Up and down the slippery slope

March 21, 2007, Bottom Line

By Michael Feiner, professor of management and the Sanford C. Bernstein Ethics Fellow

The list of companies embroiled in controversy seems to grow longer every day. Over the past several years we’ve moved from the scandals at Enron & Arthur Andersen, Tyco and WorldCom, Ahold and HealthSouth, to the current investigations surrounding the backdating of stock options. And just a week or so ago, newspapers on March 2 reported a “brazen” insider-trading scheme involving a research executive and a lawyer—a compliance officer!—at two prestigious investment banks.

Is all this an aberration which casts an unfair cloud over the vast majority of organizations? I don’t think so. While most leaders may be basically honest, most organizations simply don’t work the way they should. The current list may be longer than usual, but a review over the past quarter century reveals many parallel cases. Consider the Watergate scandal of the seventies. Recall the Savings and Loan crisis of the eighties, and the shenanigans of Charles Keating. Or the junk bond capers of the same decade, brought to us by the likes of Ivan Boesky and Michael Milken, not to mention Drexel Burnham Lambert. The sequence continued in the nineties, with such luminaries as Chainsaw Al Dunlap and his near-killing of Sunbeam Corporation, and the fraudulent accounting at Waste Management. And these are just the firms that reach the point of melt-down. We can only assume that there are plenty of other organizations where unethical behavior either goes unpunished, or skirts just shy of technical illegality. While the examples here are examples of calamities, I suspect that most organizations stop working the way they should long before calamity arrives.

But the assertion that companies don’t work the way they should has an impersonal, abstract quality to it. While the newspaper headlines level blame at corporate entities, there are people—leaders—behind every scandal. So if organizations are ever going to work, it must be because people exercise positive leadership. Leadership is the aggregation of daily transactions and decisions that collectively determine an organization’s fate. It follows that, if organizations are to work, people both junior and senior, both new and experienced, must exercise positive leadership in hundreds of ways every day. If they don’t, the results will be devastating—as we have seen.

Yet exercising leadership can be difficult. More than this, it can be scary. It takes courage to tell the Emperor (or Empress) that he (or she) has no clothes. Bosses have enormous power, over our compensation, our promotions, and our careers, and, more immediately, over our quality of life at the office each day. So taking on the responsibility for telling our superiors when they’re heading in the wrong direction can seem daunting. To be a High-Performance Leader, however, requires telling the Emperor when he or she is naked. When his agenda is overloaded, when her objectives are unclear, when his team is splintered, when her leadership is failing. And when the wisdom or propriety of his or her decisions is doubtful.

I’m not claiming this is a one-hundred-percent solution for the problems that beset most organizations. There are certainly structural problems, related to financial reporting, corporate governance, and industry regulation, that need urgent attention. But I would argue that more effective push-back would lead to a substantial reduction in the number of organizations that crash and burn, or that make their employees’ lives miserable along the way.

And if you feel that the scandal-ridden firms were led by bad leaders, and that bad leaders are just that, and can’t be changed, I’d counter with two points. Firstly, most bad leaders begin their lives as good leaders. Secondly, to pin the blame on a single bad apple, or on a small group of ethically-retarded executives, requires us to believe that these individuals or senior groups were able to do what they did covertly. I don’t believe that’s a rational assumption.

Do we really suppose no-one knew, outside the senior team, what was going on at WorldCom? Do we really suppose no-one knew, apart from Sherron Watkins, of the fun and games at Enron? Do we really suppose no-one knew what Koslowski was up to at Tyco (do we really suppose you can hide a multi-million dollar apartment, or a lavishly refurbished headquarters office)? And do we really suppose that Sunbeam, Waste Management, Drexel Burnham and all the others were staffed entirely by blind and deaf employees? Anyone who’s worked in an organization for more than a day knows that all too often people don’t tell one another what they need to know to make good, honest, and appropriate decisions. Many employees of all these firms knew perfectly well what was going on—they weren’t blind. But they were tragically mute. I’d argue that they lacked the intellectual courage to push back effectively, particularly in the early stages of aberrant behavior, when the line between ethical and unethical behavior is easy to cross with a very small step.

To do these things is never easy. But pushing back with bosses makes it much more probable that leaders up the line receive the information and feedback they deserve—and that their organizations require—to make good decisions.

That’s what our IBS curriculum is all about. These are some of the skills that our Social Intelligence initiative hopes to help students develop. This is the objective of the 1-pager session I conduct each term. All of this is to reinforce our belief that values are the oxygen of ethical leadership.