September 11, 2017: Creating or Nurturing a Positive Culture, Part 1

Scott E. Friedman, Andrea H. HusVar, and Eliza P. Friedman

Last week we began exploring the pinnacle of “Stage 4 Planning:” positive psychology. We discussed what it is– the scientific study of how people and organizations flourish—and how its findings can help improve family business dynamics.

This week, we further our exploration with a look at why creating a positive work culture is so important.

A large and growing body of research  demonstrates that a negative, high pressure, “eat what you kill” environment is harmful to productivity and the “bottom line,” while a positive and nurturing environment in which employees feel valued, secure, supported, and respected, provides numerous benefits to employees, employers—and the “bottom line.”[1]

For example, researchers at the Queens School of Business and the Gallup Organization found that disengaged workers had a thirty-seven percent higher absenteeism rate, were forty-nine percent more likely to have accidents, and sixty percent more likely to make errors. [2]  Further findings determined that disengaged employees were less productive, less profitable, and, over time, reduced a company’s value by up to sixty-five percent.[3]

Discussing this research, Emma Seppala and Kim Cameron observe that “[t]oo many companies bet on having a cut-throat, high-pressure, take-no-prisoners culture to drive their financial success . . . Although there’s an assumption that stress and pressure push employees to perform more, better, and faster, what cutthroat organizations fail to recognize is the hidden costs incurred.”[4]

By contrast, Shawn Anchor, a former Harvard University professor and a respected business consultant, whose work focuses on the competitive advantages of a positive attitude and work culture, observes that those who are happy experience thirty-one percent higher productivity, thirty-seven percent higher sales, three times greater creativity, and twenty-three percent fewer fatigue symptoms. Happy people are also up to ten times more engaged, forty percent more likely to receive a promotion, and thirty-nine percent more likely to live to age ninety-four.[5] Numerous studies have demonstrated that employees prefer a happier workplace to increased compensation, a workplace characterized by forgiveness, kindness, trust, respect, and inspiration. And many of those studies demonstrate, in turn, that “a positive work culture leads to improved employee loyalty, engagement, performance, creativity, and productivity.”[6]

We’ll continue our discussion next week by outlining strategies that, when effectively implemented, have been proven to provide benefits to individuals and organizations.

[1]. There are a number of theories that have been proposed to help explain the effects of work environment on employee productivity.  The “presence of well-being” theory posits that positivity in the workplace increases employee engagement, that, in turn, drives committed and dedicated performance, in turn driving productivity, and, finally, in turn and by extension, the “bottom-line.” Barbara Fredrickson theorizes that positive emotions, like negative emotions, have evolutionary roots. While “negative emotions may lead to fight or flight behavior and a narrowing of cognitive activity,” positive emotions, such as “joy, interest, and love” broaden cognitive activity, including an individual’s “information-processing strategies,” “creative thinking,” and memory. This “loosening” of cognitive abilities, in turn, encourages the “bonding of individuals to each other, their work, and their organization,” leading to actions that translate into “successful business outcomes within organizations.” James K. Harter et al., Well-Being in the Workplace and its Relationship to Business Outcomes: A Review of the Gallup Studies, NHS Employers 5, 6, http://www.nhsemployers.org/~/media/Employers/Documents/Retain%20and%20improve/Harter%20et%20al%202002%20WellbeingReview.pdf (last visited Apr. 4, 2017) (summarizing Barbara L. Fredrickson, The Role of Positive Emotions in Positive Psychology: The Broaden-and-Build Theory of Positive Emotions, 56 Am. Psychol. 218 (2001)).

[2]. Emma Seppala & Kim Cameron, Proof That Positive Work Cultures Are More Productive, Harv. Bus. Rev. (Dec. 1, 2015), https://hbr.org/2015/12/proof-that-positive-work-cultures-are-more-productive. The Gallup Organization surveyed hundreds of organizations around the world and found a clear—and compelling—relationship between employee engagement (i.e., the emotional commitment of an employee to his workplace) and profitability.  For example, business units with employees that “know what is expected” of them, have “opportunit[ies] to do what [they] do best,” believe managers “care” about them and their opinions, and who have “opportunities to learn and grow,” had lower employee turnover rates, higher customer satisfaction and loyalty rates, higher employee productivity rates, and higher profitability.  In fact, “business units with employee engagement at the 95th percentile for a given company have . . . more than double the success rate of [business units with employee engagement] at the 5th percentile.”  Harter et al., supra note 126, at 9–14.  The study has lead researchers to conclude that “[b]usiness units that use principles of positive psychology may be able to influence employee engagement, and this then may enhance the bottom line.”  Id. at 14.

[3]. Seppala & Cameron, supra note 127.

[4]. Id. The investment banking world—an industry that is well-known for its intensely competitive environment and well-compensated risk-takers—is rife with examples of extremely toxic behavior. Such behavior often leads to significant corporate losses. For example, Howie Hubler at Morgan Stanley (lost $9.4 billion), Jerome Kerviel at Societe Generale (lost $7 billion), Brian Hunter at Amaranth Advisors (lost $6.6 billion and firm closed), John Meriwether at Long-Term Capital Management (lost $4.6 billion and firm dissolved), and Bruno Iksil at JPMorgan Chase (lost $2 billion). Cory Mitchell, 10 Traders Who Cost Their Companies Billions, TraderHQ: Trader U. (June 11, 2014), http://traderhq.com/traders-cost-company-billions.  Although individuals who exhibit certain personality traits such as overconfidence, high self-regard, and strict adherence to rules, are more likely than others to engage in toxic behavior negative culture and/or proximity to toxic workers promotes and breeds more toxicity. See Michael Housman & Dylan Minor, Toxic Workers (Harvard Bus. Sch., Working Paper No. 16-057, 2015), http://hbs.edu/faculty/Publication%20Files/16-057_d45c0b4f-fa19-49de-8f1b-4b12fe054fea.pdf. This, in turn, has been attributed to causing “major organizational costs, including customer loss, loss of employee morale, increased turnover, and loss of legitimacy among important external stakeholders.” Id. at 2. Indeed, the study posits that bad workers have a stronger effect on a firm than good workers, concluding that avoiding “toxic workers” provides more cost-benefit to a firm than finding and retaining a “superstar.” Id. at 3, 19–21. Moreover, research shows that workplace stress can increase voluntary job turnover by almost fifty percent, creating incremental costs associated with recruiting and training new employees while losing the productivity associated with experienced employees. See generally Christine Pearson & Christine Porath, The Cost of Bad Behavior: How Incivility is Damaging Your Business and What to do About It 89–90 (2009). Adam Grant, a Wharton Professor known for his research on culture, including the advantages of cooperating and helping (“giving”) compared to the disadvantages of selfish behavior (“taking”), writes:

Consider a landmark meta-analysis led by Nathan Podsakoff, of the University of Arizona. His team examined 38 studies of organizational behavior, representing more than 3,500 business units and many different industries, and found that the link between employee giving and desirable business outcomes was surprisingly robust. Higher rates of giving were predictive of higher unit profitability, productivity, efficiency, and customer satisfaction, along with lower costs and turnover rates. When employees act like givers, they facilitate efficient problem solving and coordination and build cohesive, supportive cultures that appeal to customers, suppliers, and top talent alike.

Adam Grant, In the Company of Givers and Takers, Harv. Bus. Rev. (Apr. 2013), https://hbr.org/2013/04/in-the-company-of-givers-and-takers.

[5]. Achor, supra note 96, at 189.

[6]. Emma Seppala, Good Bosses Create More Wellness Than Wellness Plans Do, Huffington Post (Oct. 24, 2016), http://www.huffingtonpost.com/emma-seppala-phd/good-bosses-create-more-w_b_12602574.html.

September 5, 2017: Positive Psychology & Social Neuroscience

By Scott E. Friedman, Andrea H. HusVar, and Eliza P. Friedman

Hello and welcome back to the blog, where we continue to explore the sciences that drive “Stage 4 planning.” This week we turn our attention to the field of positive psychology and how families in business together can benefit from its findings.

Positive psychology[1] is the scientific study of how people and organizations flourish.[2] This now fast-growing field developed out of a concerted effort to counterbalance psychology’s traditional focus on deficits and problems—i.e., what’s wrong with people and how can those problems be fixed?[3] Without disregarding the existence or importance of “real” problems,[4] positive psychology seeks to broaden inquiry and perspective by bringing increased focus to the scientific study of individual and organizational strengths, skills, and talents—as well as considering what can be done to nurture and promote those individuals and organizations to help them flourish.[5]

Importantly, while its findings may be consistent with certain insights and guidance offered by religion, philosophy, or otherwise, positive psychology differentiates itself in that it relies upon scientific methods to understand the factors that allow individuals and organizations to flourish.[6] The field has become increasingly relevant to individuals, businesses and organizations who have come to appreciate the scientifically established correlation between “culture” and the “bottom line.”[7]

While this developing field continues to suggest countless opportunities to improve family business dynamics,[8] we focus here on introducing four strategies that we believe particularly helpful for family businesses: (1) seeking to intentionally create and/or nurture a positive culture; (2) new strategies designed to enhance the quality of inter-personal communication; (3) helping family members pursue interests, whether or not related to the family’s business, because of interest, aptitude and “fit,” and not because an opportunity might be lucrative, convenient, or expected; and (4) when necessary, using new strategies informed by game theory to help family members more constructively reconcile differing perspectives before situations erupt into full blown conflict.

Join us back here next week for our discussion of happy work environments, how to create them, and why they matter in business.

[1]. Depending on one’s perspective, the field of positive psychology could be traced, in the West, to Aristotle and, in the East, to Confucius and Lao-Tzu. See generally, e.g., Katherine Dahlsgaard et al., Shared Virtue: The Convergence of Valued Human Strengths Across Culture and History, 9 R. Gen. Psychol. 203 (2005). More modern contributors might include William James and Viktor Franklin. Martin E. P. Seligman is generally credited with being the “father” of modern positive psychology. See T.S. Srinivasan, The 5 Founding Fathers and A History of Positive Psychology, Positive Psychol. Program (Feb. 12, 2015), https://positivepsychologyprogram.com/founding-fathers.

[2]. The field has, at times, been thought of as the scientific study of happiness. A number of leaders in the field, however, have sought to move away from the term “happiness” as not reflecting the disciplined scientific approach that distinguishes work in this area from pop psychology (as well as philosophy and religion). See, e.g., Martin E. P. Seligman, Flourish: A Visionary New Understanding of Happiness and Well-Being 9 (2011) (“I actually detest the word happiness, which is so overused that it has become almost meaningless. It is an unworkable term for science . . .”).

[3]. The field of positive psychology now reaches in numerous directions, from helping individuals learn to be happier, students learn to be more successful, and members of our military learn to become more resilient to the horrors of war. For a sampling of some of the positive psychology-inspired initiatives, see, e.g., Positive Psychol. Ctr U. Pa., http://ppc.sas.upenn.edu.

[4]. Barbara Frederickson, a leading positive psychologist, explains that

[n]obody in positive psychology is advocating full-time, 100 percent happiness. The people who do best in life don’t have zero negative emotions. In the wake of traumas and difficulties, the people who are most resilient have a complex emotional reaction in which they’re able to hold the negative and the positive side by side . . . There’s no escaping loss, grief, trauma, and insult.

Angela Winter, The Science of Happiness: Barbara Frederickson on Cultivating Positive Emotions, Positivity Radio, http://www.positivityratio.com/sun.php (last visited Apr. 4, 2017) (interview by Angela Winter of Psychologist Barbara Frederickson).

[5]. See Seligman, supra note 118, at 13 (“I used to think that the topic of positive psychology was happiness, that the gold standard for measuring happiness was life satisfaction, and that the goal of positive psychology was to increase life satisfaction. I now think that the topic of positive psychology is well-being, that the gold standard for measuring well-being is flourishing, and that the goal of positive psychology is to increase flourishing.”).

[6]. For example, many of the world’s great religions emphasize the importance of forgiveness—a subject that is being researched at leading academic institutions like Stanford University. See infra note 138, and accompanying text.

[7]. For example, studies have found that positive psychology inspired approaches have helped “accelerate the growth of the United Nations Global Compact for sustainability . . . to 8,000 of the world’s largest corporations,” improved energy efficiency that resulted in “nearly 9 billion [dollars] of benefits for residents and businesses” in the Commonwealth of Massachusetts, “[t]ransformed a mining company that was once referred to as ‘dune-rapers’ into a [highly respected] corporate citizen while still growing their profits,” and helped “the dairy industry to reduce green house gas emissions by 25% in 2 years whilst increasing farm business value by more than $230 million.” Michelle McQuaid, Can We Create a Flourishing World? Discover the Strengths-Based Change Approach Sought Out By World Leaders, Psychol. Today (July 10, 2015), https://www.psychologytoday.com/blog/functioning-flourishing/201507/can-we-create-flourishing-world; see also Shawn Achor, The Happiness Dividend, Harv. Bus. Rev. (June 23, 2011), https://hbr.org/2011/06/the-happiness-dividend (“A decade of research proves that happiness raises nearly every business and educational outcome: raising sales by 37%, productivity by 31%, and accuracy on tasks by 19%, as well as a myriad of health and quality improvements.”); infra note 127.

[8]. For example, an increasing number of companies—including law firms—are innovating new mindfulness programs for employees as studies show that spending just a few minutes a day on such exercises gives people greater focus and calm. See, e.g., Rhonda V. Magee, Educating Lawyers to Meditate?, 79 UMKC L. Rev. 535, 548–55 (2011); Emma Seppala, How Meditation Benefits CEOs, Harv. Bus. Rev. (Dec. 14, 2015), https://hbr.org/2015/12/how-meditation-benefits-ceos (“The research on mindfulness suggests that meditation sharpens skills like attention, memory, and emotional intelligence.”). Programs related to meditation include yoga, tai chi, and exercise. Others are studying and applying new strategies to thoughtfully raise children who were privileged to be born into a family with a successful family business that provides both opportunities and challenges. See, e.g.,  Carlos Arbesú, Parenting, the Last Frontier of Family Business Management, Carlos Abresu (Feb. 25, 2014), http://en.carlosarbesu.com/2014/02/25/parenting-the-last-frontier-of-family-business-management.  Many great resources on these and other related subjects are widely available and, so, beyond the scope of this article.

August 29, 2017: Understanding Family Business Problems through Science, Part 2

By Scott E. Friedman, Andrea H. HusVar, and Eliza P. Friedman

We left off last week with a look at the “fight or flight response” theory. This week we’re examining how this fear-based thinking can negatively impact family businesses—and what can be done to fix it.

Our “fight or flight” response trains our brains to spot the negative, to focus on—and often fear—mistakes, failures and criticism. Such fears can manifest themselves in counter-productive, fear-based behaviors, including greed,[1] anger,[2] turf-ism,[3] lying,[4] and cheating.[5] Inside a family business, stakeholders might experience other insidious and destructive “modern day forms of fears,” such as a fear of being under appreciated (and, perhaps, under-compensated), a fear that someone else is unduly appreciated (and, so, perhaps, overcompensated), a junior family member’s fear of not garnering sufficient control, or a parent’s fear of losing control.

Fortunately, scientists continue to learn more about our brain’s capacity to manage (when appropriate)[6] counterproductive fear based emotions.[7] We have the ability to choose what to focus on and to choose how to explain our world, even by reprograming our brains to change how we filter, interpret and react to the world. We can learn to override “fear” and, in doing so, appreciate not just problems, but possibilities too—to see not only our challenges but our blessings. [8] As individuals, we can learn to be happy and, as organizations, we can learn how to flourish.

Join us back here next week, when we’ll delve into the exciting field of positive psychology as we begin to introduce some of these findings and explain how families in business can benefit from their application.

[1]. See, e.g., Richard Taflinger, Taking Advantage: The Biological Basis of Human Behavior, Wash. State Univ., http://public.wsu.edu/~taflinge/biology.html (last visited Apr. 3, 2017) (“Biologically, for any organism that is successful greed is good . . . Greed is one organism getting a larger piece of the pie, more of the necessary resources, than other organisms . . . Again, as for self-preservation and sex, greed is an instinctive reaction. When presented with resources, the instinct is to grab them, use them, take advantage of them. This isn’t a conscious decision. An animal, when starving, wants more food; when thirsty, more water. If it means taking it from another animal, that’s what it does if it can.”).

[2]. Psychologist Deborah Khoshaba explains the dynamic between fear and anger:

There is a strong relationship between anger and fear. Anger is the fight part of the age-old fight-or-flight response to threat. Most animals respond to threat by either fighting or fleeing. But, we don’t always have the option to fight what threatens us. Instead, we have anger. Words are the civilized way that we get to fight threat. And, some words, as you know, are meant to sting as deeply as a stab wound. Anger is one of the ways that we help our body to prepare for potential danger. Anger stimulates adrenaline to rouse the brain and body to fight or flee a threatening situation. Of course, in more primitive days, the things that angered us centered solely on threats to our survival (a basic need for food, shelter, water, or land). Today, we are civilized; we’ve formed identities of preferences and values of living that make us complex and psychologically defensive. Assaults to your principles, beliefs, and needs and wishes are the basis for your anger, now. And, you will protect your identity as strongly as if you were defending your right to food, shelter, water or land.

Deborah Khoshaba, Masks of Anger: The Fears That Your Anger May Be Hiding, Psychol. in Everyday Life (May 29, 2012), http://www.psychologyineverydaylife.net/2012/05/29/masks-of-anger-the-fears-that-your-anger-may-be-hiding.

[3]. See, e.g., Donna Flagg, Turf Wars at Work, Psychol. Today (June 6, 2010), https://www.psychologytoday.com/blog/office-diaries/201006/turf-wars-work (“Turfism. It’s one of those annoying things that end up creating big problems in the workplace. Conceptually, people know that it’s bad and damaging, yet for whatever reason, there are those who can’t seem to help themselves. They feel the need to guard their territory and protect (sometimes with a vengeance) what they perceive to be theirs . . . [I]nvisible walls go up which ultimately hinder communication and infect the culture with a lack of cooperation among people and departments.”).

[4]. Lying can be thought of as the result of one’s fear that “telling the truth” will create a problem.  See, e.g., Tomas Chamorro-Premuzic, How and Why We Lie at Work, Harv. Bus. Rev. (Jan. 2, 2015), https://hbr.org/2015/01/how-and-why-we-lie-at-work (“Although every society condemns lying, it is still a common feature of everyday life. Research suggests that Americans average almost two lies per day, though there is huge variability between people . . . [M]ost people lie when they are under pressure (e.g., anxious, afraid, or concerned) . . .”).

[5]. Cheating can be thought of as the resulting fear that one will miss an important opportunity, or be disadvantaged, unless they ignore the applicable rules of conduct. See, e.g., Colm Healy & Karen Niven, When Tough Performance Goals Lead to Cheating, Harv. Bus. Rev. (Sept. 8, 2016), https://hbr.org/2016/09/when-tough-performance-goals-lead-to-cheating (“[E]ven people with low moral justification were more likely to engage in some types of unethical behavior when faced with a specific, challenging performance goal.”).

[6]. We should note that not all fear based emotions and reactions are inappropriate or counterproductive. Common examples include forensic accountants who need to have a degree of skepticism, or flight controllers who need to be concerned about air traffic, when doing their jobs. The problem is that we are at risk of losing control of when to respond appropriately because of our biological instincts.

[7]. Research shows that, simply by engaging regions of our frontal lobes, we can promote “higher order thinking” that can help us live good lives while helping us keep our worst impulses in check. See, e.g., John B. Arden, Rewire Your Brain: Think Your Way to a Better Life 73 (2010), http://brainmaster.com/software/pubs/brain/Rewire%20Your%20Brain.pdf.

[8]. Dan Baker, describing this opportunity, writes:

Luckily, we have been blessed with an almost magical source of compensation: the human neocortex. The neocortex is the primary area of intellect in the brain, located in the cerebrum. It is creative, intuitive, intellectual, and spiritual. It is the physical site of happiness.

With our wonderfully redemptive neocortical abilities, we can override the limitations of evolution and free ourselves from the fears that thwart happiness.

Fears will keep coming up—always, always. But we can rise above them. This is our evolutionary gift—our way out of darkness of the past, into light.

Baker, supra note 109, at 7.

Scott E. Friedman, Andrea H. HusVar, and Eliza P. Friedman, Advising Family Businesses in the 21st Century: An Introduction to “Stage 4 Planning” Strategies, 65 Buff. L. Rev.,  May, 2017

August 18, 2017: Understanding Family Business Problems through Science, Part 1

By Scott E. Friedman, Andrea H. HusVar, and Eliza P. Friedman

Welcome back to the blog. This week we continue our discussion of “Stage 4 Planning” and how science—particularly the “fight or flight response” theory—can help us understand the innate challenges that threaten family businesses.

In his best-selling book, Thinking, Fast and Slow, Nobel Prize Winning author and professor Daniel Kahneman observes that “[b]y and large . . . the idea that our minds are susceptible to systematic errors is now generally accepted.”[1] Professor Kahneman’s observation about the susceptibility of our brains to make systematic errors extends in numerous directions and is the subject of a growing body of scholarly books and articles on our complex human nature, including, for example, our systematically irrational behavior,[2] the on-going tug of war between reason and impulse,[3] our propensity for making snap decisions,[4] how we actually pay less attention than we believe we do,[5] and how imperfect our memories are.[6]

Perhaps as problematic for family owned businesses as any other systematic error that our minds make is our propensity to react—and overreact—in “fight or flight mode,” an immediate and automatic response to that natural selection imbued our ancestors with when faced with true existential (and perceived) threats where delaying could be fatal. While modern civilization has thankfully reduced or eliminated many such threats, our brains continue to overreact in fight or flight mode to even petty annoyances, perhaps angering us when someone takes “our spot” in a crowded parking lot, or the concern we might feel if someone fails (for whatever reason) to respond promptly to a text or email. Dr. Dan Baker describes this phenomenon in his best-selling book What Happy People Know, writing:

The forces of evolution, by their very nature, endowed [our neurological] fear system with tremendous power, because in the brutal early epochs of mankind, it alone kept us alive. It gained us the hair-trigger capacity to spring into action at the first hint of threat. The automatic fear response became faster than the process of rational thought, faster than experiencing the feeling of love, faster than any other human action. . . . Unfortunately, in modern life, what is good for survival is often bad for happiness and even for long-term health.[7]

Join us next week as we take a closer look at how fear-based thinking negatively impacts family businesses and what can be done to remedy these situations.

[1] Daniel Kahneman, Thinking, Fast and Slow 10 (2011).

[2] See, e.g., Dan Ariely, Predictably Irrational: The Hidden Forces that Shape Our Decisions xix-xx (2008) (“Although a feeling of awe at the capability of humans is clearly justified, there is a large difference between a deep sense of admiration and the assumption that our reasoning abilities are perfect . . . [W]e are not only irrational but predictably irrational . . . our irrationality happens the same way, again and again.”) (emphasis in original).

[3] See, e.g., Dan Ariely, The (Honest) Truth About Dishonesty: How We Lie to Everyone—Especially Ourselves 113–14 (2012) (“Being human and susceptible to temptation, we all suffer in this regard. When we make complex decisions throughout the day (and most decisions are . . . complex and taxing), we repeatedly find ourselves in circumstances that create a tug-of-war between impulse and reason. And when it comes to important decisions (health, marriage, and so on), we experience an even stronger struggle. Ironically, simple, everyday attempts to keep our impulses under control weaken our supply of self-control, thus making us more susceptible to temptation.”).

[4] See, e.g., Malcolm Gladwell, Blink: The Power of Thinking Without Thinking 85 (2005) (“We don’t deliberately choose our unconscious attitudes . . . [O]ur unconscious attitudes may be utterly incompatible with our stated conscious values.”).

[5] See, e.g., Christopher Chabris & Daniel Simons, The Invisible Gorilla: And Other Ways Our Intuitions Deceive Us 38 (2010) (“For the human brain, attention is essentially a zero-sum game: If we pay more attention to one place, object, or event, we necessarily pay less attention to others. Inattentional blindness is thus a necessary, if unfortunate, by-product of the normal operation of attention and perception.”).

[6] See, e.g., Schacter, supra note 87, at 4 (“I propose that memory’s malfunctions can be divided into seven fundamental transgressions or ‘sins,’ which I call transience, absent-mindedness, blocking, misattribution, suggestibility, bias and persistence.”) (emphasis in original).

[7] Dan Baker, What Happy People Know 6–7 (2002).

Scott E. Friedman, Andrea H. HusVar, and Eliza P. Friedman, Advising Family Businesses in the 21st Century: An Introduction to “Stage 4 Planning” Strategies, 65 Buff. L. Rev.,  May, 2017