More and more news stories are breaking about CEOs leaving their role amid accusations of ethics breaches and lack of integrity.
- Renault-Nissan-Mitsubishi Alliance Chairman/CEO Carlos Ghosn has been charged over allegations that he failed to disclose close to $80 million in additional compensation for 2010 to 2018, hiding them with deferral schemes as well as personal investment losses he managed to transfer to Nissan in 2008.
- TI’s CEO Brian Crutcher was ousted after just seven weeks as CEO and 22 years of working his way up in TI for undisclosed personal behavior ethics violations. Just prior to becoming CEO he had sold more than $20M in vested equity.
- Equifax’s data breach, which exposed the personal details of up to 143 million U.S. customers – or nearly half of the U.S. population –prompts CEO Richard Smith to abruptly step down, and Equifax’s shares fell more than 30% in seven days.
How does a board proactively create a company culture that insulates the company against these types of missteps?
- Consider whether or not the separation of Chairman and CEO would be helpful. Governance watchdogs say accountability of those at the top is improved when there is division of roles, creating a system of checks and balances making it more difficult to get away with unethical acts, such as falsifying expense reports. The Renault-Nissan situation with Chairman/CEO Carlos Ghosn is an excellent example of where a split Chairman and CEO role may have deterred his compensation misstep.
- Ensure that your board completely vets their Executive suite. Scott Thompson of Yahoo stepped down as CEO after a shareholder activist revealed that Thompson had inflated his resume by claiming he had a degree in computer science, in addition to his accounting degree. What was most surprising was that no one had checked on his resume and confirmed its accuracy. Use third parties to do background checks.
- Whistleblowers and sources are increasingly using anonymous social sharing apps like Whisper to break news. Whisper was the source when Dov Charney, CEO of American Apparel stepped down accused of multiple variations of unethical behavior. Boards should be aware of this and consider whether or not any of these sites should be monitored. Using a third party like Dataminer could have avoided the United Airlines social media issues.
Several factors are at play:
- The rise in ousters over ethical issues is not because of more bad behavior or more corporate scandals, but because boards have become more reactive to the real time social media news cycle pressures, more focused on succession planning and face greater scrutiny from both investors and the public.
- The Dodd-Frank Act of 2010 created powerful incentives for whistleblowers increasing the pressure on corporate directors to make sure their leadership teams were beyond reproach.
- The public has grown more skeptical and less forgiving when it comes to bad behavior, and public outcry combined with the threat of activist investors has prompted boards to react more often. The financial crisis created a lot of mistrust. The 2017 Edelman Trust Barometer reveals that trust is in crisis around the world. The general population’s trust in all four key institutions — business, government, NGOs, and media — has declined broadly, a phenomenon not reported since Edelman began tracking trust among this segment in 2012. With a decline in trust, fewer of the constituencies, employees, customers, investors, may believe that the overall system is working for them.
- A digital communications world and social media machine primed to expose bad behavior that might have gone unnoticed in the past, as well as a 24/7 news cycle that acts as a bullhorn for negative stories that catch fire on social media.
What are some of the strategies that CEOs can adopt to improve corporate culture?
Listen to your employees:
Stay connected to the frontlines. How might things at Wells Fargo have been different if management had actually listened to their employees, (and those who were leaving in droves) to understand the unreachable targets they had been given for sales? Employees need to be able to share hard truths without fear of negative repercussions. They have to be able to say “the emperor has no clothes.” One way to encourage employees is to have regular video “fireside chats” to share business updates as well as interactive town square Q & A sessions. Be human, authentic, genuine and approachable.
As you listen, pay attention to what is not being said as much as what is being said, the non-verbal cues. Employees might be telling you one thing, but their expressions and gestures might be signaling the opposite. Are they afraid to speak the truth and, if so, what does that say about your culture? Are questions being skipped on surveys? At team meetings, observe how people interact — do they look engaged, do they ask questions? These indicators provide important insights into your organization’s culture and its alignment with corporate values.
Reward employees for speaking up and raising issues. Invite them to challenge your thoughts, and to bring a diversity of ideas and opinions to the table. When employees feel that they are being heard and when they know that their concerns are being noted, they will be more engaged, productive and innovative. And you, as a leader, can instill this throughout the management chain, and will be able to build a stronger, more cohesive culture.
Transparency leads to empowerment:
Share your successes and your failures and look to everyone to help build a better company. By including everyone, you create the illusive “we” that is the essence of company culture. Transparency leads to a company culture that creates an outcome because the CEO creates a bigger purpose for the organization than just making money or reaching quarterly numbers. Company culture guru Kenneth Kurtzman author of Common Purpose said it best when he said “CEOs need to know how to read their organizations’ emotional tone and need to engage behaviors that build trust including leading-by-listening, building bridges, showing compassion and caring, demonstrating their own commitment to the organization, and giving employees the authority to do their job while inspiring them to do their best work.”
There is no substitute for CEO leadership in creating a company culture of integrity. A board that supports the CEO in building a company culture of integrity, transparency, and collaboration will be supporting a successful company.