One of my all time favourite articles is ”How to Put Meaning Back into Leading”  by Joel M. Podolny, Rakesh Khurana and Marya Hill-Popper (Harvard Business School Working Knowledge, 2005). They emphasize that a leader’s ability to forge new meaning and purpose for an organization and its employees is a key criteria for leadership effectiveness. Unfortunately, until today, the value of leadership is often solely understood in terms of economic impact.

Talking about purpose and meaning is typically perceived as too soft for the business world. However, there is a connection between meaning creation and performance. If employees find meaning in those aspects of work that differentiate a firm from its competitors, then meaning can be the foundation for sustainable competitive advantage. The creation of meaning is positively related to performance.

 I strongly believe that providing meaning was the foundation for the incredible success run of my former employer, Merck Ltd., Thailand, a pharmaceutical and chemical company. Overthere, we achieved between 1991 and 2008 double digit sales growth in 14 out of 17 years. This even included the period of the Asian crisis that started in 1997 and lasted for several years.

How did we provide meaning and purpose to our people? You can argue that the fact alone of being a pharmaceutical company might already create a lot of meaning to the employees. Developing and producing drugs and making them available to people is in itself already a significant contribution to mankind. But then, we all know that the pharmaceutical industry has failed since decades to manage its reputation. And with the chemical industry, it is not much different. Despite a lot of positive contributions to society, chemical companies are typically associated with an image of damaging the environment.

Therefore, at Merck Thailand, we went away from deriving at meaning and purpose from our products or businesses. We rather focused on a more general concept; the 4 stakeholders – approach. We positioned our company as a caring company: a company that doesn’t care only about shareholders, but one that cares also about employees, customers and the society. With other words, balancing stakeholders’ interests.

As caring leaders, we helped our people to find purpose and direction. And so, people became energized and passionate about what they were doing.

The care-concept was holistically implemented throughout our company. It was part of our business strategy and became a key component of our culture; the DNA of our organization. It was communicated intensively internally and externally. Employees and customers became familiar with our 4 stakeholders –  concept. Actions for employees and customers were developed regularly and frequently. And twice a year, we asked our employees and our customers in surveys how we were doing in terms of providing meaning and purpose. We got very positive feedback showing that our concept worked.

One strong sign of our genuineness  to the 4 stakeholders – approach was also the firm commitment under my leadership that Merck Thailand will spend every year about 1.5% of its profit before tax for CSR (= Corporate Social Responsibility). I had done some search on this topic. I found out that an amount of 1% to 2% of profit before tax for CSR-related activities is considered as acceptable and reasonable for companies.

Balancing the interest of stakeholders served us very well at Merck Thailand for many years and led to outstanding results. In the December 2009 issue of Harvard Business Review, Nathan T. Washburn of Thunderbird School of Global Management shares his findings of a research that he had done with three co-authors. They studied 520 organizations in 17 countries and came to the conclusion that profit shouldn’t be the CEO’s top goal!

Their research showed that CEOs who put stakeholders’ interests ahead of profit generate greater workforce engagement – and thus deliver the superior financial results that they have made a secondary goal.

Survey data from executives and their subordinates showed that CEOs who focus on traditional economic values often come across as ruthless and autocratic, and focused on the short term only. This results in employees developing negative feelings towards the organization. Employees resent this leadership style and withhold their best efforts, which hurts the bottom line.

But when the CEO makes it a priority to balance the concerns of customers, employees and the community while also taking environmental impact into account, employees perceive their leader as visionary and participatory. They report a greater willingness to exert extra effort, which improves company performance.

The results of the study haven’t been any surprise to me. After all, I have experienced the findings of that survey first hand at Merck Thailand for over a decade. Although we were not part of the survey, I can only strongly underline the conclusion:

Have a meaningful purpose behind your business that matches people’s interest. Organizations perform best when they balance financial goals with respect, care, and fairness for the well-being of everyone involved. The human side of the business should never be neglected, since it has a major impact on the willingness of subordinates to follow their leaders.

This blog is dedicated to my son Jomar who is celebrating his 8th birthday today. He is giving great meaning and purpose to my life.