Why Can’t We All Get Along?

Why Can’t We All Get Along?

November 2009 By Steve McKee

Lack of consensus may be holding back growth—and everything else.

STEVE MCKEE is president of McKee Wallwork Cleveland, a marketing communications firm, and a BusinessWeek.com columnist. He can be reached via www.whengrowthstalls.com. From When Growth Stalls: How It Happens, Why You’re Stuck, and What to Do About It (Jossey-Bass). ©2009

As long as an organization is enjoying healthy growth, management can do no wrong. But when tectonics shift and growth begins to stall, internal rifts can become apparent. People choose sides, challenge each other, question long-held assumptions, and begin to doubt strategies and tactics that used to be sacrosanct. Such internal discord can paralyze efforts to mount an effective recovery.

We first discovered this issue in a pilot study about company growth that we completed back in 2001. The issue of internal consensus wasn’t yet on our radar screen; in our advertising practice, we had seen that the most effective companies seemed to be headed by a strong, visionary CEO who singlehandedly set the strategic direction for the entire organization, and we took that model somewhat for granted. (We were not the only ones to take that perspective. Judging by the way business magazines, TV news programs, book publishers, and others continue to lionize the supposedly heroic do-it-all CEO, the myth that successful corporations are essentially piloted by soloists is alive and well.)

Since then, however, we have examined the data from two comprehensive nationwide studies, analyzed the histories of many stalled companies, and talked to executives at every level of organizations, both successful and not so successful. As a result, we’ve reached the conclusion that a lack of consensus is the number-one internal problem facing stalled-growth companies.

What Is Consensus?
Acknowledging the crucial role that consensus plays in business can be difficult because consensus itself is a term that’s often derided. Britain’s “Iron Lady” prime minister Margaret Thatcher once said, “Consensus is the absence of leadership,” and she has been quoted by politicians and pundits alike to make a point about the need for leaders to be willing to make bold decisions and, if necessary, stand against the tide. Sometimes that sort of boldness is necessary. But in most circumstances, the most effective political leaders are those who build on a mandate provided by the voters—mandate being, in effect, another word for consensus. Those who neglect the power and importance of consensus may find themselves impotent or (in a parliamentary system) out on their ear, stripped of office by their disaffected former supporters.

Now, trying to get everybody to agree on everything is not leadership—it’s a form of passivity. And it is impossible, to boot. What consensus means, in this context, is agreement among an organization’s senior leadership about the nature and purpose of the company and where it’s intended to go. And this agreement must be part of the bedrock on which the company is built, not something hastily forged when circumstances demand it. There are occasions when critical, time-sensitive decisions need to be made with little time for communication, let alone consensus-building. Companies that have as part of their strategic foundation a general consensus on global issues are less likely to make mistakes when decisions are made under duress.

Second, consensus does not neglect the need for (or minimize the value of) a strong CEO. In those organizations that do benefit from companywide consensus, it is often the product of an inspired vision championed by a smart, charismatic leader. But the fact that such a leader tends to be the center of a company’s solar system doesn’t diminish the need for harmony of the planets in orbit around him or her. If that harmony is lacking, the CEO alone will not have the gravity to hold the company together.

Third, consensus does not mean agreement on every detail. Thatcher’s quote is best understood in the context of defining historical moments in highly charged political environments, not the everyday operations of a close-knit team focusing on a strategic objective. While a military general needs to be willing to make bold decisions, the officers under the general must operate with clear consensus as to their broad objectives, or carnage will result. Each subordinate officer can use his professional skills and judgment during the heat of battle in the way he sees fit, but if the officers are not all focused on taking the same hill, their troops will be divided—and defeated.

In his book The Five Dysfunctions of a Team, Patrick Lencioni points out that a company is much like an athletic team. It may have a number of talented individuals, but if they all act on their own instincts, running in whatever direction seems best to them, they are likely to get beaten. The best teams take their moves out of a common playbook, and the more consensus they display in understanding and following it, the more likely they are to win the game.

As we zeroed in on stalled companies in our research, we saw the consensus principle at work. Managers of struggling companies were more than three times as likely as those in healthy organizations to admit that they were experiencing internal discord and couldn’t make critical decisions. They were more than four times as likely to say that they and their colleagues were moving in different directions. And they were six times less likely to report that they knew where their company was going. These struggling companies were simply paralyzed by a lack of consensus.

Zippo is a good case in point. For years, Zippo owned the dominant market share in the growing and dependable refillable-lighter business. But the company ran into a destructive dynamic as societal norms increasingly turned against smoking. As fewer people took up the habit, fewer people had the need for refillable lighters.

The company’s chairman, George Duke, was the grandson of Zippo’s founder. One of his challenges was corralling the five other family members who owned equal shares of the company’s stock and had their own ideas about what Zippo should do about its troubles, from sticking to its refillable-lighter guns to selling flashlights, money clips, and even watches. As Duke put it, “It was difficult to come to a consensus in a timely manner. It was very hard to embark on a strategy.” As a result, Zippo’s sales stalled for several years.

French retail giant Carrefour seems to have learned from Zippo’s example. The world’s second-largest retailer, with more than fifteen thousand supermarkets, discount outlets, and convenience stores in thirty countries, Carrefour had been run for nearly a decade by the Halley family, which through a special voting bloc controlled 20 percent of the company’s voting rights. But in the rapidly changing and hotly competitive retail world, Carrefour found itself increasingly challenged by the aggressive expansion and price-cutting of rivals (including its one larger global competitor, Wal-Mart).

As with the Duke family at Zippo, various Halley family members had their own ideas about how to best manage the competitive challenges; some wanted out of the company altogether but were prevented from exiting owing to the nature of the voting bloc. Family feuds were a distraction Carrefour could ill afford, and the family wisely agreed to dissolve its alliance and give up two seats on the supervisory board. Now Halley family members are treated in the same way as regular shareholders and can sell their stock at will. The change makes it easier for the company to assemble a board that shares a common vision for the company’s future, such as pursuing faster growth in China and other emerging markets, funded by selling Carrefour’s real-estate assets.

The business world is littered with examples of companies that through a lack of consensus became their own worst enemies. The failure of the DaimlerChrysler merger can be blamed at least in part on a lack of consensus at the most fundamental level of corporate culture. When Jürgen Schrempp, DaimlerChrysler CEO and architect of the merger, was asked a year into the union what he thought the oddest thing about Americans was, he said, “It’s that at lunch they drink iced tea and ice water” instead of the wine to which employees in Stutt­gart were accustomed. USA Today quoted a professor in Tufts University’s law and diplomacy school, Jeswald Salacuse, who pointed out that the company’s German and American executives could not agree on even minor issues, saying they “spent a lot of time wrangling about the size of the new company’s business card.” These sorts of minor cultural differences reflected broader, deeper disagreements over issues ranging from brand development to technology sharing to pricing, leading to the company’s failure.

Burger King is another company that has struggled with consensus for decades. The chain went through ten CEOs over a fifteen-year period, hired five different advertising agencies in less than ten years, and suffered through seven consecutive years of declining sales. What would cause a company to play such an extended and destructive game of management musical chairs? A lack of consensus among the franchisee community. What ailed Burger King over the years wasn’t a lack of ideas from the parade of CEOs and ad agencies—they simply couldn’t come to sustained agreement as a company on a clear direction.

To its credit, in recent years Burger King has achieved a nice run of same-store sales growth credited to a smart menu strategy and creative campaign targeting their core of young male heavy users. But the test will be to see if the owner-operators can stay the course when they run over the next speed bump or if they again dump their management team and start over. Interestingly, the advertising agency that finally gave Burger King its winning formula, Crispin Porter + Bogusky, didn’t fare so well with Miller Brewing. Crispin’s “Man Laws” campaign for Miller Lite was initially popular among distributors but didn’t ring the sales bell, and two months after Miller management pulled the plug on the campaign, the agency resigned the account. Commenting on the agency’s unusual decision, Cris­pin’s chief creative officer, Alex Bogusky, said in a statement, “Although we made every attempt to find common ground, the process of multilayered approvals of creative strategy has made doing work we can be proud of increasingly difficult.” An unnamed industry observer was quoted in Advertising Age as saying of Miller, “You’ve got three or four different top-tier people with contradictory points of view. There’s a constant shifting of strategy and a lack of a common vision.”

Before Carly Fiorina could even warm her seat as the new CEO of HP, she announced a bold plan to merge with Compaq Computers. Her vision ultimately resulted in a larger, more powerful HP, which enabled the company to overtake its biggest rival, Dell. But Fiorina wasn’t there to take any bows because of the bitter public struggle the merger announcement kicked off between HP’s new management team and its old guard.

David W. Packard, son of company founder Dave Pac­kard and member of the HP board from 1987 to 1999, was desperately afraid that the merger with Compaq would forever alter the consensus-driven approach by which the company had been managed since inception, famously known as “the HP Way.” He felt so strongly about the impact of the merger on HP’s culture that he took out full-page ads in the major business press to denounce it. In one, he quoted at length from a 1960 speech by his father that cut to the chase of the disagreement: “You know that those people you work with that are working only for money are not making any real contribution. I want to emphasize then that people work to make a contribution, and they do this best when they have a real objective, when they know what they are trying to achieve and are able to use their own capabilities to the greatest extent. In other words, when we discuss supervision and management, we are not talking about a military type organization where the man at the top issues an order and it is passed on down the line until the man at the bottom does as he is told without question (or reason). That is precisely the type of organization we do not want. We feel our objectives can best be achieved by people who understand what they are trying to do and can utilize their own capabilities to do them.”

Packard titled his advertisement, “A Day at the Old HP.” When the deal with Compaq closed, Packard lost his battle, but it’s telling that not even half of HP’s employees ended up supporting the merger. When Fiorina resigned under fire in 2005, it was clear that, regardless of the wisdom of her strategy, she’d lost the war. That’s the biggest problem underlying issues of consensus in struggling companies: they are symptomatic of a loss of trust and respect for the management team. Our research demonstrates that this is a common and often crippling problem among companies that have stalled.

In January 2007, the CEOs of two of the world’s largest candy makers, Cadbury and Hershey, were near an agreement to merge and create a powerful global candy empire. But less than a year later, the deal was scrapped, and Hershey’s CEO, along with eight former directors of the company, abruptly resigned or were dismissed. The CEO, Richard Lenny, was accused of withholding information from the Hershey Trust, a charitable organization that controls 78 percent of the shareholder vote and for whose benefit the Hershey Co. is supposed to be run. Trustees had seen the value of their holdings decline by more than $1 billion in the years leading up to the merger discussions and didn’t like what they perceived as the secretive nature of the talks. One Hershey, Pa., newspaper called the sudden changing of the guard “the Sunday night massacre.”

In its postmortem, here’s how The Wall Street Journal described the mess: “Hershey’s downward spiral offers an illustration of how a breakdown in communication and trust among a company’s main actors—management, the board of directors, and key shareholders—can paralyze an organization and leave it vulnerable. As Hershey Trust chairman LeRoy Zimmerman wrote in an October letter to Hershey Co.’s board: ‘The lifeblood of collaboration is truth.’” Ouch.

No Consensus? No Surprise
The fact that all management teams tend to struggle with consensus shouldn’t be surprising. Although management is an art, it is based on scientific principles, and we know from the second law of thermodynamics that energy always tends to flow from concentration to diffusion; in other words, hot things don’t stay hot, and cold things don’t stay cold. While a company isn’t a physical object like a stovetop or a refrigerator, it is composed of objects (both inert and alive) that are subject to the principle of entropy: All systems tend to break down. It’s as true of corporations as it is of cornflakes that wilt and get soggy in a bowl of milk.

Sometimes success itself is the problem, causing rapidly growing companies to implode under their own weight. As a senior manager at Muni Financial Services, an acquaintance I’ll call Frank had a front-row seat to the decline of the consulting firm. Muni Financial provided services and software to help cities, counties, and small municipalities service bond issues. The company hit a market sweet spot and had grown by leaps and bounds in the four-year period before Frank arrived. But the growth got out of hand, causing customer-service issues, staffing problems, and turnover.

“You had new people coming in who had all kinds of ideas,” Frank remembers, “and the people [who] were there had ideas. So what happened is you had this huge consensus issue.” He recalls how the environment went from bad to worse: “We had management-style issues, company-culture clashes… [It] was quite a roller coaster. The level of trust really started breaking down. I think that’s probably the most fundamental part of this. When the level of trust breaks down, you don’t know why you’re doing what you’re doing and who you can trust. I mean, everybody gets squirrelly. Who is a loyal subject? Who is a renegade? A lot of people became angry.”

Frank left and joined a competitor, and Muni Financial was ultimately sold to a larger concern. Looking back, he now reflects, “It was clear that there wasn’t a management consensus. If you really step back from it, I think a lot of people felt that they were part of the strategic management group and then realized that they weren’t. When you’re putting your all into something—you’re responsible for something—and then you feel like it’s a charade, it’s an uncomfortable and very disappointing situation.”

Muni Financial’s growth was simply too much for its management structure to handle. The company added too many people who had ideas of their own, and offered no way to effectively integrate their perspectives. The level of trust broke down. While that’s a problem that may show up in cases of too-rapid organic growth, it’s almost inevitable when a company generates growth through mergers and acquisitions. Analysts and management teams are great at crunching the numbers but often fail to account for consensus-killing culture clashes.

When Internet portal Excite merged with online access Provider@Home in a multibillion-dollar 1999 deal, the company thought it had what it needed to overtake AOL and Yahoo! and dominate the information superhighway. But by 2001, Excite@Home had declared bankruptcy. There were a number of reasons, from failed acquisitions to competitor countermoves, but former Excite@Home CEO Tom Jermoluk put it more bluntly: “Quite simply, the company needed the support of its partners and never got it, because everyone had their own agendas.” Stories in the press after the bankruptcy filing told tales of the internal arguments and boardroom tussles to which Jermoluk refers.

As long as a company achieves manageable growth, consensus issues tend to keep a low profile. But when the organization finds itself trying to integrate a new partner, or when tectonics shift and the company is facing a recession, a disruptive dynamic, or an aggressive competitor, divisions begin to appear. Factions often arise: newcomers versus old-timers, sales versus operations, headquarters versus the field, and so on. People begin to raise long-latent issues and to challenge the way the organization does things. Strongly held opinions, based on differing backgrounds, experiences, and perspectives, confuse the picture. Before you know it, meetings are filled with strife as disagreements over priorities and strategy take center stage.

Consensus Is Vital
Because it’s a “soft” virtue, difficult to spell out in a business plan or track in a profit-and-loss report, most companies underestimate the impact that a lack of consensus can have. When growth stalls and they drift along, unable to support a single direction for any length of time, they may blame the economy, the competition, or the person in the office down the hall, without realizing that the problem is more systemic than that.

The first step in getting back up to speed is coming to an understanding that the key people on your team all need to be heading in the same direction. Mary Thompson, president of Mr. Rooter Plumbing (and one of our clients), agrees. She related to me a story about the keynote speakers at the 2006 International Franchise Association convention: Ralph Alvarez, president of McDonald’s North America, and Reggie Webb, president of McDonald’s Leadership Council. Having worked with many clients in the fast-food industry, I know that it’s not always easy for corporate folks and the franchise community to agree. But Mary was impressed with how Webb and Alvarez emphasized the importance of unity in taking care of the customer. They said they can’t afford to “agree to disagree”; they may debate about the best way to achieve their goals, but by the time they leave the room, they need to have achieved consensus on a common approach. That may be one reason why, through good times and bad, McDonald’s tends to keep a leg up on its competitors.

That’s also how a great company like San Jose-based eBay can keep from missing a beat even after the worst terrorist attacks in history. On Sept. 11, 2001, eBay CEO Meg Whitman was half a world away, in Japan. Her chief operating officer, Brian Swette, was in Florida, all the way across the country from headquarters. Because U.S. airspace was shut down, neither could hop on the next flight home. But Whitman wasn’t worried. “By the time I was able to call in, our team was already thinking about and acting on the big issues,” she said. “I did not have to say anything for the right thing to happen.” Whitman had done an amazing job in creating consensus among her 2,500 employees (up from a mere thirty-five when she came on board).

Wayne Rosing, VP of engineering at Google during its early growth years from 2001 to 2005, described a similar culture at his highly focused company: “For a while I had 160 direct reports. No managers. It worked because the teams knew what they had to do. That set a cultural bit in people’s heads: You are the boss. Don’t wait to take the hill. Don’t wait to be managed.” Google’s mission, technology, and even its “Don’t be evil” mantra—which faces increasing scrutiny as the company has transitioned from underdog to behemoth—has provided almost a cultlike sense of consensus within the company.

Compare Google’s internal consensus with the culture clashes at Home Depot, the postmerger disaster that is Sprint Nextel, or the yearlong battle between Ed Zander, the (now-former) CEO of Motorola, and corporate raider Carl Icahn, who wanted a seat on the board and a say in the struggling company’s strategy. Until that issue was resolved, it didn’t matter who was right and who was wrong—the consensus issue itself was debilitating. Energy that should have been spent overcoming Motorola’s tectonic issues was used up in the boardroom.

The late Peter Drucker, perhaps history’s greatest management thinker, summed up the importance of consensus this way: “Results are obtained only by concentration of resources, especially by concentration of the scarcest and most valuable resource, people with proven performance capacity.” If your people don’t have proven performance capacity, that’s issue number one. But if they do, their efforts need to be concentrated. If they disagree with each other (or with you), get it out on the table. The answers may not be easy or apparent (if they were, you would have discovered them already), but admitting you have a consensus problem enables you to clear the deck of phony allegiances to failing strategies. Then together you can go to work uncovering the genuine issues your company is facing.