What do executives do, anyway?

An executive with 8,000 indirect reports and 2000 hours of work
in a year can afford to spend, at most, 15 minutes per year per
person in their reporting hierarchy… even if they work on
nothing else. That job seems impossible. How can anyone make any
important decision in a company that large? They will always be
the least informed person in the room, no matter what the topic.

If you know me, you know I’ve been asking myself this question
for a long time.

Luckily, someone sent me a link to a really great book, High
Output Management, by Andy Grove (of Intel fame). Among many
other things, it answers this key question! And insultingly,
just to rub it in, it answered this question back in the 1980s.

To paraphrase the book, the job of an executive is: to define
and enforce culture and values for their whole organization, and
to ratify good decisions.

That’s all.

Not to decide. Not to break ties. Not to set strategy. Not to be
the expert on every, or any topic. Just to sit in the room while
the right people make good decisions in alignment with their
values. And if they do, to endorse it. And if they don’t, to
send them back to try again.

There’s even an algorithm for this.

It seems too easy to be real. For any
disagreement, identify the lead person on each side. Then,
identify the lowest executive in the corporate hierarchy that
both leads report into (in the extreme case, this is the CEO).
Set up a meeting between the three of them. At the meeting, the
two leads will present the one, correct decision that they have
agreed upon. The executive will sit there, listen, and ratify
it.

But… wait. If the decision is already made before the meeting,
why do we need the meeting? Because the right decision might not
happen without the existence of that meeting. The executive
gives formal weight to a major decision. The executive
holds the two disagreeing leads responsible: they must figure
out not what’s best for them, but what’s best for the company.
They can’t pull rank. They can’t cheat. They have to present
their answer to a person who cares about both of their groups
equally. And they want to look good, because that person is
their boss! This puts a lot of pressure on people to do the
right thing.

(Side note: this has parallels with the weirdly formal
structures in eg. Canadian parliament, where theoretically all
decisions must be ratified by the seemingly powerless Governor
General, who represents The Queen by just always ratifying
everything. The theory is that if the decisions were bad, they
wouldn’t be ratified, so there’d be no point proposing them, and
therefore all the decisions proposed are worthy of ratification.
Obviously the theory doesn’t match the practice here, because
bad decisions get ratified, but it’s nice to think about.)

Failure modes

What happens when an executive doesn’t follow this model? One
of several things we’ve all seen before, depending what the
executive does instead.

• If the executive makes their own decisions and forces them
  downstream: the executive doesn’t have enough information to
  make good decisions in detail, so the decision won’t be
  optimal. And there won’t be much buy-in from people
  downstream. This also encourages politics: people whisper
  in the executive’s ear to bend it one way or the other. It
  encourages “brown-nosing.”

• If the executive chooses not to be involved in
  conflicts that are “not important enough; you figure it out”:
  political power games ensue. Whoever can force their way will
  win, killing morale. Or half the people do one thing and half
  do the other, and the company loses focus.

• If the executive accepts escalations, then tries to make a
  tie-breaker decision: non-optimal decisions get made, because
  again the executive is, out of the three people, the least
  qualified to decide. Offhand, you might think this is fine, if
  the decision isn’t very important anyway. That part is true.
  But the indirect effects are disastrous: it allows the two
  leads to abdicate resonsibility. They don’t have to remind
  themselves what’s good for the company, because you did it for
  them. It lets them be selfish. It lets disagreement fester. It
  leaves at least one side not fully bought in.

  (I’m wary of “disagree and commit” for this reason. Real
  people don’t commit when they strongly disagree; they only
  pretend to. In service of a value like “move fast and break
  things” it can work, because speed overrides wisdom or
  consistency. That’s a legitimate value, like any other, if it
  serves your strategy.)

• If the executive brings in more people to discuss the issue:
  this is something the two leads should have done already. If they
  didn’t, they are failing at their job, and need to learn how
  to do it better. Step one is the executive sends them a
  message: “Go back. Include these additional people/groups in
  your decision. Come back when you’ve thought it through
  properly.” If it continues, people have to get fired, because
  they are bad at making decisions.

Enforcement of culture and values

According to the book, which makes a pretty compelling case, the
only other responsibility of an executive is to enforce company
values.

What does that mean? It means if someone in the company isn’t
acting “right” – not acting ethically, not following the
conflict resolution algorithm above, playing politics – then
they need to be corrected or removed. Every executive is
responsible for enforcing the policy all the way down the
chain, recursively. And the CEO is responsible for everyone. You
have to squash violators of company values, fast, because
violators are dangerous. People who don’t share your values
will hire more people who don’t share your values. It’s all
downhill from there.

Real values aren’t what you talk about, they’re what you do when
times get tough. That means values are most visible during
big, controversial decisions. The executive ratifying a decision
needs to evaluate that decision against the set of
organizational values. Do the two leads both understand our
values? Is the decision in line with our values? If not, tell
them so, explicitly, and send them back to try again.

What about strategy?

One of the book’s claims, which I found shocking at first,
was that in a large organization, executives don’t set strategy.
Not even the CEO sets strategy. Why? Because it’s an illusion to
believe you can enforce a strategy.

Employees, including executives that report to you, follow
company values first and foremost. (This is by definition
construction. If
they don’t, you fired them, see above.) Of course, they’re
human, so as part of that, they’ll be looking out for
themselves, their friends, and the people in their organization.

Maybe one of your organizational values is “do what your boss
says.” That’s a thing you can do, and you can enforce. It works.
The military works like that supposedly (although I have no
experience with the military). But command-and-control is not
very efficient for knowledge workers, because of the fundamental
problem that for any given situation, the people who know the
most about it are the people at the bottom, not the people at
the top.

If the people at the bottom can’t agree what to do, then great!
That’s why we have a hierarchy. Use the decision process above
until the answer is obvious.

But if the person at the top is trying to “set a strategy” by
making operational decisions, those decisions will be based on
insufficient facts, because there are simply far too many facts
for one person. That means, if your decisions should be based on
facts, you will make worse decisions than your subordinates.
That’s scary.

So what, then? A company just drifts in the void, with no
strategy?

Not exactly. It’s harder than that. What executives need to do
is come up with organizational values that
indirectly result in the strategy they want.

That is, if your company makes widgets and one of your values is
customer satisfaction, you will probably end up with better
widgets of the right sort for your existing customers. If one of
your values is to be environmentally friendly, your widget
factories will probably pollute less but cost more. If one of
your values is to make the tools that run faster and smoother,
your employees will probably make less bloatware and you’ll
probably hire different employees than if your values are to
scale fast and capture the most customers in the
shortest time.

Why will employees embrace whatever weird organizational values
you set? Because in every decision meeting, you enforce your
values. And you fire the people who don’t line up. Recursively,
that means executives lower down the tree will do the same,
because that itself is one of the values you enforce.

Unless it’s somehow impossible to hire people who agree with
your values, you can assemble an organization that aligns with
them. It might be a terrible organization that ruins your
business, but then… well, those values weren’t a good choice.

I can’t believe nobody told me this before. It’s all so simple,
and it’s all been documented since the 1980s.

Epilogue: small companies

Almost none of this applies to small companies. They are so
small that the founders and the CEO actually do have a chance
of fully understanding problems, which means they don’t yet need
to delegate decisions. Also, in a small company, strategy and
values are usually not well defined yet, so a primary goal is to
discover them incrementally. You learn from mistakes and refine
together until the strategy (and thus the values that will
produce the strategy) become clear.

In a small company, it’s important to understand how the big
company process works, because your values begin to solidify
pretty early on, even as you choose co-founders and investors
and hire the first employees. It’s hard to change your values
later, because it usually involves firing people. So you need to
be thinking about them from the beginning. Still, the details
aren’t set in stone on day 1.

Doubilogue: major strategic changes

All this is one reason why if you want a major strategic change,
you often replace an executive – maybe even the CEO. Or,
conversely, if you replace the CEO, you often get a major
strategic change, whether you like it or not. The CEO sets the
values, and the values set the strategy.

Company values flow downward. They are very hard to change,
and very painful. When you change your company values, you might
find that employees who liked the old values don’t want to work
there anymore, and rightly so. (This happens even if the new
values are “better” in your favourite dimensions.)

If your old strategy is failing, you can’t fix the
company by just declaring a new strategy. You do it by declaring
new values. Then you enforce those values. And that’s going
to make a lot of people very upset. (If you do this too
often, you deserve what you get.)

One reason strategy changes are so risky in a big company
is that, again, the people at the top really don’t know much of
what’s going on. Although they have a sky-high view of the
world, they have a very limited view of the details. Changes of
strategy, and therefore changes of values, and therefore changes
of executives, usually have
wide-ranging unexpected consequences. You do it because you have
to, because your old strategy isn’t working, not because you
want to. You’re betting everything.

I wish more executives would be transparent about this. “Our old
strategy wasn’t working, because our old values weren’t working.
Here’s the new strategy, and the new values. This is gonna
hurt.”

What you usually get instead is a polite “rewording” or
“watering down” of the corporate values, and maybe some
whispering about how the old values weren’t so good after all,
and maybe how the new values were our real values all along.
Weak.

Or, worst of all, executives lose their way and stop enforcing
any value system at all. Then the value system reverts to the
default: politics and backstabbing. It wouldn’t bother me so
much if it weren’t so hopelessly inefficient.

Tripilogue: governments

Governmental politics are bad exactly to the extent that we
don’t enforce our values by firing the people who don’t
encompass them.

In a democracy, this is hard because values in the first place
are agreed by mass consensus rather than chosen at the top.
That’s why propaganda is so powerful: it changes our values,
which changes who and what we tolerate.

Quadrilogue: Tradeoffs

By the way, useful organizational values come in the form of
tradeoffs: giving up one nice thing in order to get some other
nice thing. Wishy-washy values like “respect your co-workers”
aren’t really values, because nobody would ever pick a value
like “don’t respect your co-workers.” Respecting your co-workers
is just basic civility. By the time you have to write it down,
you’ve already lost. Put it in your HR policy somewhere, not the
top line.

A real value is something like “tell the truth, even
when it hurts.” Or “deliver the software on schedule, even if
there are bugs.” In both cases, one can legitimately imagine
valuing the opposite.