Episode #6: Conscious Culture (Part 1)
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What is a Conscious Culture? We define it in terms of T.A.C.T.I.L.E. - the way a conscious culture feels!
Dweck, C. (2007). Mindset: the new Psychology of Success. Ballantine Books: New York.
Patnaik, D. (2009). Wired to Care: How Companies Prosper when they Create Widespread Empathy. Jump Associates.
Smith, A. (1759). The Theory of Moral Sentiments. Pantianos Classics, republished 2011.
Smith, M. K. (2001) Peter Senge and the learning organization,The encyclopedia of pedagogy and informal education.
Mackey, J., Sisodia, R. (2014). Conscious Capitalism: Liberating the Heroic Spirit of Business. Harvard Business Review Press.
Sisodia, R., Henry, T., Eckschmidt, T. (2018). Conscious Capitalism Field Guide. Harvard Business Review Press.
Timothy: Hello everybody, and welcome to episode six of The Conscious Capitalists with myself, Timothy Henry, and my partner in crime here, Raj Sisodia! Hey Raj.
Raj: Hi Timothy, good to see you again.
Timothy: Good to see you again. I think following along on the theme we’ve been working on so far, let’s work to the next pillar of Conscious Capitalism, which is really about a Conscious Culture. And as we do that, I thought maybe we would start with maybe just a definition of what we think culture is and then maybe what we think a conscious culture is, what’s unique about that. So maybe to start with, you know, a culture as I think we use it, is really sort of a pattern of behaviors that are encouraged, discouraged or tolerated over time by people and systems. So what’s important about that is the patterns of behavior, how we do things around here, what gets enforced, what gets reinforced, what gets you in big trouble and that it’s consistent over time and we come back to is about the role modeling of leaders, the people and the systems and what they reinforce, all of which is important and we’ll come back to later as sort of the mechanics of how you enforce or build the culture, but I think that’s sort of the baseline of how we would maybe begin to define what culture is. When we switch now to conscious culture, Raj, what do you think is different?
Raj: Well it has to be aligned with everything else that we talk about, right? So we have the why question, we talked about earlier around purpose, we will talk about the what question in terms of the kind of value we create for stakeholders, and the how is, yeah, as you said, how it feels to work here and how does it feel for people to interact with us, right? So the culture is prominent if you think about it as an internal to the organization thing, but it of course impacts our relationships with other stakeholders, and given that conscious business are rooted in purpose, they have core values and they are genuinely rooted in caring for people as human beings. All of that has to be at a minimum reflected in the culture, and then beyond that each company might have some unique elements, right, but there has to be this notion of shared values, there has to be a notion of caring at the center of it, and of course constantly being motivated by the shared purpose of the organization. So, all these things, these four pillars of Conscious Capitalism, as you know, they’re kind of interlocking pieces that fit together with each other and they reinforce each other.
Timothy: Yeah. No, I think that’s so right. To come back to that this is a system, and this is one of those blocks of the system, but it’s the interaction of the four that actually gives you the power and the force that makes a difference in the business. Now having said that, I think that in the book, the Field Guide, we use the acronym T.A.C.T.I.L.E., and you get full credit for that. All acronyms that we come up with, they’re ‘Rajisms’ in my mind. So, we talk a little bit, Raj, about you know, when we talk about how to know if you have a conscious culture, we use that acronym TACTILE.
Raj: Sure. Before I do that though, I am reminded of Drucker. Drucker has a quote. I have an acronym for everything, and Drucker has a pithy quote for everything. He got to the essence of things before most thinkers did in the world, and about culture he said, and this is almost cliché now because it’s so well known, “Culture eats strategy for lunch.” Now when you first heard that, that’s pretty radical. I mean in business school we teach a lot of courses called strategy and we don’t really teach anything about culture, and this was a big wakeup call to say, listen, your strategy is not a secret. Every MBA student in any good business school will know the strategy of most leading companies. I mean we’ve got detailed cases on those strategies, and yet, why can’t we replicate those companies at will, because the cultures are unique and they’re homegrown, and you can’t just impose them from the outside and adopt them. They have to evolve. And so you can almost take it – yes.
Timothy: I love that, Raj, and one of the things I love about that is Doug Rauch, the former president of Trader Joe’s, studied for a time with Peter Drucker, and he said when Peter got older, he changed that. He said, “Culture doesn’t eat strategy for lunch, it eats it for breakfast, lunch and dinner.
Raj: Yeah. That’s right. Yeah. And then you can almost go further and say for many companies, not all, but for many conscious companies, culture is strategy, right? In other words, it becomes the primary basis for your sustained comparative advantage.
Raj: You know, Southwest Airlines flies the same boring planes and they set up the same airports for the most part and, you know, there’s a lot in every industry that is kind of standard, and yet, what makes it different? What is the reason why they have been more successful than anybody else is because not only their focus on culture. Nobody else even talks very much about culture in that industry, although others are learning from Southwest now, but also the fact that it is a deeply people-centered culture.
Raj: Right, their stock market symbol is LUV. You go to their headquarters, I had the opportunity to interview Herb Kelleher some years ago, and it was an unforgettable day because first of all, their headquarters at Love Field in Dallas. The walls are plastered with pictures of people with their children and their families, and maybe a thousand pictures of people hugging Herb Kelleher, the employees of Herb Kelleher, right. I mean the whole thing is… and after the interview that I did with Herb and he was walking to the parking lot, it took about 30 minutes because everybody wanted to stop and say hi and get a hug from Herb. So he embodied that culture in such a deep way, and that culture of love and care, which is at the root of it, is we love our customers, we love our employees, we love our cities, we love our airports, we love everybody, and I mean that’s… If you look at their 50-year track record of sustained growth, sustained profitability, they’re the most successful airline by far in the history of the world.
Never had a strike despite being the most heavily unionized of all airlines, never had a single passenger casualty until a year and a half ago when there was a freak accident, never laid off a single employee. Even during times like 9/11, and today is the anniversary of that day, I remember most airlines, that was like a Great Depression for them. They laid off 30%, 40% of their people. Even during the current downturn, Southwest has not laid off anybody. They’ve offered some early retirements, but pretty generous with those. So again, culture, the power of culture I think shows up pretty dramatically in a company like Southwest Airlines, and you can see what it can do. And others like JetBlue or others have tried to emulate versions of that culture, but ultimately, it’s people at the center. As Kelleher said, “The business of business is people, yesterday, today and forever,” and they embody that I think very purely.
Timothy: I love that you brought up JetBlue because what’s really interesting is that Ann Rhoades at one point had been the head of people at Southwest Airlines, and she was one of the co-founders of JetBlue and became head of people there.
Timothy: So, people often point to those two airlines and say not only are they very profitable, not only do they have great customer service, but they’re just fun, good, interesting places to travel.
Timothy: You like the people that you’re interacting with, and they’re incredibly efficient and profitable at the same time.
Timothy: And that connection has really been around the people side of things and how they treat people.
Raj: That’s right. You know, the thing is most leaders assume that efficiency is kind of a choice that you can make or you can treat people well, but if you treat people well then you will kind of coddle them and they won’t be efficient and they’ll just be kind of, you know, happy and lazy, but the fact is that most of these companies have tremendous operational efficiencies that are superior. Southwest turns around their planes, you know, very rapidly. I mean they have all kinds of indicators, so that’s why, and you know, people are engaged and cared for and the turnover is low. They become experienced and proficient and collaborate. You know, so a lot of efficiency gains happen as a consequence of treating people well. It’s not either or.
Timothy: Well I think that is the great point about Southwest that you bring up is their operational efficiency, and the example I love is the way they have turnaround teams at the airport. You know, the gate agent works with the baggage handlers, works with the captains and the stewards and stewards to get the plane turned around quickly.
Timothy: And they have a metric that’s a team metric.
Raj: That’s right.
Timothy: And they work with a team rather than, you know, in many organizations. You know, again, the other airlines, it’s very piecemeal. I can only tell you here at Heathrow Airport.
Raj: Oh yeah. That’s not my job.
Timothy: A team to get an airplane turned around, oh my goodness.
Raj: Yeah. Well I think it’s like a caste system. Conscious companies with conscious cultures, you don’t have a caste system. Everybody’s together, everybody’s, you know, a respected and valued member of the team.
Raj: In most companies, there’s a distinct caste system, right? You’ve got the professionals, the college educated, then you have the hourly people doing the grunt work and there’s very little respect and very little regard for that, and I think at conscious companies, there’s a unified culture.
Raj: In most companies, you can’t talk about a single culture because the culture differs by department, and differs by rank, and differs for the executives. You know, they have a different set of norms and private dining rooms and, you know, all kinds of stuff, right?
Raj: But I think these companies are more egalitarian, and I think we can talk about TACTILE in that regard, you know, that the word TACTILE of course means something you can touch and feel, something very tangible, right? I mean this is something I can hold, and I can feel. And the irony is that cultures are invisible. You can’t put them in a box and say, “Here’s a bit of culture.”
Raj: And yet it is very tangible in these companies. You can walk into a conscious company and feel the energy.
Raj: I sound like a new age person now, but you can literally feel the energy.
Timothy: Well I mean, you know, I always like to say the example of walk into a Whole Foods, walk into a Trader Joe’s and then walk into a Kroger or an Albertson’s and tell me if you notice anything different about the attitude of the staff.
Timothy: And, you know, that’s the final point I think before maybe we get into TACTILE is that as you said, it’s not only an internal piece, it’s how everybody who interacts with the organization experiences that, and that’s particularly true of the customer.
Timothy: And I remember John Mackey and Doug Rauch, one of the first times they met, having an argument about which came first, the customer or the people. You know, I think we ended up sort of saying it’s two wings of a bird, you now, that those two together you get liftoff.
Raj: That’s right.
Timothy: And part of the secret sauce, the great customer service, is really happy people that are engaged and care about what they’re doing.
Raj: Man. Yeah, exactly, so it’s invisible and yet it’s very impactful. But TACTILE also then stands for selling key qualities that are common to most conscious cultures, starting with trust. You know, there’s a lot of trust in these – there’s trust across employees that trust each other, right. There’s trust between the leadership of the company and the employees. There’s trust with vendors and suppliers, with customers.
Raj: You know? You’re not going to assume that a customer is here to steal something or cheat you. There are great stories of Trader Joe’s where a woman bought a bunch of stuff and then, “Oh my god, I left my purse on the cabinet at home, the kitchen counter,” you know, and the person said, “Oh no problem. Here, just use my card and pay me next time.”
Raj: And she was flabbergasted. She said, “Oh my goodness, that’s incredible. I mean this is not… you know, it’s a checkout person, it’s not a rich person.” But you know, that level of trust. So, trust is a critical thing.
Timothy: Yeah. I love also the example of Nordstrom’s, you know, that when a new hire comes in, they give them a little book and on the first page, they have a statement, the key part of which is. Let me read that. “Nordstrom rules: Rule number one, use best judgment in all situations. There will be no additional rules.”
Raj: That’s right. A one-page book.
Timothy: That’s right, and the rest are blank for you to learn and write down notes from observing the people around you.
Raj: That’s right. That’s right.
Timothy: But that’s an ultimately sign of trust in your people.
Raj: That’s right. And that of course goes with empowerment and all the other things that happen when you trust people, right? So, I think that’s a key element. Let’s see, trust and then we have authenticity, right? So, you can be who you are. You don’t have to act. You don’t have to – most companies you got to put on a mask and armor, right? And essentially go to battle when you get to work. I mean, you know, you’re catching market share, you’re dealing with office politics, you know, you’re navigating the sharks. I mean there’s just a lot of that in most cultures. Most cultures are filled with fear and stress.
Raj: That’s not human beings. Human beings are best motivated intrinsically.
Raj: They’re inspired to do things. I mean now the thing is also that we at some level are, you know, sort of operating at an animal level and we can be in a way trained. You know, after a while we do start responding to the carrots and sticks, but that’s not – that doesn’t lead to anything significant.
Raj: So again, authenticity, being who you are, right, showing up as your whole human self, including being vulnerable, being able to express your vulnerability, your lack of knowledge in an area, asking for help. All of that is extremely critical.
Timothy: And I think it’s becoming, you know, to be contemporary with some of the topics we have now around diversity and inclusion. You know, a lot of it is around allowing people to be who they are and create an atmosphere where that is supported, whether you’re a person of color.
Timothy: Whether you have different sex preferences, male, female. Creating environments where people can be themselves and bring their best selves is increasingly important.
Raj: And of course, like all of these things, you know, when you do the right things, great outcomes result. So, you do it because it’s the right thing to do, but there’s tons of research showing what happens when you have a more diverse workforce, when people are encouraged to bring their whole selves and be themselves. You get a diversity of perspectives, you get more creativity, you get better ideas. You know, you have lower risk. You know, you have better growth, all kinds of things that happen when you have that. So again, authenticity is the second. The third one is caring, and I think as I’ve said probably before that caring is probably the single biggest factor, differentiating a conscious business from a traditional business. Traditional businesses are built on one pillar of what it means to be a human being, which is self-interest. You find [inaudible] as making money, so the business exists to make money for its owners, employees go there to make money for their families and for themselves, customers go there to get the best value or the best deal, right, and suppliers, you know, everybody’s there basically from a self-interested perspective. But human beings also have a need to care.
Raj: Our friend and fellow board member, Dev Patnaik wrote a book called Wired to Care, right. Adam Smith wrote The Theory of Moral Sentiments. So we have a need to care that’s even greater in some ways than our drive for self-interest, and yet business and capitalism generally hasn’t harnessed that.
Raj: We haven’t recognized – let’s not even use the word harness because that suggests its sort of an instrumental way of thinking about things. We haven’t recognized it, the human need to care. My friend Jane Dutton who is a well-known professor at Michigan and is probably the world’s leading expert on compassion and caring in the workplace, and she said, “Organizations – we are designed to care, and organizations can magnify or suppress our capacity for caring.”
Timothy: And I also think it doesn’t mean being soft either. I mean you can have caring and accountability, you know.
Raj: Oh yeah. Yeah.
Timothy: I like to think of that as a parent, you know.
Timothy: We care deeply about our children, but we set limits for them, and the best leaders have both caring and create systems of accountability, and I think Bill George is a great example of doing that at Medtronic’s when he came in as CEO.
Timothy: It was a caring company, and he very artfully brought together both the caring part and the accountability part by both empowering and helping people be more accountable pushing decision making deeper into the organization, and in that process, you know, held on to that core value of caring.
Raj: That’s right. So, I think the word you can separate kindness from niceness, right? So, if you have a culture built on niceness, it means you’re going to overlook a lot of egregious things, you’re going to tolerate things just to be nice. You’re going to shy away from necessary conflict that is needed in order to ensure that everybody’s operating in a way that we want.
Raj: So, it’s genuine caring and I think as Bob Chapman, my co-author on Everybody Matters, which is, you know, leadership is the stewardship of the lives entrusted to us. The stewardship of their lives doesn’t mean always saying yes. Caring for them sometimes means saying no, setting boundaries, setting limits and so forth, right?
Raj: So, I think that’s key. But that is I think the central thing around which all of this revolves is the idea of caring at the core of businesses, caring about our people, about our customers, about our impact on the world, on the planet, on other species, I mean all of it, right? We have to care.
Timothy: And that plays to sort of the next letter, T.
Timothy: Which is transparency, and really being open and allowing information to flow freely, you know. At an extreme, it’s open bookkeeping and an open book style of management. What else does transparency to you?
Raj: Well I think it’s having an open door with regard to leadership and strategy. As I said earlier, strategy’s not a secret. A lot of companies go to great lengths to try to make it a secret, you know. It’s really not. They use a lot of military analogies and sort of top secret and classified and, you know, all of that. It’s really not, right? And therefore, sharing with people what are the challenges, what are we doing, why are we doing it, you tap into the wisdom of the crowd, as it’s called, right? That collectively there’s so much intelligence, there’s so much intuition, we have so many points where we are sensing what’s going on in the world, that if we open up those channels of communication, that we will then get ideas and we will have innovations that we otherwise would not have, right?
So, it’s including – it’s an inclusive approach to leadership, to strategy, to planning, you know, all of those things. I mean to me transparency includes all of that as well.
Timothy: And I also think that, you know, going back to the point about strategy and offense, you know, there’s some schools of thought that say our strategy, it’s unique to us and we have to keep it a secret, and we better not let it out because if our competitors knew, they would imitate our strategy. And yet if people in my organization don’t understand what our strategy is, it’s very hard for them to execute it.
Timothy: So, I think one of the interesting elements of strategy and transparency is cascading the information around priorities and what’s expected if we’re going to be executing against our strategy so that it’s relevant at the frontlines of the organization, and in that sense, there is full transparency. We’re trying to move in this direction; therefore, this is what’s expected of your division, here’s what’s expected of your department, here’s what it might mean for your team and ultimately here’s what it might mean for you, and one of the best examples I saw of that working with a retail client was cascading the fact that they were trying to grow a new division, a new part of their retail business and to do that, they needed to cut back on some costs in order to internally fund that kind of growth. So as a part of that effort, they had some cost efficiency metrics they were putting in place, and they got it all the way down to the store construction department, and within that, the fixtures department where the fixtures people were going around and looking and saying, “Hey, if we can decrease the cost of fixtures by 10%, then we’re helping to grow the business by helping us launch this new retail concept we have.”
So that transparency of making it, you know, meaningful to people of what we’re trying to do, and make it relevant to them. It’s not just we’re trying to cut costs by 10%, I’m helping to grow our new retail concept. Got it. That kind of transparency is not just about the openness, but it’s also about the relevance and the education of people in alignment throughout the organization.
Raj: Yeah. I’m reminded of a friend of mine is a CEO, was a CEO of a big computer company in India called HCL and he wrote a book called Employees First, Customers Second. But one of the things he talks about in there is that on their internal website, he had a section called My Challenges as a Leader. What am I trying to do, what am I struggling with, et cetera, right? And there are thousands of very smart people working in that company.
Raj: The idea is that I don’t have to struggle with these by myself, right? And so, there are lots of wonderful ideas for how to deal with everybody’s challenges by opening up and having that level of transparency. It does require a leader…
Raj: …to have that level of consciousness that enables them to be open and vulnerable and admit that they don’t or they’re struggling.
Raj: Right, so again, all of these things go together, these elements of TACTILE.
Timothy: Yeah, there’s another great example, which is the CEO of Accenture, Julie Sweet. She has a set of learning objectives that she creates for herself each quarter, and she publishes them to the whole organization, sort of saying, “Listen, this is my journey as a leader. Here’s my learning agenda for the next quarter, and I’m going to report into you how I’m doing, and I expect your feedback,” and that’s her way of role modeling a certain transparency of what she expects from leaders across the organization.
Raj: Yeah. And Ramon Mendiola Sanchez does something similar, one of the companies, FIFCO, we wrote about in the Field Guide as well as in The Healing Organization. You know, they set these ambitious goals and then they publicize them. They’re not internal. How come we’re keeping things secret? They are known to the world, not only to all your employees, goals around, especially around their footprints with the environment, right?
Raj: And they say, “We aim to achieve this by this date,” and they just put it out there, and then every time they’ve done that, they have achieved those goals because everybody then gets, you know, energized and inspired to try and do things to help further that.
Timothy: Well now the I, the I stands for integrity and Raj, you maybe want to intro that for us?
Raj: Well yeah. I mean, you know, that’s of course a word that encompasses ethics and legal compliance at a bare minimum of course, but also being aligned, right? Between your parts and your words and your actions and your values, right, so there’s alignment between all of those things. So, integrity is one of those sorts of super values, right, for us as human beings as well as for organizations that encompasses a lot more, many other values within it. It’s a given. I mean you have to have integrity that’s also relatively there, you know, to find it in the world, [inaudible] we recognize it when you see it, and we make tough choices and you walk away, you know, from certain opportunities because you’re staying true to who you are, you know, what you say that you care about. You know, there’s no gap between the words and actions and values.
Timothy: Well I also think that a great example of that is to ask a management team or a leadership team what are you unwilling to tolerate? Like what are the things that are we’re just not going to compromise on? And I was reminded of working with one client. It was a professional service organization that was introducing a diversity program, and one of their senior partners who’d been around for a long time, you know, started making, you know, side comments about it. It wasn’t clear that he was onboard, and the result was they had to make a difficult decision. Is this guy going to stay with us or not, and they ultimately said, “No, I think that this is one thing that we’re not willing to because we’re not in integrity if we say diversity inclusion’s important and one of our senior partners is really not going to do that.” So, he took an early retirement. So, I think the next thing is the L, the learning element. Want to talk a little bit about that?
Raj: Yeah. I mean Peter Senge talked about the learning organization years ago. Carol Dweck talked about the growth mindset as an essential attribute for all human beings, especially leaders, right? So if we are not learning and growing, then essentially we’re decaying and dying, and in a conscious organization, there’s constant learning at an organizational level but also at an individual level, so we encourage people and we enable people to continue to grow and evolve as human beings, in their self-awareness, in their clarity of purpose, in their capacities as leaders, you know, all of those. So, I think the Container Store story’s a good example of a company that provides something like 250 hours of training to their people every year when the industry average in retail is, I don’t know, five or six hours.
Raj: But there’s just a tremendous emphasis on that. So again, enabling that to be the case not only for the senior executives and not only for the so-called high potentials, which I always have an allergic reaction to. Which human being is not a high potential human being, you know? But for everybody.
Raj: It’s democratized, and I think that’s what the last E, I remember is egalitarian, right. And so, it’s for everybody. It’s not just reserved for this tier of people. That all of these things apply to everybody, including the opportunity to learn and grow.
Timothy: Yeah. Yeah, I like that. You know, the egalitarianism and in a sense the empowerment that flows with that, you know, those two Es sort of go together. We can almost have two Es at the end of TACTILE, and I know we’ve gone back and forth at times between empowerment and engagement, but I think…
Timothy: Sorry, empowerment and egalitarianism, and I think, you now, you can’t have one without the other if you’re not…
Raj: And I think with trust, as we said, with trust, you already kind of – that leads to empowerment, but yeah, I agree. So that’s definitely a key part of that.
Timothy: So, I think that thing for executives to be thinking about as they go through TACTILE is to sort of sit with their teams and ask, “Okay, where are we on these things? On a scale of one to five, you know, five is high, one is low, let’s just try to score ourselves on these and see what that means for us,” and then from that place, begin to ask yourself, “What can we do to improve in this area? What’s our agenda for building trust, authenticity, et cetera?”
Raj: I would also go beyond the executive team and actually ask our people, you know, because sometimes there’s a very different perception. I know usually there’s a very different perception.
Timothy: Almost always.
Raj: Yeah, there really is. Right, so we have to actually ask the people who are living and breathing the culture every day or experiencing it in order to understand, right?
Timothy: Yeah. Yeah.
Raj: And then of course as we will talk about next time, you know, there will be unique elements to your culture. So everybody can use TACTILE, but depending on a unique industry or the unique history of the company or the values of the founders, et cetera, there will be some unique values…
Timothy: So Raj, holding the culture discussion aside, which we’ll come back to in our next episode, I also noted that in the news this week, related to sort of Conscious Capitalism and the way people are now looking at businesses, the CEO of Rio Tinto has announced that he’ll step down, the head of their iron ore business will step down and their head of the investor relations group are all going to step down, and what’s driving that is in Australia, earlier this year, they opened up an iron ore mine, and in doing that, they desecrated a 46,000 year old Aboriginal site. There were two caves in this part of the world that in building their mine, they desecrated, and the pressure from shareholders has been such and continual that the board was asked to do an investigation to try to understand how could we go and do something like this?
So, I think it’s fascinating to sort of see how investors are increasingly paying attention to how businesses are operating and how senior leaders are leading.
Raj: Well absolutely. You know, we live in a world where there are no secrets. You know, there’s total transparency, and all of our stakeholders care about all of these kinds of things, and the consequences are swift and often dire when we [inaudible], that’s a good thing, right. You know, we reward good behavior and we swiftly deal with bad behavior in many companies now compared to what we used to have.
Timothy: Yeah. Hard to imagine that this would have happened 10 years ago, but we’re at a tipping point with Conscious Capitalism and this kind of thinking, so maybe we’ll see more of this as we go forward.
Timothy: We’ll come back to that next time Raj. So, thanks very much for your time today, and thanks everybody for your time and attention, and as always, have any comments or thoughts, come to theconsciouscapitalists.com and leave a message, and whatever podcast station you’re listening on, please hit the subscribe button. Thank you Raj.
Raj: Thank you timothy. Look forward to our next chat on this.