Why Good Companies Lose Their Humanity | Eric Ries - EP 775

26:38Are you familiar with Branson's B-team concept? Sure. Yeah. I think what he was trying to do there with that B-team, which was to try to get a number of high powered CEOs of major companies. Mark Benioff was one of them. I think that the person who ran at Harley Davidson was another. And to try to get them to start using different metrics of success other than shareholder value. Do you think that is the path that we should be going down? It clearly is. And again, not just my opinion, man, but like we have real data, we have real evidence that there are better ways. And in order to do this, we have to be able to preserve a company's ability to think long-term and to stay on mission.

27:23I call it being mission-driven versus mission-hopeful. Most organizations, frankly, are lying about what they're all about. They have a mission statement that sounds very lofty. But if you read their legal documents, they have a legal purpose that is something different. Quite often, they have a lofty purpose. I tell the story of Silicon Valley Bank. That was my bank before it collapsed. That's why after it collapsed, I wanted to know what happened. They had a lofty mission that was mission statement that was like to advance the innovation economy or move the innovation economy forward. Something really sounded really good.

27:55It made me so proud to be a customer. Oh yeah, that's exactly right. But their bank, their legal papers are all public and you can read in the documents, it says that their legal purpose is to maximize shareholder value. If you have this divergence between mission and purpose, eventually the hypocrisy becomes too great and the thing collapses. That's what we see over and over again. Eric, I want to get into flourishing and do a deep dive into it in just a second. I want to set it up though, before we go there, I think we need to give the listeners an understanding of what financial gravity is.

28:31Given the questions I was just asking you, it is the very thing that is shaping many of these decisions that is reshaping the identity of these companies. From leading into human flourishing, at what point does this financial gravity start to point people inside the organizations from stop choosing and really just start conforming? This is a force we all experience. We live with it every day. It's as natural as physical gravity. And the reason I use gravity as a metaphor is because you can say, well, I don't believe in gravity. Gravity believes in you as it demonstrates every time you jump in the air, it brings you right back down.

29:11So if you ever had a meeting where a bunch of people sitting around a table, including your boss and your boss's boss and the big head honcho and you, and the head honcho starts saying something that is really categorically stupid. And you're like, should I speak up and say boss, big boss man? That just ain't true. Or do you smile and nod like everybody else in the meeting? We've all felt that feeling where you're like, gosh, I want to speak up and say something, but is that going to be good for my career? Probably not. You don't want to be the non-consensus person in the room. Just like you have a subtle change in your behavior.

29:50If you've ever seen somebody meet a celebrity for the first time, you'll witness the same gross thing. They become weirdly obsequious in ways you don't totally understand why. If you ask them afterwards, why did you do that? They often will say, I don't know. It just came over me. Same thing, you meet a billionaire, I've seen it. People, they just can't help themselves. They really want the approval of this person. They want them to think they're good. And there are levels to this. I once was sitting in a room with a bunch of top executives meeting Oprah Winfrey. And you would think they were a bunch of little kids begging for teacher's approval all of a sudden.

30:23Because when you're with someone who has a power disparity with you, you can't help it. you are biologically evolved to be deferential. We have a lot of research on this psychological mechanism. It is an unconscious reflex to try to please and align yourself with those who have resources. You can understand in evolutionary terms why this might be a useful trait. But the problem is an organization is made up of many people who are all feeling this gravitational pressure. And because when people's behavior changes consistently over time, we know from the research, that eventually becomes internalized as values.

31:03We know from the psychology research that consistently performed behaviors eventually become enacted as values. So the right way to think about gravity, it is an unconscious value transmission mechanism from those who have power, resources, status to those who lack it. So what happens is an organization grows from a very early age. You start hearing people say things like, well, well, we could do that, but investors might not like it. You hear this in nonprofits, donors might not like it. You see a company go public and all of a sudden everybody in the room's like the market might not like it.

31:34Might. Are you saying you're sure you've gone and interrogated those investors? You know what they want? No. I just think they might not like it. And that subtle change of values happens over time to the point where you often have people change their values completely without even being aware that they themselves had changed. Eric, in my work, and I've got a book coming out in October myself called The Mattering Effect. But in that, I define a term called the mattering gap. And the mattering gap is where we individually start feeling like we're being erased, like we're outwardly visible, but internally we feel invisible.

32:17And how does that relate to cultures of companies and the invisible leader that you bring up in the book? Yeah. So the invisible leader is a really important concept in the book. And to understand it, you got to go back into the past. Everybody knows Frederick, Frederick, everybody who has studied management at all and at all knows Frederick Winslow Taylor, the father of scientific management or Taylorism, which for much of the 20th century was a very dominant management idea. And even now, if people want to show their management bona fides, they often feel the need to criticize Taylorism and show how their new thing is a repudiation of it.

32:53So he was by far the most famous management thinker of the 20th century and probably of all time. Modern readers can't really appreciate what an incredible celebrity he was when he was alive. But it was a contemporary management thinker named Mary Parker Follett. She lived around that same time. She was very active in the 19-teens and 1920s. And her work was diametrically opposed to Taylorism, whereas he saw workers almost like robots. He was very into hierarchy and command and control. He had a bunch of racist ideas too. She was very far ahead of her time. Many of her ideas, if you saw them today, like on a LinkedIn post, you'd be like, oh, I assume that's Adam Grant or somebody?

33:35That sounds right on. That's just what we talk about today. But she was writing in the 1920s. It's unbelievable. She talked about the preference for power with rather than power over. She said, the goal of a leader is to make more leaders. Come on, if you saw it on LinkedIn today, you'd be like, damn, right on. Very cool, right? She said that and asked once if subordinates should obey their superior. She said, no, the superior and the subordinate together obey the law of the situation, meaning they work together to figure out what the situation requires, and they do that. She just was way ahead of her time.

34:11And one of the things she used to say that would drive her contemporaries just crazy, she would say, Mr. Roundtree, the most excellent leader, the most excellent owner of the Roundtree Chocolate Factory, is not the leader of the Roundtree Chocolate Factory. and people are like, lady, what? His name, his family owns the building, the company, like everybody works for him. If he's not the leader, who is? She said, well, he is an excellent leader, but only because he is very effective at instilling in his employees a sense of common purpose and is the common purpose itself, rather than Mr. Roundtree, who is their invisible leader.

34:59If you understand this concept, you can understand so much about what goes wrong in modern companies. Because the vast majority of decisions that are truly consequential to whether a company endures or collapses are made when no manager is present. There are a million little decisions every day. Should we make the product a little bit worse to make a little extra money? Someone calls into customer service with a problem that technically by the letter of the law you don't have to fix, but you could. Well, what are they going to choose? What are they going to choose? The modern kind of easy, lazy way of business, Jim Senegal, the founder of Costco, he calls it the business equivalent of taking heroin.

35:40He told me a story once that if they raise the price of a dollar bottle of ketchup at Costco to$1.03, no one would notice. It would not affect their sales at all. If they raise prices across the board by 3%, no one would notice, but they would double their net income, which is a lot of money. So why don't they do it? He said, well, if you do it once, you got to do it again. It becomes baked into your forecast. That's the easy way, the simple way. Seems like the seductive way. But if that's the ethos, if you don't consciously push back against it, that lazy default will infect everything in your business.

36:17So the goal of our operational leadership should be, as Mary Parker Follett taught, to instill this sense of common purpose into every employee so that they know how they're supposed to behave even when nobody's watching. They still will want to do the right thing. They will still try to earn the trust of our customers, of our employees, of our investors, of anyone that they're interacting with. And so the book is a lot about how to create the operating conditions for this to happen. Eric, in my first book, I had a chapter which has been one of the chapters I get the most questions about. And the whole concept about this was, I think the modern leader and what people are striving to is the wrong leadership model.

37:01So what I suggest in this chapter is the concept of a gardener leader. And to me, what a gardener is really doing is it's all about the development of the culture. And the whole thing is putting the ingredients in place to make your employees flourish. because coming from a military background, if I'm at Special Operations Command, there's no way I can micromanage a Delta Force team that's 4 ,000 miles away from me. But I can give them the conditions to have success. I can make them understand what success looks like. I can give them the training to succeed. But there comes a point where you have to delegate and trust that you have developed the culture and they are going to accomplish the mission.

37:53And I think it's similar to what a lot of your book is about. Would you say there are common parallels there? Common parallels between? Between that whole idea of Gardner leadership, of cultivating this environment, this culture, to really create an environment where your employees flourish, where you are eyes on, but you're hands off in many ways. Oh, I see what you mean. Yes, absolutely. I say in the book that many of the attributes that we're talking about, mission, values, culture, they are what are known as emergent properties in the scientific literature, meaning they are something that can be cultivated but cannot be commanded.

38:36People find this very confusing in the same way that we all as human beings find the philosophical question of what we are very confusing. Every one of us at some point in our lives has a late night philosophy session with a friend where you're like, wait a second, what am I? Am I in a body or I am a body? Who's in charge here? What's happening? What am I? And eventually some people will conclude, well, yes, I am in charge of my body. I'm the one who's in here because I tell my arm to raise and it raises. So I have the impulse and the thing obeys. And if you have a friend like that, you can say, oh, really, you're in charge?

39:14Can you command a cut to heal? Can you command your body to cure a disease? Can you command your body to be healthy? I'm like, oh, no. And sometimes after the oh, no, people descend into nihilism. Like, oh, no, nothing I do matters. I guess my health is random. I can eat all the Doritos I want. So no, actually, the choices you make have tremendous influence over the emergent properties of your body. You can make choices that will lead to health, but that's something you cultivate. If a character is something you cultivate, you don't command. I see managers and leaders make this mistake all the time.

39:47They say, I'm in charge of my company. Oh, how do you know? Because I give commands and they are obeyed. Congratulations. Your organization has a functioning nervous system. But what does that prove? Command it to be healthy. Command it to grow. Command it to be humane and not sociopathic. You can't command those things, but you can cultivate them. And so figuring out what are the practices that build this asset. I call it the most underrated asset in the world. Trustworthiness. How do we cultivate it, grow it, stockpile it, and then how do we protect it? I want to go through two examples. I want to go through an example where this environment is working in the real world.

40:31And then I want to go through another company that we're both familiar with where I don't think it is. So in the book, you describe HEB, which is one of my favorite grocery retailers. Loved living and loved going there when I lived in Texas. But you describe this story where customers are coming in because there's winter storms coming through, ice storms. And what ends up happening? The customers are picking up all these supplies and then they can't pay. So what's going on here? so yes this is heb a really interesting company in texas man people i know who live in texas for any amount of time cannot stop talking to me about heb so if you have a friend in texas go ask them about it just my favorite anecdote is that people in texas often mistakenly think that the letters heb stand for here everything's better when in fact that is not even the name of the company it's just the founder's son's initials anyway heb there was this ice storm in texas in the 2020s a couple of years ago.

41:36And it was so severe that the power went out in the store. And I'm talking about hard power out, like backup power out, can't reach headquarters on the phone, hard outage, point of sale systems are down. And a journalist who reported the story later said there was this collective groan that went up among the shoppers. Why? Well, you can imagine why. What did I say? There was an ice storm in Texas. What were people doing in an ice storm in Texas and HGP Grocery? They were stocking up to get the things they needed for their family. Now they're not going to be able to get what they need. A store manager, I think they jumped on the counter or something, asked everyone to huddle up.

42:08Please come over. And they said, look, please just take your cart and go home. And someone yells out, how are we going to pay? You're not. You're not going to pay. Just take your things. And customers were in tears, feeling this act of corporate generosity. What I like about this story is when I tell it to managers, sometimes they'll say, wow, what a brave manager. I'm defying corporate that way. I say, why? Why would you assume that they're defying corporate? They're like, well, did anybody calculate the ROI of this action? You're saying they got this tremendous intangible benefit of trustworthiness, but I don't know.

42:43In my company, the finance leaders would say this was ROI negative, intangible benefit for tangible cost. So were they risking their reputation? No. This was not an exceptional event at HEB. This is the kind of thing they do all the time. They train for this. They drill for it. Not ice storms in particular, but this idea that they have a fiduciary duty to the customer to take care of the people that shop there so that this was not an exception. This is the rule that they're trying to cultivate. I think it's a tremendous example. And now I'm going to lead to another example. So part of my time when I was at Lowe's, I was responsible for all the store systems.

43:26And the way we built them was on a Unix-based system, which made it virtually impossible for us to ever not be able to take payment. And then we had processes in place that if we were where HEB was, we had condition after condition to give them the ability to take payment, even if it was paper payment. But part of the reason for doing that is HEB ran on Microsoft, like every other retailer did. And they had these issues, which is why we didn't run on Microsoft. And I remember when I was there and in this position, Bill Gates and Steve Ballmer visited us. And they met with the CIO, myself, and a couple other people.

44:11And I remember Steve Ballmer, big guy, stands up when we tell him we are not going to switch to Microsoft. and just starts pounding his fist in the table and screaming at us about how big idiots we were not to use this technology. And then I fast forward that and I'm at Dell and we're coming out with a new mobile device and we had made the decision to go on Android. Well, Steve Ballmer flies out, meets with Michael, and suddenly we're launching on a Microsoft device. And I remember Ron Gehrigs, who was the head of the division, comes in to the executive room and says, we're dead on arrival. Fast forward about 18 months later, Steve Ballmer asked me to interview to be the CIO at Walmart.

44:56And I go into this environment and I know you're very familiar with it because you were part of it. And I just remember it was such a dysfunctional environment because everyone was scared out of their mind to do anything that might upset Ballmer. What happened from that environment to one that they're in now where everyone seems to be flourishing? Because I think this is a great example of how a great company went bad and then how it restored itself. I know a lot of funny Steve Palmer stories, and I don't even know which ones are true, which ones are apocryphal. One of my favorites is someone was sent to do a deal with Microsoft and their boss had said, you got to get this deal done.

45:38And if you don't get it done, you don't need to come back from Redmond. I was like, we must have this deal. So they were telling the story. They go there and they sit down with Balmer and they had this whole presentation. And they said, look, we've got this thing. We're going to do this partnership. We really think it's going to be a win-win for both of us. And he says, that is not a requirement from our point of view. And we're like, oh, no. It's like, yeah, we have to win. Whether you win or not, that is not our concern. It was just such a harsh judgment. And for a time, that style of leadership is very effective, but it does eventually sow the seeds of its own undoing, as we saw with Microsoft, which had to be revitalized.

46:16You see it in a lot of places. Yeah, at Walmart, the spirit of Sam Walton is very alive. And yet, when I was there in Bentonville, I remember people would say things to me like, well, we have this procedure or policy that Sam Walton, he would have violated. He couldn't even get a job here. He would have been fired. and there's all these legends about the stuff that he did, selling stuff out of the back of his truck. We could never do that today. And I remember trying to, it's funny because his picture, his quotes and his picture are all over Walmart headquarters. And I remember trying in some of the workshops and stuff that I did there to channel him and be like, hey, remember as Sam Walton said, and I just want to, people would have this look on their face that would be like, I was summoning a ghost, which I was.

46:57He's been gone a long time. So without proper revigoration, redefending these stories, these values, this lore gets stale. And lore is really the key word. You have to remember that lore is humanity's oldest knowledge transmission technology. It predates writing by thousands of years. And preliterate cultures have been able to transmit knowledge and values over tremendous distances of time through storytelling. It is just a natural human instinct. Not all human cultures have had writing, but all human cultures have had lore. So in most organizations, the lore is left to just become whatever it becomes.

47:37Leaders are indifferent to it, but the really farsighted leaders, I think, take an active hand in trying to curate and cultivate the lore so that the story we tell ourselves as an organization is aligned with the company's deepest values. So, Eric, today we've talked about some companies who've gotten this right and some companies who've gotten it wrong. We've talked about FedMart. I think another company people would understand would be Toys R Us. Another recent example would be Spirit Airlines that have all seen their demise. And then we've talked about Costco, Patagonia, and HEB, companies making decisions that might look irrational short-term, but build long-term trust and cultures of significance.

48:18What's the common design principle that people can take away from today's discussion? This is all very dispiriting. you see these collapses. If you haven't seen, there's a new video that came out just very recently about the collapse of Panera Bread, where not only did the private equity playbook lead to a degradation of quality, but people died. Nobody should die for Panera Bread. What kind of economy are we building? The common formula for the companies that are able to resist this collapse is very simply ethos plus integrity. Ethos is the character of a company, the fiduciary to the customer like Saul Price had, the ability to keep and make its promises so that it builds up that most precious asset trustworthiness.

49:04But so many of the companies that you name, they have this stockpile of trustworthiness and it's just lying around on the floor. And then they act surprised that somebody tries to steal it. If you have an asset unprotected in this world, someone will try to steal it from you. So we have to build organizations that are structurally strong, that have put the trustworthiness in a vault and defend it. And that's where the corporate structure comes in. That's where having a mission guardian is important. Being a public benefit corp is important. I really advocate in the book for a multi-tiered structure where the board of directors is accountable to a board of outside trustees.

49:38There's a bunch of these practices that we have really good data. This is not just my random opinion. We have good data that these are the practices that lead to sustained long-term value creation. Listeners, I highly encourage you to pick up a copy of Incorruptible, Why Good Companies Go Bad and How Great Companies Stay Great. Eric, where's the best place people can go to learn more about you? Well, thank you for asking. Of course, you can follow me on social media, but social media is bad for your mental health. So I'd much rather you just go to my website, incorruptible.co. You can sign up for my mailing list.

50:12And there we have all kinds of bonuses and extras and downloadable content and a secret chapter that was cut from the main manuscript. So a lot of goodies you can get there. And of course, the book itself, you can buy absolutely anywhere that books are sold. If you want to follow along on the book tour and all the social media reaction without going on social media, we have a website called howisincorruptiblegoing.com, which you can follow as well. Awesome, Eric. Huge honor to have you. Thank you for joining us. Thank you so much. Really appreciate you taking the time and such thoughtful questions.

50:40I'm very grateful. Everybody like and subscribe. Don't forget. That brings us to the end of today's conversation. One of the ideas that stayed with me long after this discussion with Eric is that institutions rarely lose their integrity through a single dramatic failure. Most often, they drift. Priorities change. Incentives evolve. Decisions that once would have seemed inconsistent with the mission gradually become accepted as necessary or unavoidable. Over time, the organization may continue to function and even appear successful from the outside, yet something important has changed. The original purpose becomes harder to recognize.

51:14Trust begins to weaken and people no longer experience the organization in the same way they once did. What makes this conversation particularly relevant is the same pattern often appears in our personal lives. Disconnection develops through accumulated distance between what we value and where we invest our attention. Relationships weaken when they are consistently postponed. Communities become fragile when participation gives way to convenience. Individuals become disconnected from themselves when achievement becomes the primary measure of worth, and reflection is pushed to the margins. As we begin this new series, I think Eric's work offers an important insight.

51:51The connection crisis is not simply a story about loneliness. It's a story about trust. It's about whether people believe they matter to the organizations they work for, the communities they live in, and the institutions that influence their daily lives. When people stop feeling seen, valued, and represented, connection becomes increasingly difficult to sustain. Understanding how trust is built, how it erodes, and how it can be restored is one of the most important conversations that we can have today. On Thursday, we continue exploring disconnection from a very different perspective. I'll be joined by physician, researcher, and best-selling author John LaPuma for a fascinating conversation about what he calls the indoor epidemic and how modern life has gradually disconnected us from many of the environmental conditions that human beings evolved to thrive within.

52:36If today's conversation examines what happens when institutions lose their connection to human flourishing, Thursday's discussion explores what happens when people lose their connection to the environments that support human flourishing itself. It's a powerful continuation of this larger story, and I can't wait to share it with you. In the last couple of generations, we've moved inside as a species and never left. We spend as 93 % of our time inside, in buildings or in vehicles, 86 and 7, than if you're doing the math. And that means we spend our time in the office or in a classroom. Our commute is in a vehicle of some type, almost always.

53:19Our wind down rituals at night, what are those? Those are screens for the most part. We're watching TV, we're doing something on a tablet or a computer or on our phone. For us, the environment made a choice for us to be inside before we knew that there was a choice to be made. If today's episode resonated with you, share it with someone who might benefit from it. Leave a rating and review on Apple Podcasts or Spotify and explore more, including the workbook for today's episode at theignitedlife.net. Until next time, remember that trust grows wherever values and actions remain aligned. I'm John Miles, and you've been PassionStruck.

54:07Thank you.