When the auto industry titans headed down to Washington on their private jets to ask for federal bailout funds in November 2008, it wasn’t lack of intelligence that led to the faux pas. “How smart do you have to be?” says Richard Tedlow, author of the forthcoming book, Denial: Why Business Leaders Fail to Look Facts in the Face – and what to Do About It, and professor of business management at the Harvard Business School. “I’m sure these people all scored very high on their SATs. It’s not a question of I.Q. It’s a question of being able to see the world from somebody else’s point of view, which is very hard to do when the whole world is conspiring to tell you what you want to hear.”
Turns out that’s true all over, as the fallout from the recent market meltdown illustrates. Though many of Wall Street’s corporate chieftains had reputations for being exacting, detail oriented and smart as whips, they missed the warning signs about the housing bubble and mortgage-backed securities until disaster was upon them. And they overlooked fatal flaws in their own risk management strategies. Lehman Brothers’ Richard Fuld, nicknamed “The Gorilla” for his intimidating presence, ignored warnings about the investment bank’s risky financial bets from the few brave souls willing to speak up. At Merrill Lynch, Stanley O’Neal, a risk-taking numbers guy, was often described as imperial and aloof, with an intolerance for dissent that sent much of the firm’s brain power packing in the years leading up to his departure and subsequent fire sale of the firm to Bank of America. Bear Stearns’ Jimmy Cayne was quite literally out of touch, at bridge tournaments and on the golf course while the bank teetered on, and then went over, the brink.
On and off Wall Street, even the most well-meaning CEOs are felled by their own power, ego and irrational exuberance. Approachable as they were at one time in their career, they fall further out of touch as they climb the ladder. “There’s a natural isolation that happens when you get to the CEO office,” says Michael Roberto, a professor at Bryant University and author of the recently published Know What You Don’t Know: How Great Leaders Prevent Problems before They Happen. “You have a driver, you’re flying first class, you have a chief of staff, and after a while you realize, wow, there are a lot of walls between me and the rest of this organization. It doesn’t happen overnight. It happens gradually, and kind of sneaks up on you.”
Risks abound for CEOs blind to the truths inside their organizations, as recent events have shown. Whether or not they know about them, corporate leaders will be held accountable for ethical violations, safety issues and poor performance. To combat that, they must set up a structure and create behavioral change that can circumvent human nature, which instinctively tends toward sycophantic behavior and suppression of the truth. Herewith are seven strategies for ferreting out the truth.
Know that the information you get is filtered.
The reason that CEOs generally don’t get the truth from their direct reports is that people don’t want to give it to them, says dt ogilvie, associate professor of global business strategy and founding director of the Center for Urban Entrepreneurship and Economic Development at Rutgers University, who prefers that her name is lowercase. That doesn’t mean people are conspiring to keep information from the boss – it’s simply human nature. “People think it’s in their interest not to give the CEO the truth. They want to keep things calm. They don’t want the CEO to get upset. They don’t want to potentially jeopardize their career by being the bearer of bad news or telling the CEO something he or she doesn’t want to hear,” she says. “And the higher up you go, the more filtered information you get.” The best strategy to counter this is to approach good news with a healthy skepticism and, as Andy Grove advocated, a good dose of paranoia.
Don’t take yes for an answer.
While there are times the news will be genuinely good, you need to be sure you’re pushing back against your people’s natural tendency to want to brighten your day with whitewashed reports. “The CEO has to be a provocateur, someone who pushes and pushes until they feel they’re getting everything out of the person with whom they’re speaking,” says Tedlow. “In the presence of power, even well meaning people edit themselves. You need the unedited, unvarnished truth.” That means querying positive feedback and asking for supporting proof of the positive.
Force people to disagree with you.
If direct reports, or managers further down, are not naturally inclined to disagree with you, force the issue by assigning someone to play devil’s advocate. “You have to convince them that it’s okay to disagree,” says Fred Hassan, chairman of Bausch & Lomb. “I encourage one or two people who were the least convinced about a project to behave as the devil’s advocate. It’s very important to avoid groupthink.” One financial services CEO with whom Roberto worked would explicitly give his employees an alternative strategy to what was being proposed and ask them to find arguments to support it. “That way you’re not asking them to say, this is wrong, or asking them to come up with something else. You’re giving them the something else.” Albert Gamper, former CEO of CIT Group, went even further to convince direct reports to confront him: He staged a fight with his No. 2 in a senior staff meeting. “He wanted his senior management team to see that they could disagree with him and there would not be any negative consequences,” says ogilvie. “It was a very effective way to get people to see they could argue with the boss.”
Get out of your office.
Time was, having an open-door policy meant you were a proactive, conscientious boss. Now it’s more a symbol of passive, laissez-faire leadership. “I have this theory that the more you say you have an open-door policy, the fewer people will come through it,” says Craig Chappelow, global assessment portfolio manager at the Center for Creative Leadership in Greensboro, N.C. “A CEO might have an open-door policy, but you have to go through four layers of administrative assistants just to get there. So yeah, the door is open, but I can’t even see it from the hallway.”
Rather than wait for bad news to arrive, CEOs should be actively seeking out potential problems and dissenting views. The more visible you are, the more likely people are to approach you. “I’m always out and about, so that makes it very easy to talk to me,” says John Donleavy, president and CEO of the Vermont Electric Power Company.
Go around your direct reports.
Spend time with employees lower down in the organization. Your sales people may have firsthand knowledge that your product is just beginning to lose ground to a competitor’s, based on their interactions with customers, but they’re afraid to risk being viewed as a naysayer. “But boy, that’s the kind of early warning sign you’d love to know about as a CEO,” says Roberto. “Because by the time you see it in the data, the train has left the station.” Another good way to get direct information is to listen in on customer service calls. Charles Revson, founder of cosmetics company Revlon, used to regularly man the phones at the company’s call center. “Here was a guy, at the top of his game, built a tremendous company and one day a week he goes for hours at a time and listens to women calling up to bitch about the nail polish or lipstick,” says Mark Stevens, CEO of global marketing firm MSCO. “But it wasn’t bitching to him – to him it was knowledge he wouldn’t get from anyone else.”
|Mission and Measurement|
HOW JOHN DONLEAVY, PRESIDENT AND CEO OF THE VERMONT ELECTRIC POWER COMPANY, GETS TO THE TRUTH.
I like to start with the strategic planning process, by engaging a cross-cut of the entire organization to establish the mission of the company, its purpose and the values by which we’re going to operate, and then we line up the performance management to that mission. You get what you measure. In the mission, it is articulated that we are promoting integrity, open and honest communication and embrace change. And those are all words unless you operationalize and execute. The example needs to start at the top, from me.
We honestly want this to be a learning organization. And in any operating organization things go wrong. If people sweep them under the carpet or don’t share them, there is a very good chance someone will make the same mistake.
It’s also important for me to share when things haven’t gone the way I planned them, and how I’ve learned from it or changed the way I’ve done something. I share with them a lot of decisions that get made in my office but then things don’t go perfectly as planned, and you need to move on from those.
Praise the messenger.
When negative feedback does make it to you, set an example both to that individual and the rest of the organization by praising him or her for laying it on the line to tell you that a mainline strategy isn’t going to work. “The very first thing you have to do is be very open and embrace and thank the person for sharing their view,” says Michael A. Mussalem, chairman and CEO of Edwards Life sciences. “As painful as that might be, it’s so important to send that message first and foremost and earn the right to push back and engage in what we call creative debate.” You do have a right to ask for proof to back up any nay saying, but by giving that person respect and a safe forum for communication, you nurture honesty and candidness in your organization. “What CEOs should do is publicly begin to honor the naysayers, the critics, the people who have an axe to grind instead of getting rid of them,” says CEO coach Ken Siegel. “And hire people who report directly to them who are as wildly different from them as they possibly can be. Similarity does breed complacency. Find people who see the world differently than you do, whose values are different than yours are. If you’re a very numbers-based, factually driven CEO, hire someone with a heart. It will make the interaction more difficult but the outcomes significantly more meaningful.”
When he was CEO of the Dial Corp., Herb Baum gathered small groups of employees together for what he called “Hotdogs with Herb,” where people could tell the boss what was on their minds. “The first few lunches you do nobody says anything because they don’t trust you,” says Baum. “But they start to open up.” To the same end, offering an anonymous channel for feedback will encourage those who might otherwise clam up to send feedback to report the good, the bad and the ugly. At CT Partners, any employee can communicate with CEO Brian Sullivan through “Ask Brian,” an internal Web site set up to allow anonymous feedback. “The e-mail comes directly to me, but I do not know who sent it,” says Sullivan. Face to face, he says, “The only things you’re going to hear is the good stuff, or maybe an enhancement idea, but you’ll never hear someone say, ‘This person over here is a real S.O.B.’”
HOW FRED HASSAN, CHAIRMAN OF BAUSCH & LOMB AND FORMERCEOOF SCHERING-PLOUGH, NURTURESHEALTHY DISSENT.
I used “CEO Dialogue,” a series of small meetings, 10 to 15 people from different departments without supervisors present, to allow anything to surface and be kept confidential. That increases the sense of confidence inside the group. I would tell them upfront that I’ve been doing this for 25 years and I’ve never had one person ever get punished for speaking out.
I lead this by example. In my career I’ve seen managers come down hard on people who have spoken up and those managers have not done very well under my watch. When I’ve gone into new places, when I see that managers don’t have a mindset that is in line with my values, they have to change quickly or they’re out. I don’t think any company can tolerate passive-aggressive managers. And I’ve had visible departures, which sends a strong message.To give an idea of the results, we had an organizational health survey at Schering-Plough in 2003 and again in 2006. One of the questions was, “is it safe to speak up here?” and that number had gone up dramatically.