In a post-September 11, post-Enron world, the pressure on CEOs to deliver on multiple levels continues to intensify. Stakeholders-employees, investors, customers and communities-continue to demand a healthy bottom line. But they’re also seeking a more elusive quality: a sense that the organizations on which they depend-and the CEOs who lead them-are worthy of their trust.
Often the two are hard to balance, pointed out CEOs who attended this month’s Chief Executive roundtable, held in partnership with Veridian and the Aspen Institute. “American CEOs are in an incredibly competitive environment, so what you find is, €˜Yes, the codes of conduct program is nice, but we will lose our jobs and our employees will lose their jobs if we don’t perform in a certain way,'” noted Michael Cherkasky, president and CEO of Kroll.
Clearly, CEOs today are charged with a tall order: to create a corporate structure and culture that enable a firm to both meet financial performance goals and live up to the heightened demand for transparency and responsiveness. Yet as roundtable participants compared notes on ways to instill values-based management systems and build strong bonds of trust with stakeholders, several evinced optimism about meeting the challenge. “The real artistry in our tasks as CEOs is to manage the paradox of having high integrity, high values and [good performance],” says Forrester Research Chairman and CEO George Colony. “And it can be managed. That’s what this is really all about.” -Jennifer Pellet
Revisiting neglected values
Elmer Johnson (The Aspen Institute): In the mid-’70s, you may recall that the Nixon Watergate was followed by the corporate Watergates-instances of highly unethical behavior on the part of corporations at home and abroad. Business schools across the country began introducing business ethics courses to teach people how to deal with these ethical dilemmas. It’s interesting that it wasn’t long after that, maybe by the mid-’80s, that we were extolling the brilliantly efficient corporate manager who could skinny down the company.
Now we’re back to considering these values that we seem to have neglected for a while. The question is whether there’s some inevitable collision between these two sets of values. Can’t we have the best of both worlds? Isn’t it possible to be agile and resourceful and efficient and also highly ethical in terms of trustworthiness and integrity and social conscience?
John Brandt (CE): I would bet that if we surveyed CEOs and employees, asking them, “Does your company have a values-based culture?” almost everyone would say yes. Yet all of us have experience with companies where it’s just a mission statement posted on a wall somewhere or next to an elevator and people salute it as they go by and then they do whatever they need to do.
George Colony (Forrester Research): We have seven values I preach to new employees. The first is clients. I used to say in the employee introduction, “Do anything for our clients.” Then someone raised his hand and said, “Well, should I do something illegal or something unethical for our clients? Do we take tobacco companies as clients of Forrester?” I got around the first by revising it so I now say, “Do your absolute best for the client.” But for the tobacco question I still haven’t got a good answer.
James Down (Mercer Management Consulting): The way we deal with that issue is to leave it up to individuals. If our people don’t want to work for a particular client, we honor that. But for us to say, “We’re not going to work for a tobacco company because I personally don’t like that”- where do you draw the line? Somebody else would say, “You work for a liquor company, and to me that’s as offensive as a tobacco company or a company that has a part of their business in pornography.” It’s a very slippery slope when you start applying values because whose values are they?
Ron Ponder (CIO Group): Values are established through observation of behavior. You have to have a management team willing to state their values and then to live those values. The values that management, from the CEO down, instills in an organization are what echo and form the rest of the decisions. It’s fairness, consistency and integrity. That’s what people see. And if you transmit that to the people, then many of those other problems take care of themselves.
Ed Kopko (Butler): The concept of values has to be specific. If you say you wouldn’t do business with a socially irresponsible company, you should define what €˜socially irresponsible’ means, because there could be a competing value. We don’t have a value statement that says we won’t do business with tobacco companies, because we believe that companies have the right to utilize certain services in the world and, as long as they are operating in a legal environment, they should be supported. You may not have that value. That’s where [values] become individual. And they should be individual.
Donald Herrema (Atlantic Trust Private Wealth Management): But what values? We may choose to look at certain things differently, but ultimately truth is truth. When we slip into the subjective in our organizations, whether as the CEO or as an employee, stakeholder, shareholder or whatever constituency, that’s where we get into those slippery and difficult gray areas. When we hold fast to those things that are true, that are just and do have virtue, I personally think they’re rather straightforward.
Michael Cherkasky (Kroll): At Kroll-and maybe all publicly traded companies-our obligation is to create shareholder value. I believe that a values-based organization does that in the long term more effectively. It does not necessarily do it in the short term effectively. One could cut corners and report one or two quarters of effective earnings that would create great shareholder value, but that could actually put the company at the risk of having a draconian collapse of value in 12 or 18 months. So if a client wants us to do something that’s inappropriate, illegal or unethical, long term that is not good for creating shareholder value for us, and it’s not good for that client. So we say, “No.”
Peter Crist (Korn/Ferry International): Every enterprise, large or small, has a certain velocity associated with it. It concerns me when I see a company that moves very fast, because with velocity come mistakes.
Ronald Rittenmeyer (Safety-Kleen): The quarter-to-quarter mentality that the world has had in the past five years was insanity, because at the end of the day that wasn’t where you should have been making your decision. It was on the long-term gain. You have start with integrity. If senior management doesn’t start with integrity, then nobody will have it.
If you’re willing to wink your eye and look the other way and not really mean it, every employee is going to understand that you didn’t mean it. And they’re not going to forget that. So if you don’t take that integrity point right from the beginning and own it, no matter how punishing it gets, you lose.
David Langstaff (Veridian): Wall Street forces you into an awareness of the short term. If you can get people to understand that you are going to manage for the long term, then you can find a way to be a hard-nosed CEO when you need to be and do things that are not popular in the short term but are necessary in the long term. If you’re true to the values of the company, which need to be explicit, then you can gain respect with your employee base, your customers and others for making those tough, short-term calls. But it’s got to be done in the context of the longer term. We are about to go public, and as I go out on this road show, I’m trying to be very clear that we are a company that will focus on long-term, sustainable value.
Colony: Isn’t that like the guy who doesn’t have any children telling another guy how to take care of children? You’re not public yet and you haven’t [given] stock options yet. When you say, “Let’s think long term,” and [that decision] drives the stock down to $15, the pressure is intense.
Langstaff: But then you introduce the question: Can only private companies be values-based, and public companies cannot? I don’t agree with that. One of the solutions that must be worked on-and it’s a long-term solution-is that CEOs and boards of directors have to become better aligned on the point that one stands up to certain issues. Being explicit about company values is fundamental to Veridian’s ability to attract and retain people. We’re in the national security business. If we lose the integrity point, we’re out of business. So it applies absolutely to a private company; it’s just taking it into a new dimension in the public arena.
James Dunne (Sandler O’Neill & Partners): We hear too much about the poor CEO-he’s got to deal with the shareholders, the board members and the [media]. But so what? That’s your job. Frankly, there’s too much whining up and down the line. If you’re worried about making an announcement that will be short-term difficult and maybe make the stock [drop] and upset everybody, you’re worried about your job and not about the business. If it’s the right thing to do, do it.
If everybody in your organization feels you’re strong enough to take the heat under any condition, that you’ll do the right thing, that’s the example that you need to set. Don’t fall in love with material things, starting with all those little entrapments around the job. If you love the work and exude that, everybody will see it. And if you don’t and you’re worried about your own ass, they’ll see that too.
Walking the talk
Arthur Selkowitz (Bcom3 Group): The clichÃ©, “actions speak louder than words,” is very appropriate here. Words are important, but it’s those little acts, led by the CEO, that demonstrate the real values of the company. Every CEO has to go into the job prepared to lose that job. If you’re not prepared to put your values and your integrity on the line, then you don’t belong in the CEO job.
Robert Prieto (Parsons Brinckerhoff): You only lose your reputation once. To me it wasn’t Enron; it was Andersen. Look at how fast Andersen has come apart from a loss of reputation. We have what we call The New York Times test. If what you say or do appears tomorrow morning on the front page of The New York Times, can you live with it? Can your employees? Can your client? That’s not a bad test for doing the right thing.
Rittenmeyer: You either have the right values as an individual or you don’t. If you don’t, that’s what might cause you to maybe look the other way or let somebody report something that you fundamentally know is just not the right thing to do. Once you do that, it’s not so hard to do it the second time or the third time. And if you don’t have the right values, then the people who report to you won’t.
Andrew Carter (Hyperion): In the mid-’60s, the titans of Wall Street all had something in common-they thought about what their firms would be like three generations later. In the past 35 years that has turned upside down. Most of the good young men on Wall Street whom I know want to make $30 million and retire at 30.
We’re also dealing with a two-generational problem here. Twenty years ago we were the biggest creditor in the world, and now we are the biggest debtor. Fifteen years ago, individuals saved 8 percent of their income. Now they save zero. All of this speaks to the same issue. Are we living in a values-based society or are we living beyond our means and cheating the future?
Timothy Tuff (John H. Harland Co.): The real test is not putting those questions to the CEO; it’s asking them way down in the organization and seeing what response you get. We do fulfillment for life insurance companies. We send checkbooks that give the spouse access to funds coming from the insurance company. On September 12 our plant was knocked out, so we shifted it to Florida. There was no Federal Express. The shift supervisor called the local taxi company and asked them to take these checkbooks to New Jersey. He ran up a $1,000 cab bill. And he didn’t have to call anybody. He knew what the right thing to do was. Those are the sort of things that are the real test.
William Haslam (Pilot): That might be the real test, but it begins with the top of the organization. Somebody modeled it out so that he felt free to do that.
William Hickey (Sealed Air): We’ve tried to be a values-based organization for more than 20 years. It was a lot easier when you had only 400 people and you knew everyone in the company and you had common values. As we’ve grown to over 17,000 people, the challenge has become a lot tougher. But our goal has been that wherever in the company you are, wherever in the world you are, every manager makes the same decision without having to call the home office.
Langstaff: We as corporate leaders have a responsibility that takes us beyond our own companies. We have the Veridian leadership model, which encompasses the values that are important, the character issues we’re looking for in employees and how we define leadership within Veridian. The key, of course, is hardwiring that or linking it to performance measurement, compensation, promotions and award ceremonies-and constantly reinforcing it. We are out there saying, “Not only do we say it’s important, but look at all the little things we’re doing to prove to you that it’s important.”
Dennis Bookshester (Cutanix): For the past 25 years I’ve been the CEO of various companies that needed to be fixed. I found in all the cases that the employees had lost confidence and trust in the previous leadership and that’s why they were struggling. It’s very important to talk to your people as much as possible-not just through videos and intranets, but person to person.
Selkowitz: One of the things that I find effective is going outside the chain of command. I’ve taken the time occasionally to reach down deep into the organization, identify somebody who had done something noble and recognize that. The CEO has to build up a mythology around the values of the company. We’re a company of 39,000 in 170 countries. You can send memos around, but it’s these little acts of courage and kindness that are recognized and spread throughout the network that really inculcate the values of the company.
Rittenmeyer: I get emails from employees constantly about issues they have or concerns or something they’ve read that I said. The most powerful thing I’ve done is pick up the phone and dial somebody in an outlying area and say, “I read this email you sent me.” And they’re stuttering on the other end because they can’t believe you’ve called them. People have to believe you’re serious about it, and they have to see you as a real person.
Training employees on values
Ponder: When I joined Federal Express we had 200 employees and when I left we had 90,000 and were at $9 billion. Throughout, no one had a reserved parking place; there were no chauffeurs and no executive dining rooms. If I arrived at work late, I had to walk a half mile from parking. Tens of thousands of people watched their management all behave in the same fashion of fairness, consistency and integrity.
Tuff: If you want a values-based organization, you’ve got to have it all the way through the company. That doesn’t happen just from the CEO preaching values; you actually have to train people in how to manage according to those values. You have to measure people on how they perform against the values. On every job appraisal, every person in a managerial position at our company has to give an actual demonstration of how they managed according to the values. And you have to screen new people based on whether they have the right profile to do that.
James Cederna (Calgon Carbon): I agree. We can’t just expect a behavior change without giving our employees help. You can do that by training people about how to communicate with each other. We call it “direct contact support.” A lot of people have trouble just in face-to-face communication.
Patrick Murray (Dresser): Employees are looking for direction, but most important, they want a straight answer. They will measure the fact that you’re back in 90 days and it’s the same story. It’s okay if you’re going to manage earnings on a quarter-to-quarter basis, a year-to-year basis or a five-year basis as long as you tell people that’s what you’re doing. People will accept it, deal with it and work to it. But you only get one chance, and if you fall off that, you’re finished.
Steven Halverson (The Haskell Co.): There’s a great hunger for leadership on values issues among employees. The importance of that is hard to overestimate. They become advocates and you solve the riddles of attrition, of growth and of multiculturalism because they’re self-codifying those values and translating them in the context of their own work and their own sense of self.
Cherkasky: Just to be the skeptic-because I was a prosecutor for 15 years-I’ve got to say that people here are saying a lot of terrific things. If everyone acted this way, there wouldn’t be problems. But it doesn’t work that way. At Kroll, we go into many companies that have wonderful codes of conduct. But there is an incredible focus on short-term performance and that’s why people get into problems. We’re having this conversation, in part, because of the disastrous things that happened to Enron and Andersen and some other companies. And it’s nice to talk about, but how does it get back to the reality?
Ponder: You paint a very vivid and living picture of where we are, but these issues are not new. That pressure to perform is like your skin. It’s there and yet you have to live your company’s values and make those two balance. It’s not easy.
Halverson: I hope and, more important, I believe that 10 years from now, corporate leaders will be able to look back at us as being leaders in transformative change and instilling values in the country. That’s not just an aspiration; it’s a prediction that the leadership of corporate America is going to matter in important ways to reestablish the importance and primacy of values.
Selkowitz: I wish I could be as optimistic. But I think in the CEO celebrity culture we’re in today, CEO egos have become as astronomical as their options. When you have that ego and all the trappings, the thought of losing it is treacherous. And that leads people to do things that they never would have dreamed they’d have done when they were humble executive vice presidents. So I don’t share the optimism, but I guess I can share hopefulness that maybe September 11, all that’s happened since then and the wretched excess will bring some leveling of corporate ego.
Tuff: I’ve been doing investor meetings for four years now, and my first slide has not changed. It shows our values. Potential investors used to flip past that, but in the past three months they’ve been saying, “Tell me more about this. And how do you actually implement that in the organization?”
Dunne: Down deep we know the difference between right or wrong, [but] we get too close to our material possessions. We don’t get enough gratification within our organizations for doing the right thing rather than the profitable thing. The two worlds have got to collide. They should collide and I see no reason why they don’t. You want to be as hard as nails, but you want to do the right thing. And I don’t think that’s very difficult.
Langstaff: CEOs need to get out there, be the first in line. It’s going to be bigger than them, but what a CEO can do is make sure that it stays on the agenda. I’m struck by the fact that if this were a year ago and we had Ken Lay and senior Andersen people here, we would have listened intently to what they said, because I fully expect that they would have been as much a part of the choir as anyone.
That makes the point that individuals by themselves are not enough. You’ve got to have a follow-through mechanism. That is part of the paradox-and that is where the short term collides with the long term.