People First: Excellence and Fairness - Part 2

Abdul-Jaleel Al-Khalifa, 2007 SPE President • president@spe.org

The future challenges facing our industry extend far beyond conventional practices and linear thinking. New discoveries are normally high cost and technically complex—take, for example, oil and gas discoveries beneath salt horizons in deep water. Incremental recovery of declining mature fields is achieved at a higher cost of drilling and remedial operations. This new business climate calls for a continual evolution of cost-effective technologies. These technologies can be developed and deployed only by a fully engaged, competent workforce. These workforce characteristics are typical of corporations positioned in the engagement quadrant, where excellence and fairness are the norm (Fig. 1). Conversely, corporations in the disengagement quadrant suffer from unfairness, mediocrity, and higher costs. Therefore, corporate leadership needs to promote a culture of excellence and fairness at both the employee and the corporate level.1,2

Fig. 1—Healthy corporations enjoy a higher engagement level, more innovation, lower costs, and better performance.

Corporations are run by a pyramidal hierarchy, with middle management at the base, executive management at the middle, and a chief executive officer at the apex. The CEO reports to a board of directors that represents the share holders. Incumbents, at all these hierarchy levels, can have different approaches to achieving commercial success. They can be leaders who shape the business environment and advance both commercial interests and people values. Such leaders are like farmers who cultivate vigorous plants (energetic employees). These plants need both visible, above-the-ground nutrition and invisible, below-the-ground nourishment. The visible nutrition is the air and sunshine (leaders publicizing fair policies and posting people values on the walls of the corporation). The invisible nourishment is water and fertilizers (leaders walking the talk and acting with fairness, trust, and integrity). In this environment, the plants grow and start bearing fruit (employees are engaged and start innovating new technologies). This process is demonstrated in Fig. 2. In a corporation, these are the managers who tap people’s hearts and infuse trust, respect, and integrity through the entire organization. They draw on people’s full potential and enjoy the highest level of their ingenuity and innovation. In return, these leaders are loved, admired, and respected. Others in the corporate hierarchy are not leaders. They focus only on results and achievements. They know how to reap the fruits, but they do not irrigate and nourish the plants. Unfortunately, they disengage their subordinates and fail to tap their full potential.

Fig. 2—Leaders of healthy organizations set fair policies; exemplify fairness, trust, and integrity; and nurture the growth of their people.

Our industry needs leaders who champion fairness, excellence, and people engagement. To develop this environment, leaders need to concentrate on three elements:

Preparing the soil: How can leaders resolve the tension between people values and commercial pressure?
Air and sunshine: Are corporate policies fair?
Water and nourishment: How do leaders live fairness and integrity?

The Business Environment

People values are at high risk when commercial pressure is high. In the mid-1980s and mid-1990s, many of our industry’s expert professionals found themselves jobless overnight, leaving a large vacuum that was only felt years later. Corporate chiefs declared that those job cuts were a regrettable necessity. But how can short-term necessities hurt the long-term fate of our industry? Is this a shortcoming of the current financial model? Is what happened avoidable in the future?

Adam Smith, the founder of the capitalist theory, promoted self-interest and freedom as the dominant force for wealth generation. Most companies are owned by either one share holder, as in national companies, or by many share holders, as in publicly listed international majors, independents, and service companies. Fund managers and stock analysts look at quarterly earnings as a measure of management performance. Share holders and company boards expect higher quarterly earnings and positive signals of future growth, which will help raise the share price and corporate capitalization. This financial model exerts a mounting pressure on company management, unbearable at times of sliding oil prices. Although this market pressure is common in all industries, the cyclic nature of our industry further emphasizes the urgent need for a revised financial model.

Here is a clear illustration of this market pressure: AES Corporation is a power generation company operating 128 plants in 25 countries with 30,000 employees. AES defined its core values to be integrity, fairness, social responsibility, and fun. The U.S. Securities and Exchange Commission required AES to list its adherence to these people values as a possible risk to share holders when it offered stock to the public. The following statement was added to all public offerings: “An important element of AES is its commitment to four major shared values…. If the company perceives a conflict between these values and profit, the company will try to adhere to its values…. Moreover, the company seeks to adhere to these values not as a means to achieve economic success, but because adherence is a worthwhile goal in and of itself.” AES’s performance has exceeded expectations.5,6

The new financial model has to include people interests together with, if not ahead of, commercial interests. This can happen only if people and commercial interests are complementary and not contradictory.

Fig. 3—The interests of the people are aligned with the interests of the corporation.

Following Maslow’s Hierarchy of Needs, let’s identify human and corporate hierarchy of wants and see if they are aligned. As can be seen in Fig. 3, both interests are aligned. Starting bottom up, the commercial success of the corporation is aligned with the financial reward for the individual. The long-term viability of the corporation ensures a reasonable job security for the individual. While the corporation seeks employees’ commitment and loyalty, individuals require fairness, trust, and integrity from the organization. The organization strives for excellence and innovation, which ensures bright careers for the individuals. This complete alignment ensures that commercial interests and people interests are complementary and that both can be accommodated in a working financial model. Corporations will then enjoy long-term commitment and higher engagement of their employees (Fig.4).

Fig. 4—Healthy organizations honor both people interests and commercial interests.

How do we change the current financial model to include people interests and values in addition to profit making? I will discuss that in next month article.

Corporate Policies

My comments are not meant to be critical of corporate policies; rather, they are offered to start a constructive dialogue regarding our most important asset—our people.

It is fair to say that 95% of today’s corporate policies were established many years ago. Major policy revisions rarely take place. While perspectives and styles of leadership have been converging slowly and steadily towards better appreciation of people, policies have not changed at the same pace. Even new practices suffer from the same major shortcomings as the original practices. Take, for example, the new performance management system that replaced performance appraisal systems in most corporations. The performance management system ensures an early contractual agreement between employee and manager with frequent and transparent feedback through the year. This system, unfortunately, was then subjected to the same binding constraint as the old performance appraisal system. This constraint mandates that the manager has to force rank his subordinates’ evaluations to meet a distribution curve (only 30% of the employees can be ranked excellent or outstanding, while the majority of the performance ratings range between very good and average). These ratings then cascade to impact promotion, succession planning, and high-potential nominations. The adverse impact of force ranking goes far beyond salary increments, as it severely batters people’s morale and impacts their long-term career plans.

While it is understood that corporations have limited budgets for financial merits, a better and a more fair distribution scheme can be implemented. For example, a company’s total merit budget can be allocated proportionally among organizations, and then among departments and teams according to predetermined achievement targets. Team leaders can then distribute merits among team members in proportion to their contribution, without the need of force ranking. This proposal honors fair performance evaluation within the same budgetary control.

Force ranking is unfair and has to be abandoned, as it kills team collaboration and promotes greed and selfish competition. Take, for example, an integrated asset team of geologists, geophysicists, petroleum engineers, and other professionals. Each member of the team contributes a unique value that is essential to the overall success of the team. The same applies to a project team handling the engineering/procurement/construction of a mega-billion-dollar construction project. If the team fulfilled its mission, then most team members (not just 30% of them) can be excellent. Why can’t the corporation empower team leaders to distribute the merit budget according to the actual performance of the team members?

There are other policies that human resources experts need to revise in the spirit of honouring fairness and people values.

Walking the Talk

Leaders are full of care, love, and humility. They are fair and, at the same time, firm. They are passionate about their vision and contagious with their charisma and determination. They shake the silos of the organization through a hybrid of order and disorder to mitigate rigidity and to infuse inter-organizational learning. Most importantly, they are loyal to all employees and never allow bias and prejudice anywhere, anytime. This is surely exemplified in the words of the early Islamic leader Ali bin Abi Taleb to a companion he assigned to head one of the states: “Fill up your heart with love and compassion to all the people and never be like a wild cruel animal. People are either your brothers in religion or your like in creation.”7 This message demonstrates equal rights and opportunities regardless of religion, ethnicity, color, or gender. In essence, leaders are trustworthy and, therefore, entrusted by all employees to steward their careers. We all know leaders in our industry who exemplify this role model and who live this highest ethical and moral standard. We also know others who need to significantly improve their leadership skills.

Following are unfair practices, which can be subconscious but certainly lead to a serious lack of engagement:

Red tape and red carpet. Organizations need to ensure that all employees are given equitable opportunities and rights, including the chance to rise up the management ladder. The perception or reality of undeclared roles that treat people on two tracks, red tape for the unconnected and red carpet for the favorites, is devastating. The notion that professionals have to be sponsored by someone more senior in the organization to climb the career ladder is unfortunately widespread in the industry. It stems from the basis that individual’s close networks and affiliation with influential people is very critical for his career promotion. This severely undermines the underlying principle of fairness and integrity.

Unconscious bias. Human brains use two processes, induction and deduction. Induction is the process of assimilating data and information. Deduction is the knowledge model that one develops on the basis of collected information. These two processes happen at different scales in different disciplines. For example, mathematics is a firm science that builds on established abstract basics. Scientific knowledge in physics and chemistry builds on experimental observations, but is almost free of subjective feelings. Our judgment of people, however, builds on our own observations filtered through our personal lenses and subjective mindsets. Our brain applies the process of association to quickly reach conclusions. We can reach wrong conclusions by associating certain colors, religions, ethnicities, or gender with specific behaviors. This is the most dangerous unconscious bias that can significantly impact our decisions. It creates a mindset and a lens through which we cannot see others in a fair, objective way.8

Most corporations run frequent statistics to ensure representation of all groups and minorities at different decision-making levels. Therefore, a cursory look at corporate executives and middle management immediately reflects whether fairness is observed or not. Another quick but effective observation is to compare incumbents with others in the organization. An alarming observation is to find a mediocre individual rising up the management ladder, while high-caliber individuals are marginalized. To mitigate this situation, corporations normally contract a reputable consultant to objectively assess incumbents as well as candidates in the high-potential and succession-planning pools. This data point is very objective and it might reveal whether an individual is unfairly treated or is unduly favored in the organization.

Policies are …, but reality is… Leaders are vigilant; they aspire to uncover and immediately act against any possible unfairness in their organizations. They have no tolerance for unfairness and therefore they tend to take immediate action and examine the root causes of the unfairness. They revise unfair policy, and they counsel and/or discipline unfair managers. Leaders do not rely on policies only. The spirit of the policy is in walking the talk and living the values. For example, the bottom line of the high-potential list and/or succession plan is to deliver a high-caliber leadership. Leaders normally look at the results to ensure proper utilization of these tools.

I strongly believe that our industry needs to develop a key performance indicator (KPI) that reflects people values. This KPI would be reported on frequently and shared internally with corporate boards and externally with the financial markets. This KPI will help overcome the commercial/people tension at the macro-economic scale. It will also nurture fairness and excellence within the corporations. I will discuss my ideas about this KPI next month.

References

Al-Khalifa, Abdul Jaleel: “People First: Full Engagement,” JPT (November 2006) 10.
Al-Khalifa, Abdul Jaleel: “People First: Excellence and Fairness—Part 1,” JPT (December 2006) 10.
Groberg, D.H.: “Sources of Leadership Success, Lessons from a Peach Tree,” course notes, Seven Habits of Highly Effective People.
Covey, Stephen R.: Principle-Centered Leadership (Free Press (1992)
O’Reilly, Charles A. III, and Pfeffer, Jeffrey: “Hidden Value,” Executive Book Summaries (April 2001) 23, No. 4, Part 2.
www.AES.com.
Ali Bin Abi Taleb, Nahj Al Balagah, http://www.al-islam.org/nahj/.
Banaji, Mahzarin R., Bazerman, Max H., and Chugh, Dolly: “How (Un)ethical Are You?” Harvard Business Review (December 2003).
Lebow, Rob: A Journey into the Heroic Environment, Select Books Inc., New York City (2004).