Selker Leadership

Greg Selker: What are some of the best ways you see that companies can create a high-tolerance risk culture, where success as the result of risk is rewarded, and at the same time a culture is created that has the adaptability to embrace change and the willingness to operate with a variety of mental models?

Dick Foster: The best experience I’ve had in my life, which I’m very fortunate actually lasted for more than a decade, was a company that I’ll describe as a very large, highly respected healthcare company of several tens of billions of dollars in size. They had an ongoing dialogue with the CEO and the top management group of the executive committee. Now you could take an extreme view, the view that I rejected earlier in our conversation, that the company should be an operating vehicle.

In this extreme view the role of the executive committee is to review operating decisions, so the subdivision reviews the operating decision and passes it up to the division, the division passes it up to the group where it’s reviewed again, and finally the group takes it to the executive committee where it is passed or not passed.

The nature of all those presentations is what I would characterize as presentation and response. We want to build this plant here. Here’s what it’s going to do. Here’s how much it’s going to cost, and the next higher review group says okay or no, one or the other.

An entirely different kind of conversation might be, how is the world evolving? Which of our opportunities are getting more mature? Which opportunities are getting less mature? And rather than having the executive committee sit there and respond to questions or assertions put to it, have them instead actually engage in dialogue. Presumably the people on the executive committee, because they’re among the smartest people of the corporation, ought to be able to engage in dialogue and debate around a well-crafted set of issues. Discussing an issue and reaching a resolution on an issue over some period of time is a very different proposition than reviewing a capital expenditure budget. I think we ought to use the talent and intelligence of the executive committee and from time to time augment it by others in the corporation.

Let’s take the ten most outstanding people under 40 and have them do one or two retreats a year with the executive committee to talk about issues. Have them engage in a structured dialogue around an open-ended set of issues. There isn’t necessarily a “so what” at the end of these sessions, but these sessions change people’s perception, leading to new ideas and tradeoffs. Then somebody can say, if we’re going to do that new thing, that’s good, but what are we going to get rid of first? As opposed to making a decision on a new plant, a new marketing program, or a new hire in the next division, it becomes a problem solving exercise for the executive committee. They have to do both, of course, but I’d like to see more executive committees engage in this kind of structured and healthy dialogue.

Greg Selker: That’s a clear operational practice that if it was put in place where executive teams, executive committees, and boards had a structured amount of time devoted to these open dialogues, an environment of flexibility, malleability, adaptability, and creativity is created.

Dick Foster: I agree. My experience has been, by the way, that some people often ask, “So how often do you do this? Do you do this four times a year?” And I say, “You do it as often as the corporation can take.”

I’ve been involved with companies where we tried to run two of those dialogues in parallel and it worked just fine. I’ve been involved in other situations where we tried to run two and it was more than the corporation could take given the operating pressures of the day, so we had to cut back to one. I’ve been at occasions where we’ve been able to run three of these structured dialogues in parallel in one year. You don’t have a formula. It’s entirely dependent on how much change the corporation can take without losing control.

Greg Selker: It gets back to the three legged stool of introducing change, monitoring the stress that’s related to change, and maintaining operational excellence.

Dick Foster: Yes, and then bringing all those together with one question. At what pace do we do these things, how do we set that pace, and how do we decide? Every company should also have a dialogue about the definition of these terms. When I say, “change at the pace and scale of the market without losing control”, that presumes that somebody knows what that means. The only group that can give meaning to that question is the executive committee. At what pace should we change in this corporation and why do we think that’s the right pace? What’s the argument? What’s the rationale? Those discussions don’t go on very much and they are very healthy discussions to have.

Greg Selker: How involved should a board of directors be in that discussion?

Dick Foster: My answer is “not very” because I think that crosses the line from governance to management. Now you can push me both ways on this issue and I’ve personally just been involved with one at the board level but I felt quite uncomfortable because I felt quite unprepared.

I wasn’t as much of an expert as the people in the company so I’m thinking to myself, what am I doing here because I’m just guessing at these answers. I’m making things up.

Greg Selker: Well, perhaps a board’s involvement to maintain good governance processes should be to make certain that these specific kinds of conversations are taking place within the senior team and the executive team.

Dick Foster: I agree. There is nothing wrong with the board reviewing the results and acting as another sounding board on the results, but to get the board involved in the creative process I think is probably overstepping the bounds.

Greg Selker: I would also say that if we had more boards who took the responsibility to ensure that these kinds of conversations were taking place, that we would have far greater companies, getting back to the very beginning of our conversation, that looked like that they were going to continue to grow into the large trees in the forest.

Dick Foster: Yes. A process of this nature allows a company to engage in critical thinking over the long term and engage with questions that don’t have to be answered right away but that can and should be taken up by management and answered subsequently.

Greg Selker: Well, Dick, this has been, at least for me, a fascinating conversation.

Dick Foster: Thank you. You’ve asked great questions.

Greg Selker: And I can’t tell you how much I appreciate your time and also, again, the quality of the ideas that you’re forwarding. I find them to be both refreshing and incredibly fresh.

Dick Foster: Well, you’re kind to say that. I appreciate it. When I wrote my book, Creative Destruction, the economy was still whipping forward. It hadn’t kind of broken the tech back yet and then that happened. Ever since then, there has been no doubt that we are living in the age of creative destruction.

Greg Selker: I would agree with that 100 percent.

Dick Foster: And it’s not slowing down so we ought to master these skills.