Walking the Talk of Optimized Sustainable Value Creation – Finally!

Mark Sickles's Profile

For decades, corporate leaders have been “talking the talk” of optimized sustainable value creation.  That’s necessary but not sufficient for actually creating that value.  As a result, less than half of all publicly-traded companies create shareholder value, and far fewer do so at superior levels through sustainable means.  This little-known yet chronic and widespread problem now has a simple, easy-to-use, and proven solution representing a breakthrough opportunity for corporate leaders to optimize sustainable value creation.  

As always, taking full advantage of transformational opportunities like this calls for being open to the possibility that advancements in leadership and management can enable people to do what conventional wisdom says is impossible, and that shifting to a different and better approach is not an indictment of the past, but rather a celebration of our natural pursuit of continuous improvement and breakthrough.

To share this specific breakthrough, we are providing the Q&A session from our 2017 Newswire interview on this topic.

Question: What is the root cause of this chronic and widespread problem of shareholder value destruction and sub-optimization?

Answer: In a word, unawareness. 

Question: What has been causing this unawareness? 

Answer: A lot of the cause is a focus on the wrong indicators for value creation.  For example, while there is a valid role for EBITDA, it is not a sound indicator of sustainable shareholder value creation simply because it does not account for the cost of capital and the depreciation and amortization of assets needed to sustain income.  As Warren Buffett quipped, “The tooth fairy does not pay for capital.”  So, let’s stop keeping score as if she does.  This boils down to measuring profitability after deducting for both operating expenses and a charge for capital.

Question: OK, so once corporate leaders start using the right measures for sustainable value creation, what do they need to do to put more points on the board?

Answer: Lead and manage at the systems level of thought and action.

Questions: What’s your basis for saying that?

Answer: A compelling combination of theory, research, and practice developed over more than half a century.  Let’s start with the man himself, Dr. Deming, who asked to be remembered as “someone who spent his life trying to keep America from committing suicide.”  As insight into what Deming meant, consider this 1950 entry from his diary the first day of his course on methods for achieving quality: “I shall teach during the forenoons the theory of a system….”

Then in 1996, leading research on management practice led to the conclusion that “the system is the solution” and is where “the rubber meets the road” because only the systems level of leadership and management provides “deep knowledge of the web of cause and effect relationships in an organization, permitting executives to solve large and more complex problems” to create extraordinary value unattainable at the departmental/functional level.  This research also found that leading and managing at the systems level is the only way to identify and develop all the right parts of the organization necessary to achieve a state of positive synergy where the performance of the whole is both different and greater than the sum performance of its parts. 

And in 2001, we learned from Jim Collins that the CEOs and executive teams of the good-to-great companies – only 11 out of the 1,435 studied - “built a consistent system with clear constraints, but they also gave people freedom and responsibility within that system.” “They…managed the system, not the people.”

Furthermore, my own practical experiences as an executive and advisor to boards and CEOs align with these findings and reports.  Whenever corporate leaders made the shift to the systems level, the rubber did indeed meet the road in the form of extraordinary increases in sustainable value creation.

Question: Are there any other reasons why corporate leaders should shift to the systems level of thought and action?

Answer: Yes. The already substantial pressure to lead and manage at the systems level is rapidly increasing.  More people are learning every day that only a small minority of corporate leaders are optimizing shareholder value.  This increasing awareness has resulted in institutional investors mandating that board directors engage with management in ways that optimize sustainable value creation.  Doing so requires boards to shift to the systems level - often described as becoming the “strategic asset board” – in turn increasing the pressure on CEOs to do the same.  This assertion is validated by one of Collins’ key points from Good To Great: One of the most damaging trends preventing more companies from optimizing sustainable value creation is the failure of board directors to hire systems-level CEOs.

The purpose of our new Illumeo course, Systems-Level Thinking and Action – The Key To Great Corporate Leadership, is to dramatically increase the supply of systems-level corporate leaders – board directors, CEOs,  and senior executives – to solve this problem and advance the global business community and its impact on the economy, environment, and society.

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Mark Sickles, CEO of SuperOrg

Mark is Founder, Chairman, and CEO of SuperOrg, a professional services firm providing book, service, and software uniquely designed to enable corporate leaders to optimize sustainable value creation.