Link to podcast episode:  EL 45: How Conscious Leaders Build Value | with Fred Kofman

Jesse Lahey: Welcome to the show leaders! Many of you are aware of the book “First break all the Rules” by Marcus Buckingham and Kurt Kofman in which they reported on the results of a twenty five year research project by the Gallop Organization on organizational effectiveness and that study focused on a single question, “What do the most talented employees need from their workplace?” After surveying over a million individuals from a broad range of companies and organization, the study concluded that talented employees need great managers.

So, your best talent may choose your firm for a wide variety of reasons; charismatic leadership, great benefits, great training; but ultimately what is going to impact how long that employee stays and how productive they are is their leader; especially their immediate manager.

So how do you become a great leader? Well to help us address that question, our guest today is Fed Kofman, author of “Conscience Business: How to Build Value through Values.” It is a book that has been translated in more than 10 languages and received numerous awards. Fred was a professor of Management Accounting and Control Systems at MIT and today he is co-founder of the internal consulting firm, Axilent and professor of leadership and coaching at the University Fransico Ameriking. Fred, welcome to engaging leader!

Fred Kofman: It is a pleasure to be with you, Jesse.

Jesse: Fred, can you tell us how your experience, first of all, growing up under a dictatorship in Argentina, caused you to understand consciousness?

Fred: Well, when I was a young man in Argentina I lived under a dictatorship, but the strange thing is that I never knew I was living under a dictatorship. Of course, I knew intellectually, but the whole world was so covered with propaganda, that it was like living in a dream. You know when you’re in a dream, you can walk through walls and it seems normal, and then you wake up and ask yourself “How could I not realize it was a dream?” I was flying, I was walking through walls, that’s not possible, but, when you are in the middle of the dream, it is normal and seems perfectly logical and realistic.

It was a similar experience in Argentina, where we all knew that things weren’t right, yet, there was this collective illusion that things were okay. The laws were being upheld, the government was functional and yet it was a pretty bloody dictatorship that had concentration camps, torcher camps, killing people and I was in the middle of it and I did not know, so, it struck me how easy it is to be the lucid and live in a fantasy. If I can make a metaphor with the movie “The Matrix,” one might think that one is they are living in the real world, but as Morphias tells Neo, you are a slave and you are living in a dream. So I devoted pretty much the rest of my life to waking up, and then inviting other people to look around, and see what’s true and then base their lives on true principles not on an illusory fantasies.

Jesse: And you discovered that the delusion was very real in the business world as well?

Fred: Well, yes and that was the amazing thing. I left Argentina quiet disguised and I came to the United States which was like my glorious dream of freedom and the country had given the Declaration of Independence to the world and these truths to be self-evident that all men are equal and that they deserve respect and deserve to live in liberty. Then when I finished my studies at Berkley and went to my key’s and started working with corporations, I saw that even though the principles were as claimed, the people would speak of them and dispose them quite vehemently. Their day-to-day practice was quite different; not in a criminal way; just lack of respect, lack of consideration, attempting to manipulate one another, doing a whole bunch of things that nobody would espouse openly, but in action they seemed to be based on their practice.

Jesse: You also, in the book, talk about the inability to expose reality. For example, in Argentina when Argentina was at war with the UK over the Vulcon Islands and every morning the propaganda and papers would say “Hey, we’re winning, we’re winning,” and then all of a sudden one day it was “well, we lost,” and you said you saw that in business a lot too, where teams were diluting themselves about how good things were every day, and then they finally said “Well, we lost.  The business is shutting down, we’re downsizing.”

Fred: Yeah. Well that happens at a team level but it also happens personally, in our lives ,every day, as well. Just remember last time somebody defaulted on their commitment, that somebody said they were going to give something to you and they didn’t show up or called you at the last moment and said “Oh sorry I didn’t make it.” I guarantee this person knew a couple hours before at least, if not a few days before, that they would not be able to fulfill their commitment, yet, they deluded maybe themselves, but certainly they lied to you by not telling you in advance that there was a problem and they would not be able to deliver.

Now that is so normal, that we don’t even think about that, but that is a little bit of fraud that creeps into our lives and then the person accommodates these and we all say “Well, it’s okay” because you know it is just part of their practice. That’s not right, if you think about it and say “Hm, it is possible to live with much higher integrity,” and if I say I am going to do something, the moment I discover my resources are not enough, or I hit a problem or whatever, that is the moment where I am compelled by ethics to call my creditor and let them know that the delivery is at risk; so I feel obliged to call you, to let you know, to negotiate with you what we can do to minimize the harm to you in case something happens and then we move together to recommitment.

This happens in organizations every day, millions of times, and it is a huge opportunity for people to wake up and say “Hey we can change this.” This is not saying you have to be superman and deliver on every commitment; that would be inhuman. Whenever we make commitments they are at risk. We’re we are promising something in the future that we can make an ethical commitment to integrity. That is a human possible standard and we rarely fulfill it; which is a shame.

Jesse: In the book, you say that it doesn’t really work for leaders to just tell their people what they need to do, that really the leaders need to live out the qualities of consciousness and so you use seven qualities to distinguish consciousness and we can say these are conscious things that employees need to be, but it really needs to be seven aspects of conscious leadership. First of all you, discuss three character attributes; the first being unconditional responsibility. Is that an example of that; What you were just talking about?

Fred: Yes, unconditional responsibility is taking ownership of the promise and acting when something goes wrong. Leaders have a tremendous temptation to participate, to tell other people what to do. As the American board says what you do speaks so loudly, that they don’t care what you say and words are cheap, actions are expensive, and the value of a signal is its’ cost. That would be the first, even before unconditional responsibility is the first realization that you can’t tell people what to do in any way that will be effective.

What you can do is demonstrate what is meaningful to you and inspire people to follow you, but it always starts with yourself. And the first principle of starting with yourself is that your life is not about what happens to you. What makes a difference in what makes your life yours is how you respond to what happens and yet the temptation is always to look outside and to explain whatever happens, based on forces out of control.

The easiest example is when somebody arrives late to a meeting and you ask them “what happened to you?” Well, what do people tell you, Jesse, when somebody is late?

Jesse: I can tell you what I tell other people because this is one of my own shortcomings and I am habitually five minutes late to just about everything and usually there is something that came up. I can point to a last minute problem that came up that prevented me from leaving when I should have left.

Fred: Exactly. How beautiful. Thank you for being so open because that makes it very interesting. So, when you say the problem came up unprevented, it is like the problem took you, tied you down and really prevented you from leaving. There is one person who is missing in that story, and that is you. You as a subject, because when the problem came up, and I am not saying this is a bad decision, you chose to deal with the problem and stay to deal with this problem. Again, let me be very clear it is an inhuman standard that you should never deal with problems or that you should fulfill your promises no matter what. I do not believe that.

There are problems worth dealing with and worth being late for. But, it is very different when you say “I chose to stay,” when the problem came up. The problem that came up is just a circumstance that’s data, that’s reality happening. Your part of the play is your decision on how to respond an unconditional response immediately, as Steven Carry said, “You always have the ability to respond.” You’re not guilty. Most people think of responsibility as guilt and who is responsible for this problem? Well, you’re not responsible, I am not saying that you are responsible for the problem, what I am saying is you are able to respond to the problem.

Another example people use is “we were in a meeting and the meeting ran over.” Well, the meeting ran over, but you chose to stay. That is what you don’t say because, you see, all of us want to be innocent. There is a natural drive to claim innocence. Well, it wasn’t me, there was a problem that prevented me from leaving or it was the meeting that caused me not to depart on time, but the truth is the price of innocence is simple, because when you tell a story in a way that makes you innocent, you are also telling the story in a way that puts you out of control. You are not the main character in the movie so to speak, you are telling that you are watching the movie from the sidelines.

That is not a very powerful way to tell the story of your life. It is not a very powerful way to tell the story of your company. So if you want to lead people to accomplish great things, then the first step is to start telling the story with us, the group, with all of us being the main characters of the story and us ready to respond to our circumstances creatively, ethically, in a way that ennobles us, in a way that we feel proud of ourselves.

Jesse:  So, if we can model responsibility and speak that language of responsibility then the leaders are teaching the first of these seven qualities of consciousness. Now the second quality is what you call essential integrity. Can you tell us about that?

Fred: When you’re a leader you start by explaining the cause, just like you and I are doing now. This is not a theory class, this is just a little explanation for why this makes sense, that’s step one. Step two is to demonstrate that you live by that concept that you really have it is a life commitment and you it’s not just a declamation, not just a speech. And then the third is to invite people to the same concept and hold them accountable. But hold them accountable for their sake.  That’s what a wonderful leader does and that’s how a leader creates a community of commitment which is able to accomplish great things. Now, passing through your second concept, the question you just had asked, is related to essentially integrity and perhaps, because of my experience in Argentina, it is not oriented toward success.

When you are so committed to accomplishing any goal and you have no ethical constraints, sooner or later, in my view, you are going to be a criminal. You are going to be violating other people’s rights to life, liberty and property.  I take those original words of the Declaration of Independence very serious because they are very serious. When that gets broken, there is mass murder and suicide all the time. So the idea that we are not here to just accomplish results, we are here to accomplish results in a noble way, in a way that respects people, in a way that makes us proud, in a way that allows people to grow and be better human beings. The point for me is to follow ethical principles and within those ethical principles, establish what are appropriate goals.

The rights for the nation are first, nobility and virtue, and second, effectiveness and accomplishment. Today in the business world, that’s considered “too lofty.” We are in the real world, real politics, and this comes mostly from political science. Today people justify any violation to the constitution because, well you know, it’s for the children, it is for security, it is for whatever and they are always theoretical explanations on why it is necessary to break the rules of ethical principles.

In business it happens every day. People say “oh we know this is a little corrupt, and we shouldn’t lie to our customers about if we have the goods in inventory, but hey we can make this sale and it will be a couple days and they won’t find out because we can just say there was a delay in delivery.” So it is so easy to slip, and to hear what I call “the siren songs of success.” Odesseys had to tie himself to the mask because he knew those sirens were going to lure him to disaster, and the sirens of success always lead us to disaster if we are not tied to a very strong ethical mask and my recommendation to leaders is that before they set an objective or before they set their vision as the primary driver of the company, they start by asking themselves and their community “what is going to make us proud,” “What will ennoble, what is going to make us feel like we are contributing in a way that our children would be proud of us, that the society would be proud of us?” And then with that in mind say “What’s the best we can do to accomplish this?”

Jesse: I like that. What will make us proud, and our children and our society proud? Before you even think about getting to financial objectives think about what in the long run is going to make us proud

Fred: There is a ton of research that says when you do that you can make a little more money too. It is a wonderful thing because in the long term there is perfect alignment in financial objects and ethical objectives, and it does require in the moment you forgo some opportunities in which finances are exactly the same. You always have short term opportunities to maximize financial gain, but they are not what is going to make you financially successful in the long term. Very few companies succeed in the long term unless they have some standard of conduct that makes people proud. I feel that that is true in individual life and that it is true in an organization.

Jesse: Now, the third quality, and it is the last of the three character attributes, is ontological humility, which I think is kind of surprising I don’t think most people would assume as an important part of leadership.

Fred: Yeah, well, let me define ontological humility because it is very different than what most people call humility and I am going to use the famous character to give you a shock.  I’ll use Dr. House, he is ontologically humble. When I ask people what they think of Dr. House, the TV character, they say “oh he’s an arrogant prick,” “he’s insufferable,”  “he’s full of himself,” and so on and you know that is true, he is not the nice character in a normal interpersonal way. He is absolutely committed to truth. He is a true scientist.

I mean he can build any diagnostic or any theory about what could be afflicting the patient but they do a test, and if the test comes different than expected, he doesn’t take a milli-second to drop his theory, render to the fact, and say that “we need to keep looking, this is wrong, let’s look for what’s next.” So, what I mean by being humble is recognizing the facts from concepts. Reality is the king.

You cannot impose your theories over reality and you cannot impose your desires over logical consistency. Let me give you an example of how understanding the difference between objective reality and subjective experience makes a huge difference in business. I’ll start with my favorite story about my daughter who, Michelle, when she was three years old, she would not eat broccoli. When I asked her “Why Michelle, what’s wrong with broccoli?” She said “No, no, no broccoli is yucky, that’s why I don’t like it.” I would tell her “but Mimi, I like broccoli.” She said “Oh daddy, why do you like yucky things?” She was puzzled, “How could I be so stupid? How can I like something that is clearly yucky?” So for Michelle, broccoli is yucky and yuckiness inherent to broccoli. Now when you’re three, it’s cute. When you’re 43, that’s dangerous because you start thinking that the world is the way you see it and not the world it is. And the typical example is with an idiot. Now you probably know some idiots, but I am going to make a big beat that that idiot does not think like you. Let me check, do you know any idiots that think exactly like you?

Jesse: No, they are the complete opposite of me.

Fred: Exactly. Now here comes the key question; Do they think different because they are idiots, which is the three year old logic or do you call them idiots because they think different than you? Which is 43 mature logic. Being ontologically humble means to realize there are no idiots, there are only people that disagree with me. Now these people may be making logical mistakes, they may be unaware of facts, they may be mistaking inferences; which I can explain through rigorous analysis; but in principle, I just don’t like that they disagree with me, it bothers me that they disagree with me otherwise I would just say “hm, I think you’re mistaken,” but I wouldn’t say “you’re an idiot.”

So understanding that and taking the humble decision of, I see the world as it appears to me.  I don’t see the world as it is. I have elements of science to check my perceptions. That’s why I say House is ontologically humble; he is absolutely committed to truth, much more than he is committed to save his face. He is very open to evidence and he is very open, and it doesn’t matter where it comes from. He isn’t focused on administrative authority because whether you are a king or whether you are a slave it doesn’t matter for the truth of your statement. 2+2=4, it does not matter who says it and I think many leaders delude themselves thinking because they have authority, they are right, or people have to consider them right because they have the right to make some decisions. That is a very dangerous confusion in which I have tried to dispel from my book and in my consulting practice.

Jesse:  It’s similar, or maybe the same thing, as the concept of intellectual integrity. Where if I am going to have a discussion with somebody who is going to have a different view point than me, if I don’t feel that number one, they feel that they, or that we are both willing to acknowledge “hey I am coming into this with preconceived ideas” and I think I am right, and you think you’re right but I am willing to acknowledge that one of us seems to be wrong, even if that’s me, then there is no point of us having a conversation. Even if I can just express that, it tends to make the other person more willing to have similar feelings, then we can have a meaningful conversation.

Fred:  Exactly. That was beautifully said. That intellectual integrity is what enables communication and coordination at the human level otherwise you are down to the low of the jungle and you aren’t talking, you’re simply using force. But evidence, logic, argumentation, that’s what makes us human because we can see in multiple points of views, we can integrate, we can think together, we can apply standards to our thoughts in an objective or a non-subjective manor and we are free from that impulse to say “I am right because it’s me.”

Jesse: Well we only had time to talk about the first three of the seven qualities, but those are the three foundational qualities.  They are the three character qualities and you spend some time in the book talking about how it is more important to be rather than to do and if they want to know the next three, they can get your book. They have to do with doing things. But, let me ask this as we wrap up; you’re title “Conscious Business: How to build Value through Values” seems to be based on the notion that capitalism and business can actually be a force that can be good for the world, even though many people think the opposite.

Fred:  Oh we are going to need a whole other show to go with that, but let me just be clear, capitalism is the only force for good that can exist in the world for social corporation. Anything else in theory, any practice; other than the freedom for the people that ransacked us; use their property as evil. But true free market enterprise is simply a social mechanism that thrives on the ethical principle that you should use violence on people that haven’t attacked you. Now you can start from that very simple condition of respect principle and naturally the principle that will come out is it’s a free market, free enterprise, free exchange system and capitalism is simply saying that nothing has pulled as many people out of authority than between capital and neighbor.

Saving, investment and the provision of tools, the workers, is the secret of improving this thunder of humanity. I cannot emphasize any more strongly that there is nothing more noble in my view than being a business man. There is nothing more upholding in human dignity than trading freely in a market place where everybody has to feel they are better to make the transaction. I don’t find the political service something un noble at all, well when people take pride in “well I have been my whole life in public service,” I find that that is a very painful statement because I would like business men and women to stand up and say “I have spent my whole life in business service. I have been serving my customers; And through the business of my customers, I have been serving humanity.”

Jesse: Well, I think that that is well put.  The book is “Conscious Business: How to Build Value through Values.” Fred Kofman thank you for joining us you are an engaging leader.

Fred:  Thank you very much


Link to podcast episode:  EL 45: How Conscious Leaders Build Value | with Fred Kofman