The Ethical CEO – Redux 2014

Do CEOs care how history will judge them? Do they care if they leave a positive legacy, one where employees, customers and the community at large remember them with respect and admiration?

The following is a reprint of the article I wrote for CEO - Chief Executive Officer back in 2010.  I'm reprinting it because based on some recent conversations I've had with CEOs, I think it is even more relevant.

Judging from the media reports of some high-profile CEOs, one would think that CEOs are only interested in the accumulation of personal wealth, regardless of how they go about making it and how others may perceive them. However, contrary to the unfortunate, and sometimes accurate, images of extravagant, narcissistic and selfish CEOs, most do care and try to ‘do right’, but it’s not easy.

I recently conducted an informal survey of my colleagues and fellow members of the Society of Consulting Psychology of the American Psychological Association. Like myself, they provide executive coaching services to CEOs throughout the world, and the results were clear.

Most CEOs (greater than 90% of our clients) want to be successful and respected. Rarely do we ever encounter a CEO who is as self-centred and unconcerned about their legacy as those found in the press. Most CEOs want to be successful, but not at any cost.

Take a stand

On the whole, CEOs diligently try to make business decisions and take actions that are guided by their values or moral code. Rather than just being solely interested in ROI, they add ROR to the evaluation, or return-on-respect.

For example, one of my executing coaching clients is an entrepreneurial co-founder of a privately held US-based company that turned down a $350m dollar acquisition offer. One of the main reasons that they turned it down was because of how the acquirers were planning on laying off 15 foreign-based staff that had helped take the company from zero to $350m in seven years, and refused to give a reasonable six-month severance package.

This issue caused my client to reflect and rethink the sale. Ultimately, he came to the conclusion that he would rather build a company that could become the best of class and that would continue to provide jobs long into the future. He decided to forgo the short-term payoff for a long-term adventure. Not many of us would turn down $350m. 

The challenge for most CEOs is two-fold. Firstly, there is very little overt discussion of, much less support for, doing right. Investors generally do not judge the success of their portfolios by how well respected their companies are. They primarily assess value by the financial ROI or stock valuation. ROR isn’t even considered. That means that the CEO, for the most part, is on his or her own when it comes to supporting a business environment that will leave a positive legacy. The phrase, ‘It’s lonely at the top’ takes on even greater meaning for any CEO who is concerned about corporate responsibility.

Secondly, most executives are preoccupied in the beginning stages of their ventures just trying to ensure that their business survives. Therefore, concern about one’s legacy generally surfaces if the CEO has a strongly held set of guiding moral principles to begin with, if they have built a successful company and the legacy question has room to bubble up into their consciousness, or if they are engaged in discussions with a trusted advisor who brings the topic up.

It’s not uncommon during consulting sessions with my CEO clients for them to ask me for guidance on how to handle a business decision that has potentially ethical or moral consequences. For example, one of the most common issues that I’ve helped CEOs work through, especially during these tough economic times, is whether or not to lay people off.

More than one CEO has told me that he has lost sleep grappling with that dilemma. It can be challenging sorting out an ethical way to handle this common dilemma and most executives simply follow the general practices of other companies without asking if there is a more socially responsible way to do it. When one is willing to reflect and consider alternatives rather than simply doing what is the common practice, however, creative solutions can emerge.

For example, one alternative to laying people off that a number of executives have taken has been to institute a reduction in work hours across a company so that everyone takes a hit but no one is laid off. This creates a positive effect; as the economy improves, you are able to meet higher production needs simply by increasing work hours for employees without having to recruit and train new ones.

Steps forward

Below are a few steps you can follow if you want to take the road less travelled and be successful and respected.

To begin with, you must develop and embrace your own set of guiding principles or values. Regardless of the source of inspiration or guidance, be it based on religion, non-sectarian moral teachings or philosophy, one has to develop and follow a set of values that guide business decisions and actions. Otherwise, you will be susceptible to being influenced by the desires and needs of others, such as investors.

For example, one of the most well-known set of non-sectarian-based guidelines is Rotary International’s FOUR-WAY TEST. The test, which has been translated into more than 100 languages, asks the following questions about things thought, said or done:

  • Is it the truth?
  • Is it fair to all concerned?
  • Will it build goodwill and better friendships?
  • Will it be beneficial to all concerned?

The next step is to develop a few close relationships with like-minded people with whom you can commiserate and offer mutual encouragement, advice and support. It is hard to do the right thing without some mutually respectful intellectual and emotional support. The support can come from fellow CEOs, trusted advisors, respected friends or members of the clergy.

I recently heard Board of Trilogy International Partners chairman John Stanton and CEO Bradley Horwitz speak at a business luncheon about how they were developing wireless businesses in countries such as Haiti and Bolivia. They said they were trying to be "responsible corporate and community citizens" and were clear that by helping people become financially independent and successful, they were contributing to the general well being of the host countries.

In recognition of its efforts, Trilogy International Partners was presented the Award for Corporate Excellence by US Secretary of State Hillary Clinton in December 2009. Trilogy was chosen for its extensive corporate responsibility programmes offered by its wireless telecommunications subsidiary in Haiti, Voilà, as well as its transparency in its business practices.

After the recent disaster in Haiti, the Trilogy management team, based in Bellevue, Washington, US, rushed aid to assist their 575 Haitian employees and families and restore communications. Doing the right thing consistently over time requires great commitment.

The last step is for CEOs is to institutionalise the guiding principles within the business. The ideal of corporate responsibility cannot reside only in the mind and heart of the CEO; it must become part of the fibre of the organisation. It starts at the maligned level of corporate values statements. Too often, company ‘values’ are nothing more than words on a plaque or website.

For value's to become embedded into the corporate psyche requires the company’s most senior executives to hold each other accountable for upholding the company’s standards.

The performance management and compensation system must also be held accountable, with employees rewarded for expressing the company’s values or disciplined, including firing, for not upholding them. Imagine what might have happened at Enron if Kenneth Lay had developed and enforced a set of values that promoted and honoured corporate responsibility, not just profits at any price.

The road less travelled of responsible corporate and community citizenship is a challenging one. Being successful and creating a legacy you can be proud of are not mutually exclusive. It takes thoughtfulness and courage to follow the ‘right’ road, but the ROR is immeasurable.