Strategy

Visionary leaders

They can inspire, but companies must remain pragmatic.

Ray Anderson saw the green light in 1994. Then 60 years old, he decided his company, Interface Inc., would stand for more than just nice carpet and tile coverings. It would eliminate its environmental footprint by 2020. And make money in the process. Anderson’s employees and shareholders thought he was crazy. But by 2008, Interface was a world leader and well on its way to proving Anderson’s point.

Since 1994, his company has cut its use of fossil fuels by 45%, and water and landfill use by 80%. Anderson credits those initiatives and the resulting goodwill in helping overcome the company’s last downturn earlier this decade. Anderson even earned a starring role the 2003 documentary The Corporation for his inspiring corporate approach, and the company received top marks in 2007 from Globe Scan, a global research opinion company, for corporate sustainability. Today, Interface has a consulting arm to teach other companies how to improve their own green credibility and still make a profit.

At first glance, a carpet company should be anything but a beacon for tree-hugging environmentalists, but Anderson’s unwavering commitment — especially in the lean times — has won over a most unlikely fan base. Moreover, he’s built a company that generated sales of almost US$300 million in its most recent operating quarter. All of which makes him a rare breed: a visionary values-driven leader who knows how to inspire the masses with more than just rhetoric.

Most business leaders know the importance of inspiring employees, shareholders and customers by offering a vision of where the company is going and how it will get there. Of course, that journey is influenced by a few key guiding principles, often called a company’s “corporate values.” It’s a very noble — even heartwarming — approach. But in tough times, these higher ideals can easily fall by the wayside. And that is a mistake. Companies that are able to build a following on a set of core principles, such as Interface, Mountain Equipment Co-op and WestJet have done, certainly benefit from being able to inspire their stakeholders; but research shows they also generate higher levels of organizational performance, employee motivation and employee satisfaction.

People are especially drawn to those with a higher set of ideals or values during a recession, says Sandra Cha, organizational behaviour professor at McGill University. Take Barack Obama and his vision of change. By asking for a break from the politics of the past, he has managed to grab the attention of those who don’t ordinarily follow American affairs. He has inspired a following among those in the United States, Canada, Europe and around the world with speeches and appearances that acknowledge the difficulty the economy faces. But it’s been his pledge to improve the economic climate with his noble vision that make him stand out. But there’s a flip side to being that kind of leader.

“Once followers get inspired by shared values, their expectations for the leader can rise very quickly to the point where they are unrealistic,” says Cha, who, with Amy Edmondson, a management professor at Harvard University, has co-authored When Values Backfire: Leadership, Attribution, and Disenchantment in a Values-Driven Organization. “Unconsciously, people start expecting a values-driven leader to be the hero, to meet all their needs.”

In a values-driven business, employees may expect to be sheltered from the worst economic downturn since the Great Depression, even as other companies shut down. But as successful a leader as Anderson has been, Interface has not been immune from making tough decisions. The company in December announced it was laying off more than 500 workers, 14% of its global workforce, and that it was closing its profitable manufacturing operations in Belleville, Ont. Jobs at the “jewel of Interface,” as Claude Ouimet, Interface general manager and senior vice-president calls it, could simply be moved to the Atlanta head office. The bleak news was a reminder that even leaders who have incited a monumental shift in their companies, and who seem to have incredible foresight, are not invulnerable.

While Interface’s decision to close its Canadian operations and cut workers around the world has inevitably disappointed employees and left some bitter, Anderson and his management team are trying to temper any negative repercussions. For starters, Anderson has made it clear that, in the face of lower demand, the cutbacks were necessary steps to protect the rest of the company. He’s certain that by following the same formula he’s used in previous recessions — staying focused on eradicating Interface’s environmental footprint by 2020 — the company will emerge from this downturn intact. But it hasn’t just been focused on its lofty green values. It’s also focused on what makes business sense. Ouimet and his Canadian staff have been speaking to customers and have concluded that Interface still needs a presence in Canada. Ouimet has since decided to open a distribution centre in Belleville, which will include hiring back about one-quarter of the Canadian staff.

That decision hasn’t been able to solve all of the company’s problems — especially with customers who purchased from Interface because its products were made in Canada — but it has helped. By taking the steps to explain, listen and react to stakeholder concerns, Interface has limited the possibility that its customers and employees will become jaded. When people come up with their own explanation of why a leader or a company’s actions seem inconsistent with their stated values, it can lead to feelings of hypocrisy and cynicism, according to Cha and Edmondson. Having values won’t guarantee a successful company, but betraying those values will almost certainly be damaging.

For example, when Carly Fiorina, the former CEO of Hewlett-Packard, orchestrated a merger with Compaq and instituted large-scale layoffs in 2001 and 2002, she saw those moves as being consistent with HP’s value of seizing opportunities. But employees interpreted them as violating HP’s values of mutual respect and seeing the company as family. In another example, Google caused a backlash in 2006 when it complied with China’s restricted access to information, because the decision wasn’t seen to be in keeping with its “Don’t be evil” motto.

“To avoid the pitfall of perceived leader hypocrisy, leaders need to temper followers’ expectations, to keep them high and true to the shared values, and yet prevent them from rising to unrealistic levels,” says Cha. She says Obama is one leader who has done a good job of lowering expectations. Similarly, corporate leaders need to temper employee and shareholder expectations. Moreover, to avoid sparking cynicism and hypocrisy, Cha and Edmondson recommend that leaders explicitly acknowledge tension when a company seems to have multiple aims, for example, maximizing profit and investing in employees.

At L’Oréal, the cosmetics and beauty company based in Paris, these tensions are managed by assigning seemingly opposing values to different people. Senior managers are responsible for short-term goals, while HR reminds managers about the company’s long-term goals. This way, certain values won’t be forgotten. Values should also be clear so they aren’t misinterpreted.

But leaders have to be careful not to narrow the definition too much, because employees are inspired by values that are broad enough to allow for some interpretation. If any action such as downsizing is seen as threatening, leaders also need to be proactive and explain why things are unfolding in a certain way. And, say Cha and Edmondson, employees need to feel safe to critique leaders.

Interface’s Anderson, for one, has also had to work hard to avoid other people’s cynicism over the years. “I found it important that I speak in consistent and persistent terms, even when others thought I was around the bend,” says Anderson. When he first started selling the idea of sustainability to his staff, investors and customers, he focused on it being the right thing to do for the environment and for the business. But it still took several years until people believed in his vision. It wasn’t until the company’s financial report in 2001, entitled A Better Way to Bigger Profit, seven years after the company embarked down the sustainability path, that investors finally started to believe in what Anderson was saying. After Y2K, the dot-com bust and the 9/11 tragedy, Interface’s customers cut spending, but the company maintained its investment in sustainable business practices, and it seemed to pay off. While the industry lost 37% of its sales between 2001 and 2004, Anderson estimates Interface lost half that percentage, thanks to its focus on sustainability. “In that long and protracted downturn, we gained market share and were stronger than we were before we entered it,” he says.

Tough economic times are one of the most challenging for shared-value organizations, says Douglas Reid, professor of business strategy at Queen’s University. Indeed, a simple test of a company’s commitment to values is whether they can be maintained during times of distress, because there is a cost associated with building and maintaining them. “If values are touted in the good times, they can’t be flouted in the bad times,” Reid says.

At Nau Clothing, there wasn’t simply a push to reduce costs, but a push to resurrect the Portland, Ore.–based company after it was an early victim of the credit crisis last May. When Nau couldn’t secure adequate financing for its ongoing operations, the board decided Nau’s assets would be put up for sale just three years after being conceived. But Ian Yolles had other ideas. The Toronto native who was Nau’s chief marketing officer searched for someone to buy and resurrect the company. But Yolles, who was once an executive at the Body Shop, Nike and Patagonia, was picky. He wanted someone who would buy the company complete with Nau’s numerous values. They included: providing high-quality outdoor wear in a fashion-forward style, making clothing from eco-friendly materials, constructing stores from recycled wood and plastic, and giving 5% of sales to charity.

Yolles and his colleagues finally found a buyer in Horny Toad, a California clothing company, after a two-month search. As part of the deal, Nau lost its own storefront presence, and charitable contributions were reduced to 2% of sales. Its charitable donations are still higher than anyone else in the industry, but substantially lower than Nau’s original vision. Although Yolles hasn’t had anyone call him out on the drop, he has thought about it. For now, he’s done what was necessary to revive the company, but he will look at increasing the percentage going to charity in the future. Besides, “the average levels of philanthropy are less than two-tenths of 1%, and the gold standard is 1% of sales, set by Patagonia,” Yolles says. “We still feel we are in the leadership position in that giving level.” Yolles won’t disclose sales figures, but says they are consistent with levels before Nau closed its doors in May. Any backlash at Nau seems to have been thwarted — for now.

As Yolles and other values-based leaders will tell you, their companies have a quasi-cult following that can help them withstand tough times. Companies such as Lululemon Athletica, the yoga and athletic apparel company, Patagonia, an oudoor clothing and gear company, Mountain Equipment Co-op, the co-operative that also sells outdoor wear and gear, and Nau have become famous partly because of their dedicated and passionate stakeholders.

Despite the emotional response these companies and their leaders evoke, David Labistour, the CEO of Mountain Equipment Co-op, says leaders have to make more objective decisions during downturns. “You’ve got to take emotion off the table,” he says. “You’ve got to think long term and know these things are cyclical. You’ve got to remain flexible, conserve cash and consolidate your business.” He’s projected 2% growth in sales for 2009, with expenses flat. Maintaining values for MEC won’t be a problem, Labistour says, because they are embedded into the culture and are reflected in decision-making to such a degree that it isn’t necessary for a specific group to take care of them.

But while Labistour is certain of maintaining MEC’s core strategies, he’s also clear that’s possible only because its values are attainable and realistic. Labistour says MEC is unique because its values focus on a combination of economic, environmental and socially responsible priorities. Other companies, such as Nike or Patagonia, perform better in one area, like product sustainability. By admitting MEC isn’t tops at everything, it tempers expectations and helps prevent backlash. While leaders, particularly during a downturn, are expected to live a company’s values, Labistour admits he’s not the archetypal example of the greenest man in Canada. “As a leader, I’m not perfect,” says Labistour.

But then no leader is omnipotent, and we have to remember that, says Cha, especially during the current chaos. “Again, like Obama, corporate leaders need to solicit everyone’s input, to find creative and effective solutions to complex problems. We need to let go of our fantasy of the heroic leader — modern leadership is sufficiently complex that no one person has all the answers.”