The following is a paper I recently wrote for one of my M.B.A classes through the University of Massachusetts Amherst.

Abstract
Over the last few decades, two competing theories of corporate social responsibility have gained prominence in both the academic and business worlds. The first theory, as defended by Coelho, McClure and Spry (2003), is known as the Shareholder Theory or Stockholder Theory in which all corporate decisions, so long as they are legal and profitable, are made with the shareholders’ interests as the highest priority. The second theory, as defended by Post (2003), is referred to as the Stakeholder Theory, in which corporate decisions are made with equal regard for all immediate stakeholders in the business’s environment including suppliers, customers, employees, management, shareholders, and the local community. This paper analyzes the theories as presented by the authors above, mediates their differences, and offers advice for the modern day corporate executive to assist with her own ethical business decisions.

Introduction
Corporate executives are coming under an increasing amount of scrutiny over their presumed lack of socially responsible decision making. From the astonishing fall of Enron in 2001, to BP’s current environmental and economic disaster unfolding in the Gulf of Mexico, this decade alone has seen more than its fair share of ethical lapses in leadership and the demand for change is great.

In 1970, economist Milton Friedman published an article for The New York Times Magazine in which he declared “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud” (Friedman, 1970). Commonly known as the “Shareholder Theory” or “Stockholder Theory”, Friedman’s paradigm of corporate social responsibility has served as an ethical baseline for multiple generations of business leaders but critics argue it doesn’t go far enough in addressing the realities of the business environment. Consequently, a growing number of individuals from industry and academia are leaning towards the stakeholder theory of social responsibility suggesting that it is a more comprehensive and thoughtful approach to making ethical business decisions. Predictably, the competing schools of thought frequently offer new perspectives on why their particular theory is superior to the other, and how the only way to move the interests of society forward is to adopt one comprehensive model. What follows is a scrutiny of one such debate as featured in the American Journal of Business.

The Argument for the Shareholder Theory
In support of the shareholder theory Coelho, McClure, and Spry (2003) argue that the legal structure upon which corporate entities are established demand that the considerations of management must be in favor of the shareholders’ interests. The authors’ state that “their [the company executives] fiduciary responsibility, within the legal strictures of society and without deception, to husband and increase the wealth that has been entrusted to them by shareholders. All other responsibilities of the firm’s agents must be subordinated to this one.” (Coelho, McClure and Spry 2003).

This “fiduciary duty”, the authors’ argue, is based on the implication that corporations have not only a contractual duty to serve the interests of the shareholder, but also an obligation to serve the shareholder’s interests since they are the owners of the corporation. To further advance their claim of “fiduciary duty”, the authors’ suggest that there is an agency relationship between shareholders and corporate executives in which the financial interests of the shareholders is recognized as first and foremost.

Coelho, McClure and Spry (2003) also point out that the stakeholder theory is too ambiguous and conducive to “managerial corruption” and “chaos”. The authors’ argue that contemporary managers favor the stakeholder theory as it affords them the opportunity to pursue personal causes with corporate resources. Given that executives are presumed to have the best understanding of their company’s business model, the temptation for an executive to invest in a particular cause, at the expense of shareholders, may be too enticing to resist. The authors present a similar reason why contemporary scholars overwhelmingly support the more broadly defined stakeholder theory. They claim that academic institutions have a vested interest in doing so: “Faculty members who champion the view that academia is an institutional stakeholder that corporations have a duty to support are more likely to attract business philanthropy than faculties who eschew the stakeholder doctrine” (Coelho et all, 2003). This theory as presented by the authors is fascinating, but there is no evidence in provided in their paper that supports their claim.

The Argument for the Stakeholder Theory
In his defense of the stakeholder theory, Post (2003) attacks the ethical dimension he claims is lacking when implementing the shareholder theory. “It is my view that management decisions ought to be based upon three different dimensions: economic-Is this profitable?; legal-Is this legal?; and ethical-Is this right?” (Post 2003). Post maintains that being ethical under the shareholder theory means simply abiding by “the rules of the game” (the law), with the rules (the law) being a “reflection of the lowest moral minimums” (Post 2003).

Post (2003) also takes aim at the three “legal underpinnings” Coelho et all cite as the primary reason Friedman’s paradigm is the only ethical basis by which to base ehtical decision in a corporation. First, Post argues that no “contractual obligation” exists or is implied between a shareholder and a corporation. “There is no express contract that the parties sign, since shareholders buy their stock from previous owners, not the corporation. In an initial offering, the only legal document specifying the conditions of the purchase is the prospectus which does not constitute an express contract with management who often remain to be hired in the future” (Post 2003). Second, Post takes issue with the “agency relationship” between a shareholder and a corporation referring to black letter law. According to Post, The Restatement of Agency clearly identifies three key elements for an agency relationship to be valid. “(1) There is consent to the relationship, (2) the agent acts on the principal’s behalf and (3) the principal controls the agent” (Post 2003). Post is quick to point out that “none of these three elements of the agency relationship exist between management and the shareholder group” (Post 2003).

Finally, Post looks at the underlying claim of a shareholder’s “ownership rights” in regards to being the primary beneficiaries of any corporate actions. Post cites examples in which “ownership rights” have been limited by government for the betterment of society. “The theoretical notion of “legal ownership” of private property does not allow unlimited ownership rights and, therefore, does not support the shareholder theory that “legal ownership” of stock alone requires that management consider only the interests of the shareholders” (Post 2003). Post’s statements on ownership rights reminded me of a friend’s recent experience. He owned a parcel of waterfront property on a lake in Maine and was significantly restricted in the improvements he could make on the properly due to local environmental ordinances. Naturally, the ordinances existed for the benefit of society over the “ownership rights” of one individual.

What is an Ethical Manager to Do?
While contemporary scholars, including Post, seems to increasingly focus on the virtues of the stakeholder theory, the modern corporate manager is no less burdened in defining what exactly her strategy should be as she navigates her company through the perilous seas of social responsibility. In an effort to alleviate this burden I would like to interject a few observations of my own to help amalgamate the competing theories of corporate social responsibility as set forth in the two competing papers discussed earlier.

First and foremost, contrary to Post’s assertion, Friedman absolutely embraces an ethical dimension in his doctrine of corporate social responsibility. “That responsibility is to conduct the business in accordance with their [the shareholder’s] desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom” (Friedman 1970). Given Post’s educational background, his failure to recognize the ethical component of Friedman’s paradigm is understandable as he seems to have appointed himself general counsel for proponents of the stakeholder camp. Surprisingly, Coelho et all also failed to recognize Friedman’s ethical component in their sustention of the shareholder theory.

The question remains then, what is does Friedman mean by the “ethical customs of society”? Given this “new” understanding of the shareholder theory as inspired by Friedman (the understanding that Friedman’s principle does indeed provide for an ethical litmus test), the corporate manager has a valuable tool in defining ethical management decisions. She can pursue what she feels is in the best interest of the shareholders so long as she abides by the law, and, so long as the action is “ethical” in the society (or societies) the business is operating. Admittedly, the more complex the societies, the more difficult it will be to define “ethical” in this respect.

To illustrate this point, suppose you managed on an oil rig operating on the Outer Continental Shelf of the Gulf of Mexico. One day, one of your workers approached you to ask if he could purchase a new biodegradable hydraulic oil to use in the installation’s machinery. He points out that in the event of an accident, the hydraulic oil would be less damaging for the environment. The improved oil was 4 times more expensive than conventional hydraulic oil although the total cost was marginal in comparison to the rigs total operating budget. There was no law mandating the use of biodegradable hydraulic oil, but you felt that increase in cost was worth the mitigation of any potential environmental pollution. Under Post’s (2003) or Mackey’s (2005) interpretation of the Shareholder Theory, you would be unethical if you approved the expenditure since you where not pursing the exclusive interests of your shareholders. However, I believe Friedman would have supported the expenditure with the understanding that marginal corporate expenses directly beneficial to the environment are an “ethical custom of society”, even if they are not mandated by law or in the express interests of the shareholders.

Amazingly, Post makes a few admissions in his paper that seem to undermine the main arguments he so passionately makes. First he states “…in the end there is always a tiebreaker that determines the interest to be weighed the most heavily, the long term survival of the company” (Post 2003). Later in his paper Post makes a similar statement “…management makes the final decisions based upon its judgment regarding what is in the best interest for the long term survival of the corporation” (Post 2003). The logical corporate executive should question Post’s premise by asking “since when is the long term survival of a company not in the best interests of a shareholder?” Perhaps Post will attempt to answer this question during the next inevitable evolution of the stakeholder vs. shareholder conundrum.

Conclusion
Having read the works of Friedman (1970, 2005), Post (2003), Coelho et all (2003), Mackay (2005), and Rodgers (2005), it seems that contemporary scholars and business leaders are engaged in a vehement agreement on the big picture of corporate responsibility. When applied as they were originally presented, both the Shareholder Theory and the Stakeholder Theory ethically address the priorities of all immediate stakeholders in the business environment including suppliers, employees, customers, employees, management, and the local communities. Deciding whether or not to go above and beyond the ethical duties of corporate social responsibility, as Whole Foods CEO John Mackey (2005) has so proudly done, is a business decision that relies on the judgment of corporate management. Whole Foods has enjoyed great success establishing themselves within the niche of enhanced corporate social responsibility, but I do not believe an across the board adaptation of this model, as suggested by Mackey (2005), would be sustainable in this business environment.

I believe the ongoing theoretical debate to define the social responsibility of corporate management has hindered the practice of business ethics. The more the sides argue, the more the underlying concepts sound the same. When taken in their full context, the Stakeholder Theory and the Shareholder Theory adequately address the interests of all stakeholders with an ethical regard for the customs of society. The final measure of an ethical business executive is her ability to hold true to the ethical course she has plotted. Knowing what is ethical is one thing, doing what is ethical is quite another.

References
Coelho, McClure & Spry, The Social Responsibility of Corporate Management:
A Classic Critique, American Journal of Business, Spring 2003: Vol. 18, No. 1.

Friedman, Milton, The Social Responsibility of Business is to Increase its Profits, The New York Times Magazine, Sept. 13, 1970.

Friedman, Mackey & Rodgers, Rethinking the Social Responsibility of Business: A Reason debate featuring Milton Friedman, Whole Foods’ John Mackey, and Cypress Semiconductor’s T.J. Rodgers, Reason.com, October 2005.

Post, A Response to “The Social Responsibility of Corporate Management:
A Classic Critique, Amercian Journal of Business, Spring 2003: Vol. 18, No. 1.

Trust is never given, it MUST be earned.  The trust between a leader and her team are continually built over time, day after day, project after project.  Unfortunately, it only takes a second to loose your team’s trust through a momentary lapse in judgment.

As a leader, the challenge is not only building trust within your organization, but maintaining and continually developing it.  In order to succeed in a leadership role, your ability to influence, inspire, and motivate must continue to grow.

To nurture this trust as a leader, it’s important to understand the seven key components of trust building (sometimes referred to as the Seven C’s of Trust Building).  The better you understand the building blocks of trust, the better you will be able to lead.

Communication:

There seems to be an overwhelming amount of “buzz” about the importance of “communication” between a leader and her team. In fact, I could easily make a case the word “communication” is the most overused and misunderstood term in organizational leadership today.

So how does communication affect a leader’s ability to build trust within a team environment?

In it’s most basic form, communication is nothing more than two or more parties speaking to each other, listening to each other, and understanding each other.  

In order to guide her team in achieving a particular goal, a leader must relay her ideas to the team either through speaking or written word.   It then becomes the team’s responsibility to listen or read what the leader has to say and put the plan into action.  Each teammember should also be given an opportunity to offer their ideas into the plan.  Doing so helps to build a consensus and sense of purpose within the group. 

The element most affecting trust as it relates to communication is in “understanding” what each person is saying.  The “understanding” is the final piece of the communication triangle.  As a leader, it is fundamentally important to ensure your team understands exactly what everyone is saying.  You may think you’ve made your expectations clear, only to discover well into a project that your team is heading towards an entirely different goal.

We are all familiar with the popular elementary school game called ”telephone” were a simple message is relayed from one student, and then to the next.  By the time the message makes it way from the first student to the last the message has changed dramatically.

An effective leader ensures her team fully understands her expectations and then verifies this by periodically monitoring the teams performance as they work towards a particular objective.

Clearly communicating your expectations reduces the possibility that you and your team will be at odds over the outcome of a project.  If your team feels you haven’t given them an appropriate amount of information to perform a particular function, their trust in you as a leader will be diminished.  

Consistency: 

Another important element of trust building is the leader’s ability to remain consistent.  

Why is consistency so important in building trusting relationships with your team? 

If your team sees you responding wildly different to similar situations, they’ll never truly be comfortable with you as leader.  People need to know were they stand with their supervisor.  Leaders who are unable to offer their team this basic level of support will never truly earn their teams trust.

Commitment:

In order to build trust within your organization, its important to demonstrate that you are committed to achieving results.  If you’re not aligned with the vision, mission, and core values of your organization, it will be virtually impossible to motivate and inspire your team.

People can instantly recognize when a leader is not fully committed to a particular task.  They ask themselves “why should we care, if our supervisor doesn’t?“.

When a supervisor continually demonstrates that she is committed to the goals of her team and then does everything she can to support these goals, she will have made significant strides in building trust with her people. 

Consensus:

Forming a consensus within your team is another important element in building trust.  In order for team members to regard you as a leader, you need to help them understand their work is important, and worthwhile.  This is accomplished by allowing team members to contribute their ideas on how to accomplish a particular task. 

When everyone is involved in the planning, its much easier to form a consensus within the group. 

Instinctively, when a consensus is not reached within a team those not in agreement will blame the leader thus straining any levels of trust the leader may have had.

Character:

In regards to leadership, Merriam-Webster defines character as having moral excellence and firmness.  In other words, character is about doing the right thing by your team and organization. 

When you consistently do the right thing, people are naturally drawn to you as a mentor.  No matter what your role is in an organization, the fact that you do right by your team (even if it means being brutally honest) will inevitably build your team’s trust in you.   

Candor:

Being honest and candid with yourself and your team is another important aspect of building trust.  If someone is not performing to your expectations, be honest with the person. 

In my own observations, managers often go out of their way to avoid a crucial conversations. Their personality traits make it very difficult for them to confront underperforming employees.

As time goes by, the manager’s dissatisfaction grows until it reaches the point were it overcomes his willingness to ”let things slide”.  When the manager is finally upset enough to do something about issue, their emotions often get in the way of having an effective coaching moment.

You owe it to each individual on your team to be candid and honest.  The more you practice candor, the easier it will become and the better leader you will be.  Not every individual will be receptive to your honest evaluation of their performances.  However, if your evaluations are accurate, under-performing team members will come to appreciate them over time. 

Individuals that do not appreciate honest feedback of their performance (when you exhibit all remaining qualities of trust), probably don’t deserve to have you as a leader.

Famed leadership visionary Jack Welch (former CEO of GE) advises leaders to “get rid of” individuals who are not open to constructive criticism and are unable to align themselves with the values of the organization. 

Caring:

Last but certainly not least is showing your team members that you care.  People know when you sincerely care about them.  However, most managers fail to realize that caring for their people is much more than occasionally asking about their family.

Leaders build trusting relationships with their people by supporting and encouraging their development within the organization.

Leaders build trusting relationships with their people by asking them about their goals.

Most importantly, leaders build trusting relationships by letting their people know that their opinion counts and they can make a difference. 

As I’ve mentioned many times in the past, the best ideas often come from people closest to the front-lines of an organization.  Leaders can never do everything; when trusting relationships are made, each individual, the team, and the organization will flourish.

In It’s Your Ship: Management Techniques from the Best Damn Ship in the Navy, Captain D. Michael Abrashoff shares his leadership skill in turning one of the Navy’s most underperforming war vessels into the “best damn ship in the Navy”.

Although the USS Benfold was one of the most technologically advanced fighting machines sailing the high seas, moral within the crew was low and the vessel’s performance scores routinely dipped below the Navy’s expectations.

From his first day on board, Captain Abrashoff set out to improve the moral and competence of his new crew. He improved living conditions onboard the vessel, improved training, and restored a sense of pride that had long since disappeared on the vessel.

He freed up his crew member’s time by eliminating tasks on board that added no real value, and he also reduced maintenance costs by replacing mediocre equipment with products of more durability.

While some of the leadership techniques described in his book had his superior officers scratching their heads, Abrashoff stuck to his guns. In his mind he answered to his crew, and the taxpayers who were paying for his ship. Traditional practices of the Navy were of little importance to Abrashoff if there was a way to do things safer, more efficiently, or less expensive.

It’s Your Ship begins with Abrashoff reflecting on the day he assumed command of the USS Benfold. His predecessor was not the most highly regarded skipper and during the change of command ceremony, the departing skipper’s crew let him know exactly how they felt. “I can still feel my face flushing with embarrassment when I remember how some didn’t give him a respectful send-off” Abrashoff says in the book.

Abrashoff wasn’t worried about being liked as the Benfold’s new commander, all he really cared about was restoring the respect, trust, and effectiveness the former captain had lost.

During his first few weeks onboard the Benfold, Capt. Abrashoff begins implementing his belief that there is always a better way to do things. To improve the ships food he sent the cooks to culinary school, to prevent painting over rusty fastener stains on the superstructure of the vessel he ordered stainless steel fasteners instead (stainless steel is heavily resistant to rust).

Captain Abrashoff made a point of connecting directly with every crewmember on board his ship through conversation or formal interviews. What he discovered was an alarming number of individuals who couldn’t wait for their time in the Navy to come to an end.

Curious about the real reasons people wanted to leave the Navy, Abrashoff read exit interviews from Navy personnel who had not “re-enlisted” for another tour with the branch. His research revealed a large number of people leaving for unnecessary reasons:

They were not treated with respect.
They were unable to impact the organization.
They were not listened to.
They were not rewarded with more responsibility.

Armed with this new information, Abrashoff set out to retool his crew member’s perception of the Navy. He wanted them to realize that they were important, and they could make a difference. Captain Abrashoff made a commitment to listen to (and respect) any member of his crew who had an idea to improve the vessel. He cross trained various departments’ duties with each other, and gave entry level navy personnel responsibilities unheard of on other Naval vessels.

The book is packed full of useful managerial skills and ideas, suitable not only in a military environment, but in a corporate and family environment as well.

It may sound cliche’ but it’s true, It’s Your Ship: Management Techniques from the Best Damn Ship in the Navy is a great resource for anyone looking to improve their own leadership ability. It is an entertaining look inside the inner workings of the Navy and a perfect example of how traditional values can limit our ability to reach full potential.  If you want to take command of your leadership potential, you need to take command of this book.

Periodic performance appraisals are essential tools in the development and mentoring of your employees. Unfortunately, many supervisors and managers have difficulty completing evaluations on employees with less than stellar job performances.

No one wants to be called incompetent, stupid, lazy, unprofessional, or temperamental, especially on formal appraisals that become part of an individual’s personal employment file.

To help in your evaluation of underperforming employees, I offer these examples of “diplomatic” ways to deal with low scoring performance qualities while still getting the point across.
The Lazy Employee:

“Joe” has the potential to be a top performer if he applied himself more.

The Employee Who Does Not Get Along With Others:

“Sally” potential within the organization is limited only by her unwillingness to accept opinions that are different from hers.

The Unintelligent (STUPID) Employee:

“Joe” is having difficulty grasping key concepts. It is my hope that with continued coaching, and a strong commitment on his part, he will quickly meet the expectations of his position.

The Employee with a Temper:

It would serve Michael to let his guard down, relax, and not take things so personally. There have been a few situations over the last 3 months that he could have handled better.

The Immature Employee:

It would serve “Scott” well to use a little more discretion with his sense of humor.

Employee Lacking Ambition or Motivation:

I would like to see “Ryan” exhibit more interest in his job.

The Easily Distracted Employee:

When “George” focuses on his priorities, he can be very effective.

Photo courtesy of amoktrauma23532

When it comes to offering constructive feedback for a team’s or individual’s performance, I want you to remember this:

It’s better to reinforce good behavior, than react to bad.

So what exactly does this mean to you as a leader? Take at look at the two graphs below.

Each graph represents the development of an employee’s performance as he or she learns a new task or responsibility.

For simplicity’s sake we’ll assume that having no knowledge of the task represents -10 (the bottom of the graph), and being an expert at the task represents a +10. The green line will represent the “baseline” of meeting the minimum expectations of the task.

The first graph represents “Reactive Feedback” when a supervisor only offers feedback when an employee’s performance dips below the minimum expectations of the task.

The employee’s performance (the blue line) starts out strong, but as the weeks go by, he gets complacent and his performance begins to deteriorate. The red stars represent where the “reactive supervisor” encourages better performance only after the employee’s performance dips below his minimum expectations. The employee begins performing better for a little while but eventually dips back below the minimum expectations resulting in more reactive feedback from his supervisor.

The problem with reactive feedback is that it encourages “minimum” performance. As time goes on, the employee realizes that in order to keep his supervisor off his case, he need only meet the “minimum” expectation of the task. Often times when a supervisor rates an employee’s job performance as “inconsistent”, it’s most likely caused by that supervisor’s ineffective use of feedback.

The second graph represents “Proactive Feedback” where a supervisor offers reinforcement as the employee is continually improving in his ability to perform a task. In this case, the employee excelled at the task from the very beginning clearly exceeding the expectations of his supervisor.

The red stars represent when proactive feedback was given to the employee while he was improving in his ability and performing at an outstanding level. Most employees want to do a good job, and they want to know where they stand with their supervisors.

Reinforcing good performance with positive feedback encourages employees to maintain a high level of performance.

Most people can manage the performance of a subordinate to meet the minimum expectations of the job, but it takes a proactive leader to bring about outstanding results from an individual or team and it all comes back to feedback.

Don’t sweat the small stuff! When you’re tasked with an overwhelming number of responsibilities, your energy needs to be focused on the projects that give you the biggest return on your time.

Pareto’s 80/20 principle (as coined by pioneering management consultant Joseph M. Juran), suggests that in many situations, roughly 80% of the effects come from 20% of the causes. John Maxwell adopted this principle in his book The 21 Irrefutable Laws of Leadership.

In his Law of Priorities, Maxwell asserts that “if you focus your attention on the activities that rank in the top 20 percent in terms of importance, you will have an 80 percent return on your effort”.

Prioritizing important things in our personal and professional life can be an incredibly effective method for dealing with a heavy workload, but it is something that few do. Take a few minutes during lunch or afternoon coffee break (assuming you have time), and follow the exercise below.

Make a List of Your Current Obligations:

• The initial list shouldn’t take more than 5 minutes to complete, and you can always update it later as you complete tasks or take on new responsibilities.

Prioritize These Obligations:

• For professional obligations consult your supervisor to ensure that you are focusing on the right issues.
• Personal (family/friend) obligations should be prioritized with the consultation of your significant other. Your wife may feel that painting the nursery is more important than changing the oil in your motorcycle.

Focus Your Energy:

• The less time you spend worrying about an overwhelming number of tasks, the more time you can spend completing them.

Whether its professional responsibilities, or responsibilities in your personal life, your chances for achieving success are better when you focus your time on the most important issues.

I’m fortunate to work in an environment where developing one’s leadership ability is not only supported, but is actively encouraged. During the course of a typical work day, it would not be unusual to find a business leadership or management book in the hands of any one of my coworkers during their lunch or coffee breaks.

My coworkers and I enjoy reading and discussing the various ideas and theories contained in each book and how we might apply them to our own situations; not only at work, but in our personal lives as well.

With my most recent book purchase from Amazon, the 10th Anniversary Edition of John Maxwell’s The 21 Irrefutable Laws of Leadership: Follow Them and People Will Follow You, I was looking forward to continuing this tradition.

The 10th Anniversary Edition is an updated and refined version of John Maxwell’s original “21 Irrefutable Laws of Leadership” and includes additional material Maxwell has developed over the last 10 years as a world class conference and event speaker on the subject of leadership.

I remember the distinctive words of one of my coworkers when he saw my new book sitting on the coffee table in my office: “21 Irrefutable Laws of Leadership” he exclaimed, “I would have a hard time remembering three rules, let alone twenty one!”

I was skeptical as well, but as I began reading Maxwell’s book and working my way through the “The 21 Irrefutable Laws of Leadership” I was surprised at how well the book flowed.

Maxwell asserts in his third law “The Law of Process” that “Becoming a leader is a lot like investing in the stock market. If your hope is to make a fortune in a day, you’re not going to be successful”. Understanding the Law of Process will allow you to fully appreciate the scope of John Maxwell’s book.

Although most people are not born leaders, we all have the capacity to improve our leadership abilities. If we continually invest in our leadership development, letting our “assets” compound, the inevitable result is growth over time.

Maxwell is a champion of continual growth and his “21 Irrefutable Laws of Leadership” is a collection of what is has identified as absolute qualities of effective leaders.

By breaking down the individual qualities (laws) in the 10th Anniversary Edition of “The 21 Irrefutable Laws of Leadership”, Maxwell encourages readers to assess their own leadership strengths and weaknesses.

He acknowledges that some Laws are easier to grasp than others and he provides excellent real world examples of how effective leaders have effectively used the 21 Laws in their own work.

The book is significant in that it provides readers a quick reference to improvement areas in their own leadership qualities, and for that, the book is a valuable addition to any manager’s library.

Here is a brief overview of John Maxwell’s 21 Irrefutable Laws of Leadership and how they can help you become a more effective and influential leader.

John Maxwell’s The 21 Irrefutable Laws of Leadership:

The Law of the Lid:

“Leadership Ability Determines a Person’s Level of Effectiveness”

You may have the greatest business idea in the world, but if you do not possess the leadership skills to organize a team and move your idea forward, the potential of your idea will always be limited.

To illustrate this law, John Maxwell tells the story of Dick and Maurice McDonald. Two brothers who developed a revolutionary process that would later become the foundation of the fast food industry we often take for granted today. Although the McDonald brothers had an exceptional business plan, their lack of leadership put a “lid” on their ability to succeed.

It wasn’t until a proven business leader (Ray Kroc) partnered with the McDonald brothers, that the fast food chain “McDonalds grew to the American institution and global entity we know it as today.

The Law of Influence:

“The True Measure of Leadership is Influence-Nothing More, Nothing Less”

Maxwell explains the correlation of influence and leadership. If you lack the ability to influence others, it is nearly impossible to lead.

The Law of Process:

“Leadership Develops Daily, Not in a Day”

Becoming an effective leader does not happen over night. It takes years of study and practice to develop one’s leadership abilities to a high level. While some of Maxwell’s laws are easier to grasp than others, the good news is that in time they can all be effectively mastered.

The Law of Navigation:

“Any One Can Steer a Ship, but It Takes a Leader to Chart the Course”

Knowing where you are going is not nearly as important as knowing why and how you are getting there. The Law of Navigation is of particular relevance to me as the captain of a large ocean going ship.

On most large ocean going vessels, neither the captain nor a licensed officer actually “drives” the ship. The task of keeping the ship on course is generally delegated to one of the seaman who follows orders from whoever is conning (in charge of) the vessel at the time. It is responsibility of the captain that the course the seaman follows is the safest, and most efficient possible.

Although most people do not recognize it, most businesses are run in the same manner. Corporate executives create policies and expectations (the course) and their subordinates are expected to follow these expectations.

Maxwell professes that he is not the best “navigator”, and he shares an acrostic he has used throughout his career when planning important operations:

Predetermine a course of action.
Lay out your goals.
Adjust your priorities.
Notify key personnel.
Allow time for acceptance.
Head into action.
Expect Problems.
Always point to the success.
Daily review of your plan.

The Law of Addition:

“Leaders Add Value by Serving Others”

In the Law of Addition, Maxwell argues that great leaders nurture other great leaders below them. He explains the selfless leadership qualities of Costco CEO Jim Sinegal and how his employee first mentality has built his company into a leading national retailer with a highly motivated (and loyal) workforce.

The Law of Solid Ground:

“Trust Is the Foundation of Leadership”

Maxwell believes that trust is the most important aspect of a leader. “It is the glue that holds organizations together”.

In order to build trust Maxwell encourages leaders to consistently exemplify competence, connection, and character. If you’re followers see you ability to lead varies from day to day, they will begin to loose faith in you as a leader.

The Law of Respect:

“People Naturally Follow Leaders Stronger Than Themselves”

This was one of the more enlightening chapters for me. In it, Maxwell explains how people of varying leadership abilities interact with one another. When a group first comes together, the leaders within in the group naturally take off in their own direction they feel the group should go. As the group continues to interact, the leaders (and most of the followers) begin following the strongest leader within the group.

In this chapter, Maxwell shares the top six ways that leaders gain others’ respect from his own observations and personal experiences.

Natural Leadership Ability: Although we can all improve our leadership skills, some people are more gifted than others.

Respect for Others: People will follow you because they want to, not because the have to. Autocratic leaders rule people with fear, the goal of an effective leader based on respect.

Courage: People will respect a leader who is not afraid to take calculated risks in order to advance the team.

Success: If people see you achieving success in your goals, they will be more inclined to follow you as a leader.

Loyalty: Followers want leaders to be loyal to them. Followers hold leaders accountable to see that they have the resources and expectations to see a task through to completion. If you drop the ball on your followers, they will lose respect in you as a leader.

Value Added to Others: Elevating followers around you will earn you more respect as a leader than constantly pushing people down or holding them back. People will respect you and support you if they know you have their best interests in mind.

Maxwell also shares Harriet Tubman’s story of leadership and how she came from very humble origins to play an integral part in the formation of the Underground Railroad.

The Law of Intuition:

“Leaders Evaluate Everything with a Leadership Bias”

In the Law of Intuition, Maxwell claims that everybody is intuitive, but not all people are intuitive in the area of leadership. Generally speaking, people are intuitive in their area of expertise. As you continue in your growth as a leader, so to will your leadership intuition. “Natural ability and learned skills create an informed intuition that makes leadership issues jump out at leaders.”

The Law of Magnetism:

“Who You Are Is Who You Attract”

In the Law of Magnetism, Maxwell explains how we attract followers similar to ourselves. These similarities span several key areas:

Generation: We can not control our age, but as we advance through our professional and social lives, we often surround ourselves with peers of the same general age.

Attitude: If you’re an optimistic and happy individual, chances are you will attract followers with a similar outlook on life. On the other hand, if you are always worried about what the day will bring expect the followers you attract to be equally disheartened.

Background: If you where raised in a hard working blue collar neighborhood, chances are you will attract followers from a similar background.

Values: What are you values? How important is family, religion, politics, etc. in your life? In all likelihood, the individuals that seek you out as a leader will share similar values.

What does this mean to you as a leader? Maxwell states that if you find the people you attract to be unreliable and untrustworthy, then examine your own character and see if there are any shortcomings.

The Law of Connection:

“Leaders Touch a Heart Before They Ask for a Hand”

In what I consider one of his most poignant leadership examples in his book, Maxwell compares and contrast how President George W. Bush handled two distinct national tragedies.

In the case of the terrorist attacks of September 11, 2001 President Bush made an immediate connection visiting “Ground Zero” and standing alongside firefighters and search and rescue workers as they looked for survivors. We all remember the iconic images of President Bush standing amid the wreckage with his arm around battered firefighter Bob Beckwith.

Ironically, nearly four years of leadership experience later, George W. Bush showed virtually no connection with the Gulf Coast States of Louisiana and Mississippi as they responded to the devastating effects of hurricane Katrina during August 31st, 2005.

In his second opportunity to implement the law of connection, President Bush failed miserably and his lack of leadership during the crisis greatly undermined the recovery efforts.

Maxwell summarizes the law saying “You can’t move people to action unless you first move them with emotion…The heart comes before the head”.

The Law of the Inner Circle:

“A Leader’s Potential Is Determined by Those Closest to Him”

No matter how great of a leader you may be, if you do not have an inner circle of family, friends, and/or associates, you will find it extremely difficult to reach your full potential as a leader. As leaders, we cannot do everything ourselves, we need to rely on other individuals who have expertise in certain areas to provide guidance and support.

Even the President of the United States has an Inner Circle. Although, he may have had only brief personal relationships with some of his cabinet members, each was chosen because of a particular skill set they possessed that would benefit the administration as a whole and help further the prosperity of the nation.

The Law of Empowerment:

“Only Secure Leaders Give Power to Others”

To fully develop as leader, you must establish the ability to trust others around you. Maxwell retells the story of the Ford Motor Company and Henry Ford. As talented an inventor and visionary as Ford was, his inability to trust and empower those below him severely limited the Ford Company’s ability to adapt to changing times.

Although he was pressured routinely to update the company’s aging Model T so that it was more competitive with those offered by other companies, Ford stubbornly refused. Had Ford been more nurturing with his engineering department, and empowered them to research new automobile technology, the company may have been able to retain the dominance it eventually lost in the automotive business.

Maxwell furthers his point by saying “to push people down, you have to go down with them”.

The Law of the Picture:

“People Do What People See”

Perhaps one of the most widely known of Maxwell’s 21 Irrefutable Laws of Leadership is the Law of the Picture. Although most of us do not refer to it by this name, we all know the importance of leading by example.

If you take shortcuts around the right way to do things, those below you will do the same. You cannot say one thing and do another.

This is another law that I can directly relate to as a ship captain. If my crews here me saying something about a safety issue on board my ship, they may need a little extra encouragement to recognize the importance of my message. If they see me doing something about a safety issue on my ship, they generally don’t need any further encouragement. They are “on board” with my message!

The Law of Buy-In:

“People Buy into the Leader, Then the Vision”

According to Maxwell, most people do not follow a worthy cause until someone they look to as a leader promotes it. If you admire someone, you are more receptive to their vision. “The leader finds the dream and then the people”.

On the other hand, if you do not buy into your supervisor, you will have a hard time buying into his vision and moving forward as a result oriented team.

The Law of Victory:

“Leaders Find a Way for the Team to Win”

As leaders, we often find ourselves in management scenarios of varying complexity on any given day. So what separates victorious leaders from managers who cannot seem to consistently meet these daily challenges? Maxwell claims “victorious leaders share an unwillingness to accept defeat”.

Becoming a victorious leader means you must do everything within your power to see that the task is completed safely, and in a timely manner. As a leader you are responsible that your team has the resources and skill to complete a task safely, but as a victorious leader, you must hold yourself accountable for the results and avoid letting your team get sidetrack from safely reaching the goal.

Maxwell also identifies his three components of victory in this chapter.

Unity of Vision: Each team member needs to be on the same page in regards to the teams goals. If one team member is looking out for himself, and not the best interest of the team, the talents of individual team members will never be fully utilized by the group.

Diversity of Skill: The individual talents of a group’s team members need to be cherished. Every one of us bring a unique set of skills to the table, no one does everything well, and in most everyone does something better than the rest. As leaders, our job as leaders is to identify the unique skills of our subordinates and utilize them to the team’s advantage. This leads us into Maxwell’s third and final component of victory.

A Leader Dedicated to Victory and Raising Players to Their Potential: Maxwell drives this point home with a famous quote from legendary Notre Dame football coach Lou Holtz:

“You’ve got to have great athletes to win, I don’t care who the coach is. You can’t win without good athletes, but you can lose with them. This is where coaching makes the difference”.

As a leader you must keep the collective talents of your team on a course for success.

The Law of the Big MO:

“Momentum Is a Leader’s Best Friend”

No matter how talented of a leader you are, it is hard to get people on board with your ideas, vision, or project, without momentum. Maxwell talks about baby steps and how to capitalize on small victories to tackle bigger challenges as a leader.

As an example he uses the story of Pixar animation and how they used momentum to build up their small animation studio to become a successful multimillion dollar enterprise.

You don’t need to be a cutting edge animation studio to use the law of momentum to your advantage; Maxwell says that “even average people can perform far above average in an organization with great momentum”.

The Law of Priorities:

“Leaders Understand That Activity Is Not Necessarily Accomplishment”

The Law of Priorities is another one of my favorite leadership laws. As a ship captain I am continually bombarded with issues of varying complexity and relevance. With a 200 person crew and 835 ft ship to manage, my desk can quickly become case study in in-efficiency. Keeping track of each issue, and finding time to accomplish them can be a full time job in and of itself.

I was enlightened by Maxwell’s introduction of the Pareto Principle (otherwise known as the 80-20 rule). The Pareto Principle suggests that “if you focus your attention on the activities that rank in the top 20 percent in terms of importance, you will have an 80 percent return on your effort”.

In other words, if you have 10 issues that require your attention, the two most important issues will give you an 80 percent return on the time you devote to them.

The Law of Sacrifice:

“A Leader Must Give Up to Go Up”

In most cases, successful leaders have made great sacrifices to be where they are. Whether more time than they would have liked away from family while working on their career, taking a pay cut to accept a job that was a better experience, or just going above and beyond what is expected of them in their current position, leaders must be willing to sacrifice to reach their full potential.

In the Law of Sacrifice, Maxwell shares how Martin Luther King, Jr. effectively utilized the law of sacrifice to advance a cause he eventually paid the ultimate price for.

The Law of Timing:

“When to Lead Is As Important As What to Do and Where to Go”

In the Law of Timing Maxwell retells the tragic events leading up to the devastation in the wake of Hurricane Katrina. For the most part, few people would question the leadership qualities of Mayor Ray Nagin. He was a fresh voice in a city (and state) where corruption had been running rampant.

Although Mayor Nagin had great leadership skill, and certainly knew the consequences of a Category 4 hurricane reaching hitting the City of New Orleans, his timing in ordering an evacuation of the city was off.

“If a leader repeatedly shows poor judgment, even in little things, people start to think that having him as the leader is the real mistake”.

The Law of Explosive Growth:

“To Add Growth, Lead Followers – To Multiply, Lead Leaders”

In this straight forward chapter, Maxwell explains how gaining followers can only go so far in growing and organization. If you truly want to grow your organization, you need to turn those followers into leaders, so that they too can attract a new set of followers.

Henry Ford tried to operate his corporation by leading only his followers and pushing down anyone who exhibited leadership ability. He saw it as a threat to the entity he had created. Had he instead nurtured aspiring leaders within his company, and developed their growth, there is no telling how successful the Ford Motor Company may have become.

The Law of Legacy:

“A Leader’s lasting Value Is Measured by Succession”

The final Law of John Maxwell’s book “The 21 Irrefutable Laws of Leadership” ask readers the reflective (and uncomfortable) question “What do you want people to say at your funeral”.

He refers to the answer to this question as one’s “life sentence”. What do you want to be known as? What do you want your life sentence to be?

Maxwell’s point is to continually strive towards your “life sentence” so that when your day comes, the vision you had of your legacy will no doubt be realized.

Is John Maxwell’s Book The 21 Irrefutable Laws of Leadership Worth Reading?

In my opinion, the 21 Irrefutable Laws of Leadership is mandatory reading for anyway serious about improving thier leadership skills.  The book not only enjoyable to read, its subject matter is timeless and will serve as a great bookshelf for any leader regardless of level of managerial success in life.