Prepare Three Envelopes Is Bad Advice

three envelopes

There’s a classic story called ‘prepare three envelopes’ which provides advice on leadership transitions. There are versions which apply to business, government, and sports teams but they essentially all have the same advice. Here’s a version:

A new executive is hired to take over a struggling business unit. During the handover meeting, the previous executive gives the newbie three numbered envelopes with the recommendation to open them when things go poorly.

After two quarters, profits don’t improve and the new executive starts to feel significant pressure from his boss. Remembering the three envelopes, he opens the first one and reads the message, “Blame your predecessor.” He dutifully explains to his boss the previous executive had left a bigger mess than expected and it will take a bit longer to fix things – but everything is under control. Satisfied with the explanation, the boss turns her attention elsewhere.

A few quarters later the business unit is still missing its financial projections. Having learned from the previous experience, the executive consults the second envelope which contains the message “Reorganize.” The executive makes a number of ‘critically-needed changes’ and ‘doubles efforts on core strengths.’ Financial results seemingly improve.

Less than two years after taking over the business unit, the executive finds himself in another crisis. Out of ideas, the executive goes to his office, closes the door, and opens the third envelope.

The message says “Prepare Three Envelopes.”

While the story is amusing, three envelopes has become the accepted formula for executives during leadership transitions – despite the fact it’s full of bad advice. Blaming prior management and relying on non-strategic reorganizations are like get out of jail free cards. They don’t fix underlying issues but they often buy the executive more time in their role.  

Here’s my assessment of each of the three envelopes:

1. Leadership starts with accountability

Part of my management philosophy is to be “hard on the issues, not on the people.” Failure is rarely the fault of a single individual or even a small group. It’s often the result of a red-rock manager or unexpected external events.

Executives should give credit to their employees when things go well and accept blame when things don’t. This is the ultimate accountability.

2. Transform rather than reorganize

Many reorganizations are not much more than a magic trick based on reshuffling a deck of cards. They consume time and resources, make for a good show, but don’t address the underlying systematic issues.

A successful restructure is based on a strategic transformation, updating processes, business models, and the customer experience. Sustainable improvement requires a fundamental change in behavior.

3. Cultivate an internal successor

If it’s time to leave your role (voluntarily or involuntarily), the change will invariably be difficult on your employees. They’ve invested in understanding the quirks of your management style and the next person will inevitably be different. You want to leave like a platypus.

A good executive will have developed a formal succession plan and has been cultivating an internal successor. This internal candidate is more likely to be successful than an external one. And, because you have a relationship with them, you can give your successor more useful advice than prepare three envelopes.

Leadership transitions are difficult on organizations. There’s no reason to compound the issues with a pithy story to prepare three envelopes.

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5 Responses to Prepare Three Envelopes Is Bad Advice

  1. John Hack October 5, 2020 at 6:27 am #

    The moral of the story: If you take the approach recommended by the first two envelopes, you will certainly need to take the advice of the third. That so many leaders do so knowing how the story ends makes it “funny” (sad funny).

  2. Moraima Garcia October 9, 2020 at 9:07 am #

    These “envelopes” keep being handed down and opened in so many organizations. I think the boss receiving the updates should also be held accountable for letting the new leader use this formula. He might be also using the envelope strategy with his own boss. At the end we go back to culture (as always) how does the company enforce a culture of real leadership. Thanks for the story and the advice.

    • Basic Mathematics November 2, 2021 at 4:58 am #

      You’ve completely missed the point of the story. It is a cautionary tale, it literally ends with them losing their job and the cycle repeating, nothing changing about the situation, just the people

      It’s full of good advice.

      1. Take responsibility, envelope 1. The easiest option is to proportion blame to someone who is not there. This does not fix the problem and makes it harder to acknowledge the issues at hand
      2. You cannot reorganise your way out of a crisis, it’s a crisis, an abnormal situation. You’ve never been in a great situation here, so you’re attempting to, from the ground up, or with reference to a broken system, design a better way, with your test scenario as a crisis with unexpected difficulties.
      3. Those who fail to learn from history are doomed to repeat it.

      And maybe, if you’re coming into a work environment because a spot opened because someone left under bad circumstances, you should consider those circumstances instead of assuming you can do it better.

      It is perfect advice, it gives 3 or more morals in an easy to understand format that is also a fun story and anecdote which makes it memorable.

      This is like saying that the story of Icarus is bad because it’s a poor set of instructions about how to fly.

  3. Rich April 8, 2022 at 1:58 am #

    I think you got the message entirely wrong. It was a blueprint of how not to deal with a problem.


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