Yes to everything Felix is saying and, while there are significant social implications of what he sees, I’d like to put the talk into the context of our conversations about work and organization. There are many points to raise, but for now let’s stick with just one: the impact of Wall Street’s emphasis on Quarterly results.
13-week Time Horizons Serve Management and Subvert Leadership
The work of Management is to create control and predictability, to plan for exactly what will happen and how it will happen, to make promises and deliver on those promises. The work of Leadership is to explore possibility, to bring new realities into existence that are in alignment with the ‘why‘ of the organization, to declare visions and make commitments that forward those visions*. By it’s nature, the work of Management lends itself to a short-cycle measurement paradigm that emphasizes tangible results; the Fiscal Quarter as a timeframe within which to check the health of the organization is tailor made for gauging Management work.
The work of Leadership, in contrast, doesn’t unfold as linearly and a short-cycle measurement paradigm can fundamentally miss – and thereby marginalize – Leadership work. The drivers of Leadership work are for the most part intangible and relational (e.g., trust, influence, reputation, vision) and can’t be accounted for in the way tangible and discreet elements are (e.g., revenue, market share, error rates). As Felix points out in the interview, Wall Street has come to be dominated not by those who invest as owners of the enterprise but rather by those who are interested in short cycles of return on their investment. In my work consulting to pre-IPO companies, one of the running themes is a clarity on the part of organizational members that, once their shares are traded publicly, the opportunity for creation and exploration will diminish if not be shut down totally. There is a palpable sense of ‘going public’ as a Faustian bargain, an act of enormous financial benefit that will come at the cost of their personal and collective visions. The painful irony is that, at a time when the engagement with Possibility and Creation – the work of Leadership – are central to economic survival, there is an intuitive understanding that Wall Street does not value Leadership but instead insists on ever more efficient application of Management. Consider this simple but illustrative example:
Imagine that you are CEO of a publicly traded firm. Last quarter, you produced $500M in profit and this quarter you have promised $550M. At the end of this quarter, you announce that your company did in fact deliver $550M; what is Wall Street’s reaction? Positive, of course. Now, what if you produced $548M? The reaction is perhaps a little negative but you’re probably still OK. What about if you produced $552M? Likely a very positive response from the Street. And, of course, if you only produced $525M you know you’re in big trouble. Now here’s the really interesting one:
What if, after having promised $550M your company actually delivered $650M? The Street should be happy, right? After all, you just made them much more money than you said you would. However, the result of $650M would be taken as a negative, a sign that you have no control of your business. I’m not suggesting that this is a ‘bad’ perspective for Wall Street to have, but it’s important to understand what that system was and wasn’t designed for. The reality is that Wall Street rewards, first and foremost, control and predictability and has no tolerance for uncertainty; i.e., it’s very design ensures the rewarding of efficient Management and the suppression of effective Leadership.
Long-term investors can engage in the long-term conversations that Leadership speaks to, they are engaged in a relationship that allows for certain measures of uncertainty and surprise. Short-term investors, by their nature, cannot. So, while I share Felix’s concern about the possible emergence of a very small investor class (which I actually don’t see happening), I do welcome the marginalization of Wall Street as a force in business.
In the second part to this post I’d like to discuss how the 13-week Time Horizon Creates the Illusion of Engagement and Motivation; but, for now, what do you see?
*If you confuse the terms Management and Leadership as specific titles or jobs in an organization, this perspective falls apart; we are referring here to Management and Leadership as two distinct, and complementary, ways of engaging within an organization, regardless of one’s title or job.