Does Your Moral Intelligence Have Economic Consequences?

Every CEO likes to think he or she displays complete integrity as a leader. When investors or employees think otherwise there can be unwelcome valuation consequences.

January 4 2012 by Fred Kiel, Ph.D. and Doug Lennick


Think of a mentor or fellow executive that’s had a profound impact on you. Chances are, they demonstrated integrity, honesty and good moral character. They did more than just talk about the importance of integrity – they also acted with decency, morality and honor. Now, think of someone that “talked the talk,” but didn’t “walk the walk.” Perhaps they spoke about the importance of integrity, but their actions were out of alignment with what they’d said. The disconnect between what they said and how they acted may have also had an impact on you – a negative impact, that is.

Integrity is all about the match between what you say and how you behave, and whether your actions match your words. If you’re like most people, you probably think you’re a “stand-up” kind of person, with integrity and a good moral compass. However, others may not judge you as kindly. You may think you’re engaging in “just a bit of innocent spin” when you say one thing and then do another, but it may come off to others as dishonest.

We’re all masters at self-deception, and people tend to believe their own lies. This is so common that academic researchers have a name for it: “attribution error.” This is where someone takes credit for successes, but attributes failures to others or the environment.

As the CEO, you must lead by example. Moral leaders – who exhibit integrity and honesty – tend to have more successful, motivated, productive and moral teams. Immoral leaders – who are dishonest, cruel or deceitful – have higher turnover, unmotivated teams, unhappy employees and customers and, ultimately, reduce shareholder value. The differentiator is moral intelligence.

Moral intelligence is our mental capacity to apply universal human principles to our personal values, goals, and actions. Integrity is the trademark of a moral leader. While cognitive (IQ) and technical intelligence are important in your role as CEO, moral intelligence is significantly more important because moral intelligence directs the other intelligences and provides meaning. The implementation of moral intelligence can profoundly – and positively – impact your business.

Integrity and the Workforce

In our ongoing research on moral intelligence, we’ve discovered that low integrity CEOs and their investors pay a high price. Integrity is only one of the dimensions of moral intelligence we write about in our book, Moral Intelligence 2.0, but it’s essential in today’s global economy. A brand’s longtime, positive reputation can be lost overnight when stakeholders conclude that the CEO is lying to them.

Confidence in the CEO and senior management is a major driver of productivity and workforce engagement. Actual business results can, of course, be impacted by dozens of factors, but one that will certainly drive down productivity and investor confidence is the loss of trust in the CEO’s word.

Low Integrity CEOs

We selected the lowest and highest scoring CEOs from 70 CEOs in our research database. (Figure 1). Random samples of employees rated the high-scoring CEOs as “Always” or “Almost Always” showing the behaviors of high integrity. They rated the low scoring CEOs as showing the behaviors of high integrity only “About half the time.”

Figure 1

Figure 1

When we looked at the differences between high- and low-integrity CEOs on three dimensions – workforce engagement, confidence in management, and ratings of how their company performs compared to their industry peers – the differences are startling. They’re also statistically significant, meaning that these scores are not due to chance.

Figure 2

Figure 2

Low-integrity CEOs erode workforce engagement, confidence in management, and overall business results as judged by the employees.

What’s Your Integrity Score?

The only way to know if you’re “drinking your own Kool-Aid” is to have an outside service survey a random sample of employees. This service must convince people that they will, in fact, keep survey responses confidential. If employees don’t totally trust this, they’ll simply tell you what they think you want to hear.

Most large firms conduct annual employee surveys and frequently include questions about the integrity of the senior leaders. Routinely, external research surveys on CEO behavior obtain results that are counter to the annual company-sponsored surveys.

One Fortune 500 company, which folded following the market collapse of 2008, was very proud of its culture. Management always received the highest marks for integrity on internal surveys. Not so when we conducted a random sample research survey of 300 employees. Only 54% endorsed the item “The CEO tells the truth,” and a resounding 59% of those surveyed said that it was not safe to tell the truth to senior management. This climate of duplicity was clearly part of the reason this large, formerly powerful, organization failed. As an increasing number of people inside and outside the company decided that they couldn’t trust the CEO, the end came suddenly – like an avalanche.

In this case, low moral intelligence had enormous economic consequences. Litigation is ongoing following this company’s collapse. At last count, the Board members – who, incidentally, believed the CEO’s assurances – have nearly 20 lawsuits pending against them individually.

Everyone Knows Integrity When They See It

High integrity CEOs are seen by their employees, and probably also by Wall Street analysts, as people who “Frequently” or “Always” engage in the following behaviors:

  • Tells the truth
  • Keeps confidences
  • Follows through when he or she agrees to do something
  • Acts consistently with the company’s stated values
  • Confronts others when they see them doing something unethical
  • Keeps promises and when that’s not possible, goes back to those involved to renegotiate the agreement

Low integrity CEOs are seen by their employees as behaving this way only about half the time. And even worse, they’re seen as being willing “to mold the truth to fit the situation so that it works to the CEO’s benefit” about half the time. It’s difficult for an employee to trust senior management if they always wonder if they’re telling the truth.

Capitalism Needs You to be Truthful

Capitalism as a system is built on trust. And trust rests on the foundation of integrity. People trust you to the extent that they believe your behavior matches your words.

Capitalism survives best without a lot of needless regulation, but there is one kind of regulation it must have – self-regulation.

Self-Reflection

Do yourself a favor. Set some time aside for serious self-reflection about your moral intelligence and integrity. The effectiveness of this time can be significantly enhanced with unbiased feedback from a random sample of employees. A careful look in the mirror could bring you and all of your stakeholders enormous positive economic consequences.