Values Endure – As Ideas... In Institutions... and Through Leaders

June 8, 2006 — Speech given by Ralph Shrader (Booz Allen Chairman & CEO) at the Corporate Values Conference held in Tokyo, Japan.

Dr. Ralph Shrader

It’s always a pleasure for me to return to Tokyo – this is such a beautiful and vibrant city. I think Tokyo is unique among the world’s great capital cities in its great energy and vibrancy as well as its attention to beauty and details – like the flower and rock sculpture here in the lobby at the Okura hotel.

I am always happy to visit here – and I’m honored to speak with you this afternoon about corporate values – a subject that I believe is so very important to the success and reputation of global business. Despite some highly-publicized corporate scandals that might suggest otherwise, values are a strong, enduring element of corporate culture in the business world today.

Simply stated, values are a company’s explicit commitment to do the right thing – or more formally, “values are a corporation’s institutional standards of behavior” – the code of conduct that should be embodied consistently in corporate activity by all members.

Corporate values are a completely different concept than “economic value.” Although value codes date back to ancient cultures and philosophers like Aristotle in the West and Confucius in the East, they are highly relevant to business and government today.

Values Endure over time – as ideals, in institutions, and through leaders. These conclusions are clearly supported by recent survey results and other studies. I’d like to talk about these three aspects of values: that values represent ideas and ideals for the ages; that values are hallmarks of enduring institutions; and that leaders embody, project, and guard values.

I’ll develop these ideas in the context of a unique survey about corporate values conducted by the Aspen Institute and Booz Allen Hamilton. In late 2004, the Aspen Institute and Booz Allen Hamilton jointly surveyed corporate executives around the world to determine the prevalence and perceived importance of values in global business today.

More than 365 companies in 30 countries responded to the surveys that we sent out in English, Japanese, German, and Chinese. And, we also conducted longer phone interviews with several dozen top executives. The respondents were very senior executives from important corporations worldwide.

There were several unique aspects to the Aspen/Booz Allen Corporate Values Survey – it was global in scope and involved direct responses from top executives. In this regard, we believe the scope and reach of the Corporate Values Survey was significant. I would like to share the highlights of the survey with you today.

I found some of the results very reassuring and some quite surprising. So, let me turn to the first aspect of values which relates to their importance as ideals that are expressed in codes of conduct. The Corporate Values survey provides considerable insight into this matter.

In their response to the survey, global executives told us that:

Ethical behavior is part of a company’s license to operate. Values statements set out clear corporate expectations for behavior.
Most believe values influence two important strategic areas – relationships and reputations – but they do not see the direct link to growth.
Most companies are not measuring their “ROV” or “return on values.” Fewer than half said they could draw a direct link to revenue and earnings growth.
However, companies that report superior financial results treat corporate values more seriously and comprehensively.

We also found that:

The CEO’s tone matters greatly in setting expectations for behavior. Eighty-five percent (85%) of the respondents say their companies rely on explicit CEO support to reinforce values.
Opinions and practices regarding values vary significantly by region.

These regional differences were clearly evident in the special analysis we did of Japanese executives, which I’d like to turn to now. Among Japanese executives who participated in the survey, there was an overall strong correlation with the global values survey results. But, when Booz Allen analyzed more closely the responses of the Japanese executives, we found some interesting differences.

The Japanese companies take a more formal and aggressive approach to corporate values. For example, 96% of Japanese companies have formal values statements compared with 89% of global companies; and more than half of the Japanese companies have formal Board committees dealing with values.

There appear to be significant differences in what is and is not included in the corporate values statement. For example, in Japan, corporations place a high value on relationships with others and seek evaluations from outside stakeholders. In keeping with that external focus, the qualities of innovativeness, commitment to customers, commitment to shareholders, and environmental and social responsibility are included more frequently in Japanese companies’ values statements. However, the Japanese are less likely to include personal values like accountability, diversity, drive to succeed, and honesty/sincerity.

From my own interactions, I find Japanese people in all professions to act in accordance with the highest individual values. Therefore, I would conclude that these qualities such as honesty are already so firmly established within your culture that Japanese companies are able to focus their attention more on institutional and external values.

Analysis of the survey results also showed that Japanese executives give consistently higher marks to the effectiveness of their business and management practices in fostering desired behavior than do executives from other countries.

The following survey result caught me by surprise – and I’d be interested in your perspective on it. We found that Japanese executives were almost twice as likely as those in other countries to say that short-term economic costs inhibit them from making decisions consistent with corporate values. It’s possible that the Japanese executives responding to the survey were just more honest than the rest – or perhaps, because Japanese companies place such emphasis on external relationships they find that external factors more often create obstacles to decision-making consistent with corporate values.

Overall, the Booz Allen/Aspen survey clearly showed that values are a “top of mind” issue for global CEOs. In addition to the survey, we have other indications that values are a top priority for executives. Last year, more than 500,000 articles were downloaded from the website for Booz Allen’s business journal called, strategy+business.

The Corporate Values survey was the second-most popular article on the journal’s website during a 6-month period last year. The most-requested article was a case example about the resurgence of a US manufacturing company, but corporate values was well ahead in popularity as a leadership topic than major articles on innovation, outsourcing, CEO succession, and financial management.

Based on the values survey results and analysis of executives’ leadership preferences, it is clear that values represent ideas and ideals for the ages. They are as relevant today in the 21st century as they were to ancient cultures. Values are also important characteristics of enduring institutions. Enduring institutions are companies and organizations that have been successful and prominent over a long period of time.

Our firm, Booz Allen Hamilton was founded in 1914. Two years ago on the occasion of our 90th anniversary, we sponsored research that was conducted by university professors to identify the world’s 10 most enduring institutions. We developed the criteria based on external research and on our direct experience doing consulting work for some of the world’s largest and oldest institutions. In total, there were seven criteria – but they could be summarized under two main points: enduring institutions create value for society, and they base their code of conduct on values.

The Enduring Institutions chosen by the professors included: Sony and General Electric in the corporate world; Oxford University and Dartmouth College in the academic world; the Salvation Army and International Telecommunications Union in the not-for-profit and government sectors; and the Olympic games and the Rolling Stones – yes, the British Rock group – in the category of arts and entertainment.

Sony was named by the professors who conducted this study, but there are numerous enduring institutions here in Japan. For example, Toyota and Mitsubishi Group in the Corporate world – and more broadly, the Kabuki Theatre, Shinto rituals, and the tea ceremony are all examples of enduring institutions.

I believe that there are far more enduring institutions in Japan than there are in America. And, I can assure you that America would be a better place if it had more respect and value for age and tradition the way Japan does.

The Toyota Way is an excellent example of a code of values and conduct in an enduring institution. As you may know, the Toyota Way has 14 principles which include:

Base your management decisions on a long-term philosophy even at the expense of short-term financial goals;
Build a culture of stopping to fix problems, to get quality right the first time; and,
Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.

Toyota has created a values-based learning organization that has endured – and I believe will continue to endure – for a very long time. In that regard, I recently read that Toyota reported net revenue of $1.37 trillion yen – or $12.1 billion dollars – for their fiscal year ending March 31, 2006 and achieved rising sales for their vehicles around the world . (Meanwhile, the large US automakers are struggling to survive).

We’ve covered the first two topics I wanted to discuss – the importance of values as ideals, and the way values help institutions endure over time. The third and last element I want to talk about is how leaders embody, project, and guard values.

We all know of some examples – from Enron in America to Livedoor here – in which leaders did not safeguard values. But, good leaders recognize that values must be practiced and protected at all times.

Values are about the behavior of people – so they need to be modeled by leaders. Today more than ever, we as leaders need to be explicit in defining our companies’ values. We need to safeguard values by setting expectations and an example that values must never be compromised. And, we must always act in a way that is consistent with our companies’ values.

As leaders, our words and actions are watched closely by others. To safeguard our company’s values, we need to do many things, but I’d like to focus on just two things today.

First, we need to show that we will not tolerate “bad behavior” even if it is from people who are making other significant contributions to the business such as sales and innovation. Second, we need to ensure that “bad news” can travel safely and swiftly within our companies.

I mentioned earlier the example of Toyota, and it is widely accepted that any worker can stop the assembly line if a problem is found that would hurt quality. Stopping an assembly line is a very visible way to deliver bad news – but it is a respected thing to do at Toyota.

At Booz Allen, I trust my senior managers to tell me bad news directly and promptly. Like everyone else, I prefer good news, of course. But I want and need to hear bad news fast if there is a problem. Our firm and clients could be harmed if people were reluctant to share bad news. So – ensuring that anyone in our company is able to honestly share all the facts – good and bad – is an important way for me and other leaders to safeguard values.

I’d like to finish my remarks today by thanking those of you here for your kind attention, and by thanking all of the citizens of Japan for an enduring gift to my nation.

Back in America, I live in the suburbs of Washington DC, and every spring, we in Washington are reminded in a most beautiful way of the value of relationships and friendship. In 1912, Mayor Yukio Ozaki of Tokyo gave 3,000 cherry trees – Sakura – to the city of Washington to celebrate the close relationship between our two peoples.

Every spring while you enjoy the Sakura blooming here in Japan – 7,000 miles away, Cherry Blossoms are reflecting in the water by the Washington monuments. It is so beautiful that many visitors are moved to tears – including those of us who are fortunate enough to live nearby and can see them every year.

The Sakura are a national treasure in Japan and in America. I believe that values are our corporate treasure. Therefore, we as leaders need to nurture and safeguard our companies’ values so they will endure – like the Sakura – for many generations to come.

Thank you.