revenue and net income growth to free cash flow generation and expense management. Similarly, its long-term • When is it time to make adjustments to the existing incentive plan replaced annual awards of restricted stock, program design? which were linked to three-year total shareholder return, with a front-loaded grant of options vesting over five years. The • When does it make sense to deviate from the norm and grant minimized accounting expenses and shareholder dilu- tailor the solution? tion while giving executives an opportunity to significantly  109Harvard Business Review January–February 2021

The Elements of Long- Term Compensation C O M P E N S AT I O N Because long-term Stock-appreciation rights. incentives make up the Like options, these increase benefit if the turnaround succeeded and the stock price hit majority of executive in value if the stock price certain targets. Thanks to the cost reductions and cash gen- compensation and have rises, and may expire. Unlike eration rewarded by the annual incentives, the company was the most variations, they options, they don’t have able to hang on until oil prices rebounded. Meanwhile, the deserve special attention. to be exercised. Instead stock option plan helped it retain and engage employees in Key vehicles include: employees receive the value a difficult and demotivating business environment. of the appreciation in shares Restricted stock. or in cash. Note that in certain turnaround scenarios, when condi- Restricted shares are tions are highly volatile or a company is in distress, it may essentially common Performance shares. make sense to move to semiannual and quarterly goals, to shares that cannot be sold These are stock allocations align incentives with critical short-term objectives. immediately. They become that are distributed only sellable according to a when preestablished PRIMARY OBJECTIVE vesting schedule, which goals, such as operating or encourages retention. financial results or stock Transform the Business However, the benefits of or shareholder returns, stock ownership (such as are achieved. The goals A public company was pursuing an aggressive new growth dividends) often accrue may be absolute targets strategy after a recent business reorganization. But it was from the time of the award. or based on performance risky, and the firm wanted executives’ incentives to reflect relative to peers’. that. So it made a large amount of management’s pay contin- Stock options. These gent on successfully executing the strategy, which included give employees the right Phantom equity. This cash- entering new product markets, changing sales channels, and to purchase stock at a based award is structured expanding geographic reach. The compensation committee predetermined price (the to mimic an equity award. defined success as a significant increase in shareholder value exercise price) during a The value of a company’s over three years. In other words, the market would determine set period (the term). The equity is tracked over time whether the executives had implemented the strategy well. stock price must improve and determines the amount for the award to have value. executives receive. When setting long-term incentives, the committee decided to deviate from the norm in three key ways. First it chose to potential solutions. First it considered paying above-market front-load three years of awards and forgo future annual cash compensation (base and bonus). But that would have awards. Second the awards were delivered only if the firm hit increased annual cash costs significantly without fostering certain share-price targets. Third the awards were based on a sense of ownership, linking compensation to better perfor- a scale, and the targets and vesting schedules were set so that mance, or creating multiyear accountability. average performance resulted in minimal awards. However, under this plan executives would be rewarded for the risks Next the company considered three long-term incentives they took because they could get more compensation sooner that could compete with public competitors’ packages: real than they would have under a traditional approach. equity (which the company ruled out because it intended to remain private and therefore had no simple liquidity mech- PRIMARY OBJECTIVE anism), phantom equity (ruled out because of complexities in design, administration, and communication, particularly Compete Effectively with Public Companies around valuation methodology), and multiyear cash incen- as a Private Organization tives, which it ultimately adopted. Private companies are often in a war for talent with public The chosen plan used three-year cumulative EBITDA as rivals that have a powerful tool at their disposal: equity. a performance metric, and awards weren’t vested and paid To address this challenge, one private firm explored two out until the end of year three. To maximize retention, the payout was back-end-weighted: 20% in year three, 30% in year four, and 50% in year five. While a multiyear cash-incentive plan doesn’t create an ownership mentality, it is a highly effective, easy-to- 110 Harvard Business Review January–February 2021

understand way to tie compensation to achieving agreed- a third of their banks every year, and two-thirds were rolled upon objectives or performance superior to peers’ for several forward. The plan helped employees adopt a long view but years. This approach encouraged executives to remain at the didn’t require management to set specific long-term goals. company and served it well. Challenges and Opportunity PRIMARY OBJECTIVE Norms for key aspects of executive compensation clearly Foster Alignment with Owners and a Long-Term Orientation When Traditional exist, but as the data shows, they vary to some degree by Equity Is Unavailable industry, geography, and company size. In addition, under- At a private family business that wanted to strengthen the alignment between employees and the owners, the existing lying any norms are individual decisions and solutions compensation program provided base salaries and annual incentives only and no long-term incentives. That reinforced tailored to company needs and strategies. short-term thinking, which conflicted with the risk-seeking entrepreneurial focus of the company’s founders. To remedy In the immediate future, we expect business condi- this, the compensation committee worked with management and family members to redesign the firm’s approach to pay. tions to remain uncertain and changeable, complicating After considering phantom equity (which offers employ- the design of executive incentives. How this will all play ees the benefits of stock ownership without giving them company stock) and long-term-performance cash bonuses, out is anyone’s guess, but we know that employee health the company settled on an economic-profit-sharing program. Each year the compensation committee looked at profits, and safety have taken on new significance to virtually all subtracted the cost of capital, and put 20% of the resulting amount into a profit-sharing pool for employees. To lengthen companies. Enterprisewide liquidity also has new impor- the time horizon, the pool was not paid out in the year it was earned but instead was put into a “banking” system. tance. In the past liquidity concerns arose primarily when Each participating employee had his or her own bank, and the annual contribution to it was based on a formula that external capital became scarce. Now they spring more from allowed adjustments for performance. If the economic profit in a given year was negative, the bank’s balance would fall. internal cash-flow issues. Liquidity and employee health If it was positive, the balance increased. Employees received are just two of the areas we expect incentive plans to start tying metrics to. Indeed, the current environment offers an opportunity to revisit plans with an eye toward incorporat- ing measures that serve stakeholder interests in a broader and more meaningful way. HBR Reprint R2101J BORIS GROYSBERG is the Richard P. Chapman Professor of Business Administration at Harvard Business School, a faculty affiliate at the HBS Gender Initiative, and the coauthor, with Michael Slind, of Talk, Inc. (Harvard Business Review Press, 2012). Twitter: @bgroysberg. SARAH ABBOTT is a research associate at Harvard Business School. MICHAEL R. MARINO and METIN AKSOY are managing directors at FW Cook.  111Harvard Business Review January–February 2021

AUTHORS Josh Baron Rob Lachenauer Cofounder, Cofounder, BanyanGlobal BanyanGlobal MANAGING ORGANIZ ATIONS FBaumailidly Business That Lasts Companies that endure do these five things right. 112 Harvard Business Review A RT I ST   JORGE MAYET January–February 2021

 113Harvard Business Review January–February 2021

IDEA IN BRIEF Courtesy of Jorge Mayet and Richard Taittinger Gallery, New York THE PARADOX Family businesses are famous for power plays, backstabbing, and dramatic implosions. Yet some are among the most enduring companies in existence. WHY IT MATTERS Family-controlled firms represent some 85% of the world’s businesses. In the United States they employ 62% of the workforce. THE KEYS TO LONGEVITY The owners of a family business have the right to: decide on an ownership type, structure governance, define success, determine what to communicate, and plan the transfer of power to the next generation. Misunderstanding or misapplying these rights can destroy the work of generations— and exercising them wisely can lead to long- term success. 114 Harvard Business Review January–February 2021

ABOUT THE ART MANAGING O R G A N I Z AT I O N S Jorge Mayet’s sculptures draw from his experiences living as a Cuban exile in Spain. Suspended in midair, his photorealistic floating landscapes and uprooted trees offer ethereal, dreamlike visions of his homeland. Given their portrayals in the media, workforce, according to the research and advocacy group it might be easy to dismiss family Family Enterprise USA. businesses as hotbeds of power playing, favor currying, and back- To explain the difference between those two fates, we’ll stabbing—preoccupations that can delve into an area rarely explored in business schools or hurt the company, the family, or both. the media: the impact of ownership on a company’s long- Think of the Murdochs and News term success. Ownership of any asset confers the power Corp, or the Redstones and National to fundamentally shape it. Think of a professional sports Amusements, to name just two. team. Within the rules of the league, the owner has the right to make essentially every important decision, including But despite the headline-grabbing tales, many family busi- whether to fire the coach, which players are on the roster, nesses have enjoyed success for decades, even centuries. For where the team plays, whether the franchise seeks to max- instance, the Italian winemaker Marchesi Antinori, estab- imize wins or profits, and whether and when to sell it. The lished in 1385, has thrived as a family business for more than teams with the best track records have great owners at the 600 years. Similar examples can be found across the globe helm. If your favorite team has an ineffective owner, you are just within the alcohol business; they include Gekkeikan in probably doomed to disappointment. Japan (founded in 1637), Berry Bros & Rudd in the United Kingdom (1698), and Jose Cuervo in Mexico (1795). In a widely held public company, the owners are mostly investors. Their influence is limited. They typically let the So which is it? Are family businesses prone to dramatic board and management run the business; when dissatisfied, implosions, or are they some of the most enduring compa- they “vote with their feet” by selling their shares. Ownership nies in existence? The answer is both. They can be much of a family business could not be more different. It rests with more fragile or much more resilient than their peers. Given a relatively small number of people, who are related. Their that family businesses—companies in which two or more ability to shape the company is profound and is itself shaped family members exercise control, concurrently or sequen- by their relationships with one another. That’s a potent mix, tially—represent an estimated 85% of the world’s companies, creating the extraordinary highs and lows we see daily in our ensuring their longevity is essential. The United States alone work advising the owners of family businesses. has 5.5 million of these businesses, which employ 62% of the Five core rights accompany family ownership—the right to: • Design: What type of ownership do you want? • Decide: How will you structure governance? • Value: How will you define success? • Inform: What will—and won’t—you communicate? • Transfer: How will you handle the transition to the next generation? Understanding and effectively exercising these rights can lead to long-term success. Misunderstanding or misapply- ing them can destroy what a family has spent generations building. In this article we explore the five rights and offer battle-tested approaches for exercising them well. WHAT TYPE OF OWNERSHIP DO YOU WANT? Family businesses are often lumped together as if they were all the same. But four fundamentally different types exist, distinguished by who can be an owner and how  115Harvard Business Review January–February 2021

MANAGING O R G A N I Z AT I O N S owners share control. If you want your family business type of ownership: In each generation, family members pass to last for generations, you need to understand the char- down their shares, usually evenly. With no need to buy out acteristics of your type and the strengths and challenges nonowner members, distributed ownership can keep family associated with it. The choice of ownership type isn’t capital tied to the business. But owners may vary in engage- a mere legal formality; it can define or restrict various ment; aligning their interests and defining decision-making members’ involvement and may loom as an unrecognized norms can be challenging, and resentment about “free source of conflict. riders” may arise if some are operating the business while others are “only” investors. Big problems may crop up if Sole owner. One family member owns the company and some members of the family want to cash out; having a is responsible for all decisions. This works best when the clearly defined exit ramp reduces that risk. business requires decisive leadership and creates enough liquidity to satisfy nonowners (or when nonbusiness assets Concentrated ownership. Any family member may be can do so). an owner, but a subset controls decision-making. This works well when decisive action is required despite a multiplicity The French cognac maker House of Camus has had a sole of owners, and it mitigates some of the challenges of distrib- owner since its founding, in 1863. In each generation, one uted ownership. But the question of who will exercise con- member leads the company, buying out siblings’ shares. trol becomes more complicated with each new generation. The current owner, Cyril Camus, says this model has been Vitamix, the 100-year-old manufacturer of high-performance essential to the firm’s longevity. With no siblings or cousins blenders, operates this way. Shares are passed down to involved, family conflict around the business is rare. Sole descendants, but in each generation the CEO must own or ownership has downsides: Succession becomes a central control a majority of voting shares. Although the owners aim issue, which may be decided according to merit (as assessed for consensus on big decisions, the CEO makes the final call. by the current owner) or assigned by primogeniture or a One of the chief risks is conflict over who will lead. Another similar rule, and the owner must wrestle with what bene- is the possibility that those not in power will lose interest and fits to extend to other family members. This model can be sell their shares. risky, because much of the family’s capital and talent exit in each generation. Although hybrids exist, most family businesses fall into one of those four categories. (If a family business has some Partnership. Ownership is restricted to family members shares that are publicly traded, it may fit into any of them, actively working in the business. This allows for multiple depending on how the family has decided to handle its perspectives and requires clear rules governing how people piece.) In a survey we conducted of family businesses of var- can join or leave the ownership group and what benefits ious sizes and across numerous industries and geographies, accrue to nonowners. The German-Dutch Brenninkmeijer we found that 13% had a sole owner, 24% were partnerships, family, sixth-generation owners of the clothing chain C&A, 36% had distributed ownership, and 27% had concentrated have chosen this type. Children of current owners are admit- ownership. ted to the partnership on a competitive basis, after a rigorous evaluation and an apprenticeship. Like sole ownerships, The type of ownership needn’t be a static choice. Be partnerships keep family owners highly engaged but can be on the lookout for the need to make a change, which may vulnerable to the loss of capital and talent. They are typically arise when the next generation is joining, when the size more resilient because they don’t rely on just one leader, but or complexity of the business alters significantly, or when they may face conflict over who is admitted to ownership. you’re bringing in outside leaders. The Antinori winemaking family had a sole owner for 25 generations: Control passed Distributed ownership. Any family member may be an to a male descendant, keeping the business and associated owner and participate in decision-making. This works well land united. But Piero Antinori, who took the reins in 1966, when most of the family wealth resides in the company, has three daughters and no sons. He opted for a three-way when it is mandated by law, or when it is expected by family partnership to succeed him. culture. The Brazil-based conglomerate Votorantim has this 116 Harvard Business Review January–February 2021

The owners of family businesses wield profound decision-making power. We know of sizable companies in which not a dollar can be spent without their approval. HOW WILL YOU STRUCTURE GOVERNANCE? The Four-Room Model Owners define what The owners of family businesses wield profound decision- Thinking of your business as having success means for making power. We know of sizable companies in which not a a separate room for every group of the business and dollar can be spent without their approval. When this power stakeholders—along with rules about hire the board. is channeled appropriately, it confers a major competitive what may be decided in each—clarifies advantage, facilitating the nimbleness needed to capitalize roles and minimizes conflict. Board of on opportunities as they arise. Many family business leaders directors we know can make big bets at a moment’s notice, without oversees the having to run decisions through multiple layers of manage- business and hires ment and bureaucracy. “Speed of response is becoming more (and if need be crucial, and we can put large projects to work quickly,” says fires) the CEO. Alexandre Leviant, the president of the specialty chemical conglomerate ICD, which his father founded in 1952. Management recommends But if that power is wielded ineffectively, the business strategy and will suffer. Some owners exercise too much control, stifling directs operations. innovation and making it hard to attract and retain great talent. Others step back from major decisions, leaving a Family vacuum that may be filled by executives looking to their members own interests. We saw a number of family businesses nearly build family unity destroyed when decisions were left to nonfamily managers and develop the who wanted to run the company down and buy it at a fire- next generation. sale price. shouldn’t decide how the owners will use their dividends. Governance in a family business is all about finding Nonowner family members, for their part, can’t walk into a middle ground between micromanaging and abdicating other rooms and make decisions. Governance based on the responsibility, and it becomes more challenging as the four-room model makes the hierarchy and boundaries clear. family and the business grow. We suggest a simple frame- work to guide decision-making: the four-room model. Time and again, we’ve seen businesses slide into chaos for Imagine your business as a home with one room each for lack of a good decision-making process. Too often the prob- the owners, the board, management, and the larger family. lem becomes apparent only after disagreements have begun The owners set high-level goals and elect the board; the to destroy what years of collaboration built. At a regional board oversees the business and hires (and if necessary fires) retail chain headed by a family member we’ll call Steve, the the CEO; and management recommends business strategy lack of governance let his self-described “cowboy” instincts and directs operations. Because the board and management run unchecked, sparking resentment in his sister and his report to the owners, the first three rooms are in a row, cousin, who were equal owners. Once they all recognized the with the owners’ room on top. The family’s room, which is problem, they turned to the four-room model and created critical for maintaining members’ emotional connection to an owners’ council, which Steve was required to consult for the business, sits alongside the other three, underlining the decisions of a certain magnitude. That allayed his co-owners’ importance of family influence and unity throughout. concerns while forcing him to plan big moves more carefully, and the business—along with the family—got back on track. In a well-run family business, each room has explicit rules about who belongs there, what decisions are made there, The four-room model helps owners maintain control over and how. People’s roles vary from room to room. For exam- the most important issues and delegate other decisions. It ple, a nonfamily CEO can run the management room but establishes a process for revisiting decisions as goals evolve for the family or the business or both.  117Harvard Business Review January–February 2021

MANAGING O R G A N I Z AT I O N S HOW WILL YOU DEFINE SUCCESS? The Owner GROWTH • LIQUIDITY GROWTH • CONTROLGrowth Strategy Triangle Maximize The owners of a business have a right to the residual value financial it creates. With that right comes the ability to define success. Most family businesses For widely held public companies, that’s straightforward: choose to prioritize two of the value. They aim to maximize shareholder returns. But few family three main goals depicted businesses we know would describe their primary objective here to guide their strategy. Control in those terms. That’s one of the best things about family Keep ownership: You get to determine what matters most. No Liquidity outsider can force you to value earnings growth more highly Ensure a healthy decision-making than, say, providing family members with employment, within the owners’ or can insist that you pursue opportunities that clash with cash flow for your beliefs. owners’ use purview by outside the avoiding outside Effectively exercising this right can be an incredible business. equity or debt. advantage in making a business last. It enables a long-term, generational approach that contrasts sharply with public LIQUIDITY • CONTROL companies’ obsession with quarterly results. But not all families are clear about what they value most. That lack Growth-liquidity companies also seek to become bigger, of clarity can trigger battles over priorities, missed oppor- but they pay out considerable money to the owners and use tunities, or a failure to retain talented employees. More outside equity or debt or both to keep the engine going— fundamentally, if you are unclear about your objectives, you consequently relinquishing some control. risk losing your raison d’être for being in business together, especially as the company grows and transitions to new Liquidity-control companies are not concerned with generations. Your path may become a dead end. rapid growth; instead they hope to produce a significant cash flow for the owners while retaining decision-making To avoid that fate, you need an owner strategy that iden- authority. tifies concrete goals and sets up guardrails. We know highly successful family businesses that have Goals. These fall into three main categories. You can chosen each strategy combination. And these are broad aim for growth: maximizing financial value. You can seek strategies; companies can find spaces between them. What’s liquidity: prioritizing a healthy cash flow for the owners’ use most important is understanding the explicit and implicit outside the business. You can look to maintain control: keep- choices you are making about what to prioritize; those should ing decision-making authority firmly within the ownership flow from your fundamental values. You should revisit group by avoiding outside equity or debt. your choices as circumstances evolve, whether because of external factors such as economic developments, industry There will be trade-offs among these options. You consolidation, and regulatory shifts or because of internal might pursue only one goal, or you might decide on a factors such as generational transitions, family conflict, and combination. We have found that for most family-owned changes to senior management. companies, this is a “pick two” situation, meaning they pri- oritize two goals at the expense of the third. That suggests Guardrails. Aligning on priorities is essential. But with- three basic owner strategies—one for each possible pairing out concrete ways of measuring performance, it’s just lip of goals, each forming a side of what we call the owner service. Guardrails can help ensure that those running the strategy triangle. business day to day are directing their energy and resources toward what you as owners care about most. They allow you Growth-control companies—the most common type we to delegate decisions more confidently. have encountered—focus on becoming bigger while keeping decision-making within the owners’ purview. 118 Harvard Business Review January–February 2021

One of the best things about family ownership is that no outsider can insist that you pursue opportunities that clash with your beliefs. Guardrails can be financial or nonfinancial. Owners should home in on a small number of financial ones—for example, minimum levels of return on invested capital or maximum levels of debt—and ensure that the company stays within them. Nonfinancial guardrails define outcomes for which owners are willing to sacrifice financial performance. The values informing them are often part of the glue hold- ing the family together and a means of making the world a better place. For example, we work with a U.S.-based family business whose members lost relatives in the Holocaust. It invests only in countries with a high score in the nonprofit NGO Freedom House’s annual ratings. Having a clear owner strategy fosters longevity by ensur- ing that the business accomplishes the owners’ financial and nonfinancial goals. Over the long term, families need an emotional connection to their company; they must be able to say, “We own this because we want to make a difference” or “This represents what our grandfather sacrificed to give us a better life.” Without an emotional connection, owners may be tempted to cash out. WHAT WILL—AND WON’T—YOU COMMUNICATE? Owners are legally entitled to know a great deal about their business, such as what’s in financial statements, certain orga- nizational records, and ownership documents. And except when they bring in outside investors, lenders, or board members, they are not obligated to share that information with anyone (other than the government). That means they control communication; nothing of consequence can be shared without their permission. How owners exercise this right significantly affects the business’s longevity. That’s because effective commu- nication is critical to building one of a family business’s most valuable assets: trusted relationships. These are often underappreciated, but they help generate three important things: • Financial capital: committed owners who have an emotional connection to the business and value long-term performance • Human capital: engaged employees and family mem- bers, including spouses, who bring their full talents to their work and the family  119Harvard Business Review January–February 2021

MANAGING O R G A N I Z AT I O N S • Social capital: a positive reputation with customers, suppliers, the public, and other stakeholders, which can help differentiate you in a crowded marketplace and build partnerships across generations The impulse to keep things private is understandable. Privacy can protect the business and the family from outsid- ers. But if owners hold their cards too close to the vest, they risk starving the business of its ability to cultivate valuable relationships. A business school professor we’ll call Sophie married into a family with a fourth-generation media business in Asia. Concerned about what she saw as a casual attitude toward innovation, she began asking about the company’s long-term strategy. The more questions she asked, the more information the executive team withheld, until it requested that her husband stop sharing financial reports with her for fear she would “rock the boat.” Sophie became increas- ingly anxious about whether her children would inherit a business with any value. In the face of the stonewalling, she withdrew, even scheduling vacations elsewhere during the family’s annual reunions. That deprived her children of opportunities to forge relationships with their cousins (and future co-owners), which could have a devastating impact on the business in the years to come. Early on in the life of your business, communication is likely to be informal, perhaps taking place over meals. As things progress, consider what meetings, policies, functions, or technological platforms could improve your dialogues. Start by aligning on what you will and won’t disclose to each audience. In our experience, owners are often so worried about protecting details regarding their wealth that they fail to think through what they can share to help stakeholders feel connected to the business’s long- term success. Such information might include your owner values and strategy, how decisions will be made, how you think about succession, and your passion for the business. If you decide to keep such information private, tell your stakeholders why. We have seen cases in which the failure to communi- cate effectively was the single biggest reason for a family business’s demise. We’ve also seen some in which skillful communication pulled the company through tough times. Wield the right to inform wisely. 120 Harvard Business Review January–February 2021

Delaying or poorly planning a transition to the next generation can wreak havoc on the family and the business alike. You need a continuity plan. HOW WILL YOU HANDLE THE TRANSITION TO can’t simply be dictated from one generation to the next; THE NEXT GENERATION? incoming leaders need to be prepared and aligned. To see what can happen when they’re not, consider the Pritzker The final right of owners is deciding how to exit. You can family, which built the business empire that includes Hyatt choose who will own the business next, what form that hotels. Jay Pritzker, the leader of the third generation, and ownership will take (whether shares or a trust), and when his brother Robert gathered the family in 1995 and handed the transition will occur. With this right come complex and out a two-page document describing their succession plans. difficult decisions. What will you do with the assets you It detailed a complex web of trusts created to hold the worked so hard to build? How will you let go? What roles family’s assets, spelled out when members would receive should members of the next generation play? How should distributions, and assigned leadership to a triumvirate. you prepare them? Are the relationships among them strong It was undoubtedly well-intentioned, but it didn’t work. enough that they can work through decisions together? Just months after Jay’s passing, in 1999, a series of lawsuits began. The family eventually decided to divide its holdings. Delaying or poorly planning your transition can wreak havoc on the business and the family alike. A Boston Oftentimes the biggest hurdle to continuity planning is Consulting Group study of more than 200 Indian family getting started. When facing pressing concerns in the present, businesses found a 28-percentage-point difference in market it can be tempting to put off cross-generational conversations capitalization growth between companies that had planned that may be fraught with issues of mortality and identity. their transitions and those that had not. Family empires So put those conversations on your agenda (in your owners’ may be consolidated or squandered in the transfer of power room, with a designated continuity-planning task force, or across generations. through your board) and set some deadlines for them. To execute a successful transition, you’ll need a continuity W E WO N ’ T S U G A RC OAT the bottom line: Without hard plan that maps a path from the current generation of owners to the next. It should address three main challenges: and smart work by the owners, other family members, and • Passing down your assets. Will you keep the same type employees, family businesses often implode. Much energy is of ownership (sole owner, partnership, and so on) or change it? Will you transfer ownership all at once or gradually (for needed to keep the many competing interests from turning example, by giving economic interests to the next generation while retaining voting control)? What tools, such as trusts destructive. and gifting, will you use to minimize taxes? There is no single way to survive, and there are few • Handing off roles. How will you create the glide path nec- essary for the current leaders to let go? How will you select universal best practices. But by applying the five-rights successors across the four rooms in a way that feels fair and identifies the most-talented candidates? How will you ensure framework, you can organize yourself for the work that a smooth passing of the baton? family ownership requires. Ask the members of your • Developing next-generation capabilities. What skills will each of the new owners need, whether they actively work business to individually assess your performance against in the business or not? How will you help them identify the roles for which they are best suited? How will you create each right. Then share the results and develop a plan that opportunities for them to learn how to collaborate with one another? builds on your strengths and shores up your vulnerabilities. Transition is a process, not an event—and the more Only through such collaboration can you use the power of the continuity plan resembles a discussion rather than an ultimatum, the greater the chances of success. The plan ownership to sustain your family business for generations to come. HBR Reprint R2101K JOSH BARON is a cofounder and a partner at BanyanGlobal Family Business Advisors and an adjunct professor at Columbia Business School. ROB LACHENAUER is a cofounder and the CEO of BanyanGlobal. They are the authors of The Harvard Business Review Family Business Handbook (Harvard Business Review Press, 2021).  121Harvard Business Review January–February 2021

The Big Idea Series on HBR.org Timely topics explored with extraordinary depth and insight. Subscribe and get full access to the archive. hbr.org/big-ideas Work,Parenting,and the Pandemic aDo We Really Need the Office?a Leading ThroughAnxiety aThe BusinessCase for SavingDemocracy aToward a Racially Just WorkplaceaThe Trust CrisisaThe Power of Hidden TeamsaThe Case for Good JobsaWork and the Loneliness Epidemic

Experience Advice and Inspiration MANAGING YOURSELF “ M I C RO M A N AG E M E N T ” I S A dirty word in today’s work- places. Bosses who intervene too often or too extensively HOW TO HELP (WITHOUT in their subordinates’ activities get a bad reputation, MICROMANAGING) and most forward-thinking organizations have come to value employee autonomy more than oversight. Research New research points shows that people have strong negative emotional and to three strategies. physiological reactions to unnecessary or unwanted help and that it can erode interpersonal relationships. Even the by Colin M. Fisher, Teresa M. Amabile, and Julianna Pillemer U.S. Army general George S. Patton, a leader in one of the Illustrations by NATHALIE LEES  123Harvard Business Review January–February 2021

People are more willing to welcome assistance when they’re already engaged in a task or a project and have experienced its challenges firsthand. most traditional command-and-control timed interventions when asked to make or a project and have experienced its groups in the world, understood the dan- decisions about opening a fictitious challenges firsthand. ger of micromanaging: He famously said, restaurant. “Never tell people how to do things. Tell GlowDesign, where we spent two them what to do, and they will surprise Together those projects have yielded years studying leaders’ helping behavior, you with their ingenuity.” important insights into how managers offers some illustrative examples. In can better assist their employees. As one case, a manager checked in on a Managers shouldn’t be completely a starting point, your employees need shorthanded team and discovered what laissez-faire, however, especially when to know that you’re willing to offer he felt were fundamental issues with the subordinates aren’t colocated, as is the help—and they must feel comfortable project’s scope. But rather than jump case for many during the global Covid-19 asking for it. Additionally, you need to in right away with assistance or advice, pandemic. People doing complex work have a baseline understanding of their he simply told the project lead, Violet, often need more than just superficial work and its challenges, as well as time that he was available. (All names in this advice or encouragement; they need and energy to give. But just how and article are pseudonyms.) “I offered help,” assistance that is both well-timed when should you roll up your sleeves to he told us, but “it took a while for Violet and appropriate to their issues—and get involved in employees’ work? We’ve to figure out how she could use me.” providing it can be challenging without uncovered three key strategies for being She ultimately asked him to weigh in on opportunities for serendipitous encoun- a hands-on boss without micromanag- several key matters. ters in a physical office. Extensive ing: (1) Time your help so it comes when research indicates that pervasive helping people are ready for it, (2) clarify that Those known as great helpers at in an organization correlates with better your role is to be a helper, and (3) align ConsultCo were similarly careful about performance than letting employees go the rhythm of your involvement—its the timing of their help. One of the it alone does. So how can you give subor- intensity and frequency—with people’s firm’s partners, Adriana, described her dinates the assistance they need without specific needs. approach when some of her people were undermining their sense of efficacy and struggling with their work. She told us independence? TIME YOUR HELP WISELY that even before she met with them, “I thought the team was on the wrong Over the past 10 years we’ve been When involving yourself in your employ- track. [But] when I got in the room, studying how leaders effectively offer ees’ work, timing matters, but not in the I listened. I limited my questions to help without being perceived as micro- way you might expect. Conventional clarifying questions to make sure I managers. We have observed and talked wisdom suggests that heading off poten- understood what they were saying. to people inside various companies, tial issues is the best strategy (recall There are two reasons I did this. One including a prominent strategy consult- Benjamin Franklin’s famous adage “An is that these are smart people, and I ing firm (we’ll call it ConsultCo) where ounce of prevention is worth a pound of have enough respect for them—even we interviewed partners who were cure”). We’ve found, however, that the the most junior-tenured people in the named by top management as excep- leaders who are viewed as the most help- firm—to know that the work they do tional hands-on leaders. At a design con- ful don’t try to preempt every problem is very valuable.…Second, I thought sultancy that’s well-known for its help- or dive in as soon as they recognize one. they would be more willing to rethink ing culture (pseudonym: GlowDesign), Instead they watch and listen until they [their ideas] if they had a chance to first we conducted a large-scale qualitative believe their subordinates see the need explain what they were doing.” By the study using daily diaries and in-depth for help and are ready to listen recep- end of the meeting, the team seemed weekly interviews with help givers and tively. They understand that people ready for Adriana to offer suggestions, receivers. And we’ve run two behavioral are more willing to welcome assistance so she did. experiments in the laboratory, exploring when they’re already engaged in a task how 124 groups responded to differently Our experimental research—studying those 124 groups making entrepreneurial 124 Harvard Business Review January–February 2021

Experience decisions—confirmed the importance CLARIFY THAT YOUR ROLE IS TO HELP spot.…It can be like ‘Here’s the boss, of lending a hand at the right time. We and gosh, he’s really unhappy with what found that when advice was given in the Even if the timing is right, intervening we’re doing.’” course of teams’ work, after problems can go wrong when it isn’t clear why you had emerged rather than beforehand, are getting involved. Managers play a lot Because seeking and receiving help members understood and valued it of different roles, and their responsibil- can make people feel so vulnerable, more. This led them to actually use ities include evaluating employees and managers need to clarify their roles the help, improve their processes, share doling out rewards and punishments. when intervening in employees’ work. more information, and make objectively This power dynamic can get in the way They should explain that they are there better decisions than did groups that of effective help. When bosses step in, to help, not to judge or take over. They received more instruction at the start their involvement can imply that people need to foster what Amy Edmondson, of their discussions. are messing up in a big way. That’s why a professor at Harvard Business School, employees often hide or downplay calls psychological safety—an environ- What prompts employees to issues and fail to solicit guidance. ment in which interpersonal risks are welcome assistance may vary from They can become unreceptive to the encouraged. situation to situation. But we’d counsel assistance, defensive, or demoral- managers not to provide input without ized, which hinders creativity and The importance of this framing was first allowing those they supervise to performance. Therefore, as a leader at evident at GlowDesign. We found that gain knowledge of the task and express GlowDesign told us, managers must be leaders rated as particularly helpful took their views on it. In many cases, a well- careful “not to go in there and create pains to persuade subordinates that they timed cure may be better than that so much anxiety that you’re in a worse were stepping in for only one reason: to ounce of prevention. support their employees’ work. Consider what happened when a team tasked with one of the firm’s biggest projects was hobbled by several members’ personal issues. The project leader, Aaron, emailed one of Glow’s senior partners, Gary, for advice. Gary was the client’s main contact at the firm, but Aaron knew him only slightly and was surprised when he volunteered to fly from Chicago to New York to help. Many people would balk at accepting such an offer, worrying that top managers lacked confidence in them. But Gary was careful to emphasize that he would not supplant Aaron as the person in charge. “I’m not here to change the project,” he said. “I’m just here to help you…to be your crutch.” Across our research, we found that when managers clarified their inten- tions, as Gary did, employees were more candid about the problems they faced and more willing to accept help and work collaboratively to solve them.  125Harvard Business Review January–February 2021

Experience Don’t assume that employees concerned about performance reviews and pay can accurately discern your intentions. No matter how supportive you are as a boss, they won’t forget that part of your job is to monitor and assess them. So when you start taking a stronger hand in their work, assure them that you’re there as an adviser, not an evaluator. Be explicit about what you are trying to accomplish with your intervention. ALIGN THE RHYTHM OF YOUR felt undermined, with morale and per- identify and communicate their key INVOLVEMENT TO PEOPLE’S NEEDS formance suffering as a result. But when insights, articulate ideas, and move managers instead began with the other forward. Her intense involvement over To give people useful help, leaders strategies we’ve described, this kind of a short period wasn’t viewed as a threat must take the time to fully understand time-intensive deep help was heartily or a commentary on the team’s perfor- employees’ problems, especially when welcomed. mance; instead it eased the pressure the issues are thorny. If the work is com- enormously. Moreover, it marked a plex, creative, and cognitively demand- For example, Hazel, a senior man- turning point for the project: The work ing, you’ll need to engage deeply. But ager at GlowDesign, successfully guided done during those three days became that means more than delivering help a team as it moved from the research the foundation of the client presenta- with the right content. It also means phase of a project to the design phase. tion, which led to contracts for several allocating time and attention in a pattern Though she had attended a brainstorm- additional projects. that works for receivers. We call this ing session early on, she had been the rhythm of involvement, and it will hands-off until the team leader asked In the second form of help, path vary depending on whether employees for help. She obliged but spent the first clearing, leaders offer assistance in need intensive guidance in the short day listening and asking questions briefer, intermittent intervals when term or intermittent path clearing over to better understand the project and employees face ongoing problems. For a prolonged period. ensure that the team was ready for her instance, if your team is short-staffed, input. On the second and third days, she you might stop by every few days for a Concentrated guidance is required suggested a framework to help everyone half hour or so, to help with whatever when employees encounter hurdles that can’t be overcome with quick feedback or a few hours of input. In such scenar- ios, leaders collaborate closely with subordinates in long sessions tightly clustered over a few days. That might sound like the definition of microman- aging. Indeed, bosses who assisted in this way without ensuring that their people were ready for it and without clarifying their helper roles were perceived as taking over. Employees 126 Harvard Business Review January–February 2021

needs doing—whether it’s participating When workers aren’t colocated, man- NEED TO in an important client call or simply agers are more likely to either check TOUGHEN UP ordering lunch during a long work in too frequently and interrupt their AT WORK? session. colleagues’ flow or fall out of touch and leave employees adrift. People working special Path clearers maintain enough from home or from any separate location collection general knowledge about the project to can easily feel isolated, confused, or even understand emerging needs but seldom abandoned. Thus being a hands-on man- It’s impossible to keep dig into the core work. Rather, they look ager in such situations is critical; it not emotions out of the for smaller ways to give relief to their only improves employees’ performance workplace. Even the most subordinates. That’s how Kaya, a partner but also lets people feel supported and successful professionals at ConsultCo, helped the members of connected. face situations that one team who were so busy struggling challenge their strength to meet client demands that they barely However, intervening in your team’s and resilience. had time to update her on what was work while ignoring any one of our Build your emotional happening. She found ways to take pres- guidelines can render your help ineffec- acuity with HBR’s Mental sure off them in short, scattered bursts: tive or even harmful—potentially worse Toughness Collection. by talking to individuals about their than doing nothing. Offering preemptive concerns, cleaning up the team’s shared advice can keep people from seeing its Mental Toughness Collection calendar, and handling meeting logistics value. Failing to frame your role can with the client. allow subordinates to feel threatened PRODUCT #1069BN • 4 ITEMS • $59 and undermined. And using the wrong DIGITAL FORMAT Leaders trying this approach rhythm—especially not allocating shouldn’t underestimate the importance enough time to be an effective guide or Save more than 20% off the individual of staying informed about the work. path clearer—can lead to superficial or components within this collection! Those who fail to do so can provide off-target feedback or be perceived as an only shallow criticism or vague advice invasion, engendering cynicism rather THIS DIGITAL SPECIAL COLLECTION when they drop in—interactions that than gratitude. You can easily avoid INCLUDES 3 EBOOKS AND 1 ARTICLE Glow designers derisively referred to as these micromanagement traps, how- “swoop and poops.” So keep abreast of ever. Follow the three strategies we’ve hbr.org/store the issues your employees are facing, outlined and become a boss who truly and step in when you see roadblocks you comes through for employees when 1-800-988-0886 OR +1-617-783-7500 can remove. they need it most. O U R R E S E A RC H S U G G E S T S that leaders HBR Reprint R2101L can help their employees in hands-on and meaningful ways—without being COLIN M. FISHER is an associate accused of micromanaging—if they professor of organizations and pay careful attention to timing, artic- innovation at University College London’s ulate their helping role up front, and School of Management. TERESA M. AMABILE match the rhythm of their assistance to is a Baker Foundation Professor at Harvard receivers’ needs. These guidelines are Business School and a coauthor of The especially important when teams are Progress Principle. JULIANNA PILLEMER is an physically separated, as so many have assistant professor of management and been during the ongoing pandemic. organizations at New York University’s Stern School of Business.

CASE STUDY “ M E L I SS A , H I!” Su Yee Goh was focused American had seemed When Your Star surprised to see her deputy’s distracted. Su Yee knew her work- Player Asks to name pop up on her phone, but from-home situation during the Go Part-Time she answered immediately. She’d pandemic was not ideal. While been meaning to check in with many offices in Singapore had by Thomas J. DeLong Melissa for a few days. remained open, SG was one of Both worked in business several multinationals that had HBR’s fictionalized case studies present problems faced by leaders in development for the Singapore sent its entire staff home. Melissa real companies and offer solutions from experts. This one is based on office of international energy- and her husband, who also had a the HBS Case Study “Shapiro Global” (case no. 407003-PDF-ENG), foods firm Shapiro Global (SG), busy job, lived in a two-bedroom by Thomas J. DeLong, Michael Brookshire, Monica Haugen, Michelle Su Yee as director and Melissa as condo with their six-year-old son, Kravetz, and Sarah Sommer, which is available at HBR.org. her number two. Their team had whose school had gone remote been working tirelessly since the three months before. Covid-19 outbreak to ensure that SG’s expansion plans in Southeast “I’m glad you called! I was just Asia were not derailed. Melissa about to book some time on your had been leading the charge, but calendar,” Su Yee said. “Maybe we in recent video calls the normally could both pop out for some fresh air and do a walk and talk?” 128 Harvard Business Review Illustrations by BIANCA BAGNARELLI January–February 2021

only female SG executive in the Experience region and the only vice president Su Yee was happiest when on who’d worked her way up from from the San Francisco office Case the move—not just exercising but the ground floor, she made a point a year earlier,2 she had always Study also working hard to advance her of mentoring the young employ- come across as a go-getter with Classroom career. In 1997, she’d been among ees, and particularly the women, leadership capabilities, if not Notes the first seven employees in SG’s on her team. C-suite-level ambitions. More Singapore office. As an assistant important, she was an extremely 1. On average, to the office manager, she had run “Sure, that would be great,” hard worker—easily keeping pace OECD countries errands, answered the telephone, Melissa replied. with long workdays and always pay 16 weeks and kept the office operating willing to put in weekend hours of parental smoothly. When it expanded, she “Anything special you wanted if required. A quantitatively leave at a rate was promoted to business analyst, to talk about?” Su Yee asked. minded analyst, she pushed of 55% to 100% and over the next 14 years she had data-driven decisions that had of wages. The grown with the company, acquir- There was a pause. “I have reenergized the group’s outreach U.S. is the only ing skills and experience and some news. Scott and I are expect- and boosted revenues. While Su OECD country winning promotions. Now she ing,” Melissa finally said. Yee had initially been frustrated that lacks oversaw business development because Melissa’s rotation into government- for all of Southeast Asia, with 28 Su Yee didn’t process this right her office was forced through mandated paid employees reporting to her. The away. “Expecting?” without her consultation or parental leave. buy-in, she eventually came “I’m pregnant,” Melissa said. to see in Melissa many of the 2. Job rotations “About six months along.” qualities that had fueled her own have long been rise. She quickly promoted her a popular way to Only just walking out the door, to deputy, gave her three direct build the skills Su Yee stopped in her tracks. The reports, and nominated her and experience weather was balmy, but she felt for key committees to give her of promising as if she’d walked into an ice- exposure to senior SG leaders. employees. cold wind. Quickly, though, she The pair had developed a very Should the snapped back into manager mode. close working relationship.3 fact that Melissa’s time “Congratulations,” she said. Su Yee thought back to one in Singapore is “That’s terrific news! I guess we’ll of their late nights in the office relatively short need to talk about maternity before the Covid-19 outbreak. influence Su leave. In Singapore, it’s 12 weeks Melissa had confessed that, even Yee’s thinking? of paid leave, much better than in though she knew the move to the U.S. !”1 Singapore would accelerate her 3. Resilience, rise at SG, doing so with a small defined as “Well, that’s the thing,” Melissa child had been a difficult decision. the capacity said. “I may be asking for a bit She’d said yes only when Scott, to adapt to more than that.” Su Yee’s jaw her husband, also managed to get stressful clenched. Melissa was a rising star a three-year transfer, and they’d circumstances, at SG, one Su Yee had planned to found a terrific nanny and school has been a lean on—and continue to groom— for their son. Doing the math in hallmark of Su in the coming months and years. her head, Su Yee realized that Yee’s success. Even a three-month absence Melissa was probably pregnant But has it led would be a struggle. to her having unrealistic “What were you thinking?” Su expectations of Yee said, still trying to hide her her workers? surprise. “Honestly, I’m not sure I want to come back full-time.” A RISING STAR Su Yee struggled to process her emotions. First came shock. Since Melissa had arrived in Singapore as a three-year transfer  129Harvard Business Review January–February 2021

4. In a recent when they’d talked then but at 60% of her full-time pay. Su late into the Singapore evening, poll by Ginger, hadn’t mentioned it! She couldn’t Yee cringed inwardly. She was Su Yee finally had time to think an on-demand help feeling a little betrayed. surprised that Melissa was asking about Melissa’s request. The most mental health for a part-time schedule. When obvious solution was to accept company, nearly But then Su Yee felt a wave of she suggested an extension to her Melissa’s proposal and restructure seven in 10 U.S. empathy. She knew how difficult leave instead, Melissa replied that her job as a three-day position. workers reported the past few months had been for both she and Scott worried about Su Yee’s own managerial duties that navigating Melissa as she’d tried to juggle continuing to manage virtual would not be affected much, and the Covid-19 her work and family obligations school for their son and bringing Melissa would be able to accom- pandemic during office and school closures.4 their live-out nanny back into plish a lot in the compressed has been the To be pregnant in a pandemic, far the house given the uncertainties workweek—conducting business most stressful from friends and family, would surrounding Covid-19. via videoconference, which was experience of only have added to her stress. now the norm anyway, even if their careers. And Su Yee had the power to Su Yee knew better than she wouldn’t travel. But Su Yee help. She had the final say in what to push back any further. She worried the arrangement would 5. Should HR allowances were made for Melissa congratulated Melissa again and have an adverse effect on her departments beyond SG’s official maternity promised to give her an answer on other subordinates: The cutback of global leave. Recent efforts by headquar- her proposal without delay. She in hours would most likely mean companies ters to set global HR standards then walked back to her desk and additional work for them. standardize had fallen apart when regional sent an email to the HR staff to fill benefits or leave managers (Su Yee included) had them in on the situation—really And it might set a precedent decisions to complained that they needed to just a formality, since she knew that she—and SG as an organi- regional and be able to handle requests on a the decision rested with her. zation—would regret. Melissa local managers? case-by-case basis.5 would be leaving in two years, OTHER OPTIONS? once her transfer period was com- Su Yee listened quietly as plete. That meant her manager in Melissa laid out her proposal: That night, after a string of her next assignment would have After her 12-week leave, she meetings with corporate lasting to continue the accommodation wanted to work a three-day week 130 Harvard Business Review January–February 2021

or deny it, which could cause time they need without formally Raffles Hotel was their tradition 6. A study problems in the new role. And Su reducing their hours and pay.6 and Su Yee’s favorite part of the by Erin Reid Yee wouldn’t ever see the payback week. Jing Yi, a bright 22-year-old, of Boston on being a flexible boss. Would Melissa leave SG if she loved hearing her aunt’s office University didn’t get her way? Pre-pandemic, gossip and usually found a way to found that even Another alternative was to she had seemed totally enamored make Su Yee laugh—but not today. though few male create a new, part-time special- with her career at SG. Her salary employees ask projects position for Melissa after would easily cover the cost of a Su Yee leaned forward and for reduced her leave and hire a replacement larger apartment and a live-in laid out the situation with Melissa hours, many for her current role. But that nanny. Perhaps an offer to shorten for Jing Yi. She explained to her are able to limit would be a tough sell in an eco- her workday to eight hours would niece that she had misjudged her their workweeks nomic downturn. suffice, giving her time to exper- protégé’s ambitions. No doubt to attend to iment with work-family balance Melissa could continue to contrib- personal issues The simplest approach would and renewing her enthusiasm for ute to SG as a part-time worker, without calling be to persuade Melissa that a her job. but she wanted to get off the fast attention to their part-time arrangement was track. She would essentially be absences. neither advisable nor feasible. Su Glancing at the clock, Su Yee sidelining herself, moving from Yee had invested a great deal of closed her laptop and decided to superstar to solid employee.7 7. Many firms time, energy, and social capital sleep on it. Su Yee couldn’t shake the feeling invest significant in developing and promoting that this was a mistake. She resources in her, and Melissa had an amazing ROLE MODELS wanted to tell Melissa to snap out attracting and future at SG ahead of her. The of it. Why, after years of being a retaining star research was clear that switching “Auntie, what is the matter successful working mom, did she performers. to part-time work hurts employ- with you today? You seem so now want to derail her career and Do they ees—often women; they end up distracted.” squander her talent? Yes, the pan- underestimate toiling away for more hours than demic had made life much more the importance they should for much lower pay Su Yee put down her kaya toast difficult, but eventually life would of supporting and less credit. Meanwhile, many and looked at her niece, Jing Yi, return to normal. Su Yee knew, players? male professionals simply take the sitting across from her. Breakfast on Saturday mornings at the  131Harvard Business Review January–February 2021

Experience however, that giving that kind of Should Su Yee grant Melissa’s advice from a position of power request to go part-time? was ethically—not to mention legally—questionable. THE EXPERTS RESPOND “I don’t know,” Jing Yi said. ELIZABETH MCKINNON feels slightly betrayed. But Melissa is “My mom took a different path obviously bright, ambitious, and hard- than you so that she could be at is a co-CEO of working. She could very well be back up home with me. She’s not well-off Environmental and running on a full-time, five-day-a- or powerful, but I appreciate what Justice Australia. week schedule within a year or two and she did and know she feels she go on to do great things at SG. Su Yee made the right decision. She’s just The best thing Su Yee can should not make assumptions about as happy as we are.” do is become a trailblazer Melissa’s intentions or her future. for flexible and part-time Su Yee was surprised. Her niece work schedules. Communication is key. Su Yee needs had gotten top marks at university, to put aside her dismay and have a frank worked at a prestigious consulting Going part-time doesn’t have to be an conversation with Melissa about what firm, and would begin her MBA off-ramp for a career. Su Yee is worried she wants and how to make it work in a the following year. Su Yee had that her protégé is making a mistake and way that benefits both Melissa and SG. always felt slightly sorry for her Su Yee should ensure that Melissa retains sister, who had led such a conven- her client contacts, direct reports, and all tional life, and thought Jing Yi felt the other parts of her job that will keep similarly. “At the same time,” her her career on track. niece continued, “I had the best of both worlds because I had you as a different sort of role model.” Su Yee nodded, slightly reassured. “I suspect that Melissa doesn’t yet know what will make her happy, but I need to think of how this affects my team.” Jing Yi took a sip from her cup of hot kopi and tilted her head. “Auntie, you’ve always supported women at work—but for promo- tions, not for the right to step to the side,” she said. “This must be a difficult decision for you.” “Yes,” Su Yee reflected, “it certainly is.” THOMAS J. DELONG is a Baker Foundation Professor of Management Practice at Harvard Business School. 132 Harvard Business Review January–February 2021

The worst thing Su Yee could do is RACHEL THOMAS McKinsey recently released the 2020 move Melissa over to a special-projects Women in the Workplace report, which role and hire someone else for her is the CEO of Lean In. shows that as many as 2 million women position (unless that’s what she prefers). in the U.S. are considering downshifting Once you get off the fast track, it’s very Su Yee should reconceive their careers or leaving the workforce hard to get back on. the role so that Melissa as a result of the crisis. That means far doesn’t have to step back fewer women on track to become lead- Because neither woman has expe- unless she wants to. ers, erasing all the progress we’ve seen rience with flexible schedules, the two in recent years. If Lean In had a panic should agree to a trial period so that Su Yee first needs to understand what’s button, we’d be hitting it. they and the team can adjust and learn really going on in her protégé’s life. as they go. The danger, as Su Yee knows, Is Melissa asking to reduce her hours So while Su Yee is understandably is that Melissa would end up squeezing because she wants to spend more time focused on her young protégé, she a full-time job into a part-time schedule, at home with her family? If so, Su Yee shouldn’t miss the bigger picture. which is a recipe for burnout. should respect that and find a way to I guarantee that there are dozens, maybe make it work. You don’t retain talented hundreds, of talented women at SG in Granting this flexibility to Melissa— employees by refusing to adjust as their the same boat. Before the pandemic, and other team members should they lives and goals change. Or does Melissa mothers employed outside the home request it—will most likely lead to feel as if she doesn’t have a choice—that were already working a “double shift”— short-term inconveniences and costs there’s no way to balance her job and two a full day at the office, followed by hours for Su Yee. For instance, she might need kids during the Covid-19 crisis? of domestic duties. With schools and to hire a contractor to pick up some of day care centers closed, that double shift the workload. But it’s also possible that If Melissa would prefer to come has doubled again. Studies show that junior employees will want to take on back full-time but can’t envision a way mothers spend 20 hours a week more more as Melissa cuts back. This is an forward, the two should start thinking than fathers, on average, on housework opportunity for Su Yee’s team members about creative options. There’s no such and childcare due to the pandemic. to transform how they collaborate and thing as business as usual right now, allocate resources. At my organization, so companies need to move beyond Melissa’s case provides Su Yee with for example, I share the CEO role with business-as-usual solutions. For exam- an opportunity to sound the alarm another female executive, and we both ple, Su Yee could temporarily eliminate within her firm. If she truly wants to be a work three days a week. some of her department’s less-essential champion of women, now is her chance. work to take the burden off Melissa (and She should engage SG’s executives, The good news is that flexible work others) during the pandemic. She could encouraging them to focus on the policies get easier over time. Fast- reframe Melissa’s goals and performance struggles of working parents—especially forward 10 years and Su Yee might have criteria so that they’re more attainable. mothers—during Covid-19. She should a much more dynamic and diverse She could commit to keeping meetings suggest that SG work creatively with all team of employees who are not only off Melissa’s calendar during designated employees so that no one has to step hardworking but also extremely engaged periods each day to make it easier for back—unless that’s really the preference. and loyal to the organization because Melissa to accommodate her kids’ needs Reimagining Melissa’s role so that she they feel that their professional and during the crisis. Su Yee should also can continue full-time is a big ask, but personal needs are being met. The consider extending more flexibility not the long-term payoff is real. It’s good for benefits for SG—increased productivity, just to parents but to everyone. SG because having more women in lead- better recruitment and retention, and ership roles means a stronger culture improved culture—could be significant. These suggestions might sound over- and better financial performance. It’s the-top, particularly during an economic good for managers because they don’t Su Yee sees herself as an advocate for downturn, but leaders everywhere need have to replace talented employees. And women, but that’s not authentic if she to recognize that we are on the verge of it’s good for employees. Balancing work provides support and encouragement losing millions of Melissas. Lean In and and family is still far too difficult in too only to certain categories of women— many workplaces. We can and must do those who have made the same life better. choices that she has. Rather than feeling that Melissa is betraying her, Su Yee HBR Reprint R2101M should consider the bigger picture and see this as her own moment to shine as Reprint Case only R2101X a leader. Reprint Commentary only R2101Z  133Harvard Business Review January–February 2021

Experience SYNTHESIS O N AU G U S T 14 , 2 0 1 6 , the San in public life—and of pro sports Francisco 49ers quarterback leagues in amplifying or muting SPORTS AND Colin Kaepernick knelt during the the sociopolitical messages of their SOCIAL JUSTICE national anthem before a pre- “employees.” season game. Few people noticed From Kaepernick’s at first. But after he had knelt again These leagues are multibillion- kneel to the NBA and again and again, someone dollar businesses, of course, run Bubble finally asked why. On August 26 he by people who are keenly aware explained: “I am not going to stand of how their decisions affect the by Ramsey Khabbaz up to show pride in a flag for a bottom line. Not surprisingly, country that oppresses Black peo- their responses to Kaepernick and 134 Harvard Business Review ple and people of color.” Reactions his followers diverged. The NFL January–February 2021 were mixed: support and vitriol. sought to undermine the quarter- back, and after pressure mounted Four and a half years later, from fans, President Trump, and it’s impossible to overstate the other Republicans, it instituted prescience and consequence of a ban on kneeling during the Kaepernick’s peaceful protest. It anthem. The men’s and women’s started a movement and raised basketball leagues—the NBA fundamental questions about and the WNBA—emphasized an the role of professional athletes existing rule mandating standing for the anthem but encouraged more-business-friendly forms of dissent. Major League Soccer reinforced the rights of its players to peacefully protest in any way they saw fit, while Major League Baseball and the National Hockey League set no clear guidelines. By the fall of 2017 Kaepernick had effectively been blackballed from the NFL. But he remained an icon of social activism. As the Black Lives Matter (BLM) move- ment gained momentum following the murders of Ahmaud Arbery, Breonna Taylor, and George Floyd in 2020, athletes across leagues were speaking out in unprecedented numbers, echoing Kaepernick’s language and posture (and even wearing his jersey). Throughout this reckoning, some leagues—namely, the NBA Illustration by BETH GOODY

and the WNBA—have emerged as the financial impact, or had some The Game Is The NBA is a smaller league beacons of corporate social justice. combination of the two.” Not a Game: than the NFL (30 teams with about Others—namely, the NFL—have The Power, 15 players each, versus 32 teams flickered at best. Two recent That brings us back to 2020. Protest, and with about 55 players each). About books, The Game Is Not a Game As the United States was roiled by 75% of the NBA’s players are Black, and Football’s Fearless Activists, racial justice protests amid a pan- Politics of compared with 70% of the NFL’s. both written by veteran sports demic, the contrast between the American The NBA also relies more heavily journalists, offer some useful NBA’s and the NFL’s reactions was on highly paid stars who have lon- context for how we got to this stark. The NBA immediately issued Sports ger careers and outsize influence moment in athletics and activism. a statement supporting BLM, Robert Scoop off the court. (Think LeBron James and many players joined—even and Steph Curry.) It has a stronger In the former, Robert Scoop led—marches without rebuke. Jackson players union and a collective Jackson presents incisive profiles Meanwhile, the NFL was silent Haymarket bargaining agreement that’s more of some of the leading voices on until 18 of its stars released a video Books, 2020 favorable to players. For their these issues (including the NBA demanding that their employer part, league executives and team coaches Gregg Popovich and Steve speak out. Goodell responded with Football’s owners, managers, and coaches Kerr, the “God” LeBron James, and, his own video, saying he should Fearless seem to understand that their role yes, Kaepernick) along with deeply have listened to players earlier. Activists: is to collaborate with, rather than felt and reported pieces on subjects How Colin oversee, the talent. Also (and this, such as the “UnRespected” female Reporting from ESPN indicates Kaepernick, sadly, may be key), because NBA athlete, the bias of data analytics, that when the NBA began playing in Eric Reid, fans are more racially diverse than and “the business of football’s “the Bubble,” its Covid-safe way to Kenny Stills, those of other leagues, an unabash- ethic and ethnic morality.” It’s an finish the season, it was with a great and Fellow edly pro-BLM stance doesn’t artfully curated collection of close- deal of input from the league’s Athletes Stood threaten ratings or revenues the ups that, when set side by side, talent; management did not call all Up to the NFL way it might for the NFL. tell the story of an industry that is the shots. Courts were decked with and President inextricably tethered to—but still BLM decals, jerseys were printed Trump If a book chronicling the hoping to be insulated from—real- with “Say Their Names” and Mike Freeman Bubble is ever written, it will tell world politics. “For years,” Jackson similar messages, and postgame the story of brave players follow- writes, “I’ve noticed how most of interviews often addressed social Sports ing Kaepernick’s lead—not brave the people making decisions at the justice. After Jacob Blake, another Publishing, billionaires throwing spreadsheets highest money-generating level Black man, was shot by the police, to the wind. Like all for-profits, are those furthest removed from players boycotted games until 2020 the NBA has a limited budget for the cultural center of the games.” the NBA agreed to open arenas altruism. In 2019, for example, it as Election Day polling places. was reluctant to back a manager The second book, by Mike Compare all that to the NFL’s who tweeted support for Hong Freeman, provides a detailed comeback: masks for coaches but Kong protesters for fear of alienat- account of Kaepernick’s story, not for players on the field, and ing its Chinese business partners. delving into his decision to kneel, no bubble (thus many Covid-19 Still, over the past year of protests, conservative media’s attacks on cases); games but no practice the NBA (along with the WNBA) him, and the mechanics of his season (followed by several has run circles around the NFL in exile from football. When describ- high-profile player injuries); and demonstrating good management ing the NFL commissioner Roger outspoken stars but a belated and corporate social responsi- Goodell’s (mis)management of move to coordinated messaging bility. It has moved us closer to a the anthem protests, Freeman from the league on BLM issues. world in which professional sports lobs a blunt observation: “Goodell leagues put purpose over profits. couldn’t take Kaepernick’s side the Why have the two most prom- For that, for now, it should be way, perhaps, the NBA commis- inent male and majority-Black applauded. sioner Adam Silver would, because leagues handled this past year of Goodell was a representative of the crisis so differently? As Freeman HBR Reprint R2101N [team] owners, and the majority and Jackson note, and readers of of owners disliked what Kaeper- HBR will appreciate, it’s all about RAMSEY KHABBAZ is an nick was doing, were afraid of organizational dynamics: struc- assistant editor at HBR. ture, culture, power, and profit.  135Harvard Business Review January–February 2021

Executive Summaries January–February 2021 SPOTLIGHT Roger L. Martin Former dean, Rotman School DOES BUSINESS NEED A NEW MODEL? It’s Time to Replace the Public Corporation We need a model that truly focuses on the long term. t widely held, publicly traded corporation has been the dominant structure in business for the past 100 years. It came to prominence in the wake of the Great Depression because it was effective at mobilizing capital from private investors—who by the 1960s held more than 80% of company stock—for productive ventures. The model enabled executives to focus on long-term growth and profitability, to the benefit of the many individuals who owned shares in their companies. Over the past 40 years, however, the fitness of the public corporation has been called into question. Critics charge that in 34  35 Photograph by ANDREA STONE  33Harvard Business Review It’s Time to Replace the Public Corporation January–February 2021 Roger L. Martin | page 34 Does Business Need a New Model? Critics charge that in today’s heavily traded capital markets, executives are increasingly incentivized to manage in tiny, short-term windows, with an For the past century, the publicly eager eye on their stock-based compensation and a fearful one on activist traded corporation has been the hedge funds. In any case, something isn’t working: The number of public dominant structure in business. But companies in the United States declined by half from 1997 to 2015, while the that model may no longer satisfy number of companies with a dominant shareholder or a dominant group of the needs of critical stakeholders. shareholders in the S&P 1500 increased by 31% from 2002 to 2012. page 33 In this article the author tracks the decline of the public corporation and explains why its most important shareholders—retirement investors—and the most critical part of its workforce, namely knowledge workers, are ill-served by this model. He proposes a new structure, which he calls the long-term enterprise (LTE): a private company in which ownership is limited to those two groups of stakeholders, who have the greatest interest in long-term value. The LTE, Martin argues, would also diminish the ability of activist hedge funds to extract gains at their expense. Lucian A. Bebchuk Professor, Harvard Law School been highly effective mechanisms for COUNTERPOINT aggregating and processing information about value and for taking cash in and Don’t Let out of investments—which is why the the Short- publicly traded corporation was such Termism a successful model. Bogeyman Scare You But it’s no longer clear that this model is the best way to determine fair Active investor oversight value. The dominance of short-term is a plus, not a minus. factors in corporate decision-making and the activities of short-term investors t Harvard Business are making quoted market prices a less- Review includes, as many prior reliable indicator of value than they used issues did, an article decrying the to be. At the same time, the widespread perils of short-termism and sup- availability of information online and the increased sophistication of formal porting measures for insulating modeling are dramatically improving the quality of market-independent corporate leaders from the outside pressures that business valuations. allegedly make them myopic. But such argu- and the capital markets won’t become extinct. Not all investors take a long- ments are long on alarming rhetoric and short on term perspective, and in many industries it can be difficult, if not impossible, to empirical evidence or economic logic. Further- do so. But the stock market increasingly sabotages rather than supports the more, their supporters overlook substantial creation of long-term value, reducing the investment options available to benefits that outside-investor oversight produces retirement savers and demotivating the people most likely to create the value and that such measures would sacrifice. those savers need. The model I propose here will better serve the interests of HBR readers have been warned about the these critical stakeholders. dangers of short-termism for at least four 42 decades. In their 1980 article “Managing Our Way to Economic Decline,” Robert Hayes and  43 THE COMPLETE SPOTLIGHT PACKAGE Don’t Let the Short-Termism Bogeyman Scare You IS AVAILABLE IN A SINGLE REPRINT. HBR Reprint R2101B Lucian A. Bebchuk | page 42 136 Harvard Business Review The author, a professor at Harvard Law School, argues that concerns about January–February 2021 the perils of short-termism—and support for measures that would insulate corporate leaders from the outside pressures that allegedly make them myopic—are long on alarming rhetoric and short on empirical evidence or economic logic. Furthermore, he writes, the threat of hedge fund activism should be expected to discourage managerial slack and underperformance, thus playing an important disciplinary role and incentivizing leaders to enhance shareholder value.

HOW I DID IT MANAGING YOURSELF Smart Answers to HOW I DID IT Experience Your Most Pressing Work 28 Harvard Business Review Advice and Inspiration Challenges January–February 2021 THE FORMER MANAGING YOURSELF “ M I C RO M A N AG E M E N T ” I S A dirty word in today’s work- HBR GUIDES SERIES CEO OF places. Bosses who intervene too often or too extensively GUARDIAN ON HOW TO HELP (WITHOUT in their subordinates’ activities get a bad reputation, AVAILABLE IN PAPERBACK USING VALUES MICROMANAGING) and most forward-thinking organizations have come to AND EBOOK FORMAT TO DRIVE New research points value employee autonomy more than oversight. Research STRATEGIC to three strategies. shows that people have strong negative emotional and hbr.org/guide-series PLANNING physiological reactions to unnecessary or unwanted help by Colin M. Fisher, Teresa M. Amabile, and Julianna Pillemer and that it can erode interpersonal relationships. Even the by Deanna Mulligan U.S. Army general George S. Patton, a leader in one of the W H E N H U R R I C A N E S A N DY hit the Illustrations by NATHALIE LEES  123Harvard Business Review mid-Atlantic coast, in October 2012, I was January–February 2021 at my home in Westchester County, New York. It’s an old house, surrounded by old trees, so as the rain battered my windows and the wind shook the walls, I took shelter with my dog under a center-hall desk. But I was less worried about myself than about the thousands of Guardian employees who live across New Jersey and New York, within commuting dis- tance of our Lower Manhattan headquar- ters. I had become CEO of the insurance company—which offers life, disability, and dental policies and administers fam- ily and medical leave—just over a year before. How would we help our people and our company get through this? Photograph by KHOLOOD EID The Former CEO of Guardian How to Help (Without on Using Values to Drive Micromanaging) Strategic Planning Colin M. Fisher, Teresa M. Amabile, and Deanna Mulligan | page 28 Julianna Pillemer | page 123 When Hurricane Sandy struck the mid-Atlantic Extensive research shows that when employees coast, in October 2012, thousands of Guardian get hands-on managerial support, they perform employees in New York and New Jersey were better than when they’re left to their own affected, and company headquarters was devices, but unnecessary or unwanted help can flooded by five feet of water. Two days later be demoralizing and counterproductive. So how all the team members had been accounted do you intervene constructively? for; some had been put up in hotel rooms, others had been supplied with generators, The authors share three key lessons learned and Guardian had created a fund to cover during 10 years of study: (1) Step in only when employees’ hurricane-related costs. people are engaged in a challenging task and ready to accept help; (2) clarify that your role is That experience taught Mulligan to think to offer assistance, not take over the project or even longer-term than she always had: What judge anyone; and (3) align the rhythm of your were all the things that could go wrong, and involvement to employees’ needs, determining how could the company protect itself from whether the situation calls for intensive them? What could go right if Guardian were guidance in the short term or intermittent poised to seize the opportunities presented? path clearing over a prolonged period. These strategies are especially valuable for helping Technology became a top priority: The teams that are physically separated, as so many company migrated many applications to the are during the current pandemic. cloud and modernized employee productivity tools. It built a data analytics operation from HBR Reprint R2101L the ground up and retrained actuaries to be analysts. Working remotely became common at Guardian. And its leaders anticipated two other important issues for organizations: diversity, equity, and inclusion, and the gig economy. HBR Reprint R2101A

Features STRATEGY DIVERSITY NEGOTIATION TECHNOLOGY The Rules of Co-opetition The Forgotten Dimension Hannah Riley Bowles Bobbi Thomason of DiversityPaulIngram Adam Brandenburger Negotiating When Barry Nalebuff Your NextJob Machine Boris Babic Learning I. Glenn Cohen Rivals are Theodoros Evgeniou working together Goes Sara Gerke more than ever before. Here’s A guide to how to think managing through the risks the risks and rewards. Social class is as important as race or gender. Focus on your role, responsibilities, and career trajectory, not your salary. Offthe Rails 48  49 58  59 68  69  77 The Rules of The Forgotten Negotiating When Machine Co-opetition Dimension of Your Next Job Learning Goes Diversity Off the Rails Adam Brandenburger and Hannah Riley Bowles and Barry Nalebuff | page 48 Paul Ingram | page 58 Bobbi Thomason | page 68 Boris Babic et al. | page 76 “Co-opetition”—cooperating Workers who come from lower When you’re seeking to advance Products and services that rely with a competitor to achieve a social-class origins in the United your career—by joining a different on machine learning—computer common goal or get ahead—has States are 32% less likely to company or moving into a new role programs that constantly absorb been gaining traction for three become managers than those with your current employer—it’s new data and adapt their decisions decades. Yet many companies are who come from higher social- important to think strategically in response—don’t always make uncomfortable with the concept class origins. That represents a about not just what you want ethical or accurate choices. and bypass the promising oppor- disadvantage even greater than but how to get it. In this article Sometimes they cause investment tunities it presents. the one experienced by women the authors draw on their work losses, for instance, or biased compared with men (27%) or coaching executives and their hiring or car accidents. And as In this article two professors Blacks compared with whites cross-cultural research to propose such offerings proliferate across who helped introduce the (25%). Social class disadvantage four steps that can help you markets, the companies creating approach offer a framework for in the workplace prevails in every prepare to negotiate. them face major new risks. Exec- deciding whether to team up with major economy around the world. utives need to understand and a rival, drawing on examples from First, think broadly about your mitigate the technology’s potential Apple and Samsung, DHL and In discriminating against long-term career goals instead of downside. UPS, Ford and GM, and Google people who come from a lower focusing narrowly on the offer at and Yahoo. Their advice: Start by social class, we’re discriminat- hand or the question of pay and Machine learning can go wrong analyzing what each party will ing against a majority of the benefits. Second, be mindful of in a number of ways. Because do if it chooses not to cooperate workforce—a grossly harmful what type of opportunity you’re the systems make decisions and how that will affect industry indulgence, especially when you asking for—something standard, based on probabilities, some dynamics. Sometimes working consider what happens if you an unusual arrangement for errors are always possible. Their together is a clear win, but even if don’t discriminate. According yourself, or a chance to take your environments may evolve in it isn’t, it may still be better than to the author’s research, GDP organization in a new direction— unanticipated ways, creating allowing someone else to take is higher per capita in countries and tailor your arguments accord- disconnects between the data your place in the deal—which where more managers come from ingly. Third, arm yourself with the they were trained with and the could leave you at a disadvantage. lower social-class origins. necessary information to reduce data they’re currently fed. And Next, it’s critical to figure out ambiguity about what’s possible their complexity can make it hard how to cooperate without giving Companies pay a lot of atten- and with whom to negotiate. to determine whether or why they away your “secret sauce”—your tion to issues of gender and race, Fourth, connect with people who made a mistake. current advantages. Once you’ve and for very good reason. In this can be helpful in making your done that, you’ll need to craft an article, the author argues that it’s case, and approach negotiations A key question executives agreement that clearly outlines time to focus equally on social as an opportunity to enhance your must answer is whether it’s the deal’s scope, who is in charge, class disadvantage. In doing so, he working relationships. better to allow smart offerings how the arrangement could be notes, firms reinforce their efforts to continuously evolve or to unwound if needed, and how gains to combat other forms of disadvan- If you follow these steps and set “lock” their algorithms and will be divided. You’ll also have to tage. He explores the root causes career targets that are specific and periodically update them. In manage resistance within your own of the problem and lays out the realistic, you’re more likely to chart addition, every offering will need firm and alter internal mindsets. most promising interventions that a path to success. to be appropriately tested before Co-opetition requires mental are emerging from research and and after rollout and regularly flexibility, but firms that develop it practice to help remediate it. HBR Reprint R2101E monitored to make sure it’s can gain an important edge. performing as intended. HBR Reprint R2101D HBR Reprint R2101C HBR Reprint R2101F 138 Harvard Business Review January–February 2021

SUSTAINABILITY HUMAN RESOURCES COMPENSATION MANAGING ORGANIZATIONS How toTalk to Volunteer Compensation Josh Baron Rob Lachenauer Your CFOAbout Programs That Packages Sustainability Employees That Actually FBaumailidly Use this tool Can Get Excited Drive Business for measuring About Performance the financial That return on ESGTensieWhelan To boost Principles for designing Lasts engagement, executive pay Elyse Douglas avoid these Companies that common Boris Sarah Michael Metin endure do these five activities. traps.Jessica Groysberg Abbott R. Marino Aksoy things right. 86 Rodell  95 102  103  113 112 How to Talk to 94 Your CFO About Sustainability Volunteer Programs Compensation Build a Family That Employees Packages That Business That Lasts Tensie Whelan and Can Get Excited About Actually Drive Elyse Douglas | page 86 Performance Josh Baron and Rob Jessica Rodell | page 94 Lachenauer | page 112 By now most companies have Boris Groysberg et al. committed to sustainability Across society, volunteerism has page 102 Judging from how they’re portrayed efforts—and yet many CFOs still been stagnant or trending slightly in the media, it would be easy see those efforts as a cost rather downward in recent years. In the By aligning executives’ financial to dismiss family businesses than a source of value. That makes corporate world, however, it has as hotbeds of power-playing, it hard to unlock the internal been on the rise. In fact, paid time incentives with company strategy, backstabbing, and favor-currying, financing needed to scale them up. off for volunteering is one of the ultimately destined to fail; think few employee benefits that has a firm can inspire its management of the Murdochs and News Corp, The authors—the director and increased significantly over the or the Redstones and National a senior scholar at the NYU Stern past five years. to deliver superior results. But it Amusements, to name just two. Center for Sustainable Business— But many family businesses have have developed the Return on The benefits of well-designed can be hard to get pay packages enjoyed success for decades, even Sustainability Investment (ROSI) corporate volunteer programs centuries. The authors explore five analytic tool, which companies have been clearly established: right. In this article four experts aspects of ownership that are cru- can use to measure the financial They boost productivity, increase cial to whether a family business returns on their sustainability employee engagement, and break down the key elements of thrives or perishes: the type of activities. Implementing ROSI improve hiring and retention, to ownership (whether a sole owner, is a five-step process. Compa- name just a few. But too often, compensation and explain how to a partnership, or another arrange- nies should (1) identify their firms’ programs fall short. ment); the governance structure; current sustainability strategies, put them together effectively. how “success” is defined; what (2) identify related changes in In designing their volunteer information the owners will (and operational or management prac- programs, companies fall prey When designing packages, won’t) communicate to other tices, (3) determine the resulting to common pitfalls: They blindly family members and stakeholders; benefits, (4) quantify the benefits, copy what other firms are doing, boards must make decisions about and how to handle the transition and (5) calculate the monetary prioritize leaders’ pet projects, or to the next generation. value. The savings and growth pressure employees to participate, the proportion of fixed versus thus revealed can reach hundreds essentially making volunteering HBR Reprint R2101K of millions of dollars; in large com- mandatory. variable pay, short-term versus panies, it can be billions. Such errors diminish the value long-term incentives, cash versus Particularly now, as companies of the programs to the company, scrutinize budgets threatened employees, and society. Instead, equity, and group versus individual by the Covid-19 pandemic, ROSI firms should prioritize meaning, analysis can help CFOs improve balance top-down structure with rewards. Many look at the copious organizational finances through bottom-up passion, and seek to sustainability investments involve a variety of stakeholders in data available on executive pay that create value for investors, their initiatives. employees, customers, and the and benchmark their plans against world at large. HBR Reprint R2101H those of their industry peers. The HBR Reprint R2101G mix is also driven by company size, region, culture, and risk appetite. A good plan always begins with a firm’s strategic goals, however. Is the company striving for profitable growth, a turnaround, or a transformation? Is it trying to POSTMASTER compete with public companies Send domestic address changes, orders, and inquiries to: Harvard Business Review, as a private entity? Each scenario Subscription Service, P.O. Box 37457, Boone, IA 50037. GST Registration No. 1247384345. calls for a different plan design. Periodical postage paid at Boston, MA, and additional mailing offices. The Covid-related economic Printed in the U.S.A. Harvard Business Review crisis may also alter plans. If (ISSN 0017-8012; USPS 0236-520), published every other month for professional targets become unachievable, managers, is an education program of Harvard Business School, Harvard University; incentives will lose their power and Nitin Nohria, dean. need to be revised—offering firms Published by Harvard Business School Publishing Corporation, 60 Harvard Way, a chance to incorporate measures Boston, MA 02163. that serve stakeholders’ interests better. HBR Reprint R2101J  139Harvard Business Review January–February 2021

“I never considered giving up on my dreams. You could say I had an invincible optimism.” Tina Turner, HBR: You’ve had so many ups When you confronted Anton Corbijn/Getty Images October 1996 and downs in your life and discrimination as a Black career. What have you learned? woman, how did you respond? TINA TURNER TURNER: I used to be baffled When I started as a solo artist, about why I had to endure so I was a female Black singer in As a young girl growing up in Tennessee, Anna Mae Bullock much abuse, because I hadn’t my forties with few prospects liked to sing and recite movie dialogue to entertain her family. done anything to deserve it. After for gigs. Still, I kept a “never By age 20 she had a new name—Tina Turner—and a burgeoning I began practicing Buddhism, give up” spirit. I understood that music career with her partner, Ike. But behind the scenes, he I realized that my hardships although many people might have was abusing her. Eventually, she found the courage to leave could give me a mission—a a limited view of me, I could help him and move on as a chart-topping, world-touring solo artist. purpose. I saw that by overcoming open their minds. Through hard She now lives out of the spotlight in Switzerland and recently my obstacles, I could build work, I showed all the naysayers released a new book, Happiness Becomes You. indestructible happiness and that maybe their preconceived Interviewed by Alison Beard inspire others to do the same. doubts were wrong. The force Then I could see everything that of my positivity pushed all the came my way, both the highs discriminatory “isms” standing in and the lows, as an opportunity my way right out the window. for self-improvement and for sparking hope in others. When you were touring, how did you prep to take the stage? How else has your spirituality— I would chant for an hour your Baptist upbringing and your before each show. I visualized Buddhist practice—driven you? my audience and prayed that Of everything I’ve done to I could be whoever each person succeed as an artist, spirituality needed me to be that day so that has had the greatest influence. I could inspire their dreams and The Buddhist teachings of help them recharge their souls. compassion and kindness, For me, being onstage was the which have much in common best—a great exchange of energy. with the principles of “Love thy Afterward, it felt like a blur of neighbor” and “Do unto others” color, light, joy, and visions of the that I learned from the Baptist many smiling faces who had influences in my childhood, have come to see me. Of course, we always been guiding forces. After also had the usual preshow I began chanting Nam-myōhō- routines and sound checks! renge-kyō, I felt as if my true self came out. I became cheerful, In recent years you overcame confident, and resilient. My a stroke and cancer. Did that approach to life and work became require a new resilience? calmer and more thoughtful, Sometimes our problems seem and my reactions were more like they will never end. A lot of tempered. I used to get angry first us are feeling that way now. But and ask questions later. But after as one of my favorite Buddhist I embraced Buddhism, it flipped. sayings goes, “Winter always turns I could easily stay calm and to spring.” My challenges can figure out the details instead of either make me a better version of jumping to conclusions. I came to myself or break me apart. I have understand that any achievement a choice as to which it will be.  stems from inner change. HBR Reprint R2101P 140 Harvard Business Review FOR MORE FROM TINA TURNER, GO TO HBR.ORG. January–February 2021

Raising the bar on high-impact, custom Executive Education Delivered in various formats such as in-person, online, live-online, or in a hybrid learning experience. SET YOUR ORGANIZATION APARTtTHINK CHICAGO BOOTH Consistently ranked among the top programs globally, Executive Education at Vhe PARTNER WITH University of Chicago Booth School of Business is where intellectual rigor, engaging CHICAGO BOOTH teaching, and cutting-edge research meet. We work collaboratively with organizations to create customdesignGF education programs and explore innovative virtual Contact us to learn more learning solutions to meet their unique learning objectives. about our customized approach. (TQOVQREQPUWOGTRCEMCIGFIQQFUVQINQDCNHKPCPEKCNUGTXKEGUYGoXGJGNRGF +1 312.464.8732 QTICPK\\CVKQPUDQNUVGTVJGKTUGPKQTOCPCIGOGPVoUNGCFGTUJKRUVTCVGI[CPFHKPCPEKCN [email protected] FGEKUKQPOCMKPIUMKNNU9QTMKPIYKVJDQVJRWDNKECPFRTKXCVGUGEVQTENKGPVUYGoXG ChicagoBooth.edu/Custom-Program created general management programs for executives spanning the Americas, Asia, Europe, Africa, and the Middle East. We offer various learning formats such as in-person, online, Our custom programs are created and JGNF in an intense, exhilarating climate of live-online, or blended. discussion and debate. Our executive participants have transformational experiences that turn them into more empowered, impactful leaders. Partner with us and empower your organization with The Chicago Approach™.