The Standard and Poor’s Index was established in 1957 with 500 corporate giants of the day making the list. In 2017, only 60 of the original firms remain on the list. That is an attrition rate of eighty-eight percent. Along the way, 440 of these companies succumbed to bankruptcy, mergers or acquisitions. Some exist today but are now too small to make the list. By 2012, the average tenure of a Fortune 500 company had dropped from 33 years to meagre 18 years.
The leaders at the helm of these giants were paid inordinate sums of money many of these men and women (almost exclusively men) were touted as the most brilliant business minds of their times. Yet theirs is a legacy of failure to sustain the lofty heights their companies once occupied.
During the tenures of many CEO’s, strategies were defined and redefined. Bold predictions were made. Booms and busts came and went. Dominant market shares were gained and lost. Masses were laid off and ill-conceived mergers and takeovers executed. New products were launched and abandoned. Operations went offshore and in some cases, came back. Cities and states were built up around Fortune 500 companies and many were eventually devastated by their failures. All the while, people were ignored. In eighty-six percent of the cases, the end result was failure of varying degrees, from the painful deaths of a thousand cuts to the spectacularly sudden.
Now in fairness, not every firm that fell off the S&P 500 was mismanaged. Some were just victims of evolution that rendered obsolete. But even in these cases, there appears to have been significant burying of heads in the sand. Many answers have been offered and the fall of many of these companies has been dissected ad infinitum.
Some argued that it was a failure of strategy or simply Schumpeterian creative destruction whereby the revolutionary changes to industrial structures lead to constant destruction of the old and creation of the new. I disagree. A CEO who focused on getting the right people would have had a competent management team that would have identified strategic gaps before it became too late. His or her firm would have possessed the agility to remain adaptive and evolve as its operating environment did. Other explanations offer poor product design, financial mismanagement, operational shortcomings and low cost competition as the causal factors.
While CEO’s were tinkering with every other aspect of their corporations, they were often ignoring their most important asset, their people. Much has been said and written about ‘employees being the most valuable organizational asset’ but retrospectively, it is abundantly apparent that most CEO’s that drove these corporations into the ground were at best disingenuous about these proclamations and at worst, utterly clueless about building sustainable organizations.
The CEO can hire expertise and buy the best advice to improve every operational element. But there is no outsourcing of people and culture. The right people and the right culture exponentially increase the likelihood of making different and better decisions sooner. There is no substitute to an engaged workforce committing itself to a common purpose where building an enduring future is the prime directive.
Ask any professional sports team executive what the hardest part of their job is and they will invariable tell you that creating a winning culture and then projecting that culture across time is a painfully hard endeavour. Every one of them tries, very few actually succeed. The formula is no different for corporate executives. Getting the right people and infusing an engaging culture takes far more effort, emotional energy and selfless commitment than building a state of the art plant or redefining corporate strategy.
Getting the right people and creating the right culture should have been the CEO’s primary mission and most pressing burden. But of all the things CEO’s indulged in, people and culture were the hardest and it appears most, invested heavily in shaping strategy and played with the nuts and bolts of their corporations because those facets were easier to tackle and required no emotional investment on their parts. Worse, as Jim Collins writes, these corporations became monuments to the egos of their leaders. Hubris he writes was a common reason why many mighty corporations fell.
Who are the right people and what is the right culture? People and culture go together and are inextricably linked. If a CEO elected to build a ruthless ‘win at all cost’ culture, there could be no room for the meek and altruistic personality. The culture would need ruthless Type A personalities. And a CEO that wanted to infuse a patient and sustainability oriented culture would have little room and place for the ruthless, ‘win at all cost’ people.
Daniel Pink writes that beyond a certain point, money not only fails to motivate, it actually serves to demotivate. Once people are paid enough to take ‘money off the table’ most people seek intrinsic satisfaction and pursue excellence in the things they do. They seek a higher purpose and want to excel for the sake of excellence.
It appears this trivial fact escaped the attention of many CEO’s. The only reward on offer was advancement and more money. The accumulation of money and profits became the sole measure of success. And eventually, the fountain ran dry, at least for 429 of the 500 corporations that resided at the pinnacle of wealth in 1957.
The CEO who had the vision to look beyond the bend and prepared the organization for what lay ahead, would need to find people who were prepared to pursue a strategy of corporate endurance. That CEO needed to create a clear and compelling vision and find the people who supported that vision. The CEO’s job was to define the culture and doggedly pursue the right people to fit that culture. Then, the CEO could step aside and liberate these people to pursue the common purpose that bound the organization.
If all this sounds simple, it is not. In fact, it is painfully hard and that’s why so few got it right. Creating an engaging and motivating culture requires a deep-rooted personal commitment demonstrated through sustained and consistent conduct through thick and thin, particularly the thin.
It requires the adoption of a strategy that is founded on endurance and sustainability. It requires confidence that the right people, in the right environment with the right leadership will endure and win the race. That equation, in a climate that rewarded immediate results and gratification would necessarily have been a hard sell. The fast and the furious shone bright and forced the herd to follow them on a blazing path that led to an eventual but inevitably inglorious end. The meek it appears, did inherit the corporate kingdom.
The lessons of the past fifty years were never learned. The pursuit of a glorious today continues to overwhelm the desire to live for a better tomorrow. The attrition rate of the S&P 500 is increasing. It took 50 years to shed 86% of the class of 1957. It will take less than fifty years to lose as many of the 2017 cohort.
What are the lessons for today’s business leaders? If the failures of yesterday offer no guidance, Nucor Steel offers a glimpse into an alternative approach to building sustainable and enduring organizations.
Nucor does many things right. It promotes a culture of collaboration, shared ownership and common purpose. It does not leave sustainability and culture to chance but actively drives both. Amongst all the right it does, one corporate characteristic stands out above all else. And that is an unwavering commitment to its people.
Following the 2008 financial crisis, Nucor’s ‘share the pain program’ replaced the usual corporate dance of layoffs and downsizing in bad times with a program that has every employee, from the CEO down, taking a pay cut during economic downturns to keep everyone employed. The more you make, the larger your contribution to the common good.
People don’t leave Nucor. When it is hiring, people line up to apply. Nucor simply takes care of its people, satisfies the intrinsic human need to excel and achieve and is rewarded by a workforce that will stand by the corporation as steadfastly as the corporation stands by its people.
If you are the CEO of a Fortune 500 company or the owner of a small or medium enterprise, do your people have your back? Do you have theirs? Will they stand by you and never abandon ship when you hit stormy waters? Are you more concerned about the next quarter or the next employee you may have to lay off if the quarterly reports goes south? Will your business stand the test of time and remain on the list for the duration of your lifetime? What will be your legacy?
All the evidence suggest that your company will fade into the pages of history as have the vast majority that came before yours. The beaten path is already littered with the remains of erstwhile corporate giants. But there is another path far less travelled. Step back from strategy, operational considerations and the next quarterly report and look around your boardroom table.
If the people around you are concerned only with today, you need to be ruthless and get rid of them. Find people who are willing to create a legacy that will endure long after their time on this lonely planet has come and gone. Find people who are willing to build a future they will likely never see. That is your only certain path to greatness.
Follow the beaten path over the cliff or forge a new trail that most won’t dare follow. The choice has always been yours and yours alone. Carpe Diem.