That the corporation has an enormous influence on our lives is unquestioned. So too, then, is the influence of business leaders. Which is why, as this author states, it is imperative that leaders today adopt enduring values, and honest, open communication. In the end, a leader today must articulate and live by a vision that enables the corporation to achieve its corporate and social aspirations.
In a study designed to examine the differences between today’s leaders and those of past generations, Warren Bennis of the University of Southern California’s Leadership Institute and Robert J. Thomas of the Accenture Institute for Strategic Change interviewed more than 40 top executives from a wide variety of organizations, industries and professions.
They expected to uncover some interesting distinctions. But instead, they were astounded by the similarities among leaders of all ages, backgrounds and experiences. Each leader they interviewed shared a love of learning and strong sense of values. Each one was “full of energy, curiosity and confidence that the world is a place of wonders” waiting to be discovered. And each one was “able to point to intense, often traumatic, always unplanned experiences that transformed them and became the source of their distinctive leadership abilities.” Bennis and Thomas call these experiences “the crucibles of leadership.”
There’s no doubt that over the past few years, many company leaders have come face-to-face with these “crucibles of leadership.” I came from the telecom industry, which was ravaged by the bursting of the dot-com bubble and the subsequent telecom bust.
For my employees and me at Lucent Canada, it was oftentimes a painful experience.
But the telecom and high-tech industries aren’t the only ones that have been caught up in difficult circumstances of late. Downsizing, accounting scandals, lawsuits and other crises are affecting all kinds of businesses. As a result, some employees, investors and customers are questioning the motives of business leaders, speculating about their truthfulness and integrity, and drawing their own conclusions. Often, these conclusions are not flattering.
In this article, I will elaborate on this and some of the other major problems that business leaders and their companies face today. Then, I will explain some of the key ways that leaders can restore trust in their organizations and themselves.
Essentially, I believe that leaders today, more than ever before, must adopt robust and enduring values. They must cultivate a climate of trust that espouses those values through honest and open communications. And they must nurture a vision for their organizations that speaks to both its corporate and social aspirations.
A crisis of trust
To begin, let’s take a brief look at the current malaise in the business world. Despite the fact that you can count the number of truly corrupt CEOs on the fingers of one hand, there’s a lingering sense of mistrust in business in general-and in business leaders in particular.
Investors remain worried and cautious. Customers aren’t taking any chances, either. A vicious cycle is still at play whereby reduced spending leads to reduced earnings. Reduced earnings send stock prices down, which in turn raises the cost of capital. Higher capital costs discourage new spending, which contributes to low investor and customer confidence and a stifling of new investment.
Equally significant, employees seem caught up in a vicious cycle of their own. The perks are gone, as are the bonuses, stock options and six-figure salaries of just a few years ago. Employees now have to manage the orphaned workloads of their downsized colleagues. They have to scour new avenues for business and fight for high-profile jobs. They are spending more and more time at the office, and less and less time at home or with family and friends. Many employees are stressed out and fed up. This sad fact is borne out by the exhaustive research examining work-life conflict led by Dr. Linda Duxbury of the Sprott School of Business at Carleton University and Dr. Chris Higgins of the Richard Ivey School of Business.
Duxbury and Higgins surveyed a sample of Canadian employees in 1991 and 2001. They found that “high job stress and absenteeism due to ill health have become more problematic over the past decade.” They also estimate that this unhealthy work climate costs Canadian companies about $3 to $5 billion every year.
This points to a dangerous trend. Many employees today are experiencing what leading business and management researcher Peter Frost calls “toxic shock.” He believes that events in companies such as downsizing, restructuring and cost cutting aren’t toxic in themselves. It’s how the pain is handled that determines whether the long-term effects are positive or negative. He also believes that the most important influence on workplace toxicity is a company’s leader (see Professor Frost’s article elsewhere in this issue of IBJ.). As he says, “Fish stinks from the head.” The higher up the toxic person is, the more widely spread the pain and the more people behave like the toxic boss. It poisons the working environment and ultimately the company.
I do see signs of improvement, however. There’s a renewed emphasis on corporate ethics and morality. Many companies are answering calls for more transparent accounting practices and more accountable boards of directors. That’s essential, but it’s not enough. Success in business has always been founded on trust, honesty and decency. It’s about relationships among people, not simply numbers on a balance sheet.
How can leaders nurture stronger relationships among their organization’s investors, customers and employees? I believe, and Ivey’s research proves me right, that a leader must do three things. First, leaders must not only talk about their ethical values, they must live those values-every day-and in every action they take. Second, leaders must create a climate of trust and compassion based on open communication-from what they say, to how they listen, to how they act on what they learn. And third, leaders must embrace a strong vision or purpose for their organizations, and that vision and purpose must take into consideration both the economic and the social impact of business. Let’s take a closer look at the tangible benefits of these approaches.
In the March/April 2003 Ivey Business Journal, Ivey professor Pratima Bansal and Ivey MBA student Sonia Kandola presented illuminating research about corporate social responsibility. They wanted to uncover why good people sometimes behaved badly in organizations.
Based on considerable research, they observed that good people might act irresponsibly at times “because of the context in which their actions occur.” They also found that “Irresponsible actions often beget further irresponsible actions, which can cause a contagion of irresponsibility.” To ensure that employees can and will act with integrity, they concluded that organizations need a strong and consistent set of values that dictate appropriate individual actions. “These values establish a framework for what is considered to be acceptable within an organization.” They further concluded that it is critical for a company to practise its values. A company cannot simply list its values in the annual report or post them in the staff lounge and expect employees to follow suit. Values must be lived by everyone in the company. Otherwise, they’re just good intentions. Leaders, above all, must walk the talk. (Also see article in this issue by Mark Lipton, Walking the Talk).
For example, Ivey professor Allen Morrison, together with PhD student Cyril Bouquet, recently studied 140 multinational corporations in six countries. They wanted to find out which communications vehicles are most effective in focusing the energy, effort and attention of employees. Although it is commonly thought that employees ignore speeches from on high, they discovered that what a CEO says “has a very big impact.” As Morrison concluded, a CEO’s messages, decisions and actions are “what people think about, where they focus their energies.”
A second finding of Ivey’s latest research on fostering corporate responsibility relates to the importance of open and honest communications. In addition to a set of strong and consistent values that espouse corporate responsibility, Bansal and Kandola discovered that companies must encourage employees to be open and honest, especially with senior management. This is just as necessary as strong values. In their words, “employees must be able to voice their ideas which support the organization’s values or warn of violations.”
To nurture that level of trust and candidness, I believe that leaders must embrace open and honest communications as their most precious asset. As Charles Handy recently wrote in the Harvard Business Review, leaders must recognize that a good business is a community with a purpose – a community with members who have certain rights-the most important of which is the right to express their views openly and freely.
Leaders must be good listeners and invite discussion, debate and feedback. And they must act on what they hear and learn. Research, for example, shows that assembling an effective board of directors is not simply a matter of putting in place independent directors, audit committees and ethical guidelines. These help to avoid problems, but they’re not the whole story. In fact, research demonstrates that the highest- performing companies have extremely contentious boards, where ideas, opinions and debate flow freely.
I know the same is true for employees. I have always practised an “open door” policy throughout my career. And I believe it’s a key reason for my success. When I joined Lucent, for instance, I quickly discovered that titles don’t intimidate anyone. Nor should they. At meetings we had a healthy, energetic and frank dialogue. Differences of opinion were not discouraged. My colleagues didn’t tell me what they thought I wanted to hear. They told me the open and honest truth. That included disagreeing with my views or anyone else’s in the company.
I encourage that same high level of honesty and openness at Ivey. I know that people don’t learn without feedback – open, honest and constructive feedback. Leaders are not different. And that type of feedback is only possible when leaders trust and value the opinions and ideas of their stakeholders, but especially their employees.
As Ivey’s Bansal and Kandola believe, “corporate social responsibility is meeting the needs of all the stakeholders of an organization. Employees provide a window into what these stakeholders desire.” If you’re not listening to your people, considering their ideas, assessing their views and welcoming their criticisms, you’re not doing a good job as a leader. Furthermore, I believe that a work environment characterized by honest and open communications helps to mitigate employee stress. Again, this depends on effective leadership.
A company can institute flexible working hours and employee-friendly benefits. It can establish a fluid and team-based structure. It can develop a powerful set of values. But all this doesn’t mean anything if a company’s leader is autocratic, inaccessible and secretive. A leader’s actions, day in and day out, set the tone for the calibre of relationships and the quality of communications in any organization.
Paul Wieand, the founder of the Center for Emotional Intelligence in Ottsville, Pennsylvania, outlined the research of Howard Gardner, a Harvard psychologist, in the July/August 2003 edition of the Ivey Business Journal. It underscores the fundamental influence that leaders have as “role models that employees identify with and can emulate.”
Gardner believes that authentic leaders create a “sense of trust” at the core of their relationships with employees, through” open, honest, candid and empathic communications.” This leads to “strong relationships that create stability amidst uncertainty and change.” As I have found throughout my career, when employees know and understand what’s going on in an organization, no matter how grim the outlook may be, they take comfort in that knowledge.
Vision and purpose
In addition to instilling values and practising honest and open communications, I believe that business leaders must have a vision and purpose for their organizations, and that this vision and purpose must be tied to the organization’s impact on society. PriceWaterhouseCoopers, in partnership with the World Economic Forum, interviewed nearly 1,000 CEOs from 43 countries in early 2003. Despite concerns about investor confidence and ongoing economic uncertainty, almost 80 per cent of these CEOs agreed that sustainability-or adding economic, environmental and social value-is vital to the profitability of any company.
More than two-thirds of these CEOs also said they would sacrifice short-term profitability in exchange for long-term shareholder value when implementing a sustainability program. In other words, leading CEOs around the world have visions for their companies that go well beyond making sure that projections are met for the next quarter. This makes good business sense.
Few investors would shy away from a company that consistently makes it a point to contribute to the greater social good. Ivey’s Pratima Bansal found this to be largely true. Although it is difficult to find a measurable financial return for corporate social responsibility, she discovered that the stakeholder commitment it fosters generally translates into less volatility in the stock’s performance. So, while a company may not necessarily see a rise in its stock price as a result of its community service, it will be able to stay in business over the longer term.
What’s more, it is clear that customers would prefer to do business with a company that has a social vision and a plan for realizing that vision. Studies consistently show that consumers, both in North America and Europe, believe that a company’s commitment to social responsibility is an important consideration when they buy products or services. Consumers are even willing to spend more for a product or service from companies that they perceive as socially responsible.
A strong sense of vision and purpose is especially important to employees. The Globe and Mail‘s report on the “50 Best Companies to Work For in Canada” cited the best employers as the ones who articulated a clear and consistent vision, starting with the CEO. This vision kept their employees focused on the company’s goals. Overall, I believe that a vision and commitment to social responsibility is a strategic imperative for companies and business in general. You can’t neatly place borders around companies and ignore what’s happening outside those borders. You can’t deny that your business has an impact on society or that society doesn’t affect your business. You can’t build a robust company without a solid community foundation. And you can’t have a strong, growing economy without a vibrant, diverse society.
What’s more, it is now abundantly clear that society expects companies to behave in a socially responsible way. As Lynn Sharpe Paine, Harvard Professor and author of Value Shift: Why Companies Must Merge Social and Financial Imperatives to Achieve Superior Performance, said in a recent interview published in this journal, the “corporation has become society’s dominant non-governmental institution.” And “this increase in corporate power has heightened society’s expectations for corporate responsibility.” (Ivey Business Journal, March/April 2003).
As Sharpe Paine points out, people- employees, customers, investors and citizens alike – “routinely decide whether companies are fair or unfair, responsible or irresponsible, honest or dishonest.”
As a result, the smart companies today are drivers of social change for the better. They are not simply donors, but partners who share not just their money, but also their people, their expertise and their leadership with their communities. They are passionate about creating new social value-value that enhances employee commitment, improves customer relations and adds to the bottom line.
One of the best things I found out when I joined Ivey was that this passion to contribute to the greater good is alive and well in the business leaders of tomorrow. At Ivey, we have an active and committed “Students for Responsible Business Club.” Our MBA students also rolled out a new program called “Ivey Connects” last year. This student-led initiative is aimed at building stronger ties between the community and Ivey. It offers pro bono management consulting services to local community groups, such as Meals on Wheels, the Salvation Army and the YMCA among others. “Ivey Connects” also organizes Community Action Days where students volunteer for a full day in helping out a local charity. Their passion and drive to help others is so strong, students in both the MBA and the HBA programs compete for the “Ivey Grail” and the “Ivey Cup,” awards for the student group with the greatest philanthropic spirit.
To sum up, companies need leaders with a strong set of values. They need leaders who communicate openly and widely, leaders who trust and value the opinions and ideas of their employees, investors and customers. And they need leaders with vision and a belief in the social purpose of business.
We live in an information society. Whether it is realized or not – whether it is acknowledged or not – companies are shaping this society. Every product and service, every decision and every employee has influence. And as our society continues to evolve, the possibilities to contribute in a powerful and positive way are virtually infinite -limited only by imagination, desire and our drive.
There is no doubt that these are difficult times for business, and that the difficult times will continue. But the best thing to come out of all this is a renewed and growing understanding of the importance of values, honesty and social vision in building successful companies, and the vital role that leaders play in fostering this success.
As Warren Bennis and Robert J. Thomas concluded from their exhaustive leadership study: “Everyone is tested by life, but only a few extract strength and wisdom from the most trying experiences. They’re the ones we call leaders.”