Innovation Versus Defend & Extend

One problem is promoting an ethical culture is often interpreted  so that the tactic of “defend and extend” is considered to be the sole criterion for ethical leadership (Hartung, 2009).  In his new book, Create Marketplace Disruption, Adam Hartung points out that success in the corporate setting is based on whether you defend prior practice and incrementally extend that prior practice without creating problems.  Trust in leadership is misplaced, however, where that leadership is not disruptive. 

Hartung cites Foster and Kaplan (2001) for the point that, for example, of the 500 companies in the S&P 500 in 1957, only 1/3 of the 500 still existed by 1994.  This is the danger posed by executives who seek to build their careers instead of their companies.  Fans of Clayton Christensen (The Innovator’s Dilemma, The Innovator’s Solution, and Seeing What’s Next) will recognize this as his point as well.  Christen teaches by example, and his examples on this subject are compelling. 
 
Christensen (2003) points out, for example, what happened to Cabot Corp. when it sought to innovate; because its short term earnings were down because of its investments in new process and materials technology which could well have paid off with tremendous returns in the long run, the board fired the managers and brought in new management with instructions to return the business to its core products (p.3).  This left the company back where it started, and demonstrates that the market punishes innovation. 
 
So what is an innovator to do?  Henry Ford re-privatized his company after the Michigan Supreme Court ordered him to pay dividends to shareholders rather than build his company by paying his workers enough to buy a car (Dodge v. Ford Motor Company, 204 Mich. 459, 170 N.W. 688 (Mich. 1919)).  Many of the most innovative companies never go public or re-privatize.  Consider HCA, Hospital Corporation of America, as a prime example – being a publicly-traded company is more bother than it is worth because shareholders must be kept informed of information the company would rather keep private. 
 
If ethical leadership is thus interpreted to mean defending the company’s markets and extending them incrementally, then the company is doomed.  It is only by taking huge chances that a company can innovate and succeed over the years – and that is inconsistent with maximizing shareholder earnings. 
 
Reference:
 
Christensen, C.M. & Raynor, M.E. (2003). The Innovator’s Solution: Creating and sustaining successful growth. Boston: Harvard Business School Press
 
Foster, R.N. & Kaplan, S. (2001). Creative Destruction. NY: Currency
 
Hartung, A. (2009). Create Marketplace Disruption. Upper Saddle River, NJ: Pearson Education.