Great leaders know their values

Key takeaways:

• Don’t ignore ethical problems—that’s how scandals blow up.
• Find a trusted colleague to talk you through your dilemmas.
• Focus on the facts of perceived wrong-doing and seek practical solutions.
• If nothing is done, be prepared to resign and avoid being tainted.

Nothing happens suddenly. Corporate crises appear to erupt dramatically and without warning. Leaders seem to be caught off guard. But as crisis management and PR experts will tell you, the origins of the disaster were often plain to see for those who knew where to look. More likely, managers at all levels will have just hoped it wouldn’t blow up while they were around.

Although different in their own ways, the recent scandals engulfing Volkswagen, Facebook, Wells Fargo, Barclays, Carillion and others all involved senior people who knew that something was wrong but failed to act in time. The resulting fines, share price falls and unpleasant headlines could all have been avoided.

‘Ethical dilemmas aren’t always easy to navigate. Often, managers need to make the best, pragmatic trade-offs between conflicting pressures.’

Ethical dilemmas aren’t always easy to navigate. Often, managers need to make the best, pragmatic trade-offs between conflicting pressures. In ‘Managing in the gray,’ Joseph Badaracco, professor of business ethics at Harvard Business School, suggests that managers begin by asking themselves all of the following five questions, and not just those with the easy answers.

What are the net, net consequences? Don’t just anticipate the initial reaction to a possible decision. Dig deeper and consider the medium-term consequences.

What are my core obligations? Would I be failing in my duty if I do nothing? Or is it simply my task to alert someone else?

What will work in the world as it is? It is easy for outsiders to criticise a manager who appears to have ducked a tough decision. But maybe it just wasn’t possible to take it. The manager might simply have been ignored or worse, fired. Ultimate responsibility lies with the company’s leaders. They set the moral tone, and if it’s lax, managers will struggle to shift the culture without resorting to whistleblowing.

Who are we? What does this business stand for, and are our actions consistent with our desired identity? Phony, PR-driven measures will not convince staff, customers or critics that the business is serious about dealing with a problem. US coffee retailer Starbucks’ day of awareness training on racial identity, for example, may have been a good start, but any new approach must be developed and reinforced over time.

What can I live with? Will your conscience be clear following your decision to act or not act?

Values first

Regulation and management control may limit the damage wreaked by bad ethical choices. But staying faithful to the company’s underlying values is a safer way of avoiding trouble. For example, the Wells Fargo scandal, in which bank and credit card accounts were invented to help staff meet performance targets, revealed a failure of values not processes. ‘Values-based leadership’ might have rejected the damaging use of so many blunt financial incentives, says Jennifer Jordan, professor of leadership and organisational behaviour at IMD.

‘The best leaders are those who not only emphasise meeting goals but also emphasise how those goals are met,’ she says. ‘If those goals are achieved at the expense of the company’s values, then the achievement is more than shallow – it’s a major blemish to the company’s public image and trust.’

Ethics matter, not just because negative PR can dent the share price. Poor choices damage a firm’s reputation and depresses employee morale. They deter new recruits and hasten the departure of current talent. There are long term ramifications to bear in mind.

As Jeffrey Pfeffer, professor of organisational behaviour at Stanford’s graduate school of business, notes: ‘More people need to have a sense of stewardship over the lives of their employees who’ve placed their well-being in leaders’ hands, and take that responsibility seriously.’

Action points for managers:

• Find a trusted colleague. The company’s hierarchy may not help you as you wrestle with your conscience; so find someone in the organization you can confide in.
• Reports facts, don’t just whinge. If you think that something is wrong, and it is safe to point out, do so – but objectively, with facts, not just gloomy or negative foreboding.
• Be constructive and practical. When you share your concerns suggest manageable steps that will solve the problem.
• Don’t ignore it. Bad news eventually gets out, so it is always better to deal with it as soon as possible. This has been true for almost any corporate scandal.
• Be prepared to leave. If you cannot report or act on your concerns, and there is no safe channel for whistleblowers, think seriously about resigning. If it all eventually blows up, you won’t be tainted, and (legal contracts permitting) you will be free to speak your mind.