Why leaders lose their way

Almost half of Irish business leaders would be willing to engage in potentially unethical actions to meet financial targets, according to a recent survey by EY. This startling statistic is consistent with another, perhaps less surprising, finding from a survey last year that business leaders are among the professionals least trusted by the general public to tell the truth. It may also help explain why we have witnessed a decade or more of corporate malfeasance not just in Ireland, but globally, and at some of the world’s most esteemed enterprises.

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  Source: www.accountancyireland.ie
It begs the question: why and how do leaders lose their way and what, if anything, can be done about it? Some subscribe to the ‘bad apple’ theory: managers are good or bad; organisations are powerless to change this fact, and unethical behaviour can be blamed on those few renegades of poor character. Indeed, some alarming research suggested that the psychopathic personality type in particular is three times more prevalent in the corporate world than the general population. Others believe that managers may start out valuing fair compensation for hard work but that over time, the rewards – such as bonuses, share options, power, perks and press coverage – fuel a focus on extrinsic gratification to the detriment of inner satisfaction. So-called ‘careerism’ ultimately leads to a state of emotional detachment that corrodes personal integrity. This ‘dark side’ of leadership may account for some of the more egregious cases of corporate wrongdoing. However, for every psychopathic executive or megalomaniac manager, there are many more well intentioned leaders (at least half, according to EY) who try to do their best but fall short from time to time and lose their way. The reasons are manifold, but can more or less be categorised as follows:

  • Groupthink;
  • Blind spots;
  • Delegated misbehaviour;
  • Wilful neglect;
  • Ill-conceived goals; and
  • Flawed rationalisation.

Groupthink

Have you ever thought about speaking up at a meeting but decided against it because you didn’t want to seem contrary or unsupportive of the team’s efforts? If so, you may have been a victim of groupthink. The phenomenon occurs when a group’s desire for conformity results in irrational or dysfunctional decisions due to a lack of constructive challenge and independent judgement. Organisations by their very nature are highly susceptible to groupthink – their boardrooms especially so. When further facilitated by a general breakdown in governance, the results can be truly catastrophic – Anglo Irish Bank being a prime example.

Blind spots

We all have blind spots and often do not see the full picture. These natural biases can blur the obvious so that, at best, we miss information contradictory to our expectations or, at worst, become so wedded to certain perspectives that our judgement becomes clouded and our decisions compromised. In the workplace, when minor lapses in judgement due to these biases are accepted, incremental transgressions are also likely to be tolerated until – seemingly, all of a sudden – blatant disregard for ethical protocol has become ‘the way things are done around here’.

Delegated misbehaviour

For most executives, the idea of intentionally engaging in corrupt acts is unconscionable. However, sometimes a job has to get done ‘one way or the other’ so, in theory at least, delegating it to someone else might be a highly convenient option. This enables the manager and the company to maintain a veneer of respectability while outsourcing the most unsavoury elements of a business transaction to a third party. The ongoing bribery scandal at Walmart in Mexico is a good example and shows how badly this strategy can backfire.

Wilful neglect

Similarly, executives – while not explicitly ordering their subordinates to commit unethical business practices – may, on occasion, turn a blind eye to how certain results are achieved. This tacit acquiescence seems to have been at the heart of the current troubles at Volkswagen, which were compounded by a secondary shortcoming of ethical governance at the carmaker: nobody felt they could speak up about the illegal practices.

Ill-conceived goals

Managers often work by the mantra: ‘what gets measured gets done’. When such ‘measurable’ goals and their associated rewards are fundamentally ill-conceived, in that they fail to properly consider how they will drive employee behaviour, bad outcomes often follow. We don’t have to look much further than the recent financial crisis to see how this panned out for the banking sector.

Flawed rationalisation

This is a catch-all category and is best explained with typical statements that may accompany some of the techniques involved:

  • Devaluing the victims of the wrongdoing: “He got what was coming to him. I had to put manners on him”;
  • Diffusion of responsibility: “Everybody does it. You have to if you want to survive in this game”;
  • Advantageous comparisons: “Sure I kept 5% for myself. Small beer compared to what my boss skimmed off ”;
  • Justifying the cause: “I know we may have broken a few rules, but it was in the company’s best interests”; and
  • Improbability of being caught: “I may as well. Who is going to find out?”

The solution

So what can we learn from these examples of corporate ethical failure and their contributory factors? Is there something about the pursuit of profit that inevitably drives certain people to cross the line? Can the epidemic of enterprise-wide moral flabbiness be cured? The requisite response is twofold and involves the combination of embedded structural ‘antidotes’ in the organisation and behavioural accountability on the part of the organisation’s leadership. In other words: an ethical organisation, guided by an ethical leader. To forge a culture of integrity, organisations must implement policies, procedures and programmes that translate the organisation’s core values into established patterns of behaviour. They need to establish a robust ethical decision-making framework at all levels. They must invest in training and continuous communication to ensure the message is conveyed and understood. And add to this a supportive and effective board. It is not for the faint-hearted, as the process will often require a cultural change that goes to the very heart of the business. It will almost certainly fail unless senior executives, especially the CEO and the board, ‘walk the talk’ and model those appropriate behaviours. As a former ethics lead at a large US corporation once remarked: “We could have had all the ethics workshops in the world. We could have even had Jesus, Moses, Mohammed and Buddha come and speak at them. But if, after all that, someone in a leadership position behaved in a way contrary to our standard, that instance would teach more than all the experts combined.” Therein lies the problem. By the time someone has achieved a position of leadership, they are likely to have received much instruction along the way, but its main focus is likely to have been on the ‘hard’ tasks or mechanics of running an enterprise – determining strategy, assessing opportunities, managing dispersed teams and so forth. Business ethics, if taught at all, is often treated as an arcane subject and related instruction couched in theoretical, even theological, terms. Or worse, it is delivered as part of a ‘tick-the-box’ compliance exercise. Either way, it is too far removed from the day-to- day business of leadership to have any compelling interest or lasting impact. As a result, leaders tasked with steering the enterprise in the right direction may find themselves largely on their own, bereft of practical guidelines and without useful frameworks, tools and skills.

The leader’s challenge

The challenge for leaders is to equip themselves with the understanding and tools necessary to articulate an authentic governance style. This will enable them to set the tone for their organisation and, with the right building blocks in place, embed a culture of integrity. This demands reflection on the part of the leader and a genuine commitment to assess their personal leadership style and competencies as follows:

  • Clear core values: what drives me?;
  • Emotional intelligence: how do I relate to others?; and
  • Authenticity: what makes me unique?

When a leader understands the principles that guide his or her behaviour, has developed a high degree of emotional intelligence and can articulate the qualities that define their authentic leadership style, they can then begin to inspire others to follow their vision. They will also remain sure-footed, even in the face of moral adversity, and will instinctively know the right thing to do. More importantly, they will motivate others to do likewise. This is leading with integrity.

 

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Ros O’Shea is the Programme Director of the IMI Diploma in the Management of Governance and Compliance   Ros lectures on the topic of ethical leadership and governance on a wide range of IMI programmes. She is also an independent director and a partner in Acorn Governance Services.  _____________________________________