From the December 2007 issue of Investment Advisor • Subscribe!

December 1, 2007

Fixing the Broken Windows

The benefits of addressing behavior problems quickly and clearly

As practices get larger, owners risk losing touch with their staffs and the culture they are trying to create. In many growing firms, owners frequently find themselves left out of the communications loop, leading to ignorance of where real problems are emerging. This can also lead to employees feeling increasingly ignored and under-appreciated. Tension begins to swell as owners and staff lament the passing of those days when interactions were constant and problems were identified and addressed instantly.

I've observed both sides in such businesses acting out their frustrations by disparaging the other. At a time when both leaders and followers are eager for support, there seems to be no one to count on. Before their first cup of coffee each morning, these wounded souls seek out a cohabitant in their misery to commiserate about how badly they are treated and how this place is going to hell--and quickly.

In some cases their angry spittle has a long reach, contaminating clients and centers of influence. In a world where rumors and innuendo carry a disproportionate amount of weight, the images drawn by the words and actions of disenchanted staff tend to create a perception that the practice is out of control. It may confirm in the minds of clients and referral sources what they have suspected: that this business ain't what it used to be.

For many practitioners, the link between indifference and performance has become an endless cycle, a typhoon of trouble in which the winds of disenchantment grow to unmanageable levels. If they are not careful, this could be true.

Broken Windows Syndrome

In March 1982, The Atlantic Monthly published a compelling article titled "Broken Windows," which argued that disorder in a community, if left uncorrected, undermines residents' own efforts to maintain their homes and neighborhoods, and to control bad behavior. Authors James Wilson and George Kelling wrote, "If a window in a building is broken and left unrepaired, all the rest of the windows will soon be broken. . .One unrepaired window is a signal that no one cares, so breaking more windows costs nothing. . . "

The belief of Kelling and Wilson was that stable neighborhoods in which people can shop and play safely depended on repairing damaged buildings and clamping down on the graffiti artists, panhandlers, and loiterers. When Rudy Giuliani was elected mayor of New York City, he applied this theory to a city that had greatly deteriorated in many areas. Many objected to his attention to the minor violators, saying that these were not the important problems to tackle. Yet his persistence resulted in a city many would say is now materially safer and approachable. While I'm indifferent as to whether this makes him an appealing candidate for president, it is an outcome that has caused others to sit up and take notice. That is, if you rein in the most minor transgressions, you can have a major impact on the bigger culture you are trying to create.

As I have come to understand better what makes cultures tick in businesses, I have begun to observe a parallel between the broken-windows syndrome in communities and the challenges that financial advisors experience as they allow negativity to take root in their growing practices.

One thing seems certain: neither owners nor staff desire this state of affairs. Both sides are unhappy with the condition. Oddly, even though both sides have become somewhat dependent on each other, they resist coming together to confront the issues. I am often amazed at how some people will choose to wallow in such a miserable existence instead of trying to change it--or at least move on. Employees may shrug and say, "It's not my job. It's his business. Let him fix it." Employers will say "I wish they would act more like owners. Why don't they step up and make things right if they think there's a problem."

Ultimately, the onus for improving the neighborhood is on all of the residents, and in the case of an advisory firm, on all who draw a paycheck from it, regardless of the size of that individual's stake in the business. Of course the owners and leaders have to recognize there is a problem first, and be open to change.

Building a Foundation

A good foundation for cleaning up the business neighborhood is to create a statement of cultural values. In other words, practice owners should be clear about what behavior they value, and what type of organization they are trying to create. With this foundation, they can steer staff and partners in the right direction much like parents influence the actions of their children.

In my previous life at Moss Adams, I had the opportunity to be exposed to this bit of wisdom by Bob Bunting, the chairman of Moss Adams at the time I merged my consulting business into theirs. He recognized that Moss Adams was growing exponentially, and that the resulting management stress was evident. Staff turnover was high and clients were complaining about responsiveness. I remember him saying something to the effect of, "It's not possible to monitor every partner and employee, no matter how many controls you have. By stating what we expect, we hope to influence how everybody acts even when they are not supervised."

What is profound about this bit of insight is that the statement of cultural values, when applied properly and incorporated into each aspect of the business, creates a method of self-policing and peer reinforcement that promotes individual accountability and ultimately improves results. This allows people to take appropriate risks and make decisions in context. Most important, everyone benefits.

PILLAR and the Four-Way Test

The statement of cultural values that was created at Moss Adams was translated into an acronym:

P--Passion for Excellence

I--Integrity

L--Lead by Example

L--Lifetime Learning

A--A Balanced Life

R--Respect for Others

To turn vision into action, all of the evaluation forms including upstream appraisals by the staff of their supervisors were changed to incorporate these principles. Imagine the impact on a partner when she receives multiple staff assessments questioning that partner's demonstration of integrity and respect. Consider what an impression it makes on staff when they are evaluated on both their passion for excellence and maintaining balance in their lives. If the evaluations are positive, they will be encouraged to continue in this vein; if the evaluations are lackluster, they will be made aware that their behavior is being watched critically. It doesn't take much to know that if you are not trusted to live by the company code that you will have difficulty getting cooperation--and getting ahead--long term.

In fact, we found that when the evaluation process formalized the statement of cultural values, it had a more lasting impact on behavior than any compensation plan we created. This became especially true because the history of PILLAR evaluations are brought out when one is nominated for partner in the firm. I can say from personal experience as a member of the partner review committee, that a number of partner candidates didn't make it because they consistently violated one or more of the basic principles, and only were reconsidered when their behavior changed.

In 1932 the creditors of the Club Aluminum Company (CAC) engaged a fellow named Herbert J. Taylor to save it from bankruptcy. While he felt his new company's product was competitive and his people were outstanding, he knew he was at a disadvantage because his competitors were in much stronger financial positions. Taylor decided that to differentiate his company from competitors, CAC would emphasize character, dependability, and service-mindedness, instead of low cost or other product features. He defined this business characteristic in something called The Four-Way Test. It asks:

1. Is it the TRUTH?

2. Is it FAIR to all concerned?

3. Will it build GOODWILL and BETTER FRIENDSHIPS?

4. Will it be BENEFICIAL to all concerned?

When Mr. Taylor became president of Rotary International in the 1950s, he wrote about how The Four-Way Test influenced his business actions, helped to save his enterprise, and how it is relevant to all aspects of one's life: "We have found that you cannot constantly apply The Four-Way Test to all your relations with others eight hours each day in business without getting into the habit of doing it in your home, social, and community life. You thus become a better father, a better friend, and a better citizen." Rotary International subsequently adopted The Four-Way Test as its statement of cultural values.

Some 60 years later, this principle still applies. When both staff and owners of financial advisory practices start processing their words and actions through a simple statement of cultural values, their businesses will begin to improve, their relationships will begin to heal, and each person, collectively, will become accountable for their firm's success and for upholding its values.

The result? Broken windows in a firm's culture can be repaired before seemingly minor transgressions transform disharmony into mediocrity as a business.

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