How Ethical CEOs Lead Unethical Companies

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We all know or heard of someone who did something they shouldn’t have. A long time ago I worked with someone who was responsible for setting up international sales events. She would book the venue on her credit card, get reimbursed and then cancel it, pocketing the cash. There is little disagreement that this is unethical behavior. But it took a while before the company acknowledge the behavior and addressed it despite her actions being common knowledge.

What about questionable behavior that an organization seems to accept as OK? Actions like making decisions that impact your bonus without really looking at the facts, pressuring a prospect to buy more product than they really need, writing marketing copy that stretches the facts beyond truth, or positioning yourself as an objective intermediary where you have a financial interest in the outcome. If an organization’s culture implicitly condones questionable practices does that make unethical behavior ethical?

Multiply the implicit acceptance of questionable behavior to a grand scale and you get situations like Turing Pharmaceuticals, Enron, Uber, the financial meltdown, and the list goes on. These are not anomalies but routine events to which we all exclaim shock at not having foreseen the impending crisis. If leaders are generally ethical and want to do the right thing, how can so much go so wrong?

I asked Margaret Heffernan, best-selling author of Willful Blindness and her response was not what I expected. Instead of being told about the corruption of society, tyrannical bosses, and the fallacies of hyper-capitalism, Margaret responded that it’s a function of human nature to “turn a blind eye.” By only seeing the error in retrospective, we engage in willful blindness. “This is not a function of intelligence,” said Margaret during a recent interview in San Francisco. “All through history these situations happen, it’s just much more prevalent today.” Her book is full of stories about leaders ranging from ship captains to Wall Street traders who inadvertently stepped astray of ethics believing they were playing by the company’s rules.

Speed and complexity play major roles in explaining why unethical corporate behavior is on the rise. “Speed is very fashionable,” explains Margaret. “We believe that in order to be competitive you need to be the fastest which accelerates business cycles and our proclivity for working 7 x 24.” Leaders, managers and employees feel they need to run faster to keep their job or move ahead. “The problem with speed is that the faster you go, the less you see and the even less you feel,” shares Margaret. Speed is particularly dangerous for CEOs. Pattern detection becomes blurred because you pick up less data and good decisions are rooted in knowing and having the right data.

Complexity is our other love affair. In the quest for agility we have achieved the opposite. Complex markets, distribution channels, product families, and staffing models has resulted in organizations that are too complex to manage. CEOs and management teams long ago lost the line of sight from problem to solution. Sales and Marketing struggle to connect and have a meaningful relationship with their customers. We’re unable to manage these complex global organizations as we’ve seen in the retrospective analysis of troubled financial institutions, automotive manufacturers, technology companies and economies. The inability of the governments to stimulate their economies and other countries to resolve the spreading immigration crisis are proof points.

So what is a CEO to do? Margaret’s advice is to change how they manage. She points to three truths discovered while researching her book.

1. Employees almost universally believe their bosses don’t want to hear any bad news or information that challenges commonly held beliefs.

2. Business leaders understand that they don’t know what they need to know and rely on their employees to tell them what is happening in the business.

3. Every organization has fundamental orthodoxies about things that cannot be talked about.

Her advice to CEOs is to consciously slow down. Companies like Eileen Fisher, an apparel and design company which also happens to be a winner of the Great Places to Work award, slowed down their production and design cycles along with their decision making. The result was a dramatic increase in their profitability and competitive stance. In the fast paced world of fashion, this seems counter intuitive and is a good example of why we need to un-complicate our lives.

Next, CEOs need to change how they communicate. By slowing down, CEOs and their teams can have more meaningful conversations about the business, data patterns, and thoughtfully evaluate different courses of action. Conversations should:

  • Take longer,
  • Draw in a wider range of stakeholders and audiences,
  • Allow for more organizational dissent, and
  • Gain wider buy-in and consensus on key decisions.

What about social media and its promise to cut through the clutter of complexity? Transparency, trust-based, relationship-driven, and viral word of mouth, social media should turn the tide on unethical behavior. “Possibly,” shared Margaret, “but the jury is still out on that. While social media may get companies closer to the buyer, it is still in a nascent stage.” Some companies are starting to figure out that the social media’s real power is to tear down internal silos and blind spots, giving everyone a clear line of sight of business problems and their solutions. But it will take time.

In her work with CEOs around the world, Margaret’s found that leaders who slowed down and stimulated meaningful discussion and dissent around appropriate, meaningful topics did remove blind spots and the pressure to cut corners. That realization, in turn, drove a cultural movement to question the beliefs the organization held as truths. The perceived boundaries that everyone naturally constructs as a way to deal with speed and complexity were torn down along with that associated behavior patterns and opportunities to engage in questionable behavior.

She’s found that CEOs that take this bold move “see” more opportunity, clearer and more often. “Leaders that are no longer blinded become very energized as their companies feel brand new,” said Margaret. Take the time to think, unpack and slow down, it’ll make you more profitable, successful and ethical.

10 COMMENTS

  1. You regard Martin Shkreli, CEO of Turing, as ethical, while the rest of the organization is not? The company recently reversed their earlier decision to dramatically reduce the price of Daraprim, the parasitic infection medication whose price they hiked to $750 per tablet back in August. On shockingly insensitive and borderline ethical stances like this, the buck stops with the CEO and no one else.

  2. An important lesson that goes beyond business practices! Thanks for your thoughtful insights. My concern is this: the longer we succumb to that factors that nurture blindness, the ease with which we redefine what is and is not ethical. Someone once said that every movie done about the mob has at least one scene with the mob boss saying, “Hey, but I am just a businessman.” A good test to me has always been, if your children were watching you, what life lesson would they be learning.

  3. Hi Christine

    I am torn by your fascinating post. On the one hand I would like to believe that simply by ‘slowing down’ as Heffernan suggests, companies and the individuals of which they are made will be more successful and somehow, more ethical. On the other hand, I can’t help but think this is wishful thinking based on a small sample of largely self-selecting examples.

    Two things push me towards the more sceptical side. One is Keynes infamous article ‘Economic Possibilities for our Grandchildren’ written in 1930, which suggested that at the then rates of economic growth that by the 21st Century we would only have to work 15 hours a week to provide for all our wants and needs. As Keynes biographer, Robert Skideslky points out in his book ‘How Much is Enough?’, although Keynes predictions about economic growth were pretty accurate, his predictions about the working week were miles off as they failed to take into account the essentially competitive nature of consumption in society. An article on in the Economist on ‘Keeping up with the Karumes’ reinforces this inconvenient truth. It discusses experiments that show that as people become more wealthy they become more happy. The effect is however only temporary and quickly wears off as they raise their wealth comparison group and thus, have to continue to work harder to keep up with their new more wealthy neighbours.

    In short, expecting organisations and the people they are comprised off to slow down voluntarily is probably not going to happen due to our underlying human nature to want to be better off than our neighbours. I wish it were not so, but, sadly it is. Back to the grindstone!

    Graham Hill
    @grahamhill

  4. Hi Christine: the notion that some CEO’s can be criminally corrupt should surprise no one. Edwin Sutherland provided that insight in 1939, when he coined the term, “white collar crime.”

    I think you let senior executives off the hook in writing, “Speed and complexity play major roles in explaining why unethical corporate behavior is on the rise.” Every company inducted into my 2015 Sales Ethics Hall of Shame (on CustomerThink, November, 2015) had a persistent trail of dishonesty or shaky ethics that went all the way to the C-Suite. In many cases, bad ethics started there.

    Coca Cola, Takata, Volkswagen, Valeant Pharmaceuticals. None of these companies can pass off their chicanery on overbearing shareholder demands or competitive pressure. Peanut Corporation of America’s ex-CEO, Stewart Parnell, received 28 years in prison – the longest sentence meted to a food company executive over a safety issue. Sadly, Parnell can’t point to a wayward underling who failed to communicate problems. And many companies regularly deal with significant market pressures without resorting to breaking the law, engaging in fraud, or being deceitful to customers.

    In a white paper, Other People’s Money: A Study in the Social Psychology of Embezzlement, Donald Cressey cites three components in a fraud triangle:

    1. Financial pressure, or other motivation to steal
    2. Opportunity to engage in deceit
    3. Rationalization for why it’s acceptable

    “Slowing down,” unfortunately, will not mitigate any of these. Only a rigorous sales governance and compliance program – which none of the companies cited in my 2015 Hall of Shame had – will begin to put a dent in the most devastating risk faced by public companies in our time: bad ethics. How to create a durable, effective program will be the subject of my January, 2016 column.

  5. I think we need to distinguish between unethical activity that starts at the executive suite (VW, Enron, etc.) and unethical activity that is the unintended consequence of executive decisions.

    Take sales compensation. Executives set targets based on shareholder needs or their own ambitions (“we MUST grow 20% next year”) and the #$%@! rolls downhill. Quotas get set and management processes get implemented to “make it happen.”

    The potential consequences of an unrealistic goal are never discussed. In some cases, I’m sure senior executives don’t really want to know. But eventually, if the organization starts cutting too many corners or breaking laws, the CEO will be held accountable.

    CEOs could be personally ethical but not consider how the organization may “game the system” to make goals. People are people and they want to please the boss, make their bonuses and get promoted.

    To guard against unethical behavior that crosses the line, companies need to actually draw the line. What is it exactly that is *never* acceptable? If employees see it happening, are they empowered to “stop the line” (e.g. for quality problem on a manufacturing line) or voice their concerns — anonymously if needed?

    I think “slowing down” as Christine describes would actually help executives think though the consequences more clearly, and put in appropriate guard rails to reduce the chance of activities that put customers in danger or break laws.

    The recent dust-up about Amazon’s culture is a case in point. While Bezos may not personally want managers to treat employees without compassion due to personal issues (as was reported in the NYT article), these behaviors are (in my opinion) the result of the hard-driving, data-driven culture that Bezos implemented.

  6. Agree with Bob’s and Andrew’s perspectives. Often, enterprise cultures and operating protocols are shaped by CEOs. If these individuals are motivated by personal greed, such as Dennis Kozlowski of Tyco, or are otherwise unapologetic about committing white collar crime, it shouldn’t be a surprise that corporate ethics are a secondary, tertiary, or lower consideration. To my earlier point, bad corporate behavior frequently begins (and sustains) in the executive suite, where the buck is supposed to stop.

  7. This is a fabulous discussion. Thank you everyone for sharing.

    As many of you have pointed out, unethical behavior results from temptation and the belief of ‘getting away with it’ or rationalizing it as being OK. I’m sure unethical behavior has been since the dawn of time but it seems it is more prevalent today with undercurrents of glorifying the villain(s).

    Pointing that it happens doesn’t address how to change it. Sort of like pointing to the California drought while bemoaning the Chevron executive happily paying the ‘fine’ for automatic sprinkler systems drenching his lawn. No one thinks to turn off or ration his water consumption. Which, btw, would change his behavior quickly

    Are we creating unethical company leaders in grade school by helicopter parenting? Are we silently endorsing unethical behavior by vilifying whistle blowers? Or is that we have become a society that finds it more convenient and easier to look the other way and go along to get along?

    This whole line of thinking started with my meeting Tintri’s CEO and his no-jerk policy. A policy that extends to his board and customers. I’m finding more CEOs of all generations that are starting to put Bob’s “guard rails” in place. Not becuase the board thinks it’s right but because they were personally pushed to a point where they began to question themselves and their values.

    What are your thoughts?

  8. Part of the question is whether there’s such a thing as ‘benign ignorance.’ As I described in an article I wrote several years ago, On My Honor as a Salesperson: Why Sales Ethics Matter, executives who fail to put basic controls in place to prevent fraud, or are negligent in responding to it, are complicit. That issue is present in the first example Christine cited in this article.

    I also think the title of this article illustrates a huge issue in how we think about this problem. People, not companies, are unethical. When we read about ethical debacles in which people are physically harmed or sustain large financial losses, we often attribute the problem to the company. And executives who cheat and steal find that monolithic corporations provide an excellent smokescreen, and protect them from directly dealing with the human tragedies they create (e.g. have Takata executives had to deal with the deaths and injuries caused by their exploding airbags?) But their motivations are no different than pickpockets and petty thieves – they just operate in a different venue on a different scale.

    How to prevent it? First, don’t rationalize unethical behavior by executives as caused by intense competitive pressures, or from their struggle to manage organizations that are ‘too complex.’ Ethical executives don’t create festering ethical swamps. They lead by example, and they make unequivocal statements about their ethical posture, as the CEO of Honeywell has. (see Honeywell Standards of Integrity: https://honeywell.com/About/Pages/code-of-business-conduct.aspx).

  9. Too few companies practice servant leadership, starting from the top and flowing through the rest of the organization.. If there were more, we’d all be witness to a declining percentage of corporate ethics-challenged behavior. And, wouldn’t that be refreshing?

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