While many companies pride themselves on being numbers driven, analysis of how decisions actually get made tells a different story. "As much as 90% of the information that the most senior executives of a company receive and take action on comes through their informal networks, and not from formal reports or databases," according to University of Virginia management professor Rob Cross and Booz & Company partner Jon Katzenbach, writing in Strategy + Business.
In other words, relationships matter. It’s an axiom—a cliché, even. But business comes down to people working together to make something happen. Whether it’s creating a product, delivering a service, or negotiating a partnership, organizations are an aggregation of endless formal and informal interactions. The most effective leaders are able to draw on the capabilities, expertise, and different perspectives within their informal networks. The importance of relationships can also be seen in an organization’s external interactions, where a range of stakeholders—customers, suppliers, shareholders, employees, and the communities an organization is based in—play a role in success or failure.
Yale Insights talked with John Pepper about the significance of the relationships that organizations have with their stakeholders, as well as the importance of personal relationships in effective leadership.
Pepper has seen how decisions are really made at all levels of an organization. He spent 38 years with Proctor & Gamble, including serving as chairman and CEO from 1995 to 2002. He was Yale University’s vice president for finance and administration before stepping in as interim CEO of the nonprofit National Underground Railroad Freedom Center in 2006; he helped put the organization on sound financial footing and continues to serve on the board. Pepper was brought in as the chair of Disney’s board of directors in 2007 after a period marked by “politics and corporate intrigue,” according to the New York Times. While he didn’t have media experience, he brought “level-headed diplomacy.”
A BusinessWeek profile of Pepper from 1996 noted that “no one is calling Pepper a softie” because he was making hard calls to maintain financial discipline at the company, but at the same time the article highlighted his “reputation as a manager willing to listen to underlings” and an emphasis on coaching within the company during his tenure as CEO.
In his conversation with Yale Insights, Pepper underscored how relationships matter. Reflecting on the many corporate boards he’s worked on, he argued that the most effective boards need a lot more than a strategy and some good data. While leading Disney’s board he came to understand “the importance of having a board spend informal time together to really get to know each other well, so that the conversations they had could be as direct and informal and candid as possible.”