Worldwide Analysis: Fewer than 1 in 30 Companies are Truly 'Self-Governing' But Those That Are Win Big

Flatter organizations with high levels of trust, values, and purpose outpace on innovation, employee loyalty, customer satisfaction and financial performance

Study Also Finds Substantial CEO Disconnect with Employees on How Companies Work, Especially in U.S.

News provided by

LRN

May 10, 2012, 09:30 ET

NEW YORK, May 10, 2012 /PRNewswire/ -- An unprecedented, global analysis of how companies really work finds that fewer than one in 30 companies are self-governing – but that these rare companies experience profound advantages in the marketplace. It also found that CEOs worldwide have a significant disconnect from their employees about how their companies operate, nowhere more than in the United States.

Released today, The HOW Report looks at how governance, culture and leadership influence behavior and impact performance. The findings are derived from a rigorous statistical analysis of observations from over 36,000 employees at all levels in 18 countries. The report was developed by LRN and independently conducted by the Boston Research Group, in collaboration with Research Data Technology and The Center for Effective Organizations at the University of Southern California. LRN works with companies and their people to strengthen their corporate character and inspire principled performance.

The study identifies three business 'archetypes' describing how companies operate: Blind Obedience, Informed Acquiescence and Self-Governance*. The study found that while only 3% of companies are Self-Governing, 43% fall into the Blind Obedience and 54% into the Informed Acquiescence archetypes. Those that are self-governing perform the highest on every one of the 14 performance outcomes in the study – including higher employee loyalty, customer satisfaction and lower misconduct. Self-governing organizations are also more resilient and observed by their employees to beat the competition, usually by huge margins, on innovation and financial performance.

"We manage what we measure, and as the world becomes more interdependent, it's critically important to have metrics for how companies really operate—how their people behave and make decisions," said LRN CEO Dov Seidman. "Our goal was to create hard, testable, repeatable metrics, and we've derived a valuable insight: companies that meet the standard of Self-Governance have profound advantages in the marketplace. They have the highest levels of innovation, employee loyalty, and customer satisfaction and the lowest levels of misconduct."

Among the report's top findings:

Only 3 percent of companies worldwide are self-governing —meaning that the organizations have high levels of trust, values, commitment to a purpose, and collaboration.**
There is a marked disconnect between C-suite executives and the employees they lead. Worldwide, CEOs observe their companies as self-governing three times as often as the overall workforce: 10 percent versus three percent. For executives in the United States, it's 24 versus 3 percent, tied for the biggest disconnect in the world with Mexico.
That 3 percent minority of self-governing companies has significant advantages over the competition. They experience:
- Higher Innovation: 92 percent of employees observe levels of innovation are high relative to the competition, a 25 percentage point lead over Informed Acquiescence companies and a 54 percentage point lead over Blind Obedience organizations.
- Stronger Employee loyalty: 92 percent of employees hope to be working for their company in a year, 46 percent and 12 percent higher than Blind Obedience and Informed Acquiescence, respectively. 98 percent would recommend their company to a friend, again far ahead of Blind Obedience (33%) and Informed Acquiescence (81%).
- Higher Customer Satisfaction: 99 percent observe highly satisfied customers v. 42 percent for Blind Obedience and 82 percent for Informed Acquiescence.
- Stronger Financial performance: 93 percent of respondents observe financial performance greater than their competitors, besting Blind Obedience by 45 percent and Informed Acquiescence by 19 percent.
- Lower Misconduct: Only 24 percent of employees observed misconduct or unethical behavior in the last year, compared to 34 percent in Informed Acquiescence and 47 percent in Blind Obedience companies.

"These findings have significant implications for CEOs and other business leaders," said Seidman. "Companies that take their corporate character seriously are the ones who will thrive in the 21st century and be around in the 22nd century. It is our hope that the HOW Report will create a better understanding of how governance, culture and leadership combine to impact an organization's success and significance."

In our hyper-connected and interdependent world, LRN believes that the source of advantage has shifted to HOW – how we behave, lead, govern and relate to others. Since 1994, LRN has helped 20 million people at 700 companies meet complex legal and regulatory requirements and inspire principled performance in their operations. LRN provides strategic guidance, practical methods and a knowledge platform for inspiring your workforce.

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* "A self-governing organization is one that, according to LRN, manifests high trust; acts and makes decisions based on a set of core values; founds its efforts on a deep commitment to a larger purpose; leads by inspiration (as opposed to carrots and sticks or coercion); and is characterized by transparency, collaboration, and a long term horizon."

**The HOW Metrics Indices