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Management in Practice

Think Like an Owner

In an excerpt from a new book, William H. Donaldson, Yale SOM’s founding dean, writes about the importance of leaders creating a sense of shared responsibility, whether in the private sector, at a nonprofit, or in government.

A woman in corporate boardroom overlooking New York City

William H. Donaldson, Yale SOM’s founding dean, recently published Entrepreneurial Leader: A Lifetime of Adventures in Business, Education, and Government, written with Karl Weber, which collects memories and observations from his long career in business, government, and education. Donaldson also lays out the key principles underlying his concept of entrepreneurial leadership. In this excerpt, he explains how fostering a sense of ownership at every level helps organizations of all kinds take on new challenges.

A co-founder of the Wall Street firm Donaldson Lufkin & Jenrette (DLJ), Donaldson has served as U.S. undersecretary of state, counsel to vice president Nelson Rockefeller, chairman of the New York Stock Exchange, chairman and CEO of Aetna, and chairman of the Securities and Exchange Commission. He was Yale SOM’s dean from 1975 to 1980.

This excerpt is republished with permission. Copyright 2018 William H. Donaldson. All rights reserved.

In the business arena, entrepreneurial leaders must think and behave as if they own the company—whether they do or not. Entrepreneurial leaders must define systems rather than be defined by them; they must adopt an ownership mentality. They understand that they must take ownership of their choices, including the smaller, day-to-day decisions they make. They must take full responsibility for them rather than attributing them to “the system” or “circumstances.” Entrepreneurial leaders also think continually about the big picture—the broader goal that everyone in the organization is supposed to be working toward—and strive to be guided not by short-term gain or personal profit but by long-term objectives that help everyone. Furthermore, entrepreneurial leaders find ways to encourage everyone in the organization to think and behave in this way, and create circumstances that help them do this.

At DLJ, we encouraged our team members to think like owners, literally, by giving almost everyone an ownership stake in the business. When we went public—itself an unprecedented move for a Wall Street investment firm—we made sure that ownership stakes were spread to the widest possible network of employees. We made some other unusual decisions regarding compensation with the same goal in mind. For example, rather than relying on the typical cadre of salespeople to promote our services to customers, we eliminated the traditional commission-based sales system and instead rewarded our professional staff through their long-term ownership payoff. The result was a set of customer-company relationships that were unusually close, transparent, mutually respectful, and based on the principle of shared benefit. Over time, DLJ earned a reputation as being the Wall Street firm where everybody wanted to work, largely because of our practice of treating every member of the team as an owner, with all the responsibilities, rights, and benefits associated with that role.

In the world of nonprofit organizations and in the governmental arena, there is no “owner” for an organization—no individual whose personal financial success will be irrevocably impacted by decisions on the job. At times, this can result in a sense of drift, complacency, or disengagement, with employees shrugging their shoulders over unexpected problems and saying, in effect, “Fixing that isn’t in my job description.” One of the big challenges for entrepreneurial leaders in a nonprofit organization or a government agency is finding ways to create a strong sense of mission and commitment on the part of every team member—a substitute for the sense of ownership that will call forth their best creative efforts.

“At Donaldson Lufkin & Jenrette, we encouraged our team members to think like owners, literally, by giving almost everyone an ownership stake in the business.”

This is one of the things we strove to accomplish during my time at the SEC. Having been given the job of regulating an array of highly—even aggressively—entrepreneurial financial firms, we realized we had to become entrepreneurial ourselves, simply to keep up. Recognizing that circumstances and challenges in the financial industry had changed with innovations in technology, global competition, and business strategy, we rethought the structure of the agency and redesigned the tools it used to monitor, analyze, and govern the behavior of corporate players. As a result, we were able to identify and close loopholes that were enabling some financial firms to take needless risks with customers’ money and to implement rules that ensured a level playing field for all categories of investors.

None of this would have been possible if we hadn’t encouraged all of our team members to think in broad, creative terms, as if they were all “owners” of the SEC and its mission, rather than merely cogs in the wheel, playing predetermined roles in accordance with familiar systems. I’d like see the federal government try to apply a similar approach to the long list of regulatory and other challenges it faces, striving to create teams of public servants with the kind of ownership mentality needed to address these challenges effectively.

Read another excerpt from Entrepreneurial Leader, about the founding of the Yale School of Management.