Judge Not. . . Considering the Chief Executive’s Dilemma

As the world observes the anniversary of the financial meltdown—represented most starkly by the fall of Lehman Brothers—a great deal of anger still flows to the individuals whose actions appear to have contributed to the debacle: Not only Lehman’s Richard Fuld, but John Thain, those at the top of AIG, and others.

Business leaders as a class are not doing well in the eyes of the public these days. Yet it is they who face the challenge of reviving the enterprises on which prosperity depends—a task they must perform against a tide of disapproval. The conditions under which they are having to work merit, I think, a moment’s consideration.

Even in less stressful times, business leaders who face critical investors, aggressive and ill-informed journalists, and antagonistic interest groups can be forgiven for observing—to themselves, at least—that none of these folks has known for even a day what it means to run a company. Executives generally keep silent about their conviction that it’s easier to judge financial performance, or adherence to codes of corporate conduct, from the outside than it is actually to do the job. As a subject for discussion, CEOs generally reserve this for spouses and executive vice presidents.

While writing Crisis of Character, I was acutely aware of the dangers of making facile judgments. In attempting to illustrate the kinds of excruciating choices executives can face, I invented a term that describes one particular situation—not that uncommon, I think—where all the choices are bad ones. The expression “Structural Corruption” refers to an environment where the fundamental business model of an industry is, for a time, either illegal or has come to depend on deception. The practices that characterized a good part of the insurance industry a few years ago, where competing companies collaborated in bid-rigging and typically paid commissions that incentivized the misleading of customers, provides one example. A chief executive in that industry could choose only between participating in the corruption or exiting the business. It would have been impossible to compete without playing the game. Though this may present an extreme example, I do not believe it is unusual for leaders to find themselves in situations where competitiveness and the achievement of seemingly reasonable business goals can tempt them toward marginal activities they would studiously avoid under less trying circumstances.

Do you have to be a bad person to do bad things?

No, you don’t. And an examination of the paradox of good people and companies engaging in compromising activities can reveal much about the personal challenges chief executives face and the consequences of making the wrong choices. Let’s take weak transparency—the kind that sometimes bleeds into deceptive disclosure—as an example. A few years ago the people at Merck—one of the most admired companies on the planet—withdrew Vioxx from the market on accusations that they had failed to disclose adverse research results on the drug’s side effects. The public outrage was great and the stream of lawsuits long. Merck had always been a responsible company, and by all accounts it has been one since. But the unfortunate Vioxx interlude in which executives apparently sat around talking each other into bad ideas—apparently without the tempering effect of outside voices—brought enormous losses. Those losses included the careers of accomplished senior managers and billions of dollars in fines and business contraction. It was all about warped disclosure, perhaps the greatest source of trouble in otherwise strong companies.

If transparency is such a problem, should we assume that deception is baked into the Chief Executive DNA?

It’s no secret that rising to the top requires a talent for managing, editing, and shaping information about oneself. You don’t get to be CEO unless you have a gift for accentuating the positive and minimizing the negative in the ways others see you. So, there is little about the formula for personal success that argues for transparency. In addition, there is an overwhelming logic to continuing the practices that have proven successful in the past. Football teams preparing for the playoffs say: “We’ll go with what got us here.”

In “A Decade of the Darkside,” a just-published study by the UK consultancy PCL, Managing Director Geoff Trickey, whose talent for overstatement seems matched by his insightfulness, wrote: “We have been witnessing the downfall of great leaders and great organisations on an almost daily basis, often brought to their knees by taking the strategies that contributed to their success to extremes.”

If we examine transparency through the prism of inflexible behavior, certain vulnerabilities become clear. They lie in the gap between the need for careful news management with regard to oneself and the obligations for institutional transparency when it comes to the organization.

On top of it all, the simple disclosure of facts on behalf of the company is rarely sufficient. Investors and other stakeholders listen not only to information the chief executive offers, but they monitor the willingness with which he or she makes such disclosure. A touch of ambiguity can call into question not only the information the executive is being ambiguous about, but it can compromise trust in the company in general.

Stefan Stern, the Financial Times columnist, wrote this week about the PCL study and cited the anthropologist / psychoanalyst Michael Maccoby’s notion of the “productive narcissist” as perhaps the ideal leader. A productive narcissist is someone who puts his high self-regard to work for a greater benefit.

You want good people in management, and you want them to make decisions according to their best instincts. But you probably don’t want someone as nice as your next door neighbor running the company. All of this is why we should hold our breaths and count to three before making snap judgments about corporate leaders who face challenges few can grasp.