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Negotiating equity with a co-founder.

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A student entrepreneur wrote and asked how he should negotiate with his company co-founder, a Professor, for equity. The Professor has proposed the the student get almost nothing, and the Professor get the bulk of the equity. Here’s my response to the student.

Negotiating around equity is tricky. There are conventions, but at the end of the day, it really comes down to nothing more than the ability to conversationally create huge perceived value and then use that as a negotiating leverage.

Check out this article I wrote on the topic: https://www.steverrobbins.com/articles/equitydistrib.htm

The book Co-opetition defines your “value-added” in a negotiation as the value-of-the-deal-with-you-in-it minus the value-of-the-deal-without-you. Once you know your value added, it can help with negotiation. Let’s say you and a friend are starting a business and neither of you can be replaced. With both of you present, the business is worth $100. If either of you leaves, the business is worth $0, so you each have a value added of $100, which gives you symmetric bargaining power.

Let’s change the situation a bit. Let’s say that you have special technology without which the startup won’t work. He’s bringing valuable sales skills, but if he were to drop out, you could find someone else who could do sales, but let’s say it would take enough time and money that you’d have to spend $5 replacing him. (Thus, the value of the business without him would be $100-$5, since you spent $5 on a Craigslist ad to replace him.) Your value added is $100 – $0 = $100. His value added is $100 – ($100- $5) = $5.

In this scenario, you have considerably more bargaining power than he does. Note that having the bargaining power doesn’t mean you can or should get that proportion of the total pie, just that you have that relative strength of bargaining power.

I wouldn’t actually try to do specific numeric calculations. But do think about what you bring to the table that would be hard to replace, and use those as your disucssion points. There may be many things you bring to the table that justify a request for equity:

  • If you helped originate the idea.
  • If you plan to take lower wages or work longer hours that would be expected solely from your salary.
  • If you’re the only one who can do the work.
  • If you bring any unique resources or connections to the table.
  • If you put in initial cash to get it off the ground.

Firing Up Organizations in Tough Times

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QuestionThings are very tight right now. Our outlook is uncertain and people are afraid for their jobs. Under these circumstances I’d expect people to get more done, but somehow, we aren’t more productive than before. Any hints?

Answer
It’s funny, being a human being. You would think that when the pressure is on, we would flip into resourceful, productive mindsets and valiantly overcome whatever obstacles block the path to our goals. Alas, it doesn’t happen that way. When we feel scared and uncertain, our forebrain shuts down and our hindbrain screams, “Run!” That worked great when spotting the saber-tooth tiger grinning at us through the grass. But in the modern world, that’s often the opposite of what we need to do to survive.

Fear motivates immediacy


Creating urgency is a first step in mobilizing organizations. But an important truth about humans is that urgency easily slips into fear. Fear mobilizes, and it mobilizes away from the perceived danger. Which way is “away from?” Whichever direction someone is pointed when that hindbrain screams “Run!” Everyone around will also move quickly—in whatever direction they happen to be facing. Fear gets people moving now, but it won’t move them in the same direction.

Fear does more harm than just scatter effort; it produces stress. Under stress, creativity vanishes, problem-solving abilities diminish, and people stop learning. They react from impulse, they don’t think through consequences of their actions, and they become less able to spot patterns and interconnections. This is fine for a five-minute burst of jungle adrenaline, but it won’t lead to a workforce that can navigate a tricky economy.

Any workforce living in stress will have problems over the long term. When morale is bad for months at a time, people disengage. They stop thinking about taking the company to new heights and start groaning when the alarm clock goes off—and groans rarely bring out peak performance.

Leadership motivates coordinated action


Fear’s companion is, oddly, leadership. Fear motivates people strongly, but in random directions. Leadership aligns them in the same direction. Call it what you will: inspiration, vision, mission—setting direction gives people something to move towards. By sharing a vision, everyone in an organization can orient themselves around the same set of high-level goals.

Working towards a larger purpose also mobilizes people, but it mobilizes them in a way that unlocks their creativity, problem-solving, and resourceful mental states. When working towards a large goal they perceive as achievable but challenging, people create eustress, a positive stress that gives them the energy and resources to make progress on the goal.

It’s a big improvement when everyone is moving in the same direction, but one more piece is needed: coordination. The balance between good stress and bad stress is delicate. Once people agree on a goal and are psyched to go there, coordination becomes ever more important. If two groups become blocked by a lack of coordination, bad stress can re-emerge and begin shutting down morale again. So once people are mobilized, the ongoing challenge is making sure they’re supporting each other, and not getting in each other’s way.

Reconnect leadership at the top


The first step to getting the work force back into a powerful, productive mental state is to start with yourself. You’ve probably got the “Run!” response down cold. Now it’s time to reconnect with your “towards” vision. People take emotional cues from their leaders, and if you’ve been stressed about the economy, you’ll be radiating it throughout your organization, so get yourself and your leadership team into a powerful, positive place.

Leave the daily triggers that pull you back into stress. Turn on the voicemail, turn off the e-mail, smash the cell phone, and head off for a weekend in a mountain cabin. Get enough sleep, enough food, and enough physical relaxation so your brain starts working again. Reconnect to your vision. Write, daydream, and brainstorm where you want your group in five years, a year, six months, and three months. Factor in your personal goals as well so you really tap your own intrinsic motivation.

You’ll know you’ve done enough when you feel a strong pull towards your goals. Uncertainty about the economy may still be in the background, but once you’ve regained your equilibrium, you will also feel a strong sense of where you’re going.

Spread that feeling to the rest of your leadership team. Invite them for an off-site, and together, clarify the vision of where you’re headed until it’s at least as clear as perceptions about current problems. Take the time to make sure everyone understands the direction. Bring in their goals, wishes, and aspirations for the organization. While you work, watch their faces. Notice the energy level. When they start getting excited, you’ve tapped their motivation and gotten them back on a powerful path.

Back to the business, decrease stress


Once you return to daily business, you’ll have to decrease stress as you align people. Stress from specific causes (“My kids are sick.”) can be addressed on an ad hoc basis. Stress from vague sources like “the economy” is general anxiety. Often, you can help people by just letting people talk. Listen empathetically and don’t rush into solving or analyzing problems (for most of us type-As, this is much, much harder than it sounds). Feeling listened to can be enough to help someone regain equilibrium.

If the anxiety is about Things We Don’t Really Like to Talk About—like the fear of layoffs—talking can help defuse them. There’s no better way to nurture a fear than to let it remain the stuff of speculation. When left to their imaginations, people deal with uncertainty by imagining the worst and then reacting as if it had already happened. Truth is a great antidote for uncertainty. It is, after all, a form of certainty. Discuss what’s happening, even if all you can say is, “No one knows what will happen, but we’ll keep forging ahead toward our goals.”

Oh, yes. Keeping people healthy is also essential to soothing their nerves. Make sure people are sleeping enough. Sixteen-hour days are probably as productive as ten-hour days with enough sleep and an after-work life. Unless you run an assembly line, productivity is probably tied only loosely—if at all—to hours worked (but that’s another column).

Connect people to forward motivation


As you decrease stress, have the leadership team bring the sense of direction into all interactions. Remind people about the direction. Rally them. Excite them. But don’t overdo it; this isn’t about creating a huge one-time pep rally high. You’re setting a direction for the organization that you want to pervade decision making and keep people steady over the long term.

You build the strongest connections when decisions are made. Have your teams ask continually, “Will this decision move us further in the direction we wish to go?” Once everyone unifies around this question, coordination becomes possible and it will be much easier for people to move forward, which is what productivity is all about.

Your job becomes keeping your leadership team tied to the company vision, and helping them propagate the vision to their teams in turn. People are more productive when they know where they’re going and feel like they stand a chance of getting there. By reducing their stress and fear, addressing their uncertainty, and linking everyday activities to a future direction, people will be able to concentrate on producing results, rather than just running in circles from their anxiety’s imaginary monsters.

No Authority? Use Persuasion

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QuestionI am leading a cross-functional team in a company initiative but the members on the team do not report to me. How can I motivate them to stay committed to the team and stay focused on the goals established when they have their day-to-day work responsibilities?


 
AnswerDéjà vu! My first project management job was the Quicken VISA Card. We were creating software to import credit card statements into financial software. The software had to be integrated with six different Intuit products. I had “dotted-line” relationships galore, but no one who actually reported to me. Much of my team had other primary projects, all with separate deadlines.

Leading a team in those circumstances is an ongoing negotiation between you and your team’s other priorities. You need to capture your team members’ share-of-mind, and keep them wanting to move the project forward. Unlike a direct supervisor, you don’t have the tool of authority to help. You’ll have to rely on relationships and persuasion.

Easy commitment

Think of your job as helping your team members make your project a priority. You need to know enough about them and their competing commitments so you can work the joint project into their lives. Schedule a one-on-one meeting with each member. Find out what else they’re working on, how much time they can commit to the team, and what their big challenges are. Ask about challenges related to their other projects, and spend some time brainstorming ways that you can help them on those projects.

Don’t be afraid to confront the elephant in the room: “Our project isn’t your top priority, so how can we insure we make forward progress while helping you complete your other priorities?” Just asking the question signals that you care about their priorities. They’ll often care about yours in return.

Once you know their other goals, lend them resources. Intervene on their behalf. You heard right: Help them succeed at their competing commitments. The more they fulfill those commitments, the more time they’ll have left for you, and the more they’ll become committed to your project.

Is one of your team distracted by a national product launch, for which the logistics are screwed up? Help straighten out the logistics, even though it isn’t your job. You would love it if she made you a priority over their other commitments, so demonstrate you’re willing to make her the priority as well. Do something selfless for her. She’ll respond. It just might be the first time someone other than a direct supervisor tried to make her life easier.

Staying in mind

Once you’ve opened channels of communication, diligently maintain the relationship. As in many relationships, frequency trumps duration: People remember many brief encounters more than a single long one.

Have you ever attended a full-day project kick-off, followed by six months of silence from the project team? That’s called “getting off to a resounding thud.” When a project starts quietly but comes up daily in conversation, it infiltrates your thinking and becomes part of the culture. That’s what you’re after. You want your project ever-present in your team members’ minds.

But you want it to be present in a good way. Make sure each project-related contact leaves people feeling like it was a good use of time. That means finding excuses to interact that aren’t “status meetings.” Most people dislike status meetings. Personally, I despise them. For frequent-but-brief contacts, connect to provide value to your team members and use as little of their time as possible. Contact them with help, with direction they need, with resources, or with one-on-one requests for status. Remember: Your goal with these contacts is simple awareness.

In addition to awareness, a team for a large project may need to feel a team identity. Do that separately. I believe teamwork should happen naturally, not through off-sites and ropes courses. From your early meetings and ongoing relationship-building, you’ll understand the needs and strengths of your team members. Facilitate their working together, so they build respect for each other as part of getting the work done. Find opportunities for them to help each other and match them up at those times. “Hmm, Sandy, you need help with the bar graph tool? Did you know that Aaron was working on it just last week?” If team cohesion is a real issue, ask them if they would like formal team-building meetings. At all times, let them drive the process in a way that works given their other commitments.

Put your project in context

If people in your organization are generally committed to the goals of the overall organization, you can strengthen commitment to your project by helping them understand how the project fits into the company’s larger goals. For instance, if the company is branching out into new markets with your project, you can help the team understand that the project is strategically important, and not just busy work.

Uncovering Opportunities to Help

Similarly, if there is an executive whose organization spans both your project and your teams’ areas, you might want to ask the executive to talk at a team meeting, to reinforce how much the project matters to the organization.

Appealing to company goals is powerful in a healthy environment, but should be done with caution if morale is low. In some companies (often those with histories of layoffs or unfair treatment), people view the company and its success very cynically. Appealing to company goals won’t be motivating. In many companies, however, people feel loyalty to and care about the company. They’ll be motivated to help the business reach its goals.

There’s no perfect answer to managing a team with other commitments. But if you take the time to make it easy for your team members to contribute, keep your project top-of-mind, and help them understand how important it is, you’ll have the best chance of pulling together a team that can get the job done even amidst challenges and distractions.

Inspiring the Jaded Employee

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QuestionI am interested in motivating long-term employees who have fifteen-plus years with an organization. This group has heard all the visions of transient leaders who were furthering their own careers, and have become apathetic to improving their own lot, space, or environment. I’m keen to hear the latest thoughts on whether it’s possible for these people to shift their thinking and practices.

AnswerCurrent wisdom says, “Hire for attitude and train for skills.” That’s because humans are stubborn, and don’t like change. Well, that’s not exactly true: We like change when other people are changing to make our lives easier. That’s why social change takes a generation—the old mindset has to die off to make room for the new. But all is not hopeless. When attitudes are just a reaction to the work environment, people can change. Fix the situation, show them it’s fixed, and let the change begin!

People get cynical and apathetic for good reason. Scandal after scandal reveals golden parachutes, endless perks, and upper managers making millions without linking pay and performance (management by objective seems to stop at the EVP level). Jim Collins says in his book Good to Great (HarperCollins 2001) that there’s even evidence that the worse the leader, the more he or she takes home.

But let’s assume in your situation that management is prepared to be accountable, will accept a pay level the rank-and-file consider reasonable, and genuinely wants to create a new company culture.

Do as I do

Start with action, not words; people want results, not promises. You’ll have to start by delivering change that’s in their best interest, and back up your action with words, not the other way around.

A good place to start is by making a visible sacrifice for the company’s common good. You might consider cutting your own pay, bonus, and raise–especially if you’ve had layoffs recently. Give it back to the people who made it: your employees. Increase their benefits, hire back some laid-off workers, or boost salaries. The role model here is Aaron Feuerstein, CEO of Malden Mills, who in 1995 kept 3,000 employees on the payroll after a fire leveled the business. His belief was that his responsibilities extended to employees and the community as well as to shareholders.

Next, give everyone a sense that showing up for work could make his or her lives better. At first, they won’t be able or willing to believe you. You’ll have to combat their lack of emotion with added emotion. Find the emotional connection people have with the company.

Some research indicates that people are most motivated when challenged to use their strengths to reach goals they think are doable. (See Authentic Happiness by Marty Seligman, Simon & Schuster 2002.) Find emotionally important goals by asking, “What’s important about the work you do?” When they answer, ask, “What’s important about that? What will that do?” a couple of times. Their answers will reveal values and passions. If they reply, “for the pay,” and don’t connect with any further goals, they may have no job passion to awaken. If someone’s never had job-related hopes, dreams, or aspirations, he or she probably won’t develop them mid-career. (Significant emotional and spiritual events might do it, but that’s a bit beyond the scope of this column. Business research suggests that it’s easier to change skills than attitudes, so your best bet may be to start hiring people with a more engaged attitude.) Watch people’s faces: If they become animated, or talk with longing in their voice, you’ve tapped into something real.

Now ask them to stay in that passion, and describe their perfect job. Have ’em go wild. If the past culture has been especially oppressive, you’ll probably be amazed at how unwild their dreams actually are. Things like, “having a desk with three drawers” may be a big deal. Ask them, “What one thing can I do to help you move closer to that dream?”

Listen very, very carefully to the answer; you’re at a critical moment. They’re telling you how you can send an emotional message, not just a verbal one. Whatever they say to do, just do it. Say, “I appreciate your sharing that. I’ll keep it in mind.” Don’t promise anything; they’ve learned that promises get broken. Just quietly get it done. Then check back and ask about next steps. As soon as possible, have them suggest what they can do to drive the change further.

Beware the temptation of self-promotion! Don’t crow about how responsive you’re being. It’s no big deal. Choose small things and take visible actions that people find meaningful. Actions are what people want, not words. They’ll notice, and the word will spread that you’re a leader who actually makes life better, rather than issues empty promises.

Once you’ve taken action and people have evidence that things can be different, it’s time to encourage them step up and do their part. Once they start going, your job is supporting them and helping them align their action with the direction of the overall company.

This isn’t an easy process. If people are truly happy in their work environment, don’t expect them to embrace change. But if the apathy comes from bad leadership and unchanging drudgery, you can change that, and they’ll get it once you start demonstrating that you’re truly different.

Help the change take root

Be vigilant! People will have trouble adapting to you. Even if they’re psyched to take the reins, they may need help coping. I worked with a secretary who dreamed of becoming a project manager. When given her first project, she discovered she didn’t know how to step up and lead. In meetings, she deferred to senior people out of sheer habit, even when the responsibility was hers as project manager. We worked to help her define her role and to acquire the project management skills to master the position. As a leader, you foster change that may push people into new territory. Be sensitive and be prepared to intervene and help insure their success.

As people take charge, they might charge right in someone else’s face. Look out for turf battles, injured egos, feelings of exclusion, and other potential hot spots. When war looks likely, step in and help the participants negotiate a settlement. Get them together, help them find common goals (or remind them of the team’s common goals) and then give them the responsibility for working out their differences. Be available as a resource, but get them in the habit of behaving like mature adults. Once you’ve tapped their motivation, it’s up to you to help them grow to work as a strong team that produces solid, substantial results.

How Leaders Use Questions

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QuestionDo you have anything to share regarding the subject of asking the right questions? Someone once said “Forget the answers; focus on asking the right questions.”

 
AnswerI’ll always remember the mid-1980s commercials featuring Lee Iacocca, then considered one of America’s finest business leaders, banging his fist on his board table and making tough proclamations. But consider the power of well-crafted questions. Statements invite agreement or disagreement. Commands invite rebellion or submission. How are questions different? Simple: Questions engage people. Questions can persuade an audience, align an organization, set direction, or focus attention on the things that enable people to learn.

The Socratic method

On a high school debate team, persuasion happens through fortified logic supported by facts and figures. Most companies work this way, too. You just lay out your logic, present supporting data, and voila—full buy-in is a cinch! … Not. That’s because we’re trained to argue when presented with someone else’s logic. As parents of teenagers can attest, the first reaction to being told what to do is to attack any logic, explanation, or data that isn’t what they want to hear.

Questions provoke answers, however. Ask a teenager “Where are you going?” and you will get an answer. (Most likely, “Out.”) What they don’t do is argue with the question or its assumptions. This is the basis for the Socratic method.

Rather than stating your logic, ask a series of questions chosen to lead your listeners to deduce the logic on their own. This questioning will take longer than lecturing, but you’ll save time in the long run. Your listeners will reach their own conclusion based on your questions. They’ll buy into a conclusion they’ve reached much faster than they will buy in to a conclusion that you just state.

To design your questions, first map out the logic that leads to your conclusion. Be thorough! Since you can’t control peoples’ answers, your data and logic must be airtight. (Otherwise be willing to be convinced when you get an answer you hadn’t considered.)

Here’s an example of the Socratic method in action: Imagine you’re trying to change your culture to judge people based on results, rather than hours worked. You could say this:

“What we really care about is producing business results. Working smarter rather than harder can sometimes produce results. We must reward people who get their results quicker by giving them a bonus based on what they produce, rather than the hours they work.”

You can imagine the response: “Sure we will, Pollyanna. And as long as people are working smart, let’s have them work smart for sixty hours a week.”

Here’s how you might present the same logic as a chain of questions. It takes longer, but it keeps the listener engaged in understanding rather than arguing:

Q: Do we want the business to meet and exceed its goals?
A: Of course.
Q: If we’ve met our goals, who should be eligible for bonuses?
A: Everyone who contributed significantly to meeting the goals.
Q: So what matters is that bonuses be related to each person’s contribution toward the goals?
A: Yes.
Q: What if someone figures out a way to work smarter, and reach goals with less work?
A: That would be great!
Q: And that would be as valuable as taking longer and doing it less efficiently?
A: Of course.
Q: So then how we should base our bonus structure?
A: Well… it should be based on working smarter and achieving results.

Using “how” and “why”

One of the biggest challenges in leading an organization is linking big-picture strategy to everyone’s daily actions. It’s all well and good to announce a sweeping vision like, “Our mission is to ensure the health and safety of everyone who uses HealthCo’s products,” but the next day, your facilities person still has to grab a plunger to clear out a clogged toilet. Guess what? She isn’t thinking about the company vision. And once the toilet’s working again, she probably still hasn’t made the connection between what she does and the company’s grand mission. Your job is to help her connect, and you can do it with questions.

In your conversations, ask, “How?” to help people move from high-level goals to specifics. “We want to build the world’s best widgets.” “How?” “Well, first we’ll look up widget in a dictionary. Then, we’ll…”

Ask, “How?” enough and you can go from leadership goals all the way down to the paper clips needed to reach the goals. In fact, most layers of management essentially take their own goals, ask, “How can we reach these?” and use the answers as goals for their direct reports.

Asking “Why?” or “What do we achieve?” does the opposite; it moves from specifics to reasons. We can ask our facilities person, “Why are you fixing the toilet?”

A: “Because people need working facilities.”
Q: “What will having working facilities achieve?”
A: “People can take care of themselves and concentrate on their work.”
Q: “And why do they need to concentrate on their work?”
A: “So they can do good work.”
Q: “And why do they need to do good work?”
A: “To ensure the health and safety of everyone who uses our products.”

Each “Why?” moves to more basic goals and causes. You know your organization is tightly focused when “Why?” eventually leads to the company’s vision, values, or purpose. It’s rare that everyone can link their job to the mission, but boy, is it worth shooting for—it energizes and inspires a workforce even more than stock options in an Internet company.

Create culture using driving questions

Linking jobs to mission sets organizational direction. But questions also drive personal behavior. If your people ask the right questions relentlessly, you can create a powerful culture.

Take Winters Plumbing of Belmont, Massachusetts. The founders have the audacious vision of a billion-dollar plumbing empire. They ask daily, “How can we so satisfy our customers so that they make us the world’s greatest residential plumber?” The answers have led them to reinvent how plumbers are hired and trained, how they dress, what they drive, and how they are paid. Winters just opened a $50,000 training center to help their plumbers keep getting better.

The driving question filters down to individual plumbers. A non-Winters plumber might ask, “How can I stop this leaky sink as quickly as possible?” They’ll fix a sink. But a Winters plumber will ask, “How can I give this customer a great overall experience?” They’ll arrive well groomed, in a freshly laundered uniform, fix the sink, and even vacuum the area, leaving it better than when they arrived. The right driving question makes all the difference.

As Marilee Goldberg, author of The Art of the Question (Wiley 1997), points out, some questions put us in a judgment mindset, while others stimulate creativity and problem solving.

When things go wrong, you can ask, “What happened and whose fault was it?” The answer may produce great diagnosis, along with a culture of blame and a reluctance to take risks.

Asking instead, “What was the root cause and how can we prevent it in the future?” may produce great diagnosis and encourage brainstorming about prevention.

Be careful to revisit your questions from time to time. A real estate developer I worked with surpassed her dreams and built a $20 million empire, but she was heading towards an early grave from overwork. Every morning, she asked, “How can I make more money today?” Good question for amassing $20 million. Bad question for building a satisfying life once the money’s in the bank.

We live in the so-called “information age,” with a virtual epidemic of people asking for data that won’t impact their actions one bit. They just like having data; it makes them feel secure.

If this describes you, resist! Think before asking. Know how you’ll use the information and whether it’s even the right question. I’ve taken dozens of customer satisfaction surveys that asked, “Did your problem get solved?” An important question, to be sure. But they didn’t ask, “Did your problem get solved after four hours on the phone with poorly trained customer service people who made you want to run screaming into the night?” In fact, the December 2003 Harvard Business Review presents excellent research showing that simply asking, “Would you recommend us to a friend? Why or why not?” could generate better information than a ten-page survey.

We’ve barely scratched the surface of how you can use questions as a powerful leadership tool. Questions can also be used to communicate beliefs, set cultural norms, and push the edges of people’s thinking. But for now, may I offer some questions that will help you make this concept real?

  • What are your current goals?
  • How must your organization act to reach those goals?
  • How can you use questions to persuade, align, create culture, and directly measure the world to help you reach those goals faster?

Answer well.

The Keys to Building Trust

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Question
Which comes first: truth or transparency?

AnswerUh, oh. Is that politics in the air? I’m guessing you either want to trust someone else or you want them to trust you. Either way, transparency plays a powerful role. It’s just part of the Trust Equation, though. So let’s really dig into the nature of trust.

At its heart, being trustworthy means being consistent in motives and accountable for actions. If you trust me to listen attentively and hear your side of an issue, it means you’ll expect me to value your opinion when I act.

How is trust lost?

Losing trust is outrageously easy. Just let someone down once and kaboom, years of trust go down the drain. The CEO of a newly public company asked employees not to sell stock to keep the price stable. Then he turned around and sold more stock than all his employees owned put together. He lost trust, lost it big, and lost it permanently. He tried to recover, claiming (truthfully) he’d only sold a small fraction of his shares. But percentage ownership wasn’t the issue; he’d set up the expectation “we’ll all act together to keep the price strong” and then shattered that promise.

How is trust gained?

Trust isn’t subject to the whims of logic. Many people trust others from day one, with no real basis for that trust. (This is a good thing, by the way. It’s the basis of community!) We trust a new project manager to know how to balance resources, map out a plan, and monitor execution. When an employer hires us, we trust they’ll provide the salary, benefits, and job opportunity they offered. Trust starts out free.

Others need to see behavior before starting to form trust. Norton is JoAnne’s new boss. JoAnne has been the victim of management incompetence too many times. She has to see Norton champion his team’s ideas two or three times before trusting that he cares as much about his team’s success as his own. Some people need consistent proof for weeks, months, or years, and still others are never convinced—they demand proof every time they work with someone.

Businesses lose trust left and right

Remember, we build trust when behavior matches expectations. As humans, we might expect our organizations to take care of us. We might expect managers to be stewards of companies, and companies to be stewards of employees, customers, and communities. In reality, most companies and managers don’t behave that way. What do most businesses do consistently? Act for the shareholders. It’s the law. Sometimes they act for “productivity,” “growth,” “profit,” “the bottom line,” “share price,” “efficiency,” and lots of other measures that might not directly promote the well-being of employees, customers, communities, and suppliers. Then when paychecks are cut to bolster the quarterly financials, a move that helps the financial interests of shareholders, employees might be excused for losing a little trust in their employer’s stated position that “Our employees are our greatest assets!”

Trust can also take a hit when the CEO pulls into the corporate parking lot driving a car that costs more than most employees make in a decade, even as the company calls for cost controls and outsources jobs. Other trust-destroying business tactics:

  • Layoffs, especially when preceded by promises that “we’ll never have layoffs.” The nail in the coffin is when the executives receive bonuses that year.
  • Ignoring problems. When things are going wrong, it’s tempting not to tell people. After all, managers are supposed to support morale. It’s true, to some extent. But when everyone knows things are troubled, saying otherwise makes management seem either clueless or false. Both break trust.
  • Keeping people in the dark during uncertainty. “We’ll tell people when we know what’s happening” is the usual excuse. That’s nice. And while waiting for certainty, everyone around us is losing faith. The trustworthy approach is to admit and discuss the uncertainty. At least the words will match the actions.

Winning trust with honesty

Fortunately, you can win trust. And you put your finger on the best way: transparency. Transparency just means you tell the truth in a way that people can verify. Say what’s true and honest, then let people check it out for themselves. Did you make a mistake? Admit it and people will still trust you. Cover it up, especially when everyone knows you did it, and you’ll destroy any chance that people will believe your word is good.

A multimillion-dollar acquisition was minutes from closing when the lead negotiator upped his asking price by $10,000—a pittance—because he thought he had the other party over a barrel and wanted to prove his power. Surprise! The other side had an alternative offer he hadn’t known about, and the deal fell through. The negotiator steadfastly insisted it wasn’t his fault. He didn’t just destroy the deal; he destroyed his internal credibility by denying his part.

This works in the other direction, as well. Starbucks is pricey, and they claim the money filters all the way back to supporting the farmers who grow their coffee. By hiring independent auditors to follow the money through the supply chain, they open up to great scandal if their claims aren’t true. But if the money is going where they claim, the transparency builds that much more confidence.

So which comes first, trust or transparency? Even though some people trust by default, ultimately, transparency is needed for trust to endure. So why not start now? By telling the truth and giving people the means to know for themselves, you can build the foundation for a strong relationship when times get stormy. If you wait to be transparent until the trust is in place, you may wait a very long time.

© 2004 by Stever Robbins. All rights reserved in all media.

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Truth and Trust: They Go Together

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QuestionWe’ve lost trust. How do I regain the trust of my employees after six rounds of layoffs? How does my organization regain the trust of the community after we dumped toxic waste and covered it up? How does my management team regain trust of each other after a nasty political battle?

AnswerDo you trust me? Good. The truth is, you can’t regain trust. Period. You doubt? Think hard about the times you’ve been betrayed. Did the villain ever find their way back into your heart? If you’re like the thousands I’ve asked, the answer is never. Trust can be gained once and lost once. Once lost, it’s lost forever.

So let’s ask how we can keep trust from the start. It’s really quite easy; if you want to be trusted, simply be trustworthy. The pressures will be great to act otherwise, and if you succumb, well, you’ll lose trust and you’ll never get it back.

Tell the truth

I’ve heard countless discussions about how customers, suppliers, employees, shareholders, or communities can’t be told the truth. Maybe we believe that they can’t handle the truth, or that the truth will make us look bad, or maybe we don’t want to take responsibility for the consequences. So we “position” our statement. We “frame it” carefully. We “massage it.” We use careful “spin.” In other words, we lie.

Little white lies can work—they help life run smoothly. But bigger lies compound. We end up committing beyond our own moral comfort. This action is recognized in a social psychology principle called “commitment and consistency.” That is, once we have taken a position, we are motivated by various pressures to behave consistently with that position, even if it is eventually proven wrong. Our ethical standards slip a bit more each time we hold on to our original stand. Pretty soon, our relationship with the truth is arms-length at best. (For more on commitment and consistency, see the wonderful book Influence: The Psychology of Persuasion, by Robert Cialdini.)

When people find out you’ve been lying to them, they know your words can’t be trusted. If it’s your spouse, they may give you a second chance. If it’s your community, they may tell you they’re giving you a second chance, but don’t count on it.

Of course, there can be genuine reasons you can’t tell the truth. Sometimes you’re legally bound to remain silent. Sometimes you’re negotiating and can’t reveal your position. In those cases consider saying, “I can’t discuss that.” People won’t like it, but they won’t feel betrayed when the outcome is revealed.

Keep promises

Keeping promises is an especially powerful form of telling the truth. If you say you’ll do something, do it. If you promise you’ll show up, be there. If you say you’ll deliver high quality, don’t skimp. We all know business people who eagerly promise anything to a customer or colleague rather than face their disappointment. They rarely remember what was promised, which is just as well because they couldn’t have delivered. Over time, their credibility drops so far that no one in their company believes a word they say.

Your marketing material makes promises, by the way. As a response to the low-carb craze, some cereal companies made “low-sugar” cereals. Read the label carefully and you’ll discover they have as many carbs as high-sugar cereals. If you’re targeting health-conscious consumers, don’t promise them health and then deliver junk food. Keep your promises and you’ll keep trust.

Their interests before yours

One powerful way to sustain trust is to put the interests of others ahead of your own. When people know you’re looking out for them, they’ll believe in your intentions even when you have hard news to deliver or need them to put in heroic efforts.

In the book Good to Great, Jim Collins introduces the “Level 5 leader” who puts the needs of the organization ahead of his or her own ego. Such leaders really inspire us to give our all because they demonstrate by example that with personal sacrifice we can achieve greater success as a group.

Putting others first means knowing their goals and concerns, and helping them. Is a colleague a passionate baseball fan? Give them your Red Sox tickets some afternoon, for no reason at all. Is that the game where the Red Sox win the World Series? Even better! You’ll suffer real pain at giving up your tickets. Public sacrifice, if it’s real and visible, builds huge credibility when it’s in the service of others. And the sacrifice must be real. Reducing your bonus from $2 million to $1.75 million just doesn’t count.

Behave ethically

At its core, people trust you when they know you’re safe to deal with. They observe how you treat them and others. Do the right thing in all your dealings and people will get it. They’ll know you’re trustworthy.

If you get a reputation for taking advantage of others, however, even people whom you have treated well can start to doubt. One CEO wrote articles trumpeting his ethical behavior. Employees knew otherwise; they’d seen him cheat distributors and shirk on his commitments to his partners. So the more the CEO crowed, the more the grapevine passed anonymous notes highlighting his lies.

Changing players to gain trust

Trust isn’t one-way, of course—trust happens between two people, or between a person and an organization. You can trust a person while distrusting their organization. I love my trusted bank manager; she fixes my problems even when I feel like the bank is hell-bent on alienating me at every opportunity. (They charge how much for a bounced check?)

You can trust an organization while distrusting its people. Think politics. We can trust our country’s integrity even when individual politicians make our stomachs crawl.

In business, one bad manager rarely destroys trust in the entire company. But several bad managers, armed with policies that clearly treat people as disposable implements, can destroy trust in an entire organization.

At that point, bringing in a new management team that takes clear, visible action might have a chance of rebuilding trust. These actions will be hampered because employees have learned to distrust the organization as a whole. But at least the new leaders will have a chance to gain one-on-one trust and translate that into the organizational changes needed to build trust throughout.

Is this really necessary?

I must confess that this article has been hard to write. “Do the right thing,” “Treat people with respect,” “Don’t lie.” Do these things really need to be said to adults? Apparently so. As businesspeople, we’re not trustworthy.

The June 2002 Conference Board Commissions on Public Trust and Private Enterprise Report found that somewhere between 37 percent and 76 percent of employees “observed misconduct they believe could result in significant loss of public trust if it were to become known.” Of course, the employees are the public, so public trust is losing on an ongoing basis.

It’s up to us to fix the situation. We need to regain the public’s trust, which means we need to regain our trust in each other. And it will only happen if we become the most trustworthy people we can become.

Your action challenge this week

Pay attention to how often you tell the truth, how often you make decisions as if other people (customers, employees, suppliers) don’t matter, and how often you put the well-being of others ahead of your own. Then ask yourself: Am I someone I would trust?

© 2005 by Stever Robbins. All rights reserved in all media.

See other stories in this series.

Making it Right with Wronged Employees

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QuestionAn executive team laid off a group of employees here in Canada in order to outsource to an Asian country. They can’t find talent in the new country, work has stalled, and management tries to cajole laid-off employees (all talented, experienced peak performers) to return. The laid-off employees demand a written apology from the management and request that some executives be fired.

My question: Should upper management issue an apology and suck it up and try to get their best talent back?

AnswerThis is a Moment of Truth for your upper management. What they do will send a clear message to the company. Before we explore what to do, let’s explore how management arrived at this difficult place.

The employee point of view

You’re a talented, experienced peak performer. You’ve been working hard and keeping a project progressing smoothly. One day, you get a notice that—through no fault of your own—you’re laid off because someone wants to move your group to another location.

Do you jump with joy, exuberant at the gloriously superb business decision made by upper management? Doubtful. You probably feel upset, resentful, unappreciated. You might even feel personally affronted, as if you were being treated like an interchangeable cog in a machine. The message you received: You’re not unique, you’re not valuable, and you’re quite replaceable (or even . . . “fungible”).

The management point of view

You have a group that’s doing great. It is full of talented people, making progress. A business issue comes up. Perhaps you want to locate that group nearer a supplier. Or maybe you want the project to take place at a cheaper facility. Possibly, you’re just empire building and want to consolidate your empire. You decide to disband the existing group and reform it in a new location. It should be a simple matter, you think, to find people to run the group in the new location.

• • • •

Managers are thinking of the business. They’re thinking tasks, processes, locations, efficiency. They’re thinking everything but people. The employees, being people, are taking the move personally. Whether or not it’s meant personally, that’s how it’s coming across. (Note: when someone’s project is canceled or they’re laid off, they always take it personally. Trust me.)

If a highly visible manager made this decision, the company is also making a statement that it cares more about efficiency, consolidation, etc. than people. True or not, the loud-and-clear message is that employment is about transactions, not about loyalty or commitment. The laid-off employees got that message loud and clear, and their return is a clear negotiation.

And what are they asking? They don’t want more money, bonuses, or vacation time. They want an apology. Apologies are what people want when they feel they’ve been wronged. We can debate whether or not the layoffs were wrong, but the feelings they evoked are real. If the employees feel wronged and an apology will fix it, my advice is to apologize and get on with life.

Apologies aren’t fatal.

Maybe the executives think it unfair to apologize when they don’t think they were wrong. That’s not the issue. The employees thought it unfair to be laid off for doing a good job. This isn’t about fair; it’s about feelings. Apologies will fix the feelings. Has anyone (think: significant other) ever wanted your apology when you knew you were right? You refused, and maybe even won the argument. You got to be RIGHT. And did it strengthen the relationship? Of course not. Would saying “I’m sorry” and letting go of being RIGHT have fixed the relationship? Of course.

Maybe the executives fear an apology because deep down, they feel they screwed up and don’t want to admit it. In this case, it sounds like they were wrong and badly bungled a situation. All I can say is, “Get over it.” Have them hire a coach or, if it’s really deep-seated, a therapist. If they can’t admit their mistakes, they can’t learn, and that will eventually doom the business.

Maybe the execs fear that apologies will undermine their leadership. They may believe that leaders must appear infallible, that apologies are admissions of failure and must be avoided at all costs.

Nonsense! If a leader screws up, it’s no secret. Everyone knows. The secret is that screwing up and handling the recovery well can actually strengthen a leadership relationship. A good recovery acknowledges the problem, addresses feelings, and gives reason to believe the future will be better: “I really screwed up by thinking I should consolidate the group on the West Coast. I didn’t value the people in the existing group, and I didn’t honor their contribution. I’m very sorry. In the future, I will do my best to make decisions taking the people into account, and not just the business.”

Firing might be the solution

The employees want someone fired. If all they want is revenge, don’t do it. Firing for revenge sets an ugly precedent—almost as ugly as disbanding a group of high performers without preparing for the consequences. But might there be other reasons for this (admittedly extreme) request?

Consider: The executives laid off people whom you characterize as talented, experienced peak performers who were doing their job well. Yet they didn’t make sure that they could replace those people, and obviously, the way they were laid off left the employees angry and resentful. In short, the executives failed miserably at their own jobs.

To me, an outside observer, the message is that it’s perfectly OK to lay off peak performers who are doing their job. Yet it’s not OK to fire executives who don’t do their jobs. In this case, keeping the executives sends a clear message that worker excellence is valued less than executive incompetence, and firing incompetence is generally regarded as a good idea.

So you need to decide: In your company, should business needs trump individual emotional needs? With the original layoffs, the answer was clearly Business Wins. If you want to be consistent, analyze the situation without regard to the people. You have a stalled project that can be resurrected with an apology and a firing. What’s the project worth to the company? What’s the executive worth to the company? Abandon the one with least value.

You can always decide that taking people into account makes sense. Personally, I put human needs above business needs, and I’ve found that it builds incredibly loyal, dedicated teams. Either way, consistency is important. If you take people into account when the people are executives, and take business into account when the people are of lower status, you’re really just engaging in nepotism and privilege. Many, many businesses run that way, but it isn’t going to build a committed, loyal, inclusive culture. If you want a strong company, choose your standards and make them consistent throughout.

Strengthening the group

It seems that everyone in this situation is framing this as a conflict. Yet at the end of the day, everyone shares a common goal: to build a successful company that can keep everyone employed and happy. It’s important to get the group back together and moving forward. After apologies and re-hirings, why not use this as an opportunity to reorient the group around the common goal?

This is an emotionally charged situation that has brought up many issues including politics, business decisions and their impact on people, and whether layoffs and firings are the best solution to business and interpersonal problems. Consider getting everyone in a room (perhaps with a professional facilitator, if feelings still run hot), with one agenda: uncover learnings for everyone involved about how better decisions can be made, how feelings can be managed, and how executives and employees can better understand each other’s point of view. Learn from your successes as well as your failures—go beyond this layoff/rehiring situation as a source for learning and also consider similar decisions that went smoothly.

At the end of the day, your question is about people, not policy. If the original layoffs had been planned with attention to the feelings and needs of the people as well as the business, life would be a lot easier right now. As it is, there is emotional cleanup that must happen before the organizational cleanup begins. An apology is a small price to pay. Firing is a high price, but your organization has already said by example that business needs trump individual needs. If an executive’s continued employment is all that’s standing in the way of resurrecting a necessary project, it may be time to relocate that executive, even if she’s a talented, experienced peak performer.

© Stever Robbins. All rights reserved in all media.

Cover Letter

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Related article: Ten Cultural Career Lies

This page is a companion to my audio program about how to write a cover letter. I would like to express extreme appreciation for the brave job seeker who gave me permission to use his letter for this program.

You can download the audio program here.

Due to time constraints, I wasn’t able to finish editing the audio, so
the current version may have some starts and stops after minute 9.

The original cover letter

 

Dear Ms. Spotz,

I am a second year MBA student at Sacred Heart School of Business, wishing to pursue a consulting career at McConsulting & Company.

McConsulting’s track record of creating a powerful impact on client’s businesses and its focus on work-life balance impressed me the most when I visited McConsulting’s Delaware office during the Sacred Heart Delaware Trip (DelaTrip) in December. I have had a deeper understanding of McConsulting’s results-oriented approach and emphasis on employee development opportunities, in my 3 subsequent visits to your Delaware office when I met with Ms. Helene Roddik, Ms. Gonasiya Later, and my classmate Mr. Baron Nette. Since then I have met Mr. Dan Darkstone, Ms. Candice Englestein, Mr. Daniel Chen, Mr. Blake Prescott, and Mr. Anderson Macco on different occasions and have developed a passion for the firm.

My passion for results-oriented strategic advice goes back a long way in my career. I joined the Supply chain group at Bradford Mechanicals six years ago. It is here that I enjoyed challenging the status-quo of existing processes and implemented re-organizations that made an enormous impact to the entire company. I also developed strong relationships with executives in over 70 hi-technology suppliers/partners and performed strategic, technical and management due diligence to implement organizational changes in these firms. I decided to seek an experience in the financials side of the business while at Sacred Heart and joined the Delaware office of Citibank where I performed market and industry analysis, led due diligence efforts, coordinated cross-border deals, worked with Private Equity firms and developed client relationships in the technology sector. Prior to working at Citbank, I enjoyed my first part of the summer providing strategic advice to a leading telephone switching company in Austria.

My expertise and experience in successfully creating value and long-lasting impact for clients , several of them in the technology sector in the North East, have led me to believe that Consulting at McConsulting, Delaware is the perfect choice for me. I would greatly appreciate being considered for the closed list of candidates selected to interview with you. Should you require additional information, please contact me at (555) 555-5555.

Sincerely,

 

FEINE CANIDAYTE

 

The revised cover letter

Note The revisions are far less important than the reason behind the revisions. Listen to the audio for that! Then read this example, which shows how the points in the letter above can be related directly to employer goals and outcomes.

Dear Ms. Spotz,

I am a second year MBA student at Sacred Heart School of Business, wishing for the chance to become a strong contributor at McConsulting & Company.

I can help McConsulting deliver powerful, out-of-the-box solutions to your clients. As a member of Bradford Mechanical’s supply chain group, I was known for innovative thinking that reduced expenses by 20% and streamlined efficiency by reorginizing the departments. My relationships with over 70 high-tech suppliers and partners lets me bring you leading insight into industry trends, plus a strong network for helping McConsulting obtain first-person perspectives from major players.

I can also offer an approach spanning both business and financial strategy. At Citibank’s Delaware office, I performed market and industry analysis, led due diligence efforts, coordinated cross-border deals, and worked with Private Equity firms. My finance knowledge enhances my consulting knowledge by providing finance-oriented insight to supplement other strategic discussions.

McConsulting creates powerful impact on client businesses. From visiting your Delaware office and spending time with nine of your partners and associates, I believe we would be an excellent fit. Please consider me your interview list. I will call you Thursday at 3 p.m. to follow up with this letter. Should another time work well for you, please contact me at (555) 555-5555.

Sincerely,

FEINE CANIDAYTE

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Entrepreneurial Culture: Creating it is the CEO’s job!

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Sometimes, we treat corporate culture as something that “just happens.” By the time we realize we want to influence it deliberately, it’s often too late to change it very much. An entrepreneurial CEO has no such problem, however. Culture begins to be set the moment a company gets formed, but an entrepreneurial CEO can influence it tremendously. Read how in my Harvard Business Review article on the Entrepreneurial CEO and Building Culture.

You can find the article on corporate culture and how it begins as entrepreneurial culture here: http://blogs.hbr.org/cs/2010/07/advanced_entrepreneurship_your.html