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From the pages of:
World
Energy, vol. 5 no.1
The Dynamics of Organizational Relationships
by A. Earl Swift
Chairman, Swift Energy Company
A wise man can learn from the experience of other men, but a fool cannot
learn even from his own. — Will Durant
Following the tumultuous experiences of September 11 and its aftermath, all
of us must adjust to a very different world. The global economy, which had
already begun to slow before the attacks on New York and Washington, turned
down sharply during late 2001. Businesses — from airlines to tourism, manufacturing
and oil and gas — experienced declines in demand for their products and services.
Communities and governments were forced to deal with security concerns that
they had hardly imagined only a few months earlier. Perhaps more importantly,
the recent business downturn exposed behavioral problems in some businesses
and organizations, highlighting the need for critical review and reform.
We must
face the current challenges together, working within our organizations, institutions
and communities. To do this effectively, we must understand the basics of
how people work together in groups, and, more specifically, how groups arrive
at decisions. Franklin Roosevelt's last speech noted that the world needed
to cultivate a "science of human relationships," and those words
have never been more true than they are today. Although most studies of human
business relationships accept the "invisible hand" as guiding economic
decision making, they have been very slow to recognize the full extent that
all organizational behavior is ultimately founded upon human nature.
Having
spent almost 50 years in the volatile oil and gas industry, I have seen tumultuous
times before. I know that the long-term success of any endeavor requires a
dynamic organization that promotes flexibility, innovation and teamwork. I
also know that the availability of these essential characteristics, and their
effective control, requires a decision-making process that recognizes basic
human nature.
Organizations use decision-making processes that vary from elaborate designs
with numerous decision points to relatively simple procedures. In each case,
the process relies on a mix of the three types of decision making inherent
in human nature: 1) individual decision making based upon self interest, 2)
group decision making based upon consensus, and 3) authoritative decision
making based upon values, rules and hierarchies. The companies and organizations
that succeed during both good times and bad times are those that maintain
an effective balance between these three ways of choosing a course of action.
In fact, what we regard as a "civil" society is one that balances
the three decision-making methods in a constant tug of war. As a result, modern
"civil" societies facilitate the creation of balanced organizations
as outlined in Figure 1 and illustrated in Figure 2.
Figure 1: Decision making based upon the nature of man
The nature of man allows for only three unique systems of making decisions:
I. Individualism — which access inequity, relishes competition and
identifies with the rights and power of the individual.
II. Collaboration — which treats all men as equally important, exalts
collaborative efforts and identifies with unlimited democracy.
III. Power and authority — which respects power and identifies with
controlling authority.
An organizational system based upon the "nature of man" blends
the three possible systems into a harmonious unity, accepting that any one of
the systems standing alone is both unstable and ineffective.
The universality
of the three decision-making processes seems obvious. Everyone wants to be
free to make his or her own decisions. At the same time, everyone needs the
companionship and the sense of belonging that comes with being part of a group,
and everyone fears the absolute solitude of unrestricted freedom. Finally,
everyone wants to believe in something or someone, to conform his or her behavior
to some kind of authority, whether that authority comes internally from religious,
political, or cultural values or externally from a leader in a hierarchy.
While
it may seem obvious that everyone relies upon these three types of decision
making, our political conversations often polarize into conflicts of two decision-making
types, a battle of group consensus versus individual freedom. We have dogmas
of the "left" and "right" or of "liberals" and
"conservatives." Conforming to these dogmas is a serious blunder.
Dogmas of the left or right fail to recognize the role that authority plays
in balancing the interests of the group and the individual. Without a balance
of all three types, organizations can quickly become unstable and ineffective.
Figure 2: Balanced decision-making processes
After
observing life within organizations over several decades and heading an independent
oil and gas company for over 20 years, in addition to performing my own personal
research, I have become convinced that ensuring that a balanced decision-making
process is in place is one of the most important responsibilities of the management
of a company. For the chief executive officer, development of the organizational
culture is the top responsibility, and creating balanced decision processes
is a major aspect of culture building.
It is
not a simple task. It demands not only a complete understanding of the company
business and mission — the usual criterion for company officers — but it also
requires a fairly sophisticated understanding of human nature expressed in
organizational relationships. For a society whose founders relied extensively
on the philosophies of ancient sages, we spend very little time reflecting
on human nature. The study of oneself is everyone's primary duty and responsibility,
and for organizational leaders, it is also good business.
Organizations and Human Nature
Achieving balanced decision-making processes begins with the recognition
of some basic truths, the foremost of which is that all systems of interpersonal
relationships — from families to businesses to societies — stem from basic
human nature. From the point of view of a leader within an organization, the
biological underpinnings of human nature are irrelevant. It is enough to recognize
that the norms for individuals, regardless of their background, have certain
characteristics in common.
One universal
human characteristic is the desire for liberty. Even wild animals need their
space, and just as a variety of creatures need a territory to call their own,
all human beings want absolute control over certain aspects of their own lives.
In a business environment, the concept of liberty is often called individual
initiative, and business organizations cannot function without it. It is well
understood that modern capitalism requires a certain amount of individuality
and competitiveness to succeed. Without individual initiative, organizations
stagnate.
Particularly
in today's high-tech economy, innovation and creativity flow from individual
freedom. Is there any doubt that the freedom fostered in the United States
is one of the reasons that the U.S. economy is the largest on earth, or that
American individualism was one of the reasons that the Soviet Union was not
able to keep up with the United States during the Cold War?
An equally
important, but less accepted, universal human characteristic is the desire
for community. Just as wolves hunt in packs, from the earliest hunter-gatherer
societies to those of today, human beings have rarely accomplished anything
of consequence working as lone individuals. In business, the concept of community
is usually called teamwork, and in a modern economy, every significant project
requires teams of individuals from a variety of disciplines. In the 1980s,
the Japanese devotion to teamwork was held up as a model for businesses around
the globe, and for a time, it gave Japan a substantial competitive edge.
In today's
era of individualism, this group-oriented element of human conduct provides
protection against individual deviant behavior. The group provides a check
against individuals with bad motives, denying them the power to tyrannically
dominate or exploit other people.
A third
universal human characteristic is the desire for purpose. People feel their
lives have purpose when their actions conform to the dictates of some form
of authority. This desire for purpose is perhaps more uniquely human than
the desire for liberty or community. Lizards follow their own desires, sheep
join a flock, but only human beings seek out meaningful purpose. Purpose may
come from any number of sources, such as religion, politics, ethics, informal
customs or individual role models, but in the end, a sense of purpose is always
founded from some form of authority. In the business world, we talk about
creating an organizational culture and achieving a sense of corporate mission,
but what we are really talking about is developing a system of authority that
helps people to work together to achieve a goal. From building the ancient
pyramids to placing a man on the moon, history is replete with the extraordinary
accomplishments of authoritarian organizations acting with a strong sense
of mission and purpose.
The Need for Balance
Effective organizations recognize human nature and provide for basic human
desires. Consequently, decision-making systems have to balance the desires
for liberty, community and purpose. Individuality in the extreme is anarchy.
Group decision making run amok is mob rule. Excessive authoritarianism is
tyranny. Any of the three decision types are unsound as they near their absolute,
hence the need for balance.
The last
100 years have been marked by a number of experiments in the extreme, and
after initial successes, these experiments ended in failure. Excessive individualism
in the form of laissez-faire capitalism gave the world the Great Depression,
and it also helped create the recent dot-com debacle. Too much dependence
on group consensus has been a major contributing factor to Japan's economic
woes over the last decade. Fascist authoritarianism triggered a global conflagration
during World War II, and communist authoritarianism threatened the world with
nuclear Armageddon.
Unbalanced Instability
Without a balanced decision-making process, organizations eventually drive
off a cliff to ruin. In some ways, all organizations function like governments,
and as the Declaration of Independence states, governments derive their just
powers from the consent of the governed. More generally, organizations derive
their powers from the consent of their stakeholders. If an organization defies
human nature by adopting an unbalanced decision-making procedure, the needs
and desires of its stakeholders will go unfulfilled. Ultimately, the members
of the organization will decide not to fully consent to its authority, and
the organization will become ineffective. Sooner or later, tyrants are overthrown,
nonconformists break through groupthink, and anarchy is replaced with order.
Organizations
without balanced decision making are primarily unstable because they lack
the necessary checks on power. The U.S. constitution recognized the need for
checks and balances in order to preserve all three types of decision making
within the American system. The administrative branch provides hierarchical
authority. The legislative branch provides group consensus. The judicial branch
preserves individual rights. Part of the genius of America's founding fathers
is that they recognized that effective governmental decision making must be
consistent with basic human nature.
The Nexus of Balanced Decisions
In a dynamic world, we need a mix of the three types of decision making in
order to consistently achieve effective results, but the nexus of the balance
varies as circumstances change. When organizations are facing an immediate
emergency, hierarchical authority must predominate. In times of great uncertainty,
group consensus helps provide an accurate risk assessment. When organizations
have to innovate, individual initiative is at a premium. By generally preserving
a balance of all three types of decision making, organizations maintain the
flexibility to move rapidly toward one result or another as circumstances
dictate.
Under
most circumstances, however, organizations work most effectively when all
three types of decision making are balanced relatively equally, and it is
the authoritarian aspect of the organization that controls this balance. In
the United States, for example, the constitution enforced by the executive
branch is the ultimate authority, and it is the constitution that balances
power among the three branches of government.
In business
organizations, the company's fundamental mission and culture are the ultimate
authorities, and the organization's senior leadership, especially the CEO,
enforces these authorities and guides their development. In fact, setting
out the company mission and guiding the organizational culture are the most
important tasks that a CEO undertakes.
Organizational Mission and Culture
The mission and culture are critically important because they ultimately
define the organization. No interpersonal relationship between human beings
ever encompasses every aspect of life. We are each unique, and consequently,
no two people can agree about everything. For an organization to be effective,
its members must consent to its control, at least in a limited sense, and
in a pluralistic society, the members of an organization are always going
to be diverse. In the United States, diversity is a great strength. Every
dollar bill says, "E Pluribus Unum," or, "Out of Many, One."
Achieving unity out of diversity is one of the great goals of American culture,
and it also is a major goal of every corporate leader.
Unity
is achieved by defining the organization in such a way that areas where agreement
is impossible are excluded from the organization's scope of activities. Ultimately,
an organization's mission and culture describe the areas of agreement and
disagreement and loosely define the decision processes through which agreement
will be obtained. In defining the areas of agreement and disagreement, the
mission defines the purpose that all of the members of the organization will
hold in common. In defining how agreement will be obtained, the culture determines
the organization's mix of decision-making types.
In the
United States, our individual liberties — for example, freedom of speech,
freedom of religion and individual property rights — are excluded from public
control by our political compact. In addition, our laws and values require
that individual characteristics such as race, ethnicity, and gender can never
be used as a basis for forming a public organization. Every business organization
will therefore consist of people from diverse backgrounds, with diverse values
and pursuing diverse individual interests. A business leader's primary duty
is to create unity out of this diversity, and he or she does so by defining
and enforcing the organization's ultimate authority: its mission and culture.
Defining Mission and Culture
Business leaders have several tools at their disposal for helping define
the organization's mission and culture, one of the most powerful of which
is individual example. American culture celebrates the individual. We live
in a celebrity culture, and the leaders of public companies are, for better
or worse, a type of celebrity.
Just as
Theodore Roosevelt noted about the U.S. presidency, leaders within business
organizations have a "bully pulpit" from which to express their
ideas about the type of culture an organization should have. Should the culture
be participatory? To what extent should it foster individual initiative? Should
it promote high levels of communication between disciplinary boundaries and
across formal lines of authority? How much will decisions depend upon group
consensus? What internal ethical considerations — beyond those imposed externally
through legal rules — will guide the organization's business decisions? How
much real power do leaders within the organization receive from their position
within the organizational hierarchy? Answers to these kinds of questions can
be found in the day-to-day examples provided by an organization's senior leadership,
particularly its CEO.
The bully
pulpit can also be used to describe the overall mission of the organization.
An organization's mission defines the scope of its activities. As the recent
example of Enron makes abundantly clear, it is just as important to define
the kinds of activities that will not be undertaken as it is to define the
kinds of activities that will be undertaken. I am not speaking here primarily
of ethical considerations, although ethical values are of critical importance.
Instead, I am speaking about organizational focus. Resources must be continually
focused on those areas where an organization enjoys competitive advantages.
Competitive advantages derive from the unique competences of the organization's
members. In some ways, corporate mission and organizational competences become
a continuing chicken-and-egg proposition. Competences help define the mission,
but the mission also helps define the selection and training processes through
which new competences are built. Either way, the organization's focus and
its competitive advantages must always go hand in hand. If an organization
decides to pursue opportunities and markets that are not within the CEO's
personal area of expertise, the CEO must take great care to create interlocking
checks and balances to ensure that an appropriate focus is always maintained.
From Swift Energy's founding, I have continually tried to focus its activities
on growth in the volume and value of its proved oil and gas reserves. I have
always believed that long-term growth in production, cash flows, and shareholder
value result from growth in reserves. Our mission of growth in oil and gas
reserves serves to define the scope of our organization. We don't build cars,
we don't sell groceries, and we don't engage in financial transactions for
their own sake. Everything we do serves to further our mission of building
shareholder value through reserves growth. This mission is engrained in our
organization, and it therefore defines the type of decisions that are open
to consideration.
Formal Structure and Control Processes
In addition to the bully pulpit, the CEO can guide the corporate culture
by setting up a company's formal organizational structure and its corporate
control processes. In setting up the company's structure and processes, one
of the most important goals is to achieve balanced decision making. Individual
initiative must be balanced against formal lines of authority. Interdisciplinary
teams must operate within authoritarian control mechanisms.
Organizational
structures and processes evolve over time, and they, in turn, help guide the
development of the corporate culture. Several times in my career, I have relied
upon a matrix organizational structure to guide the development of corporate
culture because a matrix system can be an effective tool for creating a system
of checks and balances within an organization. In a matrix system, primary
lines of authority within a business unit are balanced with secondary lines
of authority within professional disciplines. Obviously, this creates some
ambiguity of authority, but that ambiguity can make room for individual creativity
and interdisciplinary collaboration. The matrix system only works, however,
if the top leadership of the organization is practically force-feeding employees
with the need for collaboration between disciplinary boundaries and across
functional areas.
A formal
structure is not an end in itself. It is only one tool in the toolbox, and
it must be used in concert with the other tools a CEO has at his or her disposal.
Our celebrity culture creates a predisposition toward authoritarian leadership,
making small authoritarian cliques within a broader, more balanced organization
an all-to-common occurrence. At times, this predisposition towards authoritarianism
is hard to resist, but the CEO must see that it is resisted and that balanced
decision processes are maintained.
Developing Balanced Decision Processes
Because organizational processes are based upon human nature, the evolution
of an organization's culture follows a similar process to the development
of a human being. As children, selfish interests are the major concern. The
parent must exert authoritarian control, and eventually these controls get
internalized as values. As a child matures and internalizes these values,
the parent can relax overt control.
Organizations
follow a similar pattern. The more mature an organizational culture becomes,
the less control must be exerted through formal lines of authority. This increases
the organization's flexibility and creativity, allowing individual and group
processes to quickly respond to changes in the external environment.
As Abraham
Mazlow noted, human needs are arranged in a hierarchical order. Meeting basic
needs becomes a prerequisite for meeting needs further up the hierarchy. Thus,
our selfish interests must be satisfied to some extent before social advancement
becomes a preoccupation, and we must achieve some sense of belonging before
we begin to search for mission and purpose. It follows that initially in an
organization's development, most of its members will focus on their own individual
interests. Control must be exerted from the top. As the organization succeeds
and individual needs are met, people will become more group oriented, and
group processes and teamwork will become more effective. At this stage, authoritarian
control focuses on achieving a balance between individual and group processes
and upon conforming those processes to the overall corporate mission. As an
organization continues to mature, the organization's mission and culture become
internalized. The organization has achieved a sense of collective purpose.
Top leadership then focuses more on the long-term development of the corporate
culture and on adapting the mission to long-term changes in the external environment.
The development
of these balanced processes is often cyclical. In future articles, I plan
to discuss the dynamics of organizational relationships in a variety of contexts,
ranging from individual self-understanding to the behavior of global systems.
In all of these contexts, one can see the cycles of history. In the United
States, we moved from the individualism of the robber barons to the social
bureaucracy of Roosevelt's New Deal. Germany moved from the anarchy of hyperinflation
to the fascism of the Third Reich. In France, despotic monarchy was replaced
by the mob rule of the French revolution. Some cycles are obviously more extreme
than others, but in every case, movement away from balanced decision processes
harmed the system. Today, the rapid advance of technology creates the potential
for great harm should decision processes move toward any of the three extremes.
We can no longer afford to let dogma become a barrier to balance.
Leadership
Organizations of all kinds are facing a new world, and for most of those
organizations, leadership will prove the difference between success and failure.
In dynamic times such as these, leaders naturally focus on understanding how
changes in the external environment will affect their organization's performance.
Fewer leaders focus on their organizational cultures during times of challenge,
but achieving a culture with balanced decision making is nevertheless an important
ingredient of success.
Will Durant
once said that societies are not founded upon ideas but are instead founded
upon the nature of man. Good leaders, therefore, are always good students
of human nature. Over my more than 50 years in the oil and gas industry, I
have spent a lot of time trying to understand human nature, and I have become
convinced of these truths: In interpersonal relationships, people are always
striving to be free, to belong, and to achieve. Leaders help others accomplish
their individual goals. They help others become part of a team. Most importantly,
leaders help others reach beyond themselves to accomplish some greater purpose.
The CEO's primary responsibility is to enforce the mission and culture to
ensure a proper balance of individualism, community, and authority. In
the current climate of excessive individualism, people focused entirely
on their own agendas can thwart balanced decision processes. Although
we must protect individual rights, we must also find ways to achieve group
unity out of individual diversity if we are to meet the challenges ahead.
We can achieve that unity of purpose only by recognizing the three fundamental
ways that human beings make decisions and by making sure that all of our
organizations provide a balance of the three decision-making types. Ultimately,
our ability to meet any challenge will depend upon how effectively we
make decisions. Consequently, achieving a balance of the three decision-making
types may be one of the greatest challenges of all.
A. Earl Swift is chairman of the Board of Directors of Swift Energy Company,
a position he has held since he founded the Company in October 1979.
He also served as the Company's chief executive officer until May 2001
and as its president until November 1997, having been succeeded in both
offices by Terry E. Swift.
Before founding Swift Energy, Mr. Swift was employed for 17 years by
affiliates of American Natural Resources Company, serving his last three
years as vice president of Exploration and Production for the Michigan-Wisconsin
Pipeline Company (MWPL) and American Natural Gas Production Company (ANGP).
Prior to that he was employed for seven years by Humble Oil Company, a
predecessor of Exxon U.S.A.
A specialist in reservoir engineering, Mr. Swift graduated from the
University of Oklahoma in 1955 with a bachelor of science degree in petroleum
engineering. In 1968 he received a juris doctor degree from South
Texas College of Law, and in 1988 he obtained a master's degree in business
administration under the President/Key Executive Program at Pepperdine
University. He is a registered professional engineer in Texas and
a member of the Society of Petroleum Engineers and the Texas Society of
Professional Engineers. He is also a member of the American Bar
Association, the Texas Bar Association, and the U.S. Supreme Court Bar.
Mr. Swift is a member of Pepperdine University Associates and received
the Distinguished Alumnus Award from the Pepperdine School of Business
and Management. In 1997, he was voted Businessman of the Year by
the North Harris County Chamber of Commerce, and for each of the years
1994, 1995, and 1996, he was a finalist for Inc. magazine's Entrepreneur
of the Year.
Mr. Swift serves on the Energy Committee of the U.S.-Russia Business
Council, on the Board of Directors of the International Petroleum Association
of America's Education Foundation, and on the advisory board of the North
American Prospect Exposition. He is also chairman of the Board of
Directors of Interfaith CarePartners in Houston.
Together with his brother Virgil Swift, vice chairman of the Board of
Directors of Swift Energy, Earl Swift represents the third generation
of the Swift family in the oil and gas industry. His son Terry Swift,
also a director of Swift Energy, represents the fourth generation.
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