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Character really counts toward the bottom line

Bill Coffin | May 30, 2017

There is a great line from the movie Pulp Fiction, in which the suave troubleshooter Winston Wolf tells our protagonists, “Just because you are a character doesn’t mean you have character.” Indeed.

As compliance reaches a major threshold of maturity as a profession and as a discipline, it is integrating ethics at a fundamental level, with the understanding that an ethical company has a far better compliance record than an unethical one. It makes sense, but it can be hard to argue that when the pressures that lead to unethical behavior—sales figures, fears over competition, toxic culture—begin to mount. With that in mind, the trick seems to be how to make a solid business case for doing the right thing. And for that, I turned to author Fred Kiel, Ph.D, whose book Return on Character: The Real Reason Leaders and Their Companies Win, discusses how leaders can develop good character, how to get a high-character mindset to spread across an organization, and how leaders can unlearn the traits of poor character.

Can you tell me a little about how leadership character is formed, how it creates value, and how that value spreads throughout the organization?

The “tone at the top” is how value spreads throughout the organization. Together, senior leaders influence the culture. They collectively make it clear that low character behavior is not accepted in the organization.

The collective character reputation of the senior team is what has the most influence on the organization. We know from our research that strong character teams create greater value than low character teams—up to 5X more in return on assets.

What about companies such as Apple? A recent article noted how Steve Job’s aggressiveness and rudeness have since become a model for Silicon Valley leaders, and it’s not exactly working out. How do you address to companies that are successful despite poor executive character?

A “Steve Jobs” comes along only once or twice in a century. His genius for design and vision for how to bring technology into people’s lives was remarkable. On the other side, he was a liar, cheat, and nasty individual who had little regard for people other than to enlist their talents for his vision.

People who emulate him seem to forget one thing—they don’t bring the genius factor to the equation! Ron Johnson was one of Jobs’ direct reports. He copied Jobs’ leadership style. He brought that style to JC Penny as the CEO and proceeded to nearly destroy the company. He was fired after a little over one year.

There are many companies that make a lot of money in spite of having leadership teams of questionable character. Even the Mafia makes a lot of money.

The business model is the largest factor that accounts for the bottom line. And favorable macro-economic factors (a strong tailwind) can be mistaken as the result of the senior team’s leadership. Your competitors all have the same macro-economic factors to deal with (good or bad); and, in all likelihood, they have a very similar business model. The only other factor that impacts the bottom line is the quality of the leadership. We know that senior leadership with a strong collective character reputation has a major advantage. They energize the workforce, retain top talent and, in general, excel at executing their strategic vision.

One might link strong personal character to championing a culture of ethics within an organization. But is it really as simple as that?

At one level, yes, it is as simple as that. Senior leadership who steadfastly adhere to strong character habits (tell the truth; keep promises; own up to their own mistakes; react with curiosity when others make mistakes vs. shaming and blaming; and finally, treat people as people, not as objects) naturally create a values-based culture. Of course, strong character teams also have to be skilled. They have to able to inspire the workforce with a vision; provide strategic focus; create a culture of accountability; communicate well; and finally, support innovation and collaboration. The foundation for success is the collective character reputation of senior leadership. Without that foundation, the leadership skills are often undermined. “Why should I sign up for your vision when I can’t be sure you even are telling the truth?” is a question easily asked.

Have you seen examples of organizations that have brought in leaders of high character perhaps to turn around an organization that suffers from systemic low character? How does that turn out?

Yes, I have. One of the CEOs in our research came in from the outside to a financial services firm that had lost its moral compass. Much like Wells Fargo, the sales force was incentivized to push products (in this case it was annuities for the elderly) regardless of the impact it had on the consumer. When this CEO arrived, the company was under investigation by the Attorney General’s office of that state and were also facing a number of lawsuits.

This new CEO came in and after about six weeks of fact finding and evaluating the senior team members, he made broad changes. All but one of the members of the C-Suite were fired. He also made another very bold decision—the company would admit what it had done and would reach out to the consumers who had been harmed and financially reimburse them. He contacted the Attorney General’s office and asked to “make things right.” He contacted the press and made himself open to intensive news coverage.

It was a difficult 3 or 4 weeks but it restored the confidence of the work force. This was a workforce which has always been proud of its culture and when the shady sales practices hit the press, it really took the wind out of their sails.

The new CEO re-established their pride in their company—and just as importantly, the company’s decision to “do the right thing” re-established their reputation with the consuming public.

It is now several years later and this unhappy period is a dim memory.

(Note: This is what Wells Fargo should have done. The top 20 C-Suite leaders should have been fired and a new CEO from outside brought in …)

What are your thoughts on how the power of culture can affect one’s personal character quotient? We look at an organization like Wells Fargo, the character there seemed to grind down a lot of good people. What can we learn from that?

We know from neuroscience findings that peer pressure is an incredibly powerful factor. Once you are in the “bubble” it is very difficult to go against it. The argument, “Everybody does it …” is very seductive. Combine that with the knowledge that becoming a whistleblower is a career stopper in most situations, and the incentives to look the other way and conform are very strong.

I hold the board responsible for this kind of a culture. It is their job, first of all, to know what is going on in the organization and to hold the CEO and senior team accountable. But the tradition of making the CEO also the board chair and allowed to influence who is invited onto the board is a guarantee that the CEO’s blind spots will also be shared by the board.

In addition, when assessing culture, many organizations are not asking the right questions. They go after either understanding the employee experience or broad stroke questions regarding integrity. Many organizations miss going to a behavioral level to understand leadership character habits. If they go there for integrity and responsibility, they often miss forgiveness and compassion habits entirely. It takes being a leader with a strong reputation in all four areas to be able to fully drive a values-based culture.

Washington Mutual failed a few years ago and from the news accounts at that time, the board was blind-sided. Apparently, they had all drunk the Kool-Aid. I’m sure they sorely regret that now. I understand, again from news reports, that they have been fined many thousands of dollars for their mistake—fines that have far exceeded their Errors and Omissions insurance.