When making decisions, transparency and potential consequences are powerful influencers. For directors and CEOs — as well as for their personal brands — this is a key question: What will decision makers in their organization do in critical situations when no one is watching? Protiviti’s Jim DeLoach shares advice on how company leaders can instill and reinforce ethical practices.
When the subject of ethical and responsible business behavior arises, Warren Buffett advises that managers evaluate every action they take — not just by legal standards but also by what he calls the “newspaper test.” When they have any doubt about whether a particular decision or action is right or wrong, they should imagine how they would feel if it were reported the following day in their newspaper, with the assumption that the write-up is authored by a smart but unfriendly reporter and is read by their family, friends and neighbors.
Buffett’s bottom line: If your decision or action passes this test, it’s OK; if it doesn’t, it’s not. This test isn’t just about transparency. It’s also about consequences, as illustrated by another well-known Buffett quote:
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
The test itself is not a morality play. It’s about the reality of losing one’s legacy and the specter of permanent damage to one’s personal brand. That reality alone makes the test one of preserving and sustaining reputation and the right to play.
One CEO describes the test to his direct reports this way: Be aggressive, but if you end up on the front page of The Wall Street Journal, think about how you would explain the situation to your kids, grandkids and mother. To a certain extent, this is about enlightened self-interest, in which there is a recognition that behavior aligned with the interests of the group to which one belongs ultimately serves one’s own self-interest.
We frequently see examples where individuals fail the Buffett test by, for example, using sales practices that deviate from a company’s core values, cutting corners on safety to reduce costs and accelerate speed-to-market to generate more near-term revenue, installing hidden software to defeat environmental emissions tests, leveraging one’s professional stature to sexually harass a subordinate, circumventing established internal controls to engage in fraud, and using offensive and racist language in emails.
These are but a few examples drawn from well-publicized incidents and, whether those involved are C-level executives, rainmakers, industry luminaries or rank-and-file employees, the chickens eventually come home to roost. Exposure is inevitable, although the means of how and when it will happen are unknown in the present. But one thing is certain: When the story breaks, societal response will be swift.
Given discovery is only a matter of time, why do smart people fail the test? Psychologists point out that motivations vary. They span across a continuum that includes narcissism, sociopathic tendencies, lack of empathy for others and falling prey to the slippery slope of starting with small acts and progressing to larger, more noticeable ones. These motivations present a challenge, particularly for those who fall into the “rules don’t apply to me” category through a nuanced and arrogant false sense of entitlement. Of course, greed can also be a driver.
For those who aspire to act ethically and responsibly, decision-making processes are the ultimate reflection of how corporate values manifest themselves into action. When reviewing the reputation-damaging outcomes of flawed decisions, one wonders whether a different decision might have been reached had a simple rule been applied: Conduct the decision-making process as if company stakeholders are observing.
There are a few corollaries to this rule:
- Make sure decisions reflect corporate values and are defensible once the organization’s stakeholders know what’s been decided.
- Don’t assume the decision and its attendant consequences will never be displayed for all to see.
- When you write a letter, send an email or post on social media, assume the entire world will read it.
- In a public setting, assume your comments and actions are being recorded.
In essence, make decisions as if you are being watched. Most important, be especially careful with a decision likely to drive consequences that will lead the C-suite and board to “stop the show.” If a decision is going to cause leaders to circle the wagons, engage in damage control, pay exorbitant penalties and fines and end careers once the sunlight shines on it — meaning the public, customers, suppliers, regulators, investors and legislators learn about it — then someone has to ask, “Why do it?”
To paraphrase legendary men’s college basketball coach John Wooden, the true test of someone’s character is what they do when no one is watching. This remains true, but in today’s wired and digital world, how does one know they aren’t being watched?
For boards and their CEOs, this conversation is about preserving their personal brands as well as recognizing that their respective legacies are inextricably tied to the corporate brand itself. Thus, for the company’s leaders, instilling the Buffett test into the thinking of decision makers is a reputation play.
Here are three actionable steps for executives and boards to consider:
Focus on aligning the organization around core values and supporting the brand promise. Given the mobility in the workplace, winning hearts and minds is an imperative that never ceases. To that end, the CEO’s message around core values and what the company stands for has never been more important.
The board should not only understand the message but also encourage the CEO and executive team to implement processes to ensure the message is impactful. For example, confidential employee surveys conducted by an independent third party can provide feedback on the mood in the middle and the buzz at the bottom of the organization. These surveys can be quite effective if the CEO really wants to know the unvarnished truth on organizational alignment, is committed to implementing necessary improvements and supports making transparent the survey results and resulting improvement efforts with further input from employees.
Set appropriate boundaries to reduce risk. Ultimately, the CEO and board own responsibility to protect the enterprise’s reputation. Their task: Encourage key decision makers across the company to engage in ethical and responsible business behavior consistent with the organization’s core values.
That task revolves around articulating the “sandbox” within which decision makers are to function, based on core values, applicable laws and regulations, and internal policies. This task often entails articulating explicit boundaries:
- The risks the organization is willing to accept (e.g., those inherent in the strategy).
- The risks the organization intends to avoid at all costs (e.g., operations in countries with high corruption risk, extreme bet-the-farm market bets or acts that expose the public to health and safety risks).
- Strategic, operational and financial parameters expressed as targets, ranges, floors or ceilings, which provide a context for establishing risk tolerances and limit structures.
Yes, it is important to be aggressive in pursuing entrepreneurial opportunities, but it is also important to clarify the guardrails governing those pursuits. Performance incentives are an important component of creating this clarity. Extreme, unrealistic financial incentives should be avoided, as they may incent behavior that leaders will later regret.
Foster diversity and a participative culture. Building a trust-based, resilient culture founded on mutual respect starts with valuing the differences in perspectives, experiences, genders, sexual orientations and ethnic backgrounds. When diversity and inclusion are embraced as core values and open dialogue is encouraged and expected, it is easier to avoid groupthink and unconscious bias that contribute to missing long-term growth opportunities and new threats to the business model.
Building trust begins with a passionate focus on improving the customer experience and interactions with other key stakeholders. It is supported by data-driven systems that inform and support decision-making with a “single version of the truth.” A participative, “speak up” culture also requires effective escalation processes.
In summary, this discussion is about focusing employees on what the company stands for and having the necessary plumbing in place to reinforce expected behaviors. Periodic training can be useful, but it only breeds awareness of the importance of ethical and responsible business behavior. Organizations need more. The suggestions above — a steady emphasis on doing the right things, establishing appropriate guardrails and fostering diversity of thought in decision-making processes — can help instill buy-in and ownership as well as strengthen the commitment of decision makers to the company’s core values and its brand promise.
Questions for executive teams and board members
Following are some suggested questions that senior executives and boards should consider, based on the risks inherent in the company’s operations:
- Do leaders within our organization ensure everyone with a relevant point of view has a voice in the process? How well do our key decision makers handle contrarian views? Do our employees believe they have an opportunity to speak up when they have concerns? How do we know?
- Do we screen board, CEO and other senior executive candidates with a values-based interviewing process to ascertain alignment of personal and corporate values?
- Do we have a sufficient mix of gender, ethnicities, career experiences, and ways of thinking in the boardroom and C-suite and across our organization that contribute to more diverse participation in our decision-making processes?
- Are we satisfied that our company’s culture sufficiently emphasizes treating people with respect and supporting individuals who challenge something that is wrong or not safe? Do we deploy effective approaches to solicit ideas for improving or reimagining company processes, functions and market offerings, and do we give the ideas submitted appropriate consideration? Are we seeking advice from outsiders who can bring fresh viewpoints to the table?