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5 Lessons Business Leaders Can Learn From Brexit

Jul 08, 2016

The U.K.’s Brexit vote to leave the European Union shocked the world. The day before the vote, London odds makers gave 80% chance that Remain would be victorious, as polls revealed a 10-point edge over the Leave campaign.

What caused the politicians and “smart money” to misjudge the electorate so badly? Elites underestimated the anger and despair of Britain’s working class. They also discounted the apathy of the millennial generation, which favored Remain but only 36% voted.

The U.S. faces similar issues: working class anger, hostility toward the federal government, and a desire to blame problems on “the other”—Hispanic people, Muslims, African-Americans, and China. These emotions translate into fears of immigration, globalization, free trade, and technology—all themes that fan flames of distrust in government and the establishment.

American business leaders who ignore their workers’ feelings do so at their own peril. Unhappy employees lead to disengaged workplaces and mediocre results. Here are five lessons they can learn from Brexit to apply immediately in their businesses:

Focus on your workforce first and stock market second

As the near-term pressures from short-term investors have accelerated, business leaders have engaged in financial engineering such as stock buybacks, cost cutting, and spinoffs. As a consequence, companies aren’t investing in their employees. Health care, perquisites, and other benefits are being cut back, employee training programs shelved, and support for creativity and innovation diminished, while the gap in compensation between rank-and-file workers and executives has widened dramatically. With employee cutbacks, fewer people are being asked to carry a larger share of the workload.

According to Gallup polls, employee engagement scores have dropped to 30% or lower. More people are simply showing up to pick up a paycheck, while their passion for the business and commitment to pleasing customers has waned.

To turn around these attitudes, business leaders need to stop trying to please the stock market – which will never be satisfied, no matter how strong the results – and engage and inspire their front-line people. Instead of cutting employee costs, they should be investing in them through training, added compensation incentives, attractive healthcare, and by creating an empowering culture.

Support front-line employees who grow the business, instead of adding corporate bureaucracy that makes work more difficult

All too often, managers see their job as controlling employees throughout the enterprise. Finance groups focus on cost-cutting, risk-averse lawyers make the company impossible to do business with, and human resources casts judgment on employees. As a result, corporate departments at many businesses have grown while the rest of the organization has shrunk, causing resentment.

Meanwhile, top executives spend most of their time in internal meetings poring over numbers rather than listening to employees in research labs, offices, and factories.

Corporate staffs in multi-business companies should be shrunk dramatically in size and refocused on helping employees do their jobs and making it easier for customers to do business. Accenture, with its 275,000 employees, is a good example of this approach. It has no true corporate headquarters, and its minimal corporate staff is dispersed around the world and focused on supporting customers.

Spend one-third of your time with customers

Whether you’re in retail, health care, IT, or financial services, there is no greater place for learning what is going on than being in the marketplace with customers. When I was at Medtronic, I observed more than 700 procedures in 12 years; it was the greatest learning opportunity I ever had. Leaders who apply all five senses to customer interactions learn more first-hand than they do from reading reports or looking at PowerPoint presentations.

When he became CEO of Unilever (ul), Paul Polman asked his leaders 10 questions to see how much time they were spending with customers. Their responses were so embarrassing that Polman challenged them to refocus their organizations on customers. Similarly, Anne Mulcahy kept Xerox (xrx) out of bankruptcy by skipping the endless meetings at headquarters in favor of riding with field salespeople to stem the tide of customer defections. This type of customer engagement signals to the entire organization that the company puts customers first.

Promote transparency internally and externally

In today’s world of social media and smartphones, transparency is not only the right choice – it is the only choice. Employees expect their leaders to keep them informed about what is going on, no matter how negative the news. When they are not treated with transparency, they turn to external sources and internal rumors for information, which they perceive is more timely and accurate than internal communication.

Following a 2015 layoff, Zappos founder Tony Hsieh wrote to employees: “Remember this is not my company, and this is not our investors’ company. This company is all of ours, and it’s up to all of us where we go from here.” Hsieh’s communications are authentic, transparent, and informal.

Former Ford (f) CEO Alan Mulally used weekly business performance reviews (BPR) to create transparency across the organization to turn around the troubled automaker. In these meetings, Mulally dove into details deeper than any Ford executive had ever done. Honest conversations helped to heal Ford’s politically charged, blame-focused culture. Rather than frowning on problems, Mulally used them to come up with solutions.

Work with the government, not against it, to make sensible reforms

Many business leaders see government as an enemy, and send out legions of lobbyists to influence laws in their favor. Properly constructed, regulations can help protect against defective or rogue products in the marketplace and ensure customer and employee safety.

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Brexit should be a wakeup call for all business leaders. The vote showed Britain’s leaders were out of sync with its voters. Could the same thing be happening with employees in your company? Are you involved on the front lines with your employees and customers every day, or are you holed up at headquarters?

The answer may well determine your company’s success.

Bill George is Senior Fellow at Harvard Business School, former Chairman & CEO of Medtronic, and author of Discover Your True North.

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