Part II Corruption in Industry and Business 8 Deception and Failure Mitigating Leader-Centric Behaviors Alan T. Belasen Introduction In their discussion of the dark side of charisma and the conditions leading to toxic leadership, Padilla, Hogan, and Kaiser (2007) noted that while l­eadership scholars and researchers have recognized the existence of destructive leaders, they typically treated this phenomenon at best as an anomaly or exception and, instead, focused on the positive aspects of great leaders. For example, examining the downside of excessive charisma, Howell and Avolio (1992, p. 44) warned about “blind fanaticism in the service of megalomaniacs and dangerous values,” Sankowsky (1995, p. 57) discussed how narcissists “abuse power,” ­Conger (1990, p. 44) referred to “problematic or even disastrous outcomes,” and O’Connor, Mumford, Clifton, Gessner, and Connelly (1995, p. 529) pointed to “destructive acts” and noted that some charismatic leaders “may be more interested in personal outcomes.” Reviewing leaders’ patterns of decisions or actions over a long period of time as a process in terms of harm to self, followers, and stakeholders is what defines destructive leadership. For example, Maner and Mead (2010) observed that under conditions of dominance, leaders preserve their power by withholding valuable information from members or by assigning skilled members to less important roles, resulting in sub-optimal group performance. If leaders, in combination with vulnerable followers and ripe contexts that influence the relationship between choices and actions, harm constituents or damage organizations, then destructive leadership has occurred (Hogan & Kaiser, 2005; Kaiser & Hogan, 2007; Padilla et al., 2007). Other conditions include the existence of extreme performance targets (Pinto, Leana, & Pil, 2008), lack of moral grounding in management education (Ghoshal, 2005), focus on business-centered rather than human-centered 184 Alan T. Belasen orientations (Giacalone & Thompson, 2006), poor leadership talents (Henle, 2006), and failure to acknowledge individuals as the appropriate subject of moral analysis (Locke, 2006). Similarly, in keeping with the process model, Popper (2001) proposed that destructive and unethical leadership is caused by the interplay between leaders, followers, and circumstances. Destructive leadership has a self-inverted orientation. It focuses on a leader’s interests and personal agenda, as opposed to the collective needs of organizational members and stakeholders (Bass & Steidlmeier, 1999; Conger, 1990; ­Howell, 1988; Howell & Avolio, 1992; McClelland, 1970, 1975; O’Connor et al., 1995; Rosenthal & Pittinskya, 2006). The purpose of this chapter is threefold: • • • Review the literature on corrupt leadership in business, and suggest conditions and factors that trigger deception and fraud. Evaluate the emergence of toxic leadership and destructive leaders in business settings, and trace the micro-level rationalizations that these leaders use to justify corrupt behaviors. Present a four-step model for diagnosing and changing leadership behavior. Toxic Leadership in Business In the past decade, corporate America’s faith in the larger-than-life business executives has been shaken by numerous scandals. Those entrusted to lead major companies to greatness have instead led them to their demise. Jeffrey Skilling was regarded as taking Enron to a new level of success by Wall Street’s standards, while helping himself, his senior management, and even Enron’s employees to become multi-millionaires. This Cinderella story ended in a twenty-four-year jail sentence for Skilling, who was found guilty of insider trading, securities fraud, and conspiracy, among other charges (Burns, 2006). His counterpart, Kenneth Lay, was also facing charges but suffered a fatal heart attack prior to being convicted. Yet another fallen CEO, Bernard Ebbers of WorldCom, was also convicted of fraud and conspiracy and is serving a twenty-five-year sentence. These CEOs were so blindsided by the prospect of luxury and fame that they lost sight of what is important. When CEOs take full advantage of celebrity-style benefits, they do colossal damage to their employees and shareholders, as well as to themselves (Walker, 2007). Those employed by Enron and WorldCom lost everything when their toxic CEOs acted deceptively and immorally. Einarsen (2007) explains toxic leadership as systematic and repeated behavior that violates, undermines, or sabotages the legitimate interests of the organization or employees. While accurate, this explanation downplays the roles that others play in this dynamic. The Toxic Triangle (Padilla et al., 2007), however, highlights the interaction effects between destructive leadership, susceptible followers, and conducive environments, which trigger toxic behaviors. Deception and Failure 185 Destructive Leaders Destructive leaders typically operate from the top of the pyramid and commonly share five important characteristics: • • • • • Charisma – These individuals are influential orators and masters of public speaking that get followers to identify their values and beliefs with those of the leader.When followers accept the values of leaders unconditionally without questioning their motives or moral reasoning, leaders are able to structure their attitudes and shape their thinking quickly and effectively. Followers internalize the values and goals of these leaders and model their behaviors accordingly, in effect becoming indoctrinated. Personalized use of power – After these leaders secure their dominance, they use power and control as important levers to continuously overcome objections or eliminate opponents. They resort to Machiavellian behavior, placing political expediency above morality to augment their power and use it for personal gain and self-promotion. More importantly, they consolidate their centralized authority by using fear and intimidation tactics that also fuel paranoia and impulsive decision making. Narcissism – Destructive leaders view themselves as the “face” of the group and superior to the others; therefore, what benefits the leader, benefits the group, because the leader owns the group. These leaders are self-absorbed with an inflated sense of their value, excessively preoccupied with their personal adequacy, attributes, self-importance, and goals. Negative life themes – They promote a worldview saturated with tensions, conflicts, and instability, creating dependence of others on them for survival, further strengthening their support base. Ideology of hate – These leaders will often communicate with group members through rhetoric rich with metaphors and messages containing images of hate or violence. This is accomplished by promoting the superiority and solidarity of the leader-centric primary group and by devaluing outsiders and rivals. Group members are made to feel as if they were under attack by rivals and that the only way to survive is through their continued loyalty to the leader and unquestionable support. Susceptible Followers Those who practice unwavering loyalty to the leader and the group make up the second dimension in the Toxic Triangle – Susceptible Followers. Padilla et al. (2007) identified a set of characteristics that make followers particularly vulnerable to outside influence: • Unmet basic needs - That is, when higher-level needs such as social and growth are not met, individuals may respond by reinvesting efforts in 186 Alan T. Belasen • • • • lower-category needs such as food, shelter, and safety, which often are used by destructive leaders, who control the means of production and resource allocation, to create dependence and achieve compliance. Negative core self-evaluations - Some followers have low self-esteem, attracting destructive leaders to their socio-psychological vulnerability.These leaders become reference points for the vulnerable followers prompting them to accept outside influence through promises of a better life. The leaders are also capable of providing extrinsic rewards and benefits to these followers as long as they abide or meet the leader’s expectations. Low maturity - Dependence and low confidence prompt followers to conform to authority, defer judgment to the leader, and participate in destructive acts. Ambition - Followers seeking validation and social status are particularly vulnerable, as they may be willing to follow coercive behaviors if it will advance their personal agendas. Congruent values and beliefs - Followers can form bonds to leaders when they identify with certain aspects of the leader’s personality. The closer the leader is to the follower’s self-concept, the stronger the bond and the greater the motivation to follow. Likewise, individuals who maintain unfavorable personality traits such as greed or selfishness are more likely to follow leaders when said leaders possess those same traits. Conducive Environments Leader-follower relationships are also shaped by external factors such as: • • • • Socio-economic volatility – Rough economic times, fear of the unknown, anxiety over unmet needs, and so on are exploited by leaders who provide comfort by resorting to rhetoric and the promise of a better future in exchange for conformity. Perceived threat - When people feel threatened, they look for decisive actions and are more willing to accept assertive leadership in hopes of mitigating instability and restoring security. Often, however, destructive leaders create the perception of a frightening environment that they later exploit to achieve full compliance. Cultural values - Many groups prefer strong leaders capable of resolving conflicts and providing solidarity and social identity. Followers are expected to conform and follow the norms of behavior through the identification and assimilation processes. Strong cultural values are used by destructive leaders to set goals, allocate resources, achieve compliance, and sustain their dominance. Absence of checks and balances and institutionalization – Destructive leaders are influential due to the absence of governance and institutions that allow followers to participate or to countervail the centralized power of leaders.These leaders resist any attempt to restore the situation that benefits them. Deception and Failure 187 Enron’s Toxic Triangle Enron’s place in the economy made it an extremely conducive environment for toxic leadership to spread. It was a classic energy company that was struggling to stay afloat while the entire industry was transforming around it. After coming dangerously close to bankruptcy several times and fighting off a bid by Irwin Jacobs, the renowned corporate raider, Ken Lay and Jeffrey Skilling were able to lead the company to a place of prominence in the market economy. Skilling had a wealth of charisma that grew over time. His energy and enthusiasm for bringing the company into the modern era inspired his employees, and as the company grew more successful, so did employee loyalty toward him. The internal controls and organizational structures he instituted served to consolidate his power further by rewarding loyalty, by doing away with any potentially treasonous parties, and ensuring that he essentially had control essentially over every decision that was made in the company. The conducive environment had been established with Skilling in full control. As he moved on to consolidate his power by replacing those who no longer held any value to the company, his narcissism took over and he recruited new swaths of “Skilling-ites” who could grow into the ruthless traders needed for Enron’s continued success. He did this through promotion of a “dog-eat-dog” climate and ensuring that his fleet of loyal minions considered everyone outside the company an enemy. Those he chose to groom at Enron were ideal for the role of susceptible followers. These followers were young and ambitious; Type A personalities, looking for their first lucrative job. Their lack of real-world experience prevented them from having the maturity or foresight to recognize the shady business practices of Skilling. Rather, Skilling’s greed and narcissism paired perfectly with these young, impressionable traders, his susceptible followers. They wanted to be him, and he wanted them to want to be him; it was the perfect fit. One of the biggest reasons for Enron’s collapse was the method of “markto-market accounting” in their gas business, essentially allowing executives to record potential future earnings as real, tangible earnings in the trading of securities in the current fiscal year. Skilling constantly focused on meeting Wall Street expectations, advocated the use of accounting based on market value (which was then inflated), and pressured Enron executives to find creative ways to hide debt. And they responded zealously. His loyal CFO, Andrew Fastow, and other executives created off-balance-sheet instruments, complicated financing structures, and complex deals so bewildering that few people could comprehend or make sense out of them. As former employees note, Enron’s profits could be whatever they said they were: they were open to manipulation, and of course very subjective. As for his ethical standards, Skilling seemed to have no problem turning the tables on those accusing him of dishonest and questionable behavior. When 188 Alan T. Belasen Skilling was first interviewed by Fortune Magazine’s Bethany McLean about the company’s earnings reports, he could not explain how the company was earning a profit.1 Skilling became agitated, according to McLean, who recounted he told her she was “not ethical” because she hadn’t done “enough homework.” Furthermore, Skilling told the reporter her questions were “off base,” and publishing the article without the company’s input – which McLean threatened to do – was also “unethical.” At the time, McLean’s article implied only that Enron’s stock was overvalued, but it began to open up the eyes of other stock analysts and planted the seeds for Enron’s eventual collapse. One of the most intriguing findings in the white collar crime literature is that corrupt individuals tend not to view themselves as corrupt. People convicted of white-collar crimes tend to acknowledge their errant behavior but deny criminal intent and the label of criminal. They avoid the tag of being corrupt by using a number of rationalizing tactics that allow them to look at their corrupt acts in a way that makes them appear to be normal and acceptable business activities. (Vikas, Ashforth, & Joshi, 2005, p. 10) When Jeff Skilling resigned from Enron on August 14, 2001, there was a sense of betrayal among the employees, according to Sherron Watkins, former Enron VP, whose memo to late-chairman Ken Lay set in motion events that exposed Enron’s corrupt accounting practices. “This was like Jim Jones feeding us the Kool-Aid and then deciding not to drink it himself,” Watkins says in the film, Enron: The Smartest Guys in the Room.2 The day after Skilling resigned, Watkins sent an a­ nonymous e-mail memo to Ken Lay because she was “highly alarmed” by information she had discovered regarding the company’s accounting ­practices. “I couldn’t believe so many people were going along” with the fraudulent accounting that tried to cover up Enron’s massive debt. Ms. Watkins worked at Enron for eight years, resigning in 2002 as vice president of corporate development in the ­mergers and acquisitions group. She reported to chief financial officer (CFO) Andy Fastow from 1993 to 1997, and 2001 to 2002, and testified in the trials of former chief executive officer (CEO) Jeffrey Skilling and the late chairman and founder Ken Lay. In her book (with Mimi Swartz), Power Failure: The Inside Story of the ­Collapse of Enron (2003), Watkins traces the story: at first she had hoped Ken Lay, the a­ cting CEO, would respond to the crisis in a productive way that could somehow save the company. In her e-mail to Lay, Watkins told her boss, “I am incredibly nervous that we will implode in a wave of accounting scandals.” She spelled out a very clear plan to follow that could possibly save the company or at least minimize the damage. But she soon realized Lay had been aware of the scam and had no intention of disclosing the fraud to the public. She then Deception and Failure 189 contacted a friend at Enron’s auditing partner, Arthur Andersen, where Watkins used to work, who then drafted a memo in which he summarized Watkins concerns and presented it to his superiors. Six days later, Watkins was invited to meet with Lay where she presented him with another memo outlining the steps the company could take to begin to remedy the problems. According to Watkins, Lay assured her the company’s accountants would begin to investigate the issues. Secretly, Lay and other executives discussed the idea of firing Watkins, but decided against it to avoid the possibility of a lawsuit (McLean & Elkind, 2003). “I was a lone voice in the company,” Watkins recalls in the film. Watkins would later go on to testify before Congress about the Enron scandal, sitting next to a combative Jeff Skilling, to provide her testimony to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services. Corrupt practices were also evident in Enron’s relationships with its external environment, including regulators (i.e., auditors), advisors (e.g., attorneys, consultants) and the regional community (i.e., the city of Houston). According to resource dependency theory, the power of one party over the other is contingent on the extent to which one party controls the resources needed by the other (Pfeffer & Salancik, 1978). External structural opportunities were exploited in an application of resource dependence theory as Enron “captured” its regulators and advisors by rendering them “dependent” on lucrative contracts (Szwajkowski, 1985; Pinto et al., 2008). The case, then, provoked government intervention in the attempt to substitute external regulations for the lack of ethical leadership at the firm and industry levels. Watkins’ testimony at the congressional hearings can be credited, in part, to the eventual passage of the Sarbanes-Oxley Act on July 30, 2002 which established the Public Company Accounting Oversight Board. President George W. Bush signed the Sarbanes-Oxley Act into law on July 30, 2002.The law created a new standard (Section 404) for auditors to sign off on reporting processes within the companies they audit (Thomas, Schermerhorn, & Dienhart, 2004). In addition, the law requires corporations to set up an anonymous system for organizational members to report fraud and misconduct without the repercussion of retaliation. It also made it difficult for shrewd CEOs and CFOs to manipulate the books without facing the consequences of jail time for financial misconduct. The Normalization of Corrupt Business Practices: Bernie Madoff The Toxic Triangle mentioned earlier seems to prevail when deceptive practices become common standards and when arrogance, greed, and overconfidence of delusional leaders become normalized. As the massive Ponzi scheme championed by Bernie Madoff illustrates, destructive leadership, susceptible followers, and the existence of conducive environments brought him wealth but eventually caused his own demise. 190 Alan T. Belasen The Bernard L. Madoff Investments Securities firm was founded in 1960 with money Bernie had earned while working as a lifeguard and as a sprinkler systems installer (Frank & Lauricella, 2008). Madoff ’s specialty was in trading penny stocks – very low-priced shares that traded on the over-the-counter market, the predecessor to the NASDAQ exchange. His returns were always good but rarely spectacular (Markopolos & Casey, 2010). Additionally, Madoff was known as an affable, charismatic man who moved comfortably among power brokers on Wall Street and in Washington (Creswell & Thomas, 2009). It was for these reasons Bernie Madoff was able to keep his Ponzi scheme going for so long. It is estimated that the fraud conspiracy may date back to as early as the 1970s (Wasik, 2012).The scandal left many asking “How could this happen?” As anyone could imagine, a scheme such as this could not have been done alone, as Madoff originally proposed when he first admitted to the crime. A fraud such as this had to have many susceptible followers who assisted in starting it and then keeping it going; “Each of the defendants in his or her own way allegedly played a key role in the designing, building, or maintaining the house of cards” (Wasik, 2012). The list of alleged co-conspirators included family, employees, accounting firms, and banks. How could one man convince so many people to do the wrong thing? An article by Andrew Spicer (2009, p. 834) proposed that “when corruption becomes normalized, common expectation about what is possible and permissible differs from consensual moral attitudes about what should be allowed and approved. Behavior expectations differ from moral beliefs.” Three main mechanisms are used in the normalization of corrupt business practices: institutionalization, rationalization, and socialization. Institutionalization Institutionalization is the process where initial corrupt decisions or acts become embedded in organizational structures and processes. After the Ponzi scheme was set in place, it was the routine practice by employees to execute the corruption. “The habitual doctoring of books and records, fictitious trades, the phantom accounts were the core of the charade. As alleged, they were the work of these defendants” (Wasik, 2012). The normalization of these types of activities would not necessarily cause an otherwise ethical person to act out and become a whistle blower. “The more that corrupt practices become normalized, the more difficult it becomes for those who may oppose such practice to act on their values” (Spicer, 2009, p. 834). Rationalization Rationalization is the process where by new ideologies are used to justify and perhaps even valorize corruption. Although many of Madoff ’s employees Deception and Failure 191 claimed they did not know the firm was in fact a Ponzi scheme, one could argue that high ranking executives such as Peter Madoff, chief compliance officer and the brother of Bernie Madoff, did know about the scam and may have “looked the other way” when confronted. Peter took over the firm’s trading business while his brother, Bernie, lobbied in Washington for regulatory changes, became more involved in NASDAQ, and served as its chairman in 1990, 1991, and 1993. In the face of these important duties his brother had taken on, Peter may have been able to rationalize away the unethical occurrences within the business. According to Spicer (2009, p. 835): “If organizational members do become more fully aware of systemic corruption, many are likely to accept offered rationalizations and justifications to reduce feelings of cognitive dissonance arising from the discrepancy between their ethical beliefs and actual behaviors. Even followers that do not modify their beliefs to reconcile dissonance are likely to become slowly numbed to the everyday ethical salience of corrupt behavior through repeated exposure.” The way cognitive dissonance works is that when people are confronted with information that contradicts either their beliefs or actions, they feel discontent. To feel better, they either have to modify their beliefs and actions, or find some way to discount the disconfirming information. And the more effort someone invests in a particular action or idea, the greater the lengths they will go in crafting justifications to ease their discomfort. Vikas et al., (2005) developed a typology of mental strategies used by initiators of unethical behaviors to justify their decisions and actions as morally right (see Table 8.1). Rationalizations can be invoked prospectively (before the act) to forestall guilt and resistance or retrospectively (after the act) to ease misgivings about one’s behavior. When invoked, the rationalizations not only facilitate future wrongdoing but also dull awareness that the act is in fact wrong. Indeed, if the rationalizations become a shared resource in the ­organization’s (or ­industry’s) culture, they may pave the way toward defining the practice as “business as usual – the way things work.” (Vikas et al., 2005, p. 11) It seems as if the reasons adopted by toxic leaders to “justify” their decisions or actions are colored with arrogance, feelings of superiority, and overconfidence. Indeed, we define corruption following the Global Coalition Against Corruption (http://www.transparency.org/) as the abuse of entrusted power for private gain. It hurts everyone who depends on the integrity of people in a position of authority. 192 Alan T. Belasen Table 8.1 Rationalizing Corruption Strategy Description Denial of The actors engaged in corrupt responsibility behaviors perceive that they have no other choice than to participate in such activities. Denial of The actors are convinced that no one injury is harmed by their actions; hence the actions are not really corrupt. Denial of The actors counter any blame for victim their actions by arguing that the violated party deserved whatever happened. Social The actors assume two practices weighting that moderate the salience of corrupt behaviors: (1) Condemn the condemner and (2) Practice selective social comparison. Appeal The actors argue that their violation to higher of norms is due to their attempt to loyalties realize a higher-order value. Metaphor of the ledger Examples “What can I do? My arm is being twisted.” “It is none of my business what the corporation does about overseas bribery.” “No one was really harmed.” “It could have been worse.” “They deserved it.” “They chose to participate.” “You have no right to criticize us.” “Others are worse than we are.” “We answered to a more important cause.” “I would not report it because of my loyalty to my boss.” “We’ve earned the right.” The actors rationalize that they “It’s all right for me to use the are entitled to indulge in deviant Internet for personal reasons behaviors because of their accrued credits (time and effort) in their jobs. at work. After all I do work overtime.” Source: Vikas, A., Ashforth, B., & Joshi, M. (2005). Business as usual: The acceptance and perpetuation of corruption in organizations. Academy of Management Executive, 19(4), 9–23. Socialization The third mechanism in the normalization of corrupt practices is socialization – the process by which newcomers come to accept deviance as acceptable, if not desirable. Socialization is strengthened through the identification process, assimilation, and integration into the fabric of organizational culture where employees are influenced by senior executives and managers. In Madoff ’s case, externally, the techniques of the scheme were opaque and unknown to brokers, investors, and the general public. Inside the company, a secretive atmosphere prevailed. It was likely explained by a need to keep “trade secrets.” Because employees at lower levels may have not been aware of the fraud, the inertia of the company structure and agency ideology enforced employees to accept the “way things were” within the organization (Belasen, 2000). The conducive environment for crafting and executing his strategy existed for Madoff, too. When the Ponzi scheme came to an end, it was Madoff himself who eventually told of the years of fraud. Given the longevity of the Ponzi Deception and Failure 193 scheme, it seems as though it could have lasted until his death. However, apparently he did not anticipate what could be called his “Perfect-Storm Fallacy,” which is the possibility of several unlikely events occurring at once (Finkelstein, 2003, p. 163). Madoff ’s Ponzi scheme had survived market fluctuations, market crashes, SEC investigations, and journalistic investigations of how the returns he maintained were possible. However, the deregulation of the banking industry, lower capital requirements for banks, innovative products on Wall Street that included collateralized debt obligations (CDOs), and the mortgage collapse sent the stock market into a deep decline causing investors to pull their money out of the market. Because Madoff Securities was a Ponzi scheme, there was not enough money to cover the outstanding debt. As frightening as it sounds, had it not been for the mortgage crisis, the Madoff scandal might not have been discovered. Toxic leadership is most prevalent when power and influence are transactional and communication travels in a top-down manner creating asymmetrical forms of communication with unguarded, top-down messages. It takes decentralized structures of decision making, adaptive culture, and a transformative style of leadership to keep toxic leaders in check. Like Watkins, individuals throughout the organization need to have the strength and courage to speak up and hold others accountable and to focus on process improvement during the good times so that if a period of instability does occur, individuals and groups will have the inner strength to guard against the emergence of destructive behaviors. Invincibility and Egocentrism There are several explanations as to why toxic leaders succumb to the pressures of committing crimes such as fraud, insider trading, and conspiracy. One p­ opular explanation is greed or arrogance, the same kind Gordon Gekko (played by Michael Douglas in the classic 1987 film, Wall Street) manifested in his behavior. However, Tom Walker (2007) of the Houston Chronicle suggested that corporate executives are akin to celebrities who believe the rules do not apply to them, or that they (the corporate executives) have the wealth to get themselves out of trouble, or that they are simply invincible (2007, p. 6). Invincibility is a tricky concept, yet in this case, it makes sense. We live in a world where celebrities are far from normal, everyday people.We put them on pedestals because of their riches and good looks, and we make excuses for their downfalls - they are, in fact, invincible. There is no doubt that this type of outlook is appealing, especially to upper echelon executives. Tyco’s former CEO, Ted Kozolowski, was certainly swept up in the feelings of invincibility that came along with his status. He even threw a Mediterraneanthemed birthday party for his wife, a social gathering with a total cost in excess of $2 million. Although this would be perfectly acceptable for celebrities spending their own money, Kozolowski’s event was paid for in part by ­company funds. 194 Alan T. Belasen Invincibility transcends all boundaries. Former New York Governor Eliot Spitzer used poor judgment and acted inappropriately while thinking that he was invincible and that no one would dare to question his behavior. Yet another aspect of this invincibility is the fact that business leaders are saddled with few required qualifications to rise to their status. Whereas doctors, lawyers, and architects are responsible for completing rigorous testing and securing licenses, business and political leaders are not subject to the same rigmarole. Harvard University’s Howard Gardner, a psychologist, explains: “You don’t need a license to practice … the only requirements are to make money and not run afoul of the law” (Walker, 2007, p. 6). Organizational constraints play in favor of toxic leaders as well. When their brilliant minds and quick thinking are irreplaceable, followers tend to tolerate their behaviors or accept their ruling on “complicated” issues, especially when key information is missing. Those CEOs who are well versed in their particular business and industry are similar to actors who are chosen to play a certain role: their performance is difficult to emulate or to duplicate at least in a short amount of time. CEOs and social actors who misbehave are likely to get away with their irresponsible behaviors because their added values to the organization or unique contributions seem to be irreplaceable; in effect, an important asset, a necessity. This idiosyncratic credit (i.e., capacity to acceptably deviate from group expectations) explains why CEOs who were eventually brought to justice were not only allowed to get away with their deceitful behavior for so long, but also why they felt they were entitled to conduct themselves in this way. Kipnis (1972) claimed that power-holders manifest egocentrism that leads to feelings of superiority, which, in turn, leads to corrupt behavior. The accounts of destructive leaders discussed in this chapter are consistent with this assumption. These executives were consumed with power and arrogance. They were compulsive leaders with self-righteous, narcissistic behavior, whose goal was to use people for their own ends. But they were also paranoid, constantly denying wrongdoing, and seeking confirming evidence that what they did was right and good. Their misuse or abuse of power evokes Lord Acton’s famous observation that “power corrupts, and absolute power corrupts absolutely.” Though invincibility is an explanation for why certain leaders are engaged in questionable decision-making practices, there is also the presence of a strong ego. Gordon Quick (2007) of the St. Louis Post, argues in his article aptly titled “They’re Not All Bad, Just Big-Headed” that CEOs do not necessarily begin their tenure as bad people. Quick explains that corrupt CEOs are often those people, without regard to humility, who believe that they are what keeps their firm successful to the point that they lose sight of those below them who could provide valuable suggestions and feedback. This leads to their inability to acknowledge limitations, the belief that the rules no longer apply to the CEOs, and the belief in the entitlement to far more compensation than they are currently receiving, despite previously agreeing to a lucrative contract. Deception and Failure 195 Corporate executives with excessive egos frequently have a narcissistic view of themselves akin to an “it’s all about me” attitude - they become completely synonymous with the company’s brand – which Quick (2007) terms the “cult” CEO. Unlike some companies such as GE, which are synonymous with former CEO Jack Welch in a positive way, Quick (2007) argues that cult CEOs create many vulnerabilities for their organizations. Nevertheless, Quick’s position on this issue does not attempt to claim that an ego is necessarily a bad thing. CEOs need to be aggressive, self-sufficient, and driven to get results; however, the key is the ability to harness the ego power and balance it with humility. Pushing egocentric goals and interests to the extreme, however, may result in complacency, loss of focus, privileged access to information and people, unrestrained control of organizational resources, and the ability to manipulate outcomes, which in turn may elicit unethical behavior (Chandler, 2009). Leaders often take personal and organizational success for granted, attributing positive outcomes to themselves and further isolating themselves from others, ignoring reasonable advice, or responding impersonally (Kelly, 1988; La Bier, 1986). With cut-throat competition and pressure to demonstrate bottom-line results, many corporate leaders fall prey to a Success Syndrome manifest in comparative ranking, monetary rewards, social status and prestige, and become blind to authentic goals and values of corporate citizenship. Indeed, Miller (1994) observed that after long periods of financial success, organizations are prone to inertia regarding structure and strategic processes, excess regarding development goals, inattention to information gathering and organizational learning, and insularity in adapting to environmental change. Success may cause leaders to excuse themselves from established protocols (Cameron, 2003), while making exceptions for their own behavior (Price, 2006). This sense of entitlement and rationalization, whereby leaders gratuitously expect certain rewards for their hard work (Boatright, 2007; Nozick, 1974; Rhode, 2006) triggers denial and recurrence of aggressive and rule breaking behavior (Chandler, 2009). Corruption is negated by a strong belief that the end justifies the means. Extreme performance pressure is a key antecedent to organizational corruption (Pinto et al., 2008; Schweitzer, Ordonez, & Duoma, 2004). According to Ms. Watkins, Enron’s “rank and yank” performance review process created such extreme performance pressure: an “ends justify the means” approach whereby perpetrators and innovators of corrupt practices were rewarded with large bonuses. Moreover, relative underperformers’ (those just above the acceptable performance threshold) focus was diverted towards keeping their own jobs, thereby reducing the likelihood that they would notice or question financial anomalies. Large bonuses in turn fueled personal greed 196 Alan T. Belasen and lifestyle pressure (e.g., “we just bought the big house”), which further encouraged corruption through a destructive feedback loop (Andersson & Pearson, 1999; Voyer, 1994). Leadership style also contributed to the organizational-level corruption. In a classic example of the dark side of leadership, Ms. Watkins describes Skilling as charismatic, intimidating, hypnotic, and convincing, some of the very qualities that one might consider hallmarks of effective leadership. In her opinion, Skilling’s leadership facilitated corruption since, if former COO, Rich Kinder had remained with the firm, the “Enron fraud would not have happened,” due to his ability to “ask the right question to expose the fluff” in financial results. In contrast, Skilling’s “leadership” produced a disastrous outcome for the organization. In our classes on leadership we would do well to stress the moral “boundary conditions” of leadership theories – ­effective leadership can build corrupt organizations when corrupt practices go unquestioned by leaders or their followers. Ms. Watkins also described how Enron executives exploited both internal and external structural opportunities for corruption. Internally, the structured financial accounting department created opportunities for ­corruption through structural secrecy or the way division of labor, hierarchy, and specialization segregated knowledge about tasks and goals, facilitating the i­ncidence of corrupt behavior (Vaughan, 1996). Members of this ­department possessed technical expertise that enabled them to find and exploit regulatory loopholes, while disregarding underlying accounting principles. Their expertise, combined with Enron’s extreme performance pressure, motivated its department members to exploit internal structural opportunities for ­corruption. Watkins also suggests, “a big fish in a small pond” syndrome may have occurred with regard to geographical location, whereby the surrounding community became so indebted to Enron’s corporate resources (e.g., employment, local philanthropy), that people may have “looked the other way.” Though Houston is a large city, Enron played a highly ­visible role in the local economy (e.g., Enron Field was home of the Houston Astros). (Excerpt from Beenen & Pinto, 2009). Enron’s leadership is an example of failed leadership. Skilling had the leadership potential and talented followers to continue to produce and succeed with Enron, but he was more concerned with fulfilling his selfish desires because he was not driven by integrity and values. However, Sherron Watkins was the whistleblower who wrote the memo to the Enron chairman Kenneth Lay “warning that the company’s accounting practices were looking very shady” Deception and Failure 197 (Belasen, 2012, p. 128). She provides an excellent embodiment of a courageous and responsible follower, as was discussed earlier. Rather than becoming a susceptible follower who conforms to the leader’s endeavors, Watkins chose to challenge Enron’s leadership because she wanted to do what was right for the organization. A well-known quote by Warren Buffett expresses his belief that someone who lacks integrity will never maintain success: “Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you” (Recruiterbox). Jeffrey Skilling proved that this quote was true. He had the energy and intelligence to lead a successful company, Enron, but his lack of integrity led to his dishonest behavior and the demise of the organization. It is in turbulent times that great leadership is tested for high ethical purpose and vision of success. Delusions of Control, Psychological Traps, and Dysfunctional Behaviors What happens when the vision goes wild? Why would an otherwise successful executive take the organization through an out-of-control spin into uncertain environments in an attempt to accomplish an untested vision? Why do some executives refrain from pursuing a practical vision and, instead, resort to following their adrenaline rush in pursuit of unrealistic goals and lavish lifestyles? Why do they have an inner drive to make life-altering decisions using low-­probability effects without regard to risks or considerations of alternative scenarios? In his book, Why Smart Executives Fail (2003), Sydney Finkelstein identified four destructive syndromes that often occur simultaneously or lead to each other if the symptoms are not quickly recognized and corrected. 1. 2. Brilliantly Fulfilling the Wrong Vision – A flawed executive mindset that relies on magic answers, “the holy grail,” or “the wrong scoreboard” and that throws off a company’s perception of reality. The founder of Wang Labs, An Wang, was fixated on the idea of crushing IBM as a competitor. In this case, we can say that Wang was using IBM as the “scoreboard” for his metric of success except that IBM was much bigger and more resourceful. Ultimately, Wang Labs lost its competitive position within the computer industry, which shifted away from proprietary VAX mini computers to PCs and open source, leading to its demise. Ironically, its new alliance with IBM, its one-time enemy, in 1991, kept the company alive for a while. A year later, in 1992, the company filed for bankruptcy. Delusions of a Dream Company – A delusional attitude that keeps a constant picture of inaccurate reality in place. This syndrome relates to ­overconfidence and an illusion of control leading executives to worship their 198 Alan T. Belasen 3. 4. own ideas and disregard many warning signs around them. Louis Borders, the founder of Webvan, ignored the research that would have given him more insight into the profitability estimates of his strategic move to create a new venture, ­Webvan. Borders believed that acting quickly and capitalizing on opportunities would prevent the loss of market leadership. As a result of poor oversight, billions of dollars were spent on assets and infrastructure resulting in poor ROI. Tracking Down Lost Signals – Breakdowns occur in communication systems developed to handle potentially urgent information. Saatchi & Saatchi, NASA, Oracle, Nissan, and Xerox have all fallen into this trap. NASA is perhaps the most serious of these examples. Its rigid hierarchical culture did not facilitate the flow of information across hierarchical levels and bureaucratic lines. Employees could not go over their immediate managers’ heads, and managers did not interact with anyone not directly beneath them. This created a culture where subordinates did not feel comfortable going above their managers when the managers did not act on ­information, thus stopping the flow of critical information that could have prevented the ­Challenger explosion. Ease of availability of information could prevent a great deal of executive failures, had the information been communicated properly to the right individuals. Another example is Johnson & Johnson’s decision to disregard the comments and concerns that were presented to them by the cardiologists who used their products. Johnson & Johnson’s rationalization for this was that their patents protected them enough to get by without addressing customer concerns or investing any further money into a more advanced product. However, that decision remained untrue. Other European competitors developed a superior product and marketed it to the same cardiologists who complained to ­Johnson & Johnson. This was a major reason for the severe decline in ­Johnson & J­ohnson’s market share. Johnson & Johnson continued to ignore the situation. Because they had the mindset that the patents secured ­Johnson & Johnson’s stent business, no importance was given to the outside threat. Instead, the communication channels within Johnson & J­ohnson needed to be open and fluid. For instance, the marketing department of Johnson & Johnson should have targeted the competitors and relayed their actions as a threat. Instead, it tracked a lost signal. Seven Bad Habits – The leadership mindsets that keep top executives from correcting their course of actions. According to Finkelstein (2003) these include: dominant personality; having no boundaries between personal and corporate interests; having all the answers; disregarding colleagues who do not support their views; obsession with visibility and public image; rationalizing major obstacles in their strategy; and worshipping the status quo. These habits are portrayed in Table 8.2. Deception and Failure 199 When managers and leaders overemphasize one set of values (or play certain roles extensively without considering other roles) the organization may become dysfunctional. This sentiment was echoed by Quinn (1988), who labeled the imbalance in role behavior “the negative zone.” The single-minded pursuit of one set of values without paying needed attention to the other values or roles creates conditions of sub-optimization which further reinforces destructive leadership ­behavior and the creation of deceptive culture. Quinn believes that overemphasizing a style is pathological and unsustainable. Examples of excess or extreme behaviors are the bad habits in the first column in Table 8.2. Organizational leaders, executives, and managers, who fall short of balancing the leadership behaviors needed for leading complex organizational environments tend to think in terms of “either-or” dichotomies. They attach mutually exclusive categories to people and values, form attitudes toward “desired” and “undesired” behaviors, and develop biases about what works and what does not work. These biases are translated into mindsets, values, and patterned behaviors that guide their thinking and actions. Gradually, these values are converted into deeply held beliefs, communication styles, and stereotyped behaviors that are repeated. Table 8.2 The Seven Habits of Spectacularly Unsuccessful Executives Habit Pre-Eminent Attributes Think of themselves and their companies as dominating the environment. Feel superior to all others. Believe they are indispensable to customers. Over-identifier They identify so completely with the company that there is no clear boundary between their personal interests and their corporation’s interests. Know-It-All They think they have all the answers. Eliminator They ruthlessly estimate anyone who isn’t completely behind them. Spokesperson Obsessed with company image, spend most of time with PR people, seek relationships. Under-estimator Under-estimate barriers and changes in the environment. Old Reliable Stubbornly rely on what worked in the past, apply previously successful tactics to new situations despite inappropriateness. Warning Signs Lack of respect of customers and changing markets. Arrogance. Questionable character. Denial and defensiveness are critical warning signs. Leader without followers. Executive failure. Blatant attention-seeking. Excessive hype, missed earnings. Constantly referring to success of the past. Source: Adapted from Finkelstein, M. (2003). Why Smart Executives Fail. New York, NY: Penguin Books. 200 Alan T. Belasen Trapped by their dysfunctional styles and unable to explore or employ other modes of positive behaviors, these managers succumb to continuing their behaviors as usual, avoiding any signals of wrongdoing. The position of this chapter is that top executives must be attentive to their blind spots, or the behavioral and perceptual areas known to others but unknown to them, to maintain a good balance and avoid dysfunctional forms of behavior. The next sections will examine methods for developing balanced leadership through self-awareness and embodiment of higher purpose ethical behaviors, the tenets of trusted leadership. The Thrust of Trusted Leadership In his 1998 book, The Servant:A Simple Story About the True Essence of leadership, Hunter uses the inverted pyramid, with employees at the top and the CEO at the bottom, effectively switching authority lines with accountability lines. In a command structure, executives are responsible for actions and outcomes and use downward communication channels to communicate decisions, mandates, plans, revisions, and so on. Employees are expected to be responsive by communicating results, questions, or requests for approval upward. The inverted pyramid changes the makeup of these relationships by making employees responsible for meeting customer expectations and ensuring that executives respond to employees’ needs by providing resources essential for achieving organizational goals. Hence, the interplay between employees and executives involves exchange relationships (as opposed to control relationships) in which mutual respect, care and sensitivity, relevance, and accountability are the principles behind effective leadership. Ultimately, leadership is about character and doing the right thing, moral maturity, self-control, and appreciation of others. Trust-based reciprocal relationships enable leaders to serve the people that rely on them, listen to their needs, give praise and recognition, show kindness, display true honesty, and be authentic. Trusted leadership is characterized by the absence of arrogance, pride, and deception. It is acting unselfishly. Providing ethical leadership means making ethical values visible – ­communicating about not just the bottom line goals (the ends) but also the acceptable and unacceptable means of getting there (the means). Being an ethical leader also means asking very publicly how important decisions will affect multiple stakeholders – shareowners, employees, customers, ­society – and making transparent the struggles about how to balance competing interests. (Trevono & Brown, 2004) The framework for trusted leadership (Figure 8.1) closely resembles the social responsibility model developed by Belasen (2008). Based on rules of disclosure, transparency, and public accountability, a well-organized exchange system should include sharing of information with the public (INFORM) to achieve greater transparency; using communications to mobilize employees and stakeholders to Deception and Failure 201 Engagement Tr an sp ar en cy Ho ne sty MORALITY INFORM REFORM Trusted Leadership CONFORM Ac co un ta bil ity Outcome PERFORM LEGITIMACY Cr ed ib ilit y Process VISIBILITY INTEGRITY Boundary Figure 8.1 Trusted Leadership. Source: Adapted from Belasen, A. T. (2008). The theory and practice of corporate communication: A competing values perspective. Thousand Oaks, CA: Sage Publications. tackle deficiencies (REFORM); developing rules of conduct and codes of ethics to guide future actions (CONFORM); and moving forward to meet new performance goals and expectations (PERFORM). This model is also consistent with the Competing Values Framework (Quinn, 1988). Embedded in the model are core assumptions and positive outcomes with parallels around the model – visibility and integrity are associated with external communications, outcomes, public image, and reputation. Integrity and legitimacy reflect strong adherence to codes of ethics, rules of conduct, and governance. Legitimacy and morality preserve high standards of ethical behavior, moral values, equity, and sensitivity to members’ needs and goals. Morality and visibility reinforce the social identity and public image of the organization and shape it as responsible and responsive. These core assumptions and positive outcomes are depicted in Figure 8.1. Leaders who are able to master the behaviors and skills associated with the four domains outlined in Figure 8.1 also have the cognitive complexity and behavioral flexibility to confront deception and avert corrupt behaviors. ­Methods or instruments of self-assessment that also consider responses from others (e.g., internal and external stakeholders) are particularly useful for monitoring progress toward desired goals and behaviors. They also provide stakeholders with a dashboard to review potential gaps between actual and desired behaviors, adjust or change criteria as needed, or develop new benchmarks. Social context is important because 202 Alan T. Belasen individuals in leadership positions look to others for validation of their moral ­judgment and motivation. Senior executives and managers can use these instruments developmentally to examine how well their ratings are balanced across various criteria, check whether important milestones have been accomplished, and revise their development plans accordingly. Self-assessment tools are designed to help increase self-awareness or understanding of one’s strengths and weaknesses, thinking patterns, and motivations. Stakeholders (e.g., board members) can use these instruments to evaluate whether gaps in the behavior of individuals have been addressed and make important decisions about their suitability to lead the organization. Assessment instruments are often used to not only highlight deficiencies in leadership style that cause major breakdowns but also to improve organizational communication. ­ Managers at all hierarchical levels who used multi-rater tools reportedly developed a clear understanding across hierarchical levels and functional lines and worked effectively as a management team (Belasen, 2008). An individual in a position of authority should create an atmosphere that encourages organizational members to monitor, challenge, and discuss each ­other’s ideas in order to stay open to better and more ethical ways of doing things. Moral awareness is a powerful medium that allows leaders to understand their strengths and weaknesses, what motivates them, and how they make decisions. Moral awareness and self-regulation are the starting points in a diagnostic process aimed at identifying gaps between actual and desired behaviors and a tracking plan aimed at remedying deficiencies based on input from others. In many ways, this process, which is described below, is a multi-stage decision-making process similar to the one described by Trevino and Brown (2004), which moves from moral awareness to moral judgment (deciding which course of action is justifiable) to moral motivation (or the commitment to pursue actions) and moral character (or the persistence to sustain the behavior). Diagnosing and Tracking Leadership Behavior The starting point for ongoing conversations and exchange of ideas is an assessment instrument aimed at measuring the trustworthiness of leaders, articulating self-improvement plans, and monitoring progress aimed at closing the gaps between current and desired behaviors.The Trusted Leadership Questionnaire (TLQ) was developed by the author to measure the dimensions that comprise the model in Figure 8.1. Examples of current and desired profiles are provided in Figures 8.2 and 8.3 (pp. 204–205). Trusted Leadership Questionnaire (TLQ) Rate each item on a scale from 1 to 5 where: 1. 2. I do not demonstrate this behavior. I demonstrate this behavior to a small degree. Deception and Failure 3. 4. 5. 203 I demonstrate this behavior to a moderate degree. I demonstrate this behavior frequently. I demonstrate this behavior to a great degree. Next, rate yourself again, this time by considering expectations from others or by reflecting on how you would like to be perceived by others. Take a look at the gaps. Where do you need to change to become a trusted leader? Transparency 1. I feel my goals are accepted by others. 2. I strive to achieve successful outcomes through participation. 3. I pay close attention to how well I work with others. 4. I use a plan that is shared publically and that guides the collective performance. 5. I make sure that we understand each other’s concerns. 6. I seek to understand the needs of my followers. 7. I revise my vision and goals based on inputs from diverse stakeholders. Credibility 8. I am candid, honest, and openly express my thoughts and concerns. 9. I articulate goals and interests consistently to different stakeholders. 10. I tell the truth with high conviction. 11. When I withhold information, I let people know the reason. 12. I consistently share personal commitments in the open. 13. I admit to personal mistakes and do not blame others for my failure. 14. I listen to others attentively. 15. I welcome constructive criticism. 16. At times of change I remain open to new ideas. 17. I value feedback from others even if it negates my thinking. 18. I ask stakeholders if I meet their expectations or for ideas to help support their goals. Accountability 19. I clarify my actions to various stakeholders. 20. I encourage employees to explain our behavior to stakeholders. 21. I emphasize the importance of complying with regulations. 22. I strive to ensure that we openly and honestly share practices and outcomes. 23. I emphasize the obligation of carrying out government policies properly. 24. I ensure that we follow rules and procedures consistently. 25. I adhere to ethical codes of conduct. 26. I communicate and reinforce integrity guidelines. 27. I clarify the personal and collective consequences of misconduct and fraud. 28. I encourage joint decision-making processes. 29. I support lateral communication, employee engagement, and joint accountability. 204 Alan T. Belasen Honesty 30. I am approachable when others need me. 31. I support giving back to the community. 32. I encourage others to participate in decision-making processes. 33. I act with respect for others. 34. I seek to meet others’ expectations of me. 35. I hold myself and others to high ethical standards. 36. I put others’ best interests above my own. 37. I have a thorough understanding of organizational values. 38. I would not compromise ethical principles in order to gain personal benefits. 39. I make a sincere effort to know about others’ career goals. 40. I value honesty more than profit. Figures 8.2 and 8.3 depict the ratings involving the actual behavior (baseline) and the desired behavior (benchmark). Understandably, the ratings in Figure 8.2, which denotes current behaviors, are lower than the ratings in Figure 8.3, which represents future behaviors. The gap between the two sets signifies opportunities for improvement. Developing improvement strategies should also include several milestones and checkpoints when the survey may be taken again to see whether the gap has been eliminated. Another option is to obtain feedback from others and even allow board members to assess the attributes of the leader using the same survey. The differences between the self-assessment and assessment from others could be very revealing and should lead to a more valid and reliable understanding of the distance between behaviors and expectations. Subsequently, ideas and actions for improvement could be prioritized to reflect inputs from others and eventually lead to a better alignment between the leader’s profile on the four dimensions and the ratings by others. Figure 8.4 transposes the two profiles to provide a single view of the gaps across the four domains of trusted leadership. Trusted Leadership: Current 4 3.5 3 2.5 2 1.5 1 0.5 0 1 2 3 4 5 6 7 TRANSPARENCY 3 2 3 1 4 3 2 8 9 10 11 CREDIBILITY 3 3 2 4 2 2 1 2 2 3 3 ACCOUNTABILITY 3 4 2 2 4 3 3 3 2 2 3 HONESTY 3 3 2 3 2 4 3 2 3 3 2 Figure 8.2 Current Profile. Deception and Failure 205 Trusted Leadership: Desired 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 TRANSPARENCY 1 4 2 5 3 4 4 5 5 4 6 5 7 4 8 9 10 11 CREDIBILITY 5 5 4 5 4 4 3 4 4 5 5 ACCOUNTABILITY 5 5 4 4 5 5 5 4 4 5 5 HONESTY 5 5 4 5 4 5 5 4 5 5 4 Figure 8.3 Desired Profile. A leader’s failure or incapacity to acknowledge the gap and initiate a shift from the current mindset or behavior to the desired level might lead to organizational failure. Trusted leadership is sustained through honesty and trustworthiness. When a leader employs self-regulation and shows genuine concern for others or makes a personal sacrifice for others, a true form of leadership emerges. Acting authentically, ensuring employees’ safety, treating them with respect, and making sacrifices that benefit them generates a high level of commitment to the leader and ­organizational goals. Current and Desired Profiles Desired ST HO NE AB I AC CO UN T Y Y LIT IB ED CR TR AN S PA LIT RE Y NC Y Current TRANSPARENCY CREDIBLITY ACCOUNTABILITY HONESTY Current 2.57 2.45 2.81 2.72 Desired 4.65 4.75 4.35 4.8 Figure 8.4 Current and Desired Profiles. 206 Alan T. Belasen Six keys to becoming a trusted leader: 1. Define and clarify roles, goals, and expectations. Remove as many unknowns as possible. Be clear about what you know and what you need. Work with your team to define and clarify their roles, communicate them, and manage any confusion or conflict. If you are sending confusing or mixed messages, you fuel uncertainty, doubt, and fear. 2. Don’t accept denial, blaming, excuses, and scapegoating. When things don’t go right, beware the “victim mindset.” First, set a good example and avoid denial, blaming, excuses, and scapegoating. Second, help others to see that these are not useful responses to mistakes or missteps. Third, listen carefully. Work to understand the system’s role before over reacting to one person’s behavior. 3. Don’t let department heads and team or project leaders off the hook. When results fall short, team managers often claim that their hands were tied. An inherited staff, a lack of staff, remote team members, and matrix management resulting in conflicting priorities are common woes. But you need to ask, were these limiting elements really a surprise? For team leaders to be accountable, they have to understand their context, think ahead, and inform senior management of potential shortcomings in advance. ­Waiting until trouble hits or targets are missed is a career-limiting behavior in accountable organizations. 4. Take initiative to figure out where the barriers to success lie. This is the flip side of the previous point. You need to seek out and understand the barriers and potential problems in your own group and work to minimize their impact. Bring in your senior management or peers or work groups to share ideas, pre-empt problems, or solve issues sooner than later. An accountable leader is willing to admit if he or she is struggling to find the best answer and wants additional knowledge, advice or wisdom. Be open to your own learning opportunities. 5. Set milestones and metrics. To be accountable, people need to know if they are on track. They want to see the links between what they do and overall team or business performance. To be an accountable leader, you’ll want to communicate important data and targets and work with team members to identify additional deadlines or metrics. Waiting until the end of a quarter or after the fact to be declared a winner or loser will breed frustration and prevent buy-in. 6. Find balance between process and results. Are your people held accountable for the standards and processes they use to make decisions and run the group? Or do you hold them accountable for just for the outcomes? Deception and Failure 207 If your leadership style consistently falls in the middle of that continuum, you’re encouraging accountability along both the how and what dimensions of the work – and people will notice. (Browning, 2012). From Chief Executive Officer to Chief Ethical Officer What qualities do organizational leaders need in order to win the approval of stakeholders and citizens? Quick (2007) explains that stakeholders need top executives who understand their own strengths and weaknesses, who recognize their own needs and motivations, and who can align their skills with the interests of the company. Unfortunately, as Bazerman and Moore (2009) pointed out, when stakeholders are considered, it is not uncommon for organizational leaders to undervalue their potential impact.Today’s executives and those of the future must be well aware of the importance of having an unassuming nature and of the need for empowering employees and promoting bottom-up learning. CEOs and public executives must also continue to concern themselves with the increasing significance of social responsibility, essential for leading an organization or social system on a path that is both ethical and sustainable. Kelly and Nadler (2007) speak to the importance of this goal in their Wall Street Journal article, “Leading from below: CEOs can’t change companies on their own.” The secret is to foster a leadership mentality throughout the ranks. Managers and employees outside the “C-suite” should exercise upward leadership to influence executives’ minds and direction. Executives must believe that openness, candor, and respect are the fundamental tenets of trusted leadership. In the end, we need top executives with true humility – enlightened leaders who draw heavily on self-regulation and ethics mindfulness. Langer (1989) describes mindfulness as a state of active awareness characterized by the continual creation and refinement of categories, an openness to new information, and a willingness to view contexts and respond to situations using multiple perspectives (Levinthal & Rerup, 2006) and trusting relationships without succumbing to the vulnerabilities of the negative zone. It is evident that trusted leaders face an array of pressures when taking on their important roles. They are required to be aggressive yet approachable; proud yet humble; and powerful yet open. Their ideal leadership profile resembles that of a circle: perfectly balanced across many facets of organizational reality (Belasen & Frank, 2008). Unlike managers who focus on the transactional aspects of leadership, trusted leaders have the ability to focus, take initiative, adapt well, share leadership responsibility, be mindful, and act with candor. 208 Alan T. Belasen Leaders versus Managers In leadership, executives delegate authority to team members or other individuals; they depend on followers’ respect and commitment for the completion of goals. While managers do things right, leaders do the right thing. A manager’s job is to make sure that things get done right, on time, under the budget, and with maximum profits. Managers generally focus on very short-term outcomes, schedules, and specific goals. Leaders, on the other hand, focus on creating a vision for the future, foresighted strategies, as well as uplifting the values and moralities of their followers. Managers will tell employees exactly what to do, while a leader meaningfully motivates them to do their jobs. These differences are akin to the distinction between transactional and transformational leadership (Belasen, ­Eisenberg, & Huppertz, 2015). Transactional managers focus on the orderly accomplishment of tasks and work activities, largely with an immediate or short-term focus.They provide correction when necessary and offer rewards for positive behavior. Compliance, sometimes by coercion, is stressed; creativity and innovation are de-emphasized and discouraged because these phenomena represent departures from the status quo. Power is unequal between managers and followers, and communication, when negatively established, is often blocked by uncertainty, fear of reprisal, and mistrust. Simply put, what is most important to the transactional manager is getting things done; the transformational leader focuses on the people who perform the work and the relationship of those people to the work environment. Transformational leadership qualities contribute to greater follower motivation, satisfaction, and results. Transformational leaders are deemed to be altruism-­ oriented and grounded in caring based on benevolence. These factors motivate followers to go beyond their self-interest and focus on the organization and the greater community. This generates good will and provides a propensity for positive results. Thus, the transformational leader sparks both an interpersonal dependence with followers and an empowering independence that encourages identification with the organization and its environment, essential for instilling trusting relationships. The Ability to Focus There is one skill set that seems to override all others as a common element of success, and that is the ability to focus. As Marcus Buckingham (2005) pointed out, to focus can refer either to your ability to systematically identify the most critical of factors among various others – in this case to focus well is ­synonymous with the ability to filter well. In another sense, to focus may mean the ability to bring sustained pressure to bear after identifying those critical ­f actors – what Buckingham refers to as the “laser-like quality of focus.” Both of these variations have been found to be crucial to success in top-management ­positions, and both will come up again in the discussion of other important characteristics. Deception and Failure 209 Taking the Initiative One of the most crucial of all qualities common among winning companies is a focus on growth (Joyce, Nohria, & Robertson, 2003). Target Corporation has used growth strategies to find success in a highly competitive sales sector where others have failed in comparison. Target’s founder John Geisse was a well-known trend-spotter from the start. In some sense, the success of Target can be attributed to a good many opportunistic situations; however, none of the chain’s status would have been possible had the company’s early leaders been unable to recognize and take advantage of some of the larger trends of the time. The company has maintained this competitive edge over the years by using proactive strategies to sustain its competitive advantage in a market dominated by its chief archrival, Wal-Mart (Belasen, 2008). Top-to-Bottom Communication Employees must be led from the top on ethics, much like how they must be led on goals, strategies, quality, and competition (Trevino & Brown, 2004). The ability to communicate consistent messages both internally and externally is an important leadership skill. The success of the company resides in the ability of the company to act as a whole and to share new and innovative strategy from the top down. At Merck, Ray Gilmartin realized this critical role of leadership: “My job is really to set the overall strategic direction of the company, to ensure that we are organized to carry out that strategy and that we have the right management processes in place. I need to create an environment where everyone in the organization can achieve their full potential so that our company … succeeds in the highly competitive market” (Belasen, 2012, p. 27). Adaptability and Risk Taking When leaders have a high tolerance for ambiguity and accept errors as opportunities for learning, followers trust their leaders. They feel safe. Fear suppresses creativity and innovative thinking. Without trust, people respond with hesitation, below par performance, sandbagging quotas, hedging on stretch goals, and avoiding accountability or commitment. Consider the following quote along these same lines from Mike Armstrong, former CEO of AT&T: “I don’t expect anyone to be perfect. It’s not human nature. What I do expect is that you will take risks, correct mistakes, and learn from both. And if you don’t – judging by market results – then we’ll make a change. It’s nothing personal. And I’ll do it, even if you’re my best friend. We must have this company execute to its full potential.” This “anything-it-takes” attitude exhibited by Armstrong is not unique among CEOs known for their success stories. Larry Bossidy, former CEO of AlliedSignal, states,“I think the CEO today has to be … more communicative … and I think he 210 Alan T. Belasen has to be far more nimble. Companies used to have five-year strategic plans. Now most people have cut it down to three years, and probably that’s too long.With the pace of the world changing as it does, you’ve got to look at where you are ever more frequently or the bus goes by.” It is not merely enough to have a strong strategy; the business environment is highly dynamic and unstable. What works today may not work tomorrow, hence the need for individuals who can pinpoint the “next big thing,” and inherent in that ability is the acceptance of risk. In the words of Armstrong, “You’ve got to have the guts to make a decision.” The known winners in today’s business world are individuals who do not shrink from the challenge of tracking potential competitors and trends in the market alike. Lou ­Gerstner of IBM understood this need for change: “We are constantly changing what we do – building a culture of restless self-renewal.” Successful leaders acknowledge this aspect and install systems and programs to foresee change, recognizing the fact that early anticipation of new developments is what will bring success. Shared Responsibility Along with humility, a truly great executive has the ability to cultivate leadership qualities based on trusting relationships that permeate the organization, not just the top. One way to reduce the potential for exploitation is to distribute the capacity for power and decision making to individuals and teams who share leadership. Highly centralized organizations are susceptible to corruption as steep hierarchies, which promote centralized authority and the accumulation of power at the hands of the few, may also create opportunities for tyranny and exploitation (Maner & Mead, 2010). Corporate cultures – weak and strong alike – have been found to influence employees’ leadership styles more than any other aspect of their jobs (Kell & Carrott, 2005). Fundamental to positive leadership are trust, integrity, transparency, personal relationships, and innovation. Integrity is having personal conviction about doing the right thing. Because leadership is focused on construction of a common agreement over organizational goals, leadership must be participatory and shared. Trusted leaders demonstrate moral values and ethics in personal behavior and weave these values and ethics into organizational practices and activities. Conclusion Sam Waksal, the founder of ImClone, a New York-based biotech firm, was an immunologist turned entrepreneur who developed a promising cancer drug (Erbitux) and engineered the largest biotechnology partnership in U.S. h ­ istory when pharmaceutical giant Bristol-Myers agreed to purchase $2 billion of ImClone stock due to the company’s “blockbuster” potential. Even though Waksal was successful and intelligent, he made some costly decisions. He was the lead in an insider trading scandal that led to the indictment and conviction of one of Deception and Failure 211 his most famous friends, Martha Stewart, on charges of lying to federal investigators. When the Food and Drug Administration (FDA) rejected the drug, Waksal alerted several relatives and friends to sell their stock as soon as possible. Waksal’s communication to friends and relatives was before the FDA’s decision had been made public. On his advice, Waksal’s father and daughter sold $9.2 million worth of ImClone, a move that caught the attention of the SEC and eventually led to Waksal’s arrest. When asked how he got into this situation he responded, “It certainly wasn’t because I thought about it carefully ahead of time. I think I was arrogant enough at the time to believe that I could cut corners, not care about details at all … I refused to deal with the everyday details … these details were meant for other people, not for me” (Leung, 2003). Waksal’s arrogant actions seem to confirm the characteristics of destructive leadership discussed earlier in this chapter. Bristol Myers seemed to miss that ImClone had never previously developed any prescription drugs and never had a profitable reporting period. Waksal’s bad judgment to disclose the FDA’s ruling to reject the release of the drug to friends and family was his undoing. In the end Waksal paid $4.3 million in fines and tax restitution and served eighty-seven months in prison.Waksal’s arrogance was anchored in greed, similar to how Kozlowski, Tyco’s ex-CEO, allegedly tried to evade $1 million in sales taxes on $13 million of art he purchased after raking in more than $300 million in compensation that his board of directors gave him. It’s the same motive that landed Drexel Burnham’s Michael Milken and his collaborator Ivan Boesky in jail in the early 1990s, due to junk-bond schemes that defrauded investors out of more than $1 billion. In his article, “If only CEO meant Chief Ethical Officer,” Eric Wahlgren (2002) explains corrupt behavior as resulting from the structure of executive ­compensation that depends excessively on stock options that favor the optionholders at the expense of everyone else. When CEO pay is based on short-term results rather than long-term performance, it creates a temptation for fraudulent practices. “If I can sell my options when the stock is high and keep up a good face when the stock is plummeting, I can get out with enough money to worry over my ethical lapses once I’ve moved to the Bahamas …” Wahlgren also added the motivation to win at all costs by hypercompetitive high fliers or Type A overachievers who are perceived by Wall Street as superstars. “This perception is reinforced by the fact that the longer a CEO enjoys superstar status, the less likely it is that boards, shareholders, confidants, or underlings will push back. At that point … “CEOs are on their own” – with no one to puncture their delusions of self-importance and invincibility” (http://www.bloomberg.com/bw/stories/2002-06-12/if-onlyceo-meant-chief-ethical-officer). Mechanisms to curb such tendencies include government regulation (e.g., ­Sarbanes-Oxley Act), which requires CEOs to personally certify the accuracy and completeness of financial reports shared with stockowners and the public, as well as the requirement by the New York Stock Exchange to have a majority 212 Alan T. Belasen of independent directors on companies’ boards. Boards are encouraged to seek out successors with high personal integrity and strong self-control who look out more for stakeholders than for themselves. The ethical challenge is to balance growth and profit with ethics and integrity. When members of society or an organization are exposed to trusted leaders who display self-regulatory behaviors, they also learn and subsequently follow such behaviors.Trusted leaders help trigger ethical mindfulness in others.Trusted leadership begins and ends as an important leadership responsibility. Ethical mindfulness becomes a form of self-regulation that causes one to behave with an ethical consciousness from one decision or behavioral event to another (Aquino & Reed, 2002; Thomas, Schermerhorn, & Dienhart, 2004). Self-regulation is associated with ­persistence toward accomplishing goals and resistance to attempts that inhibit or hinder the achievement of goals (Carver & Scheier, 1990, 1998; Mischel, ­Cantor, & Feldman, 1996; Wegner & Bargh, 1998). Trusted leaders pursue transparency and accountability, credibility, and honesty. These are the tenets of the model in Figure 8.1, with the imperative to move from a “leader-centric” to “­ leadership-centric” approach focusing on excellence, ethics, and ­ endurance (Belasen, 2012; Vanourek & Vanourek, 2012). Trustworthiness needs to be ­established from the top of the pyramid by leaders with a strong conviction about doing the right things and focusing on the greater community. Trusted leaders are exemplary leaders. They assume the role of ethics mentors, guide followers, and establish golden rules and ethical values to help followers focus on important organizational goals and commitments. They work hard, play hard, and serve as the moral compass for others. Trusted leaders are aware of their strengths and weaknesses. They treat people with respect, honesty, and integrity. They understand the ethical impact of their choices, both short-term and longterm, on multiple stakeholders. They know that their decisions affect their followers and that followers count on them for making the right decisions. Trusted leaders encourage positive learning and innovative thinking. They are driven by innovation and guided by integrity. Through their words and deeds, leaders send the message that appropriate and thoughtful risk-taking is encouraged and rewarded.They challenge followers to turn mistakes into learning moments; to look forward and onward on the experience curve. They know how to ask the right questions rather than give the answers: “What do you think went wrong?”; “What will you be doing differently next time?”; “How could this option affect our relationships with stakeholders and our credibility?” (Belasen, 1999). When people feel trusted and secure in their contributions to the organization, their return on ethics is an unequivocal commitment to the values of the leader and to highimpact performance levels. Trusted leaders can create a culture of accountability, credibility, honesty, and openness by making sure that managers and employees engage in transparent and ethical business practices. Establishing lateral communications and exchange Deception and Failure 213 systems and promoting high involvement in change efforts; openly debating issues, sharing information and decision-making criteria; and ensuring that policies and procedures are applied fairly and equitably are vital means for increasing transparency. Leaders who consistently share information about themselves and the organization and who tie ethics to long-term success of the organization build a culture of trust with followers and enhance organizational credibility with stakeholders. When people are entrusted with all the necessary information to make wise choices, they are likely to act responsibly and a culture of higher purpose is sustained. Notes 1. See http://archive.fortune.com/magazines/fortune/fortune_archive/2001/12/24/ 315319/index.htm. 2. Enron:The Smartest Guys in the Room is a 2005 documentary film based on the best-selling 2003 book of the same name by Fortune reporters Bethany McLean and Peter Elkind and is a study of one of the largest business scandals in American history. McLean and Elkind are credited as writers of the film alongside the director, Alex Gibney. 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