Rebuilding Trust in the CEO
How can business leaders revive stakeholder confidence?
October 14 2009 by Jennifer Pellet
Confidence in leaders, particularly CEOs, is at an all-time low. Over the past year, public perception of business leaders—already far from positive—has plummeted along with stock prices, the global economy and the fortunes of certain prominent corporations. CEOs now stand firmly in the crosshairs of critics from the investment community, the media and Washington, as well as the general public and their own employee base, the target of the sort of ire usually reserved for used car salesmen and personal injury lawyers.
“What’s going on in the reputational realm of CEOs is almost at the level of ‘These guys are all bums; they’re selfish and greedy,’” said Paul Winum, managing director of RHR International, at a CEO roundtable discussion on Rebuilding Trust held in partnership with Chief Executive and RHR. At the root of the problem, added Winum, is a disconnect between centuries- old leadership principles and the context in which today’s leaders have been forced to operate. “When you think about the tremendously short- term focus and all of the different constituencies and stakeholders that care about what the CEO is doing, it’s no wonder that maintaining trust is such a critical ongoing challenge.”
The business community has coped with scandal-induced crises in confidence— from advertising abuses that led to the formation of the Better Business Bureau in 1912 to a wave of investor distrust after Enron’s implosion in 2002—in the past. Still, CEOs participating in the discussion agreed that the intensity and pervasiveness of the current climate is worthy of alarm. “The general public distrust and cynicism about business is really concerning,” noted Anne Mulcahy, chairman of Xerox.
“This is not simply a problem of how do CEOs rebuild trust,” added Rakesh Kaul, senior advisor of the Carlyle Group. “We have seen a society where people have lost trust in their religious institutions. We have seen a society where young kids have lost their trust in sporting fields. We have seen a society that now questions globalization because the cheaper milk from China is tainted. So this is a deeper, bigger and longer-lasting problem and we haven’t yet seen all of the implications.”
CEOs now face the daunting task of overcoming the negative perceptions of key stakeholders to rebuild trust and restore confidence, agreed Winum. “The question is what are the dimensions of this and what can and should we all be doing to get to the other side of it?”
To Jim Skinner, who took the helm at McDonald’s after two of his predecessors as CEO died within a nine-month time frame, it’s a different twist on a familiar scenario. “Back in 2004, it wasn’t so much that we had to engender trust in the CEO of McDonald’s as it was stability and confidence in the leadership,” said Skinner, adding that while the circumstances might have been unique, the role was not. “As CEO, you always have to be the most trusted employee in the company— and it all travels down from there.”
The fact that McDonald’s CEO has such a strong philosophy about trust is no accident. “We’re a company with a brand people have trust in, but if we don’t have a CEO we can trust in, it doesn’t work,” asserted Andy McKenna, chairman of McDonald’s. “In electing a new CEO, the No. 1 item on our scorecard was trust and no one exemplified trust more than Jim did.”
To Skinner, every management employee from the CEO down should always be engendering trust in the organization and confidence and trust in the brand. “I always look at it as if my behavior must be such that no one would say, ‘I don’t think I want to buy an Egg McMuffin from that company,’” he explains. “Wherever you may be, you are [basically] McDonald’s brand walking. [Trust] is an inside-out job.”
“It’s about integrity,” agreed Darius Ross, CEO of D. Alexander Ross Real Estate. “The No. 1 thing is will you stand behind what you do and put your name behind it? If not, you’ve lost your integrity.”
Leading by example, however, can only go so far. Ultimately, CEOs must foster a culture that inspires trust and respect both within and without. Skinner was once asked how he controlled the operations of outlets around the world. “Whenever I go into a restaurant it’s an announced visit and everything looks good,” he responded. “But when I leave it goes right back to whatever level of performance and execution these people have been empowered and influenced and motivated to deliver on that particular shift at that particular day by the management team.” In short, you can’t mandate trustworthy behavior.
A Culture of Trust
While Skinner was fortunate to inherit a company with what he describes as “solid Midwestern values,” new CEOs aren’t always so lucky. Coming into Xerox in 2001, Anne Mulcahy took over a company with enormous debt and five consecutive quarters of losses—as well as correspondingly dismal employee morale.
“When you’re a big company going through massive amounts of change, which we were, employees are kind of like volunteers,” she says. “They have to want to perform, so your job is to make sure that they get it—they know what the story is, feel a part of it and want to make a contribution. That’s the magic that makes big companies work.”
Pressured from all sides, Mulcahy recounts a piece of advice she received from Warren Buffet: “[Focus] on your customers and employees. That’s the only way you’ll get results—and everyone else just cares about results. So don’t get confused about your priorities.”
“There are gazillion constituencies that want the time and attention of CEOs, especially if your company is in trouble,” said Mulcahy. “It’s very clarifying to just push the other stuff aside and say it’s in everyone’s best interest if I’ve got customers who like us and want to do business with us and employees who understand where we’re headed and want to make a contribution.”
Over time, consistently identifying and focusing on key stakeholders will be more effective in building a culture of trust than succumbing to pressure from myriad constituents, agreed Erik Luhrs, CEO of The BOSS Companies. “Your existing customers are far more valuable than people who haven’t used your services yet,” he pointed out. “Instead of trying to do what everyone else thinks we should, we should do what we do best and strengthen what we’ve got. Then if other people are drawn in, great.”
At the same time, CEOs recognize that societal changes in the way we live and communicate complicate the picture. “The advances in society over the last 100 years have contributed to the lack of trust,” charged Bill Hickey, CEO of Sealed Air. “When you live your whole life in a village with a few hundred other people, trust matters because you have to stand behind what you say. But if you’re living in a society where you’re in New York on Thursday, Tokyo on Friday and then flying over to Moscow, you don’t have that same commitment to the people around you.”
John Allen, CEO of Greater China, however, sees America’s CEOs— embattled though they may be—as among the most trusted and trustworthy in the world. “In China, I’ve seen situations where governors of provinces and administrators ask for a percentage of a deal,” he reported. “It almost makes you sick to think how badly they are treating their fellow countrymen, including themselves by being corrupt.”
“The fastest growing economy right now is the economy with the least trust on every level,” noted Anil Gupta, a professor of strategy and organization at the University of Maryland’s Smith School of Business and the author of Getting China and India Right. “It’s not just corruption in the government… China has some fundamental issues with trust, has had them for a long time and will have them 20 years from now. The reason for that is that China may be the only big society in the world without a [predominant] religion. Therefore, there isn’t really a sense of guilt—and when you don’t have a sense of guilt, it’s very hard to value integrity for its own sake.”
For other business leaders, today’s global economy is akin to yesterday’s village. News of breaches of trust and unethical behavior by prominent politicians, business leaders and even celebrities and athletes now quickly travels the globe via YouTube and Twitter and various other forms of media. Several CEOs cited the cumulative impact of such incidents as having a broad and negative impact on public sentiment.
“The younger generation has seen so many things on television and on the Internet,” noted Clare Hart, president of Dow Jones Enterprise Media Group. “They’ve seen Clinton lie; they’ve seen the questions about the weapons of mass destruction. They don’t have the same barometer of trust that we may have been raised with.”
At the same time, the sheer quantity of information and the speed with which it is dispersed dilutes its impact.
“Whatever we say here today is going to be heard 6,000 miles away within seconds,” said Tom Quinlan, president of RR Donnelley. “As a society, we now have so much information on our hands that we have to learn to decipher what’s important. Is the fact that David Ortiz was on steroids in 2003 really that important for the whole world to know today?”
A Metrics Makeover
Broader societal changes are also changing the metrics by which CEOs are measured, roundtable participants agreed. “It’s just not sufficient to be a good, profitable business anymore,” says Mulcahy. “There’s an expectation that businesses will be held accountable in multiple dimensions in terms of community and environment, which I actually think is pretty healthy… If it doesn’t turn around overnight, it’s going to take a long time to rebuild and it’s going to require companies to think about a multidimensional contribution to gain public trust again.”
That morphing of corporate metrics will, in turn, necessitate a different approach to selecting and measuring business leaders. “I sit on a few boards and I can assure you when we look at CEOs we look for competence and other qualities but the list of criteria doesn’t have the word trust,” says Kaul. “There has to be a mind shift, collectively as a society, that ranks trust-based leadership more highly. Yes, we want a leader who can make money, who can build a brand. But fundamentally he or she has got to be a leader who inspires trust.”
That broadening of expectations for both companies and their leadership is particularly apparent among those entering the work force, noted several business leaders. “The younger generation is going to insist that social needs and business needs are tied together,” asserted Howard Brodsky, chairman of CCA Global Partners. “Previous generations wanted to work at companies where you would make a good living for a number of years, but this group is very discerning. As terrible a job market as it is, they do not want to work for companies that they think are not aligned with their social values. They’re going to move the needle for social change more than the older generation because they’re going to demand it.”
And it’s up to today’s business leaders to deliver. “Every generation’s mission has to be to hand a better world to the next generation than the one they inherited,” says Kaul. “So from my perspective, our role now should be to be selfless, forget about ROIs and our paychecks, and think about what we can do over the next 20 years so that the world we hand over once again has that optimism and is something that our children can look forward to.”