Whistle-Blowing…Getting at the Root Cause
By Michael G. Winston
Two decades ago, James Kouzes and Barry Posner reported on their research polling 15,000 managers about the most essential ingredient in the equation for successful leadership. The most important trait was “honesty”. This was cited by 87% of respondents. Also in the top ten were “straightforward” and “fair-minded.” Clearly, some CEO’s did not get the memo.
A year ago, former Medtronic CEO and current Harvard Professor, Bill George states…”The highly visible corporate leadership failures of recent years have deeply shaken public confidence in business leaders. All too often these leaders have placed self-interest ahead of the well-being of their organizations. After the companies got in trouble, their leaders then refused to take responsibility for the harm caused to the people they served. The problems at British Petroleum, Hewlett-Packard, and failed Wall Street firms, along with the actions of dozens of leaders who failed in the post-Enron era, are glaring examples of these lapses in leadership.”
Consequently, there has been a widespread and dramatic loss of trust in business and political leaders in the past decade. Reactions to these issues range from anger and despair to more generalized suspicion of institutions and their leaders. This is almost all-pervasive. The Harvard Center for Public Leadership 2009 National Leadership Index revealed that 69 percent of those surveyed believe there is a leadership crisis in the U.S., with politicians, media, finance, and business leaders getting the lowest ratings. The same is true in Europe. This is even more the case in 2011. How discouraging.
What can we do to repair the visibly eroding standards of leadership? We must turn up the heat on our leaders. We must further turn the heat up on elected officials to uphold the law. Also, let’s hold ourselves to the highest exemplary standards. Not out of fear of legal consequences. And despite the most prominent examples to the contrary. First, we can strive to be role models of leadership that exude the following leadership qualities…
- The vision to spell out clearly what we will do for those who depend upon us.
- The drive to share that vision broadly with those who have the biggest stake in our success.
- The courage to challenge the status quo, stimulate the change, and to make decisions that move us forward in even the most difficult times.
- The ability to inspire people to action, individually and in teams, to achieve our goals.
- The foresight to empower people to learn new skills and stretch their capabilities to higher levels of achievement.
- The wisdom to listen, learn, and translate that knowledge into value-added performance.
- The willingness to recognize accomplishments and celebrate individual and team successes.
- The integrity to serve as a good example through actions that consistently reinforce our basic values.
Implementing a new strategy requires a leader who can drive an organization, energize its operations, and inspire its people. This kind of leader must personify the organization’s purpose, through values, thinking, and character – all necessary to inspire and energize commitment to the strategy and goals of the leader and to secure the allegiances required to make any bold purpose succeed. Clearly, an essential element of leadership is trust.
High performance leaders and organizations believe that words and deeds should match and have the guts and intestinal fortitude to keep their promises through thick and thin, in good times and bad. It is in translating the commitment to consistent, purposeful action, often under fire (business downturn, budget crisis, etc.) that the true test of leadership is passed or failed. Without the requisite character and integrity, the organization is “built to fail” not “built to last.” According to the infamous Edward R. Murrow:
To be persuasive, we must be believable;
To be believable, we must be credible;
To be credible, we must be truthful.
Second, we can uphold the law and prosecute all those who break the law, including “white collar criminals”, no matter no highly placed or cozy with government officials. As highlighted in the 2011 Oscar award winning Documentary “Inside Job, hundreds of billions of dollars have been lost by investors while millions of borrowers have lost their homes. Yet, none of the people who ran the institutions that contributed to the disaster have been found liable.
If these people are not to be indicted for criminal fraud, then all of the Wall Street leadership that recklessly crashed the economy must be breathing easier and celebrating their ill-gotten record gains.
The world was brought to the brink by the American banking/mortgage system and thus far, no one has been held accountable. Why not? On my way to getting my Ph.D. in psychology, one of the most important principles I learned was the notion that what gets rewarded gets repeated. That which gets punished gets extinguished. If malfeasance and downright corruption are not punished, they will return and again shake our very foundations.
We will never be able to get this behind us if we do not get full and complete investigations with accountability and punishment for the guilty parties.
The banks and finance companies that tanked the world economy got off with carefully orchestrated settlements. The firms paid small fines without even being required to admit wrongdoing. To add insult to injury, the people who actually committed the crimes almost never pay the fines themselves; banks caught defrauding their shareholders often use shareholder money to foot the tab of justice.
This stands in striking contrast to the failure of many savings and loan institutions in the late 1980s. In the wake of that debacle, special government task forces referred 1,100 cases to prosecutors, resulting in more than 800 bank officials going to jail. Among the best-known: Charles H. Keating Jr. of Lincoln Savings and Loan in Arizona.
We must insist our elected and appointed officials do their jobs, satisfy their commitment to transparency, responsibility and accountability. We must “keep the heat on.” In this way, justice may eventually be done.
So many leaders have failed themselves, their families, their shareholders, and their neighbors on the most important of leadership behaviors…honesty, integrity and ethical decision-making. It is a national disgrace. We have lost our standing on the world stage. Let’s try to rid the world of companies that abuse shareholders, customers, employees and society.
Here are additional things that can prevent or slow-down the reasons people blow the whistle…The hope for every company is simple….pulling together to create the right solutions in an ethical manner for all stakeholders: customers, clients, shareholders, employees, communities and society. To achieve these worthy objectives, the performance of key executives should be judged, in part, by the ethical tone they set for the organization.
- Require reimbursement of incentive compensation paid to an execute whose fraud or intentional misconduct caused the company to restate its financial statements. This should be retroactive to the point of the misconduct. The Board should take further action to remedy the misconduct and prevent its recurrence and this action should be communicated to all investors and governance bodies.
- Adopt an improved approach to risk management. Each year, have the management team recommend, and the board of directors approve, a total risk appetite for the company that management will then allocate across the lines of business. Share this with all stakeholders.
- Evaluate Board and the various Corporate Governance Committee effectiveness with facilitation by an objective outside party. Shareholder input should be factored in.
- Evaluate compensation practices to ensure direct linkage between executive pay and company performance. For good performance years, the total compensation awards for executives is at target levels. For poor performance years, compensation should be significantly below target levels. For years of questionable business practices, the Board should award no year-end cash or equity compensation awards to executives.
- Regardless of growth, profit, margins, ROI, etc., if performance does not meet expectations against a broader and higher standard of metrics, inclusive of ethical decision-making, absence of “Whistle-blower complaints,” certification of clarity, transparency, accountability and long-term strength, the Board should award no year-end cash incentive, restricted stock or stock option awards for that year’s performance.
- Make long-term stock ownership mandatory for executives, with no vesting on restricted stock and stock option awards until the third anniversary of the grant and an additional hold requirement on net proceeds from stock option exercises.
- Corporate Governance Guidelines should include designated stock ownership requirements for executives. This should be reported in ALL 401K reports.
- Key executive stock plans, under which equity awards are granted to executives and other key contributors, should prohibit discounted stock options, reload stock options or stock option re-pricing.
- Put an end to employment, severance or change in control agreements with executive officers.
The above will exert proper pressure on the people at the top to ensure that the right actions are taken. If they are not, and someone blows the whistle see below…
Whistle- Blowing Activity
Tom Devine and Tarek F. Maassarani, co-authors of “The Corporate Whistleblower’s Survival Guide,” cite several ideas with which I wholeheartedly agree. These are:
Interim relief should be awarded during the interim for employees who prevail. Anti-retaliation systems commonly drag out for years in practice. Ultimate victory may merely be an academic vindication for unemployed, blacklisted whistleblowers who go bankrupt while waiting to win. Injunctive or interim relief should occur after a preliminary determination. They can keep this going endlessly. The system facilitates the victim to get victimized yet again, while the guilty go unscathed. I am in this loop. Not fun and not fair.
Efforts must be made to re-employ the person of conscience. Successful, high-performers with stellar careers of decades find themselves out of work for doing the right thing. This must be corrected. The system rewards corrupt behavior that we do not want; and punishes the behavior and integrity we do want.
There should be personal accountability and liability for repetitive reprisals. Otherwise, managers have nothing to lose by doing the dirty work of harassment. They may even be rewarded for it. The most effective option to prevent retaliation is personal liability for punitive damages by those found responsible for violations. In certain situations such as obstruction of justice, some nations impose potential criminal liability for whistleblower retaliation.
It is time for the “good guys” to win.