Last week I had the pleasure of speaking to a group of 13 MBA students from the Ohio State University Fischer College of Business. They are on a six-week internship program at a number of Silicon Valley companies. The gathering was also attended by two well-known and successful Silicon Valley entrepreneurs and by the Director of the OSU Center for Entrepreneurship. One of the entrepreneurs asked an important question, which prompts this post.
The subject of the question relates to my concept of covenant introduced in Letter 3: “Absorbing Uncertainty: the Entrepreneurial Covenant.” The central concept of that Letter is the role the entrepreneurial leader plays in absorbing uncertainty in an organization. The leader, with the broadest understanding of the organization and its business, is expected to have the greatest capacity for absorbing uncertainty. Putting their trust in the leader permits people with valuable skills but perhaps more limited capacity for uncertainty to operate in the inherently risky environment of an entrepreneurial organization. Offloading uncertainty onto the leader frees these organization members to focus on their jobs. They are giving the leader “trust packets,” and each time the leader accepts such a “packet” a covenant is established between leader and team member — an intangible bond that becomes part of the fabric of the organization. While this concept of trust packets and covenant comes from my experience of building companies in technologically complex industries such as pharmaceuticals and energy, where innovation is an intense multi-disciplinary process often taking many years before commercial success, I have generalized it.
So, the question I was asked:
Has the nature of this covenant changed over time, as organizations have shifted from the tradition of a career with a company measured in decades to the standard more typical of today, whereby organizations have a much more fluid employment pattern?
This question applies particularly to Silicon Valley, where annual turnover of 10+% is not unusual, and where engineers and scientists move to different companies every year or two. It brings up a plethora of issues I have wondered about often: How can we build a lasting organizational culture if there is high turnover? How do you harness the energy of a team if the individuals consider themselves temporary? Does the concept of allegiance apply? How do you develop esprit de corps when each employee is more interested in accumulating a ”portfolio of stock options” than in being passionate about the company’s vision? How do you build a company identity when one-third of the personnel turns over every few years?
It seems reasonable to suggest that the special bond between the entrepreneurial leader and his or her team should be different when the individuals are only engaged for a temporary specific mission as opposed to absorbed with a long-term shared vision for a company. The argument is that the nature of the link — the fabric — is different when the employee anticipates a short association rather than an enduring career within the organization. Nevertheless, my answer to the question I was asked is unequivocal: the covenant into which the leader enters is the same regardless of the nature of the organization. Sure, there may be situations where a professional arrangement is short term from the beginning. But even then, the leader expects full dedication that transcends just the details of the transaction, and a special connection needs to be made between the leader and the individual if one expects the best out of the service. I believe this applies to external attorneys and consultants as well, although it is all the more true when we make a full-time hire. The moment I engage someone to join my organization, I am not thinking of that individual’s departure. I am thinking of how he or she can be part of my dream. I describe the concept of the company, highlighting the unique role I expect the individual to play, and enter into a relationship which, at that moment, has only one possible outcome: success. Whether a person will re-consider the decision later is something neither of us can predict at that moment. I am not hiring that person on the basis of doubt, but of positive expectation.
The important factor to realize: the covenant is about “relationship” rather than “transaction.” Of course there are transactional elements in any hiring relationship – after all, there must be clarity of roles, tasks, skills, reporting, compensation. But at a deeper level, it is about the individual getting excited about the mission of the company, putting trust in the leadership, and then diving fully into the action. That is the essence – and the fun – of being in an entrepreneurial organization. And in making this happen, the leader fills a crucial role at the “apex of a pyramid of trust,” as he or she builds this fabric of relationships – both internal and external.
I do accept that people will move on. It has happened to me often in building companies, and at times it has distressed me – especially when I put my trust in someone only to find that a “better offer” woos the individual away. It is a burden the entrepreneur must carry: we cannot expect everyone to be “grabbed” as deeply by the excitement of the dream as we are. But I still proceed as if everyone is fully in the game, even if this sometimes leads to what I call the “asymmetry of the covenant.” When I find I’ve made a mistake in hiring someone — especially a senior executive — and I ask this person to leave, I go out of my way to make it easy. I consider what effect my decision has on the person’s family and career. So, for example, I go the extra mile to give the individual time to find another position. On the other hand, so often when a senior executive is lured by “a better offer,” the notice that I am given is very short – presented with the argument that the other opportunity “needs to know immediately.” I find that to be very asymmetric, but have reconciled it as part of the leadership predicament.
When I hear of the high turnover rate in Silicon Valley I remind myself that there are many companies here and elsewhere that do have long-term employment. The extreme may be Lincoln Electric, a model we might do well to study. See for example Koller, Frank (New York: PublicAffairs, 2010) Spark: How Old-Fashioned Values Drive a Twenty-First-Century Corporation: Lessons from Lincoln Electric’s Unique Guaranteed Employment Program.