It’s (Not That) Hard to Say You’re Sorry

I’m sorry.” Not easy words for anyone to say. Yet chief executives are saying them more often than ever before-even when they’re not required to do so. CEOs are the public faces of the companies they run, and an apology is often the best way to heal wounds and recover from even the most serious personal or corporate misstep.

Henry Paulson, Jr., chairman and CEO of Goldman Sachs Group, recently demonstrated how an apology from the top can help repair the reputations of both a chief executive and his or her company. During a question-and-answer session at a Salomon Smith Barney conference in January, Paulson seemed to imply that between 80 and 85 percent of Goldman Sachs’s employees were irrelevant to the company’s success. “I don’t want to sound heartless,” the CEO said, “but in almost every one of our businesses, there are 15 to 20 percent of the people who really add 80 percent of the value. I think we can cut a fair amount and not get into muscle and still be very well-positioned for the upturn.”

Paulson’s comments drew an immediate and overwhelmingly negative reaction. Rather than wallow in explanations as to what he really intended, or suggest that the comment was taken out of context, Paulson faced the music. In a voice mail to all of Goldman’s 20,000 employees, he acknowledged that his remarks were “insensitive” and “glib.” In other words, he apologized.

Paulson’s apology was not a sign of weakness, but an act of strength. It serves as an example to a new generation of humbler CEOs who view themselves as subject to the same ethical standards as everyone else.

Within Paulson’s apology are several lessons for CEOs:

Take responsibility. Paulson clearly acknowledged the distastefulness of his remarks and took full responsibility for having made them. He also articulated exactly what made them offensive. “I cited the €˜eighty-twenty rule,'” he said, “which is totally at odds with the way I think about the people here.”

Act quickly. Paulson issued his voice mail apology to employees within days of making his ill-conceived remarks. He said he intended to apologize in person at a series of upcoming town hall meetings with employees, but realized that “I should get to every one of you immediately.”

Build corporate culture. In another admirable move, Paulson said he realized that he was dispensable, and he reaffirmed one of Goldman’s legendary business principles: the value of teamwork over individual glory. In doing so, he acknowledged that a contract of respect existed between the company and its employees.

Communicate sincerity. Paulson selected the right means to express his apology. Voice mail allowed his sincerity to resonate with employees. An email could have easily been misinterpreted and, without the sound of his voice, undoubtedly would have carried less emotional weight.

Although several CEOs caught up in the wave of recent scandals have made news for their acts of contrition, few have actually apologized. Some fear lawsuits. But others rule out apologies simply because of a human reluctance to admit error. That has a negative effect on a company’s culture. By apologizing, the CEO encourages a culture of openness, which in turn fosters tolerance of dissenting views and encourages employees to be honest as well. Arthur Andersen, Enron and WorldCom may well have avoided their descents into corporate hell if their employees had felt free to speak up and act as messengers of ill tidings. Building a culture where messengers are not shot increases the chances of a CEO coming to grips with the fact that a wrong has occurred.

Paulson’s apology modeled a refreshingly high standard of corporate and personal character, which will enhance Goldman’s external reputation as well. As Roberto Goizueta, the late chairman and CEO of Coca-Cola, once said, “The only way you can measure character is by reputation.” Its corollary is equally true: The only way you can measure reputation is by character. In apologizing as he did, Paulson turned what could have been a disaster into an advantage.

Leslie Gaines-Ross, author of CEO Capital: A Guide to Building CEO Reputation and Company Success, is chief knowledge and research officer at Burson-Marsteller in New York. Burson-Marsteller has no business relationship with Goldman Sachs.