Leadership Ethics and Team Leadership

How BMW successfully practices sustainable leadership principles

Gayle C. Avery and Harald Bergsteiner

W hat can organizations do to develop the resilience required to withstand major

global shocks? In recent decades, wars, oil crises, talent shortages and most

recently the 2008-9 global financial crisis (GFC) have tested the sustainability of

major enterprises. Some well-known corporations did not survive the GFC, and others had to

be bailed out by their governments. This case describes how one firm quickly rebounded

after the GFC, showing how many of the company’s practices accord with principles

espoused in the authors’ Sustainable Leadership model.[1]

Sustainable leadership requires senior executives to take a macro view of their enterprise,

starting with the basic question, ‘‘What is the purpose of this firm?’’ We have identified two

contrasting answers that distinguish sustainable or ‘‘honeybee’’ leadership approaches

from non-sustainable or ‘‘locust’’ management. Honeybee leadership builds communities,

fosters collaboration among stakeholders and promotes long-term value. In stark contrast,

the ‘‘locust’’ metaphor aptly conjures up images of swarms of voracious insects descending

on green fields and stripping them bare. Under locust thinking, almost any practice that

achieves short-term returns for investors and bonuses for executives is condoned. By

contrast, honeybee leadership takes a broader perspective, considering the long-term

interests of a full range of stakeholders, not just investors. This is because honeybee leaders

regard their firm as an interdependent part of a much wider community[2] and realize that

their true goal should be to promote sustainable growth. Research shows that honeybee

principles are more sustainable, more likely to lead to higher performance and are more

socially responsible than locust behaviors.[3]

In our 2011 article ‘‘Sustainable leadership: practices for enhancing business resilience and

performance’’ in Strategy & Leadership, we describe 23 honeybee leadership principles

and practices. These principles and practices are derived from three sources: best practice,

what prominent management thinkers advise and what researchers around the world are

showing leads to enhanced organizational performance and resilience. While bad things

can happen to any organization – through poor strategic decisions, unforeseen events and

natural disasters – our research shows that honeybee practices promote sustaining

enterprises.

This BMW Group (BMW) case illustrates how sustainable leadership can be successfully

implemented, even in trying times. Despite the global financial crisis and the subsequent

recession, when other leaders chose to go into survival mode and abandon strategies to

achieve long-term goals, BMW stuck closely to its honeybee principles.

About BMW

Founded in 1916, BMW is headquartered in Munich, Germany. Today the company employs

around 96,000 people at 24 production facilities in 13 countries and operates a global sales

DOI 10.1108/10878571111176583 VOL. 39 NO. 6 2011, pp. 11-18, Q Emerald Group Publishing Limited, ISSN 1087-8572 j STRATEGY & LEADERSHIP j PAGE 11

Gayle C. Avery, Professor of

Management at Macquarie

Graduate School of

Management, Sydney

(gayle.avery@mgsm.

edu.au) and Director of the

Institute for Sustainable

Leadership, is the author of

Understanding Leadership:

Paradigms and Cases

(2004), Leadership for

Sustainable Futures:

Achieving Success in a

Competitive World (2005)

and co-author, with Harald

Bergsteiner, of Sustainable

Leadership: Honeybee and

Locust Approaches (2010).

Harald Bergsteiner is

Director of the Institute for

Sustainable Leadership

and an Honorary Fellow at

the Australian Catholic

University, Sydney

(harrybergsteiner@

internode.on.net).

network in more than 140 countries. BMW produces cars and motorbikes under three

premium brands: BMW, MINI and Rolls Royce.

In an industry characterized by consolidation, BMW remains a highly profitable,

independent firm. Although badly hit by the GFC like the rest of the auto industry, BMW

emerged from the recession strongly, reporting the best results in its history in 2010. To put

this performance into perspective, while some other car companies, particularly German

producers, also performed well in 2010, two of BMW’s major US competitors were in

difficulty. General Motors (GM) and Chrysler had already been in financial difficulty for many

years and both entered Chapter 11 during the GFC to avoid total bankruptcy. GM was

essentially ‘‘nationalized’’ through huge financial bailouts from the US government, while the

Italian carmaker Fiat bought Chrysler, acquiring 52 percent of the company by buying out

the US Treasury’s stake in Fiat.

In 2010, BMW was worth about e40 billion. The company had been in a strong financial

position following a decade of continually rising revenues, before the GFC. The company

had continued to pay a dividend during the GFC, although profits fell sharply during these

years, as Exhibit 1 shows. In 2010, circumstances changed and most German car

companies began to recover strongly. BMW posted record revenues and after tax profit (see

Exhibit 1), issued its highest ever shareholder dividends and became the best performing

stock on the German stock exchange (DAX).

Survival techniques

We believe that three major factors contribute to BMW’s resilience: its business model, its

creative initiatives and its sustainable leadership approach. These three factors are driven

by the company’s long-term strategy – creating dynamic performance and efficiency while

embedding sustainability in everything it does.

Business model: BMW’s business model embodies flexibility for customers, employees and

the company. Essentially, BMW only makes cars that customers have already ordered.

Following this principle allows the company to scale production and working times up and

down, depending on demand. As part of its business model, BMW has mastered a high

degree of mass customization so customers can specify exactly what they want in their car in

minute detail.

Exhibit 1 BMW Group figures 2006-2010 (euro millions, workforce in no. of persons)

2006 2007 2008 2009 2010

Revenues 48,999 56,018 53,197 50,681 60,477 Capital expenditure 4,313 4,267 4,204 3,471 3,263 Depreciation & amortization 3,272 3,683 3,670 3,600 3,682 Equity 19,130 21,744 20,273 19,915 23,100 Profit before tax 4,124 3,873 351 413 4,836 Net profit/2 loss 2,874 3,134 330 210 3,234 Permanent workforce (persons) 106,575 107,539 100,041 96,230 95,453

Source: BMW Financial Overview, 2010

BMW manages its liabilities

GM’s woes are sometimes attributed to its huge financial pension, healthcare and other benefits

liabilities. While such obligations are burdensome, they do not totally account for the persistent loss

of market share and other problems besetting GM. BMW has comparable liabilities for its workers’

pensions, which it has secured in separate funds in various countries, including in the US, UK and

Germany. By the end of 2010, BMW had placed e5.2 billion in an external trust to cover future

pension payments just in Germany.[4]

PAGE 12jSTRATEGY & LEADERSHIPj VOL. 39 NO. 6 2011

The business model allows for about 300 work-time patterns that enable optimal deployment

of BMW’s skilled workers – despite a heavily unionized workforce. In contrast to the

conventional three-shift model, these employee work patterns offer individuals considerable

flexibility so they can bank additional hours in busy periods and draw on them when work

slows. Sometimes the patterns are factory wide, such as at one plant in a rural location that

closes for the month of August to enable its workers to assist with local farm harvests.

Creative solutions: Maintaining the ‘‘BMW way’’ requires creative initiatives. For example,

despite the benefits of its demand-driven business model, in 2008 the company still needed

to reduce overheads and this included reducing staff. Normal attrition is 2.7 percent of the

full-time workers, but in 2008 staffing levels were reduced by twice that without sacking

anyone. Workforce reduction measures, conducted in close partnership with unions,

included seeking voluntary redundancies, encouraging early retirement and not filling

vacant positions or renewing contracts for temporary workers.

However, BMW was reluctant to lose too many of its highly skilled workers, who would be

needed immediately when conditions improved. Therefore, rather than terminate workers,

the company collaborated with the German government to shift many workers to a four-day

work week. BMW paid wages for four days and the government agreed to pick up the tab for

80 percent of the fifth day. This meant that employees lost only 20 percent of one day’s full

pay, gained a three-day weekend and retained their jobs. The government benefited by not

having to pay a full week’s unemployment benefits to terminated workers, and the company

reduced its wages bill while retaining its skilled workforce.

BMW also took a creative approach to the management of suppliers during the recession.

BMW partners with suppliers over the long term, learns from them and helps them optimize

their products and services to meet the automaker’s own needs and standards. This makes

these suppliers highly valuable to the firm. However, the GFC created financial difficulties for

some auto suppliers. BMW applied its risk management system to identify suppliers in

danger of insolvency and then extended expert advice, loans and other assistance to keep

these suppliers afloat.

Sustainable leadership practices: As Exhibit 2 shows, sustainable leadership principles can

be depicted in the form of a four-tier pyramid, the lower three tiers constituting the

23 honeybee practices and the top level indicating the resultant organizational performance

outcomes. At the base of the pyramid are 14 foundation practices – so-called because they

can be embarked upon at any time management decides to do so. The next tier contains six

‘‘higher-level practices’’ whose emergence depends on various combinations of the

foundation practices being in place. At the third level, three key performance drivers reflect

the intended customers’ experience: systemic innovation, staff engagement and quality of

products and services. The model is dynamic and the various practices influence each other

in multiple ways.

BMW provides an example of a firm operating on honeybee principles over several

decades. This case offers brief examples of how BMW applies the 23 principles, with

particular emphasis on actions taken during the GFC. Throughout this case, the numbers in

parentheses refer to the sustainable element numbers in Exhibit 2.

‘‘ Rather than terminate workers, the company collaborated with the German government to shift many workers to a four-day work week. BMW paid wages for four days and the government agreed to pick up the tab for 80 percent of the fifth day. ’’

VOL. 39 NO. 6 2011 jSTRATEGY & LEADERSHIPj PAGE 13

This case has identified three foundation elements in operation at BMW: how the company

strove to retain its workforce during the GFC (3); how it considers and assists other

stakeholders where necessary, such as its customers and suppliers (13); and how its

systems, processes and values align with its shared vision of having the premium brand in

each vehicle class (14). In developing and applying its work-time patterns and in reducing

staffing levels during the GFC, the company capitalized on its amicable relationships with

unions (2). This is partly a consequence of German law, which mandates that employees

constitute 50 percent of the Supervisory Board, ensuring that the company works closely

with representatives of labor.

Another foundation element already identified is long-term thinking (8). A long-term

perspective underpins many of the decisions that BMW management made during the GFC,

such as retaining its skilled workforce and helping suppliers survive. In the product area,

BMW invested in hydrogen cars over two decades ago, aware that it might have to wait

20 years or more for hydrogen filling stations to become widespread. Another example of

long-term thinking is that in 2006, the Supervisory Board appointed a relatively young Board

of Management team so that the members could develop together, work as a team (6) and

bring considerable experience with them to any future crisis.

A key honeybee practice is making ongoing training and development (1) available to all

staff members, not restricting it to special groups. BMW invested e179 million in employee

training in 2010, the equivalent of a small university’s budget. Even during the global

financial crisis, formal training per employee averaged about 1.6 days per year increasing to

2.4 days in 2010, while the company continued its apprentice and graduate development

programs. A strong focus on developing and retaining staff throughout the enterprise

supports a succession planning policy (4) of promotion from within the firm, since BMW

prefers to develop its own managers. Among other things, this helps protect BMW’s unique

culture (18).

BMW has been recognized in many ways for two other foundation practices, its ongoing

social and environmental sustainability programs (11, 12). These programs date back to the

early 1970s when BMW first anchored an environmental protection policy within its

organizational strategy. The company now regards environmental sustainability as core to all

Exhibit 2 Sustainable Leadership Pyramid

Source: Avery and Bergsteiner (2011)

21 22 23

15 16 18 19 2017

strategic, systemic

innovation

staff engagement

quality

developing people

continuously

amicable labor

relations

internal succession

planning

valuing people

CEO and top-team

leadership

ethical behavior

long-term perspective

indepen- dence from

financial markets

considered organizat-

ional change

environ- mental

responsi- bility

social responsi-

bility

stakeholder approach

strong, shared vision

long-term retention of

staff

SUSTAINABILITY

brand & reputation customer satisfaction financial performance

long-term shareholder value long-term stakeholder value

1 2 4 5 6 7 8 109 11 12 13 143

devolved & consensual decision- making

self- management

team orientation

enabling culture

trustknowledge retention

and sharing

KEY PERFORMANCE DRIVERS

HIGHER-LEVEL PRACTICES

FOUNDATION PRACTICES

PERFORMANCE OUTCOMES

© Harald Bergsteiner

PAGE 14jSTRATEGY & LEADERSHIPj VOL. 39 NO. 6 2011

aspects of its operations. Sustainability principles apply throughout BMW’s supply chain, in

the design and operations of its products and processes and in having nearly all parts of

BMW vehicles and production waste recyclable. Water and energy consumption have long

been minimized during production, as has waste. For example, scrap from BMW’s new

carbon fiber car bodies is reused in the production process. Progress is monitored in regular

sustainability reports the company issues. In recognition of these efforts, the Dow Jones

Sustainability Index has awarded BMW the global supersector leader rating for automobiles

and parts every year since 2005.

Valuing employees (5) is another honeybee foundation practice widely applied at BMW.

Basic benefits include protective clothing, maternity leave and sick pay, participation in a

staff share scheme, holiday bonus and an annual bonus based on the company’s success

each year. All employees normally participate in the company’s profit-sharing plan. However,

during the GFC, no performance or holiday bonuses were paid to the workers in 2008 and

2009 – but in 2010 employees received a special ‘‘makeup’’ payment in recognition of their

sacrifices over the previous two years. Together with other bonuses paid in 2010, every

worker received an extra 1.6 month’s salary.

Managing change in a systematic way (9) is a BMW practice, as evidenced by the

company’s collaboration with the unions in reducing staff and using its risk management

techniques to support suppliers during the GFC. Another example comes from BMW’s

approach to its aging workforce. Joachim Milberg, Chair of the Supervisory Board, in his

March 2011 report to shareholders acknowledged the implications of a changing workforce:

‘‘It is imperative that we continue to build up and maintain expertise and acknowledge the

importance of further training. These issues represent a major challenge for the future, not

least because of the demographic aging of society.’’ In the case of BMW, this means that by

2020, 45 percent of the workforce will be aged 50 or over. The skills, experience and wisdom

of its older employees are valued by the company and so BMW wants to keep them healthy

and productive. Therefore, in 2007 at its largest plant in Dingolfing near Munich, BMW built

an experimental production line staffed with older workers whose task was to optimize their

own workplace. Many suggestions came from the participants that have since benefited the

entire workforce. For instance, providing seating on the production line temporarily relieves

muscle and joint strain as does installing softer flooring pads and table heights adjustable to

each worker’s size. Production line monitors are angled and the font size enlarged

appropriately for aging eyes, while magnifying glasses are provided in case an employee is

unable to read the engraved part numbers. Special shoes were designed to relieve aching

feet. About 70 small but significant suggestions like these came from workers in designing

their future work environments; implementing the ideas sent signals that employees are

valued (5). Production outcomes were favorable as well. As the Harvard Business Review

reported in 2009,[5] productivity of the older workers jumped 7 percent.

BMW values its independence from the financial markets (10). Although BMW is a listed

company, the Quandt family’s ownership of a controlling interest since 1959 keeps BMW

largely independent of financial capital market pressures. Its strong financial track record

helps the company borrow at favorable rates and its long-term perspective helps insulate it

from the short-term pressures of the capital markets.

As for ethical behavior (7), BMW has taken various steps to promote an ethical workplace

and responsible governance. In addition to a code of ethics and an Ethics Advisory

Committee, the company has established independent and anonymous external contact

‘‘ In 2007, BMW built an experimental production line staffed with older workers whose task was to optimize their own workplace. ’’

VOL. 39 NO. 6 2011 jSTRATEGY & LEADERSHIPj PAGE 15

points for employees and other stakeholders to report any form of suspected misconduct or

impropriety. It has also committed itself to respecting the rights of whistleblowers and others

filing reports. In 2011 for example, the international sustainability rating organization oekom

awarded BMW an A þ on corporate governance and business, which also covers board

independence and effectiveness, shareholder democracy, executive compensation,

shareholder structure and business ethics.

Higher-level practices

In addition to practicing the 14 foundation elements in the sustainability management

pyramid, BMW also has put in place six higher-level practices (see Exhibit 2). Among these

are a performance culture (18) based extensively around teamwork (17). For example,

remuneration is derived from performance at the individual, team and company levels, the

latter recognized through bonuses based on firm performance. Compensation is intended to

promote not only an individual’s personal achievements, but also contributions to

cooperation within the team and to corporate responsibility. Teams operate throughout the

organization, from the highly collaborative self-managing production teams to design teams

and administration groups. Collaboration occurs across the various plants, with suppliers,

and on new products and other initiatives with competitors such as Daimler and Peugeot. At

BMW important decisions can be devolved (15) to the lowest level on the production lines,

making work teams self managing as far as possible (16). This includes deciding on training

needs and process improvements within teams. Individual workers are expected to

understand the company’s strategy and business issues. This is only possible with a skilled,

dedicated and loyal workforce focused on achieving the company’s vision. A workforce thus

prepared can be trusted (20). At BMW, individual workers are empowered to stop the

production line, if necessary, without permission from a supervisor. Another aspect of the

BMW culture is that employees share knowledge (19) and learn from each other through

continuous improvement initiatives.

Finally, the Sustainable Leadership Pyramid proposes three key performance drivers for

honeybee organizations: innovation, staff engagement and quality. At BMW each of these

drivers is both central to the customer’s experience and integral to the culture. Innovation

(21), core to achieving the company’s premium brand strategy, is expected to come from

every worker via quality circles and other continuous improvement programs. Under BMW’s

‘‘i-motion’’ program, employees can receive substantial payments for innovative ideas that

improve work procedures, safety or efficiency. In addition, over 9,000 people worked in

BMW’s research and innovation network at 11 sites in five countries during 2010. In that year,

expenditure for research and development rose by 13.3 percent to e2,773 million. Among

the innovations in production are electric vehicles, hybrids and hydrogen cars.

Although direct measures of staff engagement (22) at BMW are not available, indirect

indices suggest that engagement is high, starting with BMW’s low levels of staff attrition. In

the 2010 Universum rankings, students placed BMW as the fifth most attractive employer for

engineers and twelfth in the world among commercial organizations. In the USA, Bloomberg

reported that BMW ranked 21st for the top 50 employers among college graduates.

The company strives for premium quality (23) in everything it does – from training through to

its financing division, both of which have been recognized for their performance. The BMW

approach to quality control is to audit vehicles at every stage of the manufacturing process:

the production of parts, components, in the assembly plants, as well as materials and

components from suppliers that must meet specified quality standards. An alternative

approach adopted by some other manufacturers is to make a car and then check it for

quality at the end of the production line, leading to costly repairs, warranty claims, recalls

and waste – and angry customers. All members of BMW’s staff are fully responsible for the

quality of their work and can be penalized for passing poor quality on to the next team. In

2010 the German automobile club ADAC analyzed over 4 million break-down events of 98

car models using ISO 9001:2000-certified statistical procedures. BMW’s cars were rated

among the most reliable.[6]

PAGE 16jSTRATEGY & LEADERSHIPj VOL. 39 NO. 6 2011

The above examples provide a glimpse into the honeybee practices of one firm that

emerged successfully from the GFC in 2010. Regarding the five performance outcomes on

the sustainable leadership pyramid, BMW clearly exceeded expectations in 2010 on

financial returns and shareholder value (see Exhibit 1). On brand and reputation, a 2010

study released by research-based consulting firm Reputation Institute revealed that BMW is

considered the world’s most reputable company in the automotive sector. Overall, BMW was

ranked fourth worldwide behind Google, Apple and the Walt Disney Company. Clearly BMW

provides long-term value for all its stakeholders – suppliers, shareholders, employees and

customers – as is expected of a sustainable enterprise. BMW’s business model, innovative

approach to problem-solving and adherence to sustainable leadership practices underpin a

capacity to survive crises such as the GFC.

Learning from BMW’s example

Why don’t more executives adopt sustainable leadership principles? Among the many

reasons are:

B Short-term thinking underlies almost every action in locust firms irrespective of

undesirable long-term consequences with regard to staff engagement, quality of

products and services and innovation, thus putting the very survival of the enterprise at

risk.

B Changing an organizational system from locust to honeybee principles is a big

undertaking that requires hard work, patience, persistence and a great deal of sensitivity.

Moving towards ‘‘honeybee’’ leadership

What should managers caught in a locust enterprise do to change the leadership towards

more sustainable principles? The first step is to conduct an audit of the extent to which the 23

practices on the Sustainable Leadership Pyramid are routinely implemented in the firm.[7]

Ideally many different employees from various functions and at different levels should be

asked for their opinions. For example, training and development should be routine and cover

technical and ‘‘social’’ skills for every worker, from apprentice through to middle and senior

managers. Just running a few ad hoc skills courses or management training sessions is far

from best practice. Similarly, just having a company vision on paper that most people are not

aware of and do not work with every day does not justify calling it a ‘‘shared vision.’’

Based on the feedback from the audit, the firm should assess which foundation practices it

needs to implement. An excellent place to start is in developing a compelling and effective

10-20 year vision of the future; then bring employees, investors, suppliers and other

stakeholders on board to participate in this exciting future. This is a vital first step in moving

away from short-term thinking. Be forewarned, however, that speculators and traders

focused on short-term gains may sell their stock. This requires leaders to continually make

clear to the markets where the company is going and to pursue its strategy without buckling

under the pressures of the financial markets. Ultimately, this will make the company more

attractive to long-term, patient capital. Policies on ethics, staff training and development,

valuing people, social and environmental responsibility, can be introduced as needed – as

the BMW case shows, over time they will become part of the DNA of your organization.

‘‘ In 2011, the international sustainability rating organization oekom awarded BMW an A 1 on corporate governance and business, which also covers board independence and effectiveness, shareholder democracy, executive compensation, shareholder structure and business ethics. ’’

VOL. 39 NO. 6 2011 jSTRATEGY & LEADERSHIPj PAGE 17

Notes

1. Avery, G.C. & Bergsteiner, H. 2011. Sustainable Leadership: Honeybee & Locust Approaches.

Routledge.

2. Albert, M. 1993. Capitalism vs Capitalism: How America’s Obsession With Individual Achievement

and Short-term Profit Has Led It to the Brink of Collapse. New York: Four Walls Eight Windows.

3. Much of the research evidence is summarized in Avery, G.C. & Bergsteiner, H. 2011. Sustainable

Leadership: Honeybee & Locust Approaches. Routledge.

4. Statement made by Dr. Friedrich Eichiner at Annual Accounts Press Conference 2011, accessed at

www.bmwusanews.com/newsrelease.do;jsessionid ¼ 2395F812AA589D27B7CB2684575AD4B2

?&id ¼ 577&mid ¼ 8 July, 2011

5. Champion, D. 2009. ‘‘How BMW is planning for an aging workforce.’’ http://blogs.hbr.org/hbr/

hbreditors/2009/03/bmw_and_the_older_worker.html (accessed 18 July, 2011).

6. www.adac.de/infotestrat/unfall-schaeden-und-panne/pannenstatistik/ (accessed 18 July, 2011).

7. We have developed a questionnaire for this purpose.

References

BMW Financial Overview (2010), accessed 3 August, 2011 at www.bmwgroup.com/e/nav/index.html?./

0_0_www_bmwgroup_com/home/home.html&source ¼ overview

Avery, Gayle C. and Bergsteiner, Harald (2011), ‘‘Sustainable leadership practices for enhancing

business resilience and performance’’, Strategy & Leadership, Vol. 39 No. 3, pp. 5-15.

Corresponding author

Gayle C. Avery can be contacted at: [email protected]

PAGE 18jSTRATEGY & LEADERSHIPj VOL. 39 NO. 6 2011

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