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This chapter is from the book

How a Happy Company Would Operate

All of these companies are unhappy—dysfunctional, in the word of the day. A return to the small company in the American South shows how a happy company would have responded to the same slipping financial situation that bedeviled the preceding management. The behavior serves as a positive template in contrast to the leadership of the scandal-ridden companies mentioned. The difference could not be any more clear or more telling than that shown in the behavior of the leadership team that followed the unhappy CEO and his cohort at the small manufacturer.

Consider that the new CEO had an even more serious problem than the previous one. Not only were sales down, but the corrected financials of the company were also now abysmal, and the company’s credibility with all constituents was shot. Employees were dispirited, themselves fearful—legitimately so—that they might soon be out of jobs. Yet the new leadership refused to act on fear or panic or short-term expediencies. Indeed, the near-collapse of the company had left the new team with no choice but to act in a way that would put the company on a secure, long-term footing. A curious effect of brain wiring is that short-term problems often trigger the fear response because a reflex action might fix them, whereas deep, evident structural problems cause humans to step back and proceed sensibly because no amount of hysteria can solve them. You would be tempted to jump a 15-foot gap, but you would look for an entirely different way to cross a 100-yard chasm.

The new leadership began by carefully studying the problem with sales. The analysis quickly revealed that there were too many products in the product line. The old 80/20 rule applied: 80 percent of the sales were coming from 20 percent of the product line. By paring the product mix, the company trimmed costs in a hurry and was able to focus more effort on the profitable lines. In addition, the company discontinued the discounting. The new CEO and his senior executives met with all the important customers and said, "This is the right price. It’s a fair price. If you want us to supply the equipment, we have to be in business. To be in business, we have to make a decent profit." Most of the customers stayed with the company, because the list prices were in fact quite reasonable, the products were solid, and customers understood that the firm had to operate on a sound financial basis. The new leadership’s calm, no-nonsense approach also gave the customers confidence.

Eliminating the discounts solved another major problem: the bottlenecks in manufacturing that occurred at the end of each quarter. Putting the pricing on a rational basis caused orders to arrive in more regular fashion, as customers needed product. The company required less overtime, employees were less stressed, mistakes were made far less frequently. The company was able to linearize shipments to roughly one third each month rather than two thirds in the last two weeks of the quarter. Manufacturing and shipping costs plummeted. After a while, the company was profitable again, as it had been for two decades before the unhappy CEO took over.

From a social standpoint, the outgoing regime’s crime was fraud, and the perpetrators deserve whatever legal punishment they get. From a business standpoint, the real crime of succumbing to the "shell-game ploy" is that the focus on pumping up the short-term financials served to create and mask poor operating performance. The focus on the short term and the need to cover up the first one or two fraudulent acts became so intense that the discounts alone were enough to ruin the company. Tens and tens of millions of dollars were given away in discounts—effectively all of the company’s profits! (As common as quarterly discounts are in some industries, they are the bane of a well-run company.)

While senior managers kept thinking that they could somehow beat the odds and "win the lottery"—have a truly outstanding quarter that would square accounts—they failed to address the hidden issues that kept them from having that same outstanding quarter. They were so focused on the target of making sales that they never addressed the weaknesses in the business model or other fundamentals. They attempted to cover up their weaknesses rather than build on their strengths, such as a good core product line and sound customer base, as the successor management did. The tragedy is that a single, relatively small act of fear quickly corrupted the entire management culture and took the concentration away from the right business issues.

That tragedy is an order of magnitude larger at a company the size of Enron. An outsider has to marvel at the complexity of the fake deals, the ingenuity of the sham accounting, the creativity of the nonexistent entities, the sheer audacity of the swindle. An outsider also has to wonder: If Enron’s senior executives had taken all that energy and put it into addressing the real business opportunities of the company, wouldn’t they have made just about as much money and felt a whole lot better about themselves? And tens of thousands of employees and other stakeholders would be far better off. If it had behaved honestly, Enron probably would have shown less growth early on, as it built its fundamentals, and more growth later, as it capitalized on those fundamentals. This comparison assumes that the self-styled "smartest guys in the room" actually had some level of basic business skills.

If the company had faltered honestly at some point, recovery would have been far more likely because the losses would not have been so staggering and many more productive assets would have been available to rebuild the company or to repay creditors. Interestingly, the first legal maneuver of the three top executives at Enron was to request a change of venue from Enron’s hometown of Houston, Texas, a flight response not too much different from that which got them in trouble in the first place—fleeing from bad numbers by covering them up rather than addressing them.

The approach taken by the new management at the southern manufacturer shows that the answer is to never let fear drive business decisions. The new management at the small manufacturer showed good old common sense. They practiced sound business; they did the right blocking and tackling. This makes them a good business, but how does that make them a "happy" business? Well, honesty and health are two great predictors of happiness. (Later, we show how health and happiness interweave biologically.) The new managers created a healthier emotional environment by reestablishing an atmosphere of trust, both within and without the firm. They created a healthier economic environment by giving the sales force products that would sell. (The sales force had healthier psyches as a result.) The new managers created a healthier physical environment through regularizing shipments and by reducing fatigue, stress, and the job hazards that stress created. At every level and in every sense of the word, they turned a culture that was insane into a culture that was sane.

This book is about happy companies and how to become one. A happy company is not a giddy company, any more than a happy person is someone who runs around with a smile plastered on his or her face all the time. Happiness is an attitude rather than emotion, a prevailing way of life, an overriding outlook composed of qualities such as optimism, courage, love, and fulfillment. Corporate happiness has the same composition at the organizational and social level. Happiness is not a mood (moods are biochemically regulated) or an emotion (emotions are subject to situational influence), but an approach toward life. Happiness is knowing what is truly important and living in accordance with what is important. On an individual level, happiness is developing your potential and engaging your life to make a difference for the better. A definition relevant on an individual level must be at least as relevant in organizations that are made up of a multitude of individuals. As happiness applies to the psyche of an individual, happiness applies to the culture of a company.

Developing potential invariably involves making emotionally mature choices. If the need for immediate gratification is the mark of a child and the ability to wait for delayed gratification is the mark of an adult, so too is short-term thinking the mark of an immature company and long-term thinking the mark of a mature one. Short-term thinking is fear driven, which means that it is not thinking at all but a gut-level reaction to a threat; long-term thinking is conscious, proactive contemplation of what truly matters to the company and where its future truly lies.

For the purposes of this book, then, the definition of a happy company is this: an organization in which individuals at all levels of authority exhibit a diversity of strengths, constructively work together toward a common goal, find significant meaning and satisfaction in producing and providing high-quality products and services for profit, and through those products and services make a positive difference in the lives of others.

Although we expect satisfaction from work, we do not associate "happiness" with it. If you ask senior executives or mid-level managers or blue-collar workers if they expect to be happy at work, they would likely scoff, or even feel a little embarrassed for you. At the highest levels of a company, leaders may feel the pressures so greatly—and take themselves so seriously—that they do not think of the fun that should accompany the job. Fun is not the goal, yet fun naturally arises when people do work that they enjoy and find meaningful. Typically, people spend one third to one half of their adult lives at work. They have most of their social interaction at work. They most commonly meet future spouses at work. Who in their right mind gets up in the morning hoping to have a miserable day in the vast majority of their personal interactions?

Yet countless people react negatively to the idea of going to work. They know that the company is not succeeding or that their own work has little to do with what makes the company succeed. Because work is no fun, they do not want to go. Often, people have personal animosities toward peers or superiors. The bank bully mentioned previously illustrates a frightening fact: The biggest reason most people quit their jobs is not the company or the nature of the work but the hatred they have for their boss. Their hatred. In his book on toxic managers, Roy Lubit even suggests that symptoms of serious personality disorders are often mistaken for "leadership" in today’s aggressive marketplace.

Most people know when there is something wrong in their work environment, but they often are not aware of how caustic it is until after they have left. Conversely, just about all of us can remember the job that had us bouncing out of bed in the morning and that completely engaged us all day long. Companies that have such engaged, enthusiastic CEOs and employees tend to do extremely well. Such jobs are happy occupations. A reason exists for the folk saying, "Find a job you love, and you’ll never have to work."

By exploring the social and biological origins of fear-based behavior, we can learn not only how to avoid major ethical lapses but also avoid other fear-driven actions that cause companies to collapse or that otherwise hinder their success and keep them from sprinting to the front of their industry. More than that, leaders can create a positive climate that generates creativity. Organizations can create more profits, more opportunity for market growth, and more personal satisfaction for employees. They can blow by their competitors. They can establish a solid foundation for long-term growth. All it takes is one thing: a little organizational happiness. Not more fiscal discipline. Not better change processes. Not better technology. Not an expanded product portfolio. Companies just need to foster happiness. By happiness, we do not mean an immature giddiness, the corporate equivalent of puppy love, which might come from some short-term win. We mean instead a deep, mature delight that comes from a committed group of people energetically engaged in a fulfilling corporate mission. Some call this a state of "flow."

Through real examples of the principles and practices of leading companies, in-depth research, and the application of years of business experience, this book contrasts the negativity that haunts struggling organizations with the positivism that imbues successful organizations. Any leader, any employee, any organization can grasp and apply the lessons.

What happy companies know, other companies can learn.

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