5 Leadership Lessons: Transparency

In a series of three essays, authors Warren Bennis, Daniel Goleman, James O’Toole and Patricia Biederman, illuminate what it means to be transparent in a world where technology makes transparency all but inevitable. The reality is that we can never assume that we are alone or unwatched.

  The leaders who will thrive and whose organizations will flourish in this era of ubiquitous electronic tattle-tales are the ones who strive to make their organizations as transparent as possible.

  Legislation alone cannot make organizations open and healthy. Only the character and will of those who run them and participate in them can do that. The first time a top executive blows up or punishes someone delivering bad news, a norm is established. If leaders regularly demonstrate that they want to hear more than incessant happy talk, and praise those with the courage to articulate unpleasant truths, then the norm will begin to shift toward transparency.

  Any time an organization makes a seriously wrong decision, its leaders should call for an intensive postmortem. Such learning opportunities are too often overlooked. The tendency is simply to call on the public relations department to spin the matter, to make another inadequately thought-out decision, and perhaps to scapegoat, even fire, a few staff members.

  All of us would do well to reflect on how receptive we are to the suggestions and opinions of others and alternate points of view. Leaders need to question their willingness to hear certain voices and not others. They need to make a habit of second-guessing their enthusiasms as well as their antipathies, since both can cloud their judgment.

  Indeed on of the most dangerous myths of modern organizations is that it is better to make a bad decision than no decision. Instead of mythologizing the leader who acts quickly or on hunches, we should cultivate leaders who are not afraid to be labeled wishy-washy when prudent caution and additional study are called for.

Posted by Michael McKinney at 10:18 PM
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Ethics: We Are They

Many people we encounter downplay the ramifications of inconsistent ethical conduct, especially when it comes to smaller compromises. On the path to becoming skilled ethical decision makers, however, we will find it helpful to take both big and small indiscretions seriously. Errors in thought are usually the same in both cases.

For example, we may refer to lying as exaggeration, taking creative license, spinning. We may excuse ourselves as being lawyerly, forgetful, or tactful. But when we use euphemisms for such actions, we redefine them as less than wrong. This inculcates a risky thinking pattern, where we cloud our ability to reason—and sometimes erroneously assume the reasoning makes sense to those we deal with.

In a Zogby International poll of eight thousand adults, 97 percent said they consider themselves trustworthy. On the other hand, only 75 percent consider the people they work with and live near trustworthy. Allow us to speculate that the gap between these two figures may reflect more than perception. Behaviors that may seem ethical to us may not be considered so high-minded by people we deal with.

Transgressions crop up in the lives of people across all levels of society. The individuals perpetrating them have all levels of education and work in all professions, trades, and industries. It is counterproductive to think we are not players on a landscape dotted with pitfalls we may stumble into ourselves. Temptation is everywhere—and so is compromise.

One danger is that we will get caught up in a sequence of not just small temptations but big ones. Maybe they will be life changing or life threatening. Faulty thinking can lure us into wrongs we never imagined. Philip Zimbardo, a psychology professor at Stanford University, has for decades studied the genesis of evil. He writes, “Virtually anyone could be recruited to engage in evil deeds that deprive other human beings of their dignity, humanity and life . . . we live with the illusion of moral superiority . . . We take false pride in believing that ‘I am not that kind of person.’”

The fact is, we are all that kind of person. We are they. Through thinking errors, denial, and rationalization, we can all be put in a position of selling our character for a pittance, of sacrificing our relationships for a song. That’s yet another reason why it is helpful to take a conscious, systematic approach to breaking risky ethical thinking habits—on even the small things.

Adapted from Ethics for the Real World: Creating a Personal Code to Guide Decisions in Work and Life by Ronald A. Howard and Clinton D. Korver

Posted by Michael McKinney at 01:31 AM
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How To Increase the Incidence of Good Work In Our Society

Ever since Adam and Eve were expelled from the Garden of Eden, human beings have had to work “by the sweat of our brows.” For most of human prehistory and much of recorded history, work has not been an activity on which we have had much perspective.

Howard Gardner continues, “If we are to have a society that is open and fair, individuals must willingly, even energetically, be prepared to carry out crucial actions—ones required for the achievement and maintenance of such a society.” This sets the stage for his new book, Responsibility at Work. The book of basically a collection of reports on the GoodWork^® Project. Began in 1994 by Mihaly Csikszentmihalyi, William Damon, and Howard Gardner, the GoodWork^® Project seeks to determine how best to increase the incidence of good work in our society. From the reports given, Gardner lists seven widely applicable takeaways:

1. Understand the basic mission or missions of your occupation and your role(s) within it.
2. Explore the relation of your personal beliefs and goals to your chosen occupation and role(s).
3. Identify individuals and institutions that take responsibility seriously; seek to work in such a milieu; take positive lessons from those positive instances.
4. Note examples of irresponsible work, derive lessons from them, be prepared to change course or even institutions and to advise others to pursue the responsible course.
5. Realize that you cannot undertake complete responsibility to all possible persons and tasks; have a sense of priorities, an alertness to limits and boundaries, and a balance among responsibilities.
6. As you grow older, broaden your sphere of responsibility; be prepared to go beyond your own circle, to assume responsibility for the wider profession to which you belong.
7. As you grow older, direct increasing attention to the support of young persons, the good workers of the future.

Gardner gives an important caution; one that needs wider attention. “Recognizing the complexity of ethics is not the same, however, as embracing relativism. That the answer is not always clear-cut or that judgments may be controversial is scarcely a license for ‘anything goes’.” Extremely well put.

At the expense of making this post a little long, let me give you a couple of other thoughts from the book:

William Damon and Kendall Cotton Bronk contributed: “A critical component of [Max] De Pree’s philosophy on leadership was accountability. Leaders, he believed, should have enough faith in their workers to allow those workers to be personally accountable for the work they do.

“De Pree had a series of mentors who helped him see his work in a broader context. In our interview he talked about the important role that ethical businesses play in the support of the societies they serve. ‘I think that my business career was kind of pilgrimage away from, you know, how you can build up the revenues . . . towards a goal of figuring out what are the preserving principles of the free market system in a democracy.’ Mentors helped De Pree connect his work life to his religious life. They helped him see how his work life could serve society and, in doing so, serve his religious aims as well.”

And finally, again from Gardner: “Professions need to respect their current instantiation but not be paralyzed by it. Change for change‘s sake is rarely indicated, but reflexive adherence to the status quo is equally problematic. Those professionals and professions that keep their principle values and goals centrally in mind are the ones most likely to thrive; they can peer through accidental changes in methods of delivery while making certain that the most important needs and desires are being appropriately fulfilled.”

Posted by Michael McKinney at 09:48 AM
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The New Golden Rule

Do we need a new Golden Rule? It’s not uncommon to find in modern literature, the call for a new golden rule. Is the Golden Rule adequate in today’s world?

The Golden Rule says, “Do unto others as you would have them do unto you.” Some would say that this just isn’t enough: in our global village, we need to consider cultural differences and the desires of others. This thinking suggests that we humans have never found ourselves in a multicultural setting before now.

The new Golden Rule goes something like this: Do unto others as they would have you do unto them. The need for a change really reflects a narrow view or understanding of the original intent of the Golden Rule. In fairness, calls for a new rule points to the very real need to explain the intent of the original. That it should and would need to be explained properly to each succeeding generation is a fact of life.

It should be noted that the term “Golden Rule” does not come from the Bible. However, the Bible does say that whatever you want men to do to you, do also to them. The rule has been stated in many ways for millennia. Almost 4000 years ago, written on papyrus, we have from the Egyptian story, The Tale of the Eloquent Peasant, "Do for one who may do for you, that you may cause him thus to do." Similarly, the Roman statesman and philosopher Seneca instructed leaders to "Treat your inferiors as you would be treated by your superiors." (Epistulae morales ad Lucilium 47:11) Clearly, human nature hasn’t changed much.

Rules are tools designed to get our thinking and behavior to a place that we might not naturally go to on our own. As a rule, the Golden Rule is no different. It is an attempt to guide us to the thinking behind the rule so that it is manifested in our behavior.

The Golden Rule is an introduction to a lesson on responsibility, awareness, ethics and outgoing concern for others. The principle the rule is trying to get at is one of selfless service to others. We naturally look at things from our own vantage point. So it’s not surprising that we look at the rule selfishly as well—from our own viewpoint.

The rule has within it the implicit instruction to treat others thoughtfully—in the same manner of outgoing concern—as you would like them to treat you. Certainly none of us would want others to treat us in a way that shows disregard for our personal needs and feelings. The principle of the Golden Rule is selflessness. It is not meant to imply that you should do for others exactly what you want them to do for you. It’s not about you.

This rule is about how to treat others. It’s not a manipulative behavior to get others to do something for you. It’s an approach to how you should be treating others regardless of how they treat you. It’s not a training behavior to get others to do a specific act for you. “I did this for you, so now you should do this for me.” We are to treat others—in the same manner—as we would like to be treated by anyone we come into contact with.

The Golden Rule is a lesson that can hardly be introduced to children soon enough. It’s a prescript that should be followed throughout life. This is a tall order, but something every leader should strive to develop. It is the essence of service and servant leadership. Properly understood, the Golden Rule encompasses cultural and personal differences.

Certainly, the intent of modern literature on this issue is to jog our thinking from a self orientation to an other orientation in our dealings with others. As is, the Golden Rule, if practiced, would go a long way to improving our relationships.

Posted by Michael McKinney at 09:05 AM
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Leader's Capacity to Sustain Change

Another important comment to come from the Boston College Center for Corporate Citizenship report, Step Up: A Call for Business Leadership in Society comes from Levi Strauss & Co’s former CEO, Phil Marineau.

An important component of changes in management practice is building the capacity to sustain that change. This can be done within the company through, for example, the kinds of internal universities found at GE or BD. It can be done by influencing the curricula of business schools so that, for example, what they teach is more innovative in their approach to ethics. Marineau:

I don’t think business schools teach leadership [in a meaningful] way. They teach ethics as some sort of compliance course, rather than an integrated approach to, “This is how I’m going to interact with the marketplace, me personally and me as a business.” Business leaders have the capacity to make business not only a source for economic wealth, but also a force for social change.

What’s going to distinguish [a student] from the other person who had 800 on their GMAT scores and all A’s in college? Why is one person going to succeed versus another in terms of accomplishing their objectives? It’s going to be your ability to be a leader, simply defined as an agent of positive change. What’s going to contribute to your leadership? It’s going to be your ability to earn people’s trust.

Posted by Michael McKinney at 01:17 AM
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CSR: A Return on Integrity

How CEOs manage short-term business demands while balancing the challenges of societal issues requiring long-term solutions is the focus of an excellent report, Step Up: A Call for Business Leadership in Society, from the Boston College Center for Corporate Citizenship.

The report provides the perspectives of 48 CEOs and senior executives representing 27 major multinational companies from a cross-section of industries who participated in lengthy interviews with Boston College researchers. The executives provide candid assessments about how expectations of their role are changing and the dilemmas that presents. Here are some highlights:

Perspectives vary greatly. GE Chairman and CEO Jeffrey Immelt said, "Profits are created by businesses that are doing things that ultimately have real societal benefits. And businesses have not done a good a job of describing that.” While Néstle Chairman and CEO Peter Brabeck-Letmathe warned companies to “be careful what language you’re using. Because when you say you should give something back, you are intrinsically saying that you have been exploiting society. I have nothing to give back to society; I have given to society before.”

Todd Thomson, Citigroup’s Chairman & CEO Global Wealth Management Division, I believe clearly laid out the issue, “Business managers should not be confused about what their objective is, what their purpose is. Their purpose is to create value for shareholders. The way to do that, however, I think is to understand all your stakeholders.”

While the majority of executives, did not want to turn their companies into social organizations, they did feel they have to take business’s role in society seriously. Asked to choose between five different opinions about the role of business in society, only six percent agreed with the proposition that the private search for profit advances the public good: that an executive’s duty is just to create wealth for investors. By contrast, over 50 percent believed that companies had a much more inclusive social purpose, while 15 percent felt companies should demonstrate the moral principles of capitalism.

Challenging other top executives, KPMG Chairman Mike Rake said, “We need chairmen and chief executives to be courageous and determined to take a longer term view on their business. They need to be leaders of the business in a sense that really engages their people, their stakeholders, their shareholders, their communities, in believing that what they’re doing is good for their business, good for their communities, and that these are inextricably intertwined.”

Tom McCoy of AMD, points out that, “as business leaders, sometimes we forget the simple things about life, about what's human and what isn't. And until we really get that right, we are condemned to continue in these periodic cycles of greed and untethering from social responsibility.”

The obligation would seem to be on management to create a more values-based company aligned with the values of the society in general. One executive commented, “The word that most people outside the U.S. use to describe an American business person is ruthless, and many of us take pride in the fact that we are a ruthless competitor. But the last time I looked it up in the Webster’s dictionary, ruthless wasn’t exactly a great word to be associated with. I think that the time has come for these things to move.”

Companies face what GE’s Heineman called “the fundamental tension at the core of capitalism: the question of how you have the right sort of performance with integrity.”

While there are all manner of small steps that could be taken to strengthen the business-society relationship, four important areas stand out as ones where progress offers enormous potential returns:

• Challenging the short-term perspective of the capital markets
• The respective roles of business and government in public policy
• Creating a soft landing to globalization
• Courageous leadership

None of these is an easy option, and they certainly do not represent a package of ideas that all executives would support. But moving the needle on any one will yield significant dividends. Ralph Shrader, Chairman & CEO Booz Allen Hamilton, concludes, “The corporation’s primary responsibility is to ensure its existence within an ethical and responsible framework. The idea of profit at any cost is something that is past its time.”

Posted by Michael McKinney at 08:51 AM
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Caught in a Dilemma: Hard Choices

The Book of Hard Choices is a book about integrity. We are reminded that integrity is one of those words that doesn’t mean a thing until it becomes behavior. And it’s all the more important in difficult and challenging circumstances. Eventually your integrity will be put to the test.

The authors James Autry and Peter Roy have found that the really tough choices are not about money but relationships. And the little everyday stuff is just as important as the big dilemmas. They write, “Once you recognize that your integrity is on the line every day, then your work life takes on a different meaning.”

As organizations have pressured their workers to work harder and work longer, they have helped create an atmosphere in which the concepts of civility and cooperation are lost in the hurry-scurry of a high-pressure workplace.

This means you have to be careful with your own language. You must take time to express yourself calmly and carefully, especially when telling people something they may not like to hear. There’s a thin line between being frank or honest and being tactless. There’s also a measure of integrity in how you speak to people, in your body language, in your tone of voice.

Using a series of 23 stories the authors offer up hard choices that we any one of us could face. For example, do you go for the quick fix or teach values first? When the pressure is on to turn things around, the temptation is to skip over a lot of the “pleasantries.” In their example, the CEO said that first you need to lay out the ground rules and be consistent. “It always starts with respect, and that means respect even under pressure. It takes more time to treat people with respect, and when you are under pressure, it seems counterintuitive to insist on something that takes more time. But without the value of respect, nothing else works.

He continues, “Of course you can always try the quick fix, but most of these companies didn’t get into a mess overnight. You can apply the Band-Aid if you’re just planning to flip the business, but I’m not looking to do that. I’m looking to provide a foundation for growth. So if you’re planning to really turn the business around you’ve got to start with basics. No turnaround will be lasting unless you start with the basics. And I think there has got to be leadership by example.”

This is great advice. And of course, it applies in all kinds of relationships. It is a foundation of all relationships—both work and personal— of counseling and of creating a learning environment. Most problems we face weren’t created overnight and require to time to bring about a long-term fix. We can’t afford to overlook this first crucial step.

Posted by Michael McKinney at 08:35 AM
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No Smoke‚ No Mirrors ... Straight Down the Middle

Robert W. Lane, the current “chief steward” (as he refers to himself) of the 169-year-old John Deere Company, recently shared a few thoughts on integrity to the students at the Mendoza School of Business of the University of Notre Dame.

First, it is probably best to define what I mean when I say “integrity.” It means: “No smoke‚ no mirrors, no tricks … straight down the middle.” It means no exaggerations, no dissembling; just the “real deal.”

The John Deere way of describing integrity—“No smoke, no mirrors, no tricks … straight down the middle”—doesn’t apply only to customers, shareholders or employees. The phrase applies to how we work with our dealers, communities, suppliers, legislators, non-governmental organizations, industry associations, universities and research groups. The good thing about acting with integrity is that you can present a consistent face to all of your key audiences.

Many of you have some corporate experience. You have tested yourselves on the field of competition. You know the critical importance of passion, commitment, teamwork, perseverance and imagination. But without integrity—that moral compass to do what is right, not just what is expedient—these important traits lack a “bonding agent.” They require integrity to make them truly adhere to business goals.

Recent scandals at major corporations around the world make it easy to see what can go wrong if leaders act out of mere short-term self-interest rather than principled, long-term self-interest, which then contributes to the greater good.... Frankly, these recent situations are very disappointing.

In part, they are disappointing because the public is losing faith in business—when in fact it is business that can help lift and keep people out of poverty by providing good jobs as well as the continuous training required to keep employees’ skills and capabilities abreast with changing needs. It is business, through its taxes, that can help communities, even nations, build infrastructure and educate their populations. It is business, working with public officials, that can help create public policy that advances the human condition. But without people who believe in them, i.e., investors, employees, and legislators, businesses are hard-pressed to make the investments they need to build and grow. The ramifications of recent indiscretions and willful misdeeds run deep and hurt us all.

According to University of Chicago economics professors Rajan and Zingales, the public and its beliefs matter. In their book, Saving Capitalism from the Capitalists, they point to the anti-market reaction during the Great Depression, noting it “was made possible because the public was all too willing to believe that the market was fatally flawed.” What will happen to today’s free market systems if the public broadly believes the same thing?

Now is the time for Saving Capitalism from the Capitalists, as Rajan and Zingales suggest in their book title. These authors believe that, and I quote: “The greatest danger for the market democracy today is … suppressing competition under the excuse of reducing risk.” They recognize a role for government in developing appropriate infrastructure that allows markets to work efficiently. They caution against a hands-off policy that ultimately could limit access to a privileged few.

If the response to scandals becomes a set of increased regulatory restraints, businesses can be put at a distinct disadvantage. An already fragile free-market system becomes even more vulnerable. Rajan and Zingales caution, as do I, that today all businesses should pay much greater heed to the delicate balance of the free market/regulatory environment, be eternally vigilant against complacency and “closed clubs,” and carefully work to build greater trust, transparency and expanded competition. We must bend over backwards to ensure we not only say the right things, but we do the right things.

Somehow, word needs to get out that many companies are well run by people with high integrity. But don’t just take this statement from me as gospel. People just like you need to question people like me. Learn what you can about individual companies—how they are managed, their behaviors and results. Find out for yourself that the state of business is not as bleak as some would have you believe. That kind of inquisitive and demanding mind-set can help to further restore faith in the world of business.

If we have a “fine sense of our obligations,” business can—as it delivers long-term, sustained performance—contribute to human flourishing. If we do what we say we will do—no smoke, no mirrors, no tricks … straight down the middle—we can help restore faith in free markets. If we act out of principled, long-term self-interest rather than mere short-term self-interest, we can contribute to the greater good and we can all leave the world better for our being here than when we entered it.

Posted by Michael McKinney at 09:30 AM
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Warren Buffett on Ethics

In an article entitled Buffett on Backdating and Other Bad Behavior, the Wall Street Journal reported on a short memo Warren Buffett sent to his managers regarding the recent scandals involving stock-options backdating and H-P’s leak probe. Buffett wrote, “The five most dangerous words in business may be ‘Everybody else is doing it,’”

On backdating, Buffett wrote, “My guess is that a great many of the people involved would not have behaved in the manner they did except for the fact that they felt others were doing so as well.”

He added: “So, at Berkshire, let’s start with what is legal, but always go on to what we would feel comfortable about being printed on the front page of our local paper, and never proceed forward simply on the basis of the fact that other people are doing it.”

This once again underscores the point that there is most often a difference between what is legal and what is right or ethical. Legally we may be allowed to behave in ways that are not ethical. We are allowed to conduct ourselves in ways that we would not like to see others doing to us. Legal is about what we can get away with. Ethical is about what is right. The spirit of the law sometimes looks very different than the letter of the law.

Posted by Michael McKinney at 12:02 AM
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Ethics: Reinforcing Fixed Points

Here is a good comment on the dynamics of ethics in a changing world from The Ethical Challenge (2003) in a chapter entitled Ethics, Virtuousness, and Constant Change by Kim Cameron, professor at the University of Michigan Business School:

When nothing is stable—when they have no fixed points, dependable principles, or stable benchmarks—people tend to make up their own rules. They make sense of the ambiguity and chaos they experience by deciding for themselves what is real and what is appropriate.

Recently, it has become clear that in high-pressure, high-velocity environments, some people in the energy-trading, telecommunications, and accounting industries simply made up their own rules. They ended up cheating, or lying, or waffling not only because it was to their economic advantage but because they had created their own rationale for what was acceptable. Conditions were changing constantly, and they let their rules change with them.

The danger of constantly changing conditions illustrates why ethics, values, and principles are more important now than ever. They serve as fixed points. They determine what is right and wrong, appropriate and inappropriate, on a universal basis, every time.

Posted by Michael McKinney at 12:05 AM
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B-Schoolers Are More Likely to Cheat Than Other Students

The results of a study on cheating by graduate students were reported by Business Week. In it they found that B-school students are more likely to cheat than their counterparts in other disciplines. This doesn't speak well for the men and women that will soon be given positions of "leadership" in the business world. Honesty isn't something that can be compartmentalized—something you can turn off and on. In any culture, honesty is regarded as one of he most—if not the most—important quality of a leader. Without it you can't lead. A Crooked Path Through B-School? by Francesca Di Meglio in Business Week Excerpts: "A study released this month by researchers found that B-school students were more likely to cheat, or at least to admit to cheating, than students in other graduate programs. And schools are fighting back, with ethics codes, pledges, and, in some cases, a zero-tolerance policy. According to the researchers, 56% of graduate business students admitted to cheating one or more times in the past academic year, compared to 47% of nonbusiness students. Most educators agree that teaching aspiring MBAs to handle ethical dilemmas is fundamental because it will determine future practices in real business. Cheating or corruption in the corporate world might offer great results at first, but it will eventually have a catastrophic impact on the bottom line. "Without trust, honor, and integrity, business can't function for the long term," says Richard Brownlee, professor of business administration at Darden. And the company's name isn't the only one at stake when you make a poor ethical decision. Whether in B-school or at work, say educators, your reputation is only as good as your actions." Solutions? See these posts on Cheating and Personal Happiness and The Fight Against Cheating from the BizDeans Talk blog. Here's a quote from Santiago Iniguez, Dean of Instituto de Empresa Business School: "To start with, there is a need of clarifying a conceptual issue. Normally, cheating is considered a reproachable behaviour because, as the Oxford Dictionary explains, cheating is "to act dishonestly or unfairly in order to gain an advantage". However, the first person who looses out is the cheater: first, by potentially exposing one’s personal reputation to be affected, sometimes for life; and second, and more importantly from a personal point of view, for relinquishing all the benefits that brings the learning process. The expression "You are only fooling yourself" springs to mind. We all know the intellectual satisfaction that results from understanding, memorising, rationalising and discussing theories, ideas and concepts. Those who take the shortcut and skip the wonders of learning are giving up a decisive part of personal development that is directly linked—I believe, in line with many philosophers—with happiness." * * *

Posted by Michael McKinney at 12:01 AM
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Doublespeak: Do Companies Really Give a Damn? (CSR)

From the premier issue of Good magazine comes this editorial on the ethics of corproate social responsibility by Jonathan Greenblatt (Co-founder of Ethos Water and a former vice-presdient of consumer products at Starbucks Coffee Company). Doublespeak: Do Companies Really Give a Damn? Here are a few excerpts: If you read the business press, corporate social responsibility (CSR) is the new new thing. At a time when oil conglomerates are "earning" record profits and the dust is still settling from the Enron verdict, social responsibility has become the latest mantra of corporations looking to redeem their public image. It's now vogue for captains of industry to claim they are motivated not only by a desire for better earnings but also by a desire to save the planet. Because of such naked deceptions, corporate social responsibility runs the risk of joining other management fads from the ages—in the dustbin. And if treated merely as a cosmetic, it is doomed to fail. The desire to do the right thing must be bound up in the very fabric of a business, helping to guide its efforts to increase revenue or reduce expenses, or else the business will invariably make short-term decisions that drive immediate profits at the expense of good long-term behavior. Authenticity cannot be cooked up after the fact: it must be present from the beginning. CSR does not stand for Corporate Spin and Rhetoric. It cannot succeed as a marketing plan to placate critics. Companies need to build brands and implement business strategies that are grounded in an ethical framework. When thoughtful behavior inspires a corporation from the start, the company can win on multiple levels. And when managers throughout the organization are rewarded for putting sustainability first, the company has a much better chance of creating success that serves the needs of all stakeholders. * * *

Posted by Michael McKinney at 12:31 AM
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The Skilling Trap

Mark Gimein wrote a great analysis of the Enron scandal in Business Week. In The Skilling Trap, he hits the nail on the head. He responds to Jeffrey Skilling’s comments to reporters on the steps of the courthouse after being convicted of fraud and conspiracy: "Obviously I'm disappointed. But that's the way the system works." Gimein comments:

But there's more to it. "That's the way the system works." It's a strange thing for a man to say who has been convicted of 19 separate criminal charges. Reduced to words on a page, you can imagine the tone to be bitter or accusing. But it's not. Nor is it gallows humor, a tip of the hat to the prosecutors who won their case, but something more poignant.

It is a supremely characteristic statement, and it evokes the essence of what went wrong at Enron. Skilling had a startling confidence in what he thought of as "the system," a strange and even endearing belief in the mechanisms -- the letter and only the letter -- of the law.

It’s easy to blame the system, but the system isn’t something outside ourselves, some vast unseen force putting pressure on us to do things we don’t want to do. We are the system. It works that way because we work that way. It won’t change until we do. Adding more laws can’t protect us from ourselves. What is lacking here is character and the integrity to maintain right principles even at a personal loss. Gimein continues and address the spirit of the law:

But what made Enron possible was not a lack of rules. It was an unwillingness to think about regulation and responsibility in any but the most legalistic terms.

[T]here's little question that the source of all the crimes of which he was convicted was the basic dishonesty of trying to keep the company's stock afloat so he could make more money.

No question, the parade of executives in handcuffs will have some deterrent effect. But the evidence that any of this will make executives more accountable and more honest rather than just more careful is thin. Contemporary business culture accepts outsized compensation as a given and takes for granted the notion that chief executives have no special responsibilities more pressing than ensuring a fabulously wealthy retirement. In such a culture it's certain that when the market next crests and crashes, hundreds of corporate executives will at least toy with ways to make the numbers look good until they can get their own money out. After Enron, those who go that route will be more cautious in interpreting the law. Can that prevent the next wave of scandals? No, because no reading of securities law is so careful that it avoids the Skilling trap: When you try to keep to the letter of the law while undermining the spirit, you are likely to violate the letter in the end.

The Skilling Trap is that trap you fall into when you don’t see beyond the letter of the law. Sadly most laws are in place because we substitute what’s legal for what’s ethical. They are not the same. It’s a tug of war we have all experienced. Ethical addresses what should I do. Legal is about what do I have to do. If legal is the only consideration then caution is the watchword. Ethics is about principles and responsibilities.

As Mark Gimein observes, the issue is failure to deal with the spirit of the law. If your actions are right but your attitude is wrong, it will eventually catch up with you. When leaders are looking out for themselves—when leaders are in it for what they can get not for what they can give—we have Enrons. Leadership is about service and looking out for those you are responsible for. Some readers will yawn at this, but character is a real issue with real consequences.

Posted by Michael McKinney at 10:06 AM
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What Would You Do?

There's a inspiring editorial and retelling of a story that originally ran in the New Yorker in 1995, on the Design Observer blog by Michael Bierut. The story revolves around William LeMessurier, the structural engineer for Citicorp Center in New York. After the completion of the building he realized that his greatest achievement was instead a disaster waiting to happen. As it was currently designed, sufficiently high winds could knock down the Citicorp building. Faced with possible protracted litigation, probable bankruptcy, and professional disgrace, and the death of potentially thousands of people, what could/should he do? It drives home the value of doing the right thing even when the personal consequences could be disastrous. Makes a great case study. Beirut's closing remarks have application to anyone both personally and professionally:

We designers call ourselves problem solvers, but we tend to be picky about what problems we choose to solve. The hardest ones are the ones of our own making. They're seldom a matter of life or death, and for maybe for that reason they're easier to evade, ignore, or leave to someone else. I face them all the time, and it's a testimony to one engineer's heroism that when I do, I often ask myself one question. It's one I recommend to everyone: what would William LeMessurier do?

[The Citicorp Center in New York City is most famous for its 45 degree roof and its ten story stilts. Standing at 914 ft (279 m) and 59 stories high, it was designed by Hugh Stubbins and built in 1977. Its unusual base was designed to incorporate the nearby St. Peter's Church.]

Posted by Michael McKinney at 09:02 AM
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