CEOs: Setting the Ethical Tone
The role of the CEO in setting a company's ethical culture was the focus of a panel at the April 6 meeting of the Business and Organizational Ethics Partnership, a program of the MarkkulaCenter for Applied Ethics and 13 corporations.
Tony Ridder, CEO of Knight Ridder, Russell Howard, CEO of Maxygen, and Keith Krach, former CEO of Ariba represented three very different approaches, reflecting three diverse organizations.
While all agreed that the ethical tone is set at the top, they had each developed their own approach to infusing high ethical standard throughout their organizations.
Ridder, who heads the second largest newspaper company in the United States, described his company's requirement that the top 20 managerial personnel at every paper sign a code of ethics every year. The code deals with conflicts of interest, self-dealing, gifts, and outside employment. It prohibits political contributions, service on for-profit boards, and the use of confidential information for personal benefit.
As a newspaper company, Knight Ridder also has an extensive code of ethics for all of its journalists. It also forbids political contributions as well as setting out a zero-tolerance policy for plagiarism and sexual harassment.
At Ariba, Krach explained, the challenge was to promulgate the company's values while the software producer was growing at a rate of 100 percent per quarter for the first two to three years, and then 25 to 50 percent thereafter.
Krach began with what he calls his "playbook," a step-by-step guide to the company's vision, mission, values, team rules, and objectives.
For example, Ariba's key values were respect, integrity, courage, and ambition. Team rules included
- Direct, honest, and open communication
- No idea is a dumb idea
- Always raise standards of performance
- Team first, functional specialists second
- Hire the best people, especially if they're better than us
To get these ideas out to their ever-growing workforce, Ariba developed a 'cascade process. The playbook was developed by the executive team, who taught it to the directors, who taught it to the managers, who taught it to the workers, with each level of management being encouraged to put the playbook into their own words.
Krach gave several examples of how the playbook worked out in practice. Early in the company's history, the original marketing vice president stood up at a regular Friday roundtable and told his colleagues that, based on the team rule, "Hire the best people," he thought he should step aside because he no longer had the breadth of experience to handle marketing for a company that was growing so quickly and becoming so large and complex. He encouraged the executive team to hire a world-class marketing person and let him concentrate on strategic alliances. The company acted on his recommendation. "You could have heard a pin drop in the room that day, but it set an example that became part of the tribal lore of Ariba," said Krach.
Krach's example dovetailed with the main point of Howard's presentations: "I have a profound belief that ethics flow from actions. Whatever plans or words or principles you set up, if you don't follow through, they don't mean anything."
Howard, who heads a 200-person biotech company, has lunch with every new Maxygen hire, where among other topics, he discusses the company's values. But Howard also expressed doubt that any company process could "take a scoundrel and turn him into an ethical person." Integrity, he argued, comes from some interaction of genes and environment that he believes is formed well before an employee comes to Maxygen. In his view, the trick is to hire people who share the company's values of "honesty and believing passionately in what you do."
Howard also pointed out some of the specific ethical challenges facing biotech companies, which by nature have a very long lead time before they ever produce a profitable therapeutic. As he put it, "How does a biotech tell the truth over 15 years, while it burns other people's money?" How forthcoming should the company be about the prospects for its therapeutics and about potential problems in clinical trials? At a biotech, he said, "you're selling a story," and the temptation is always there to hype results. Ultimately, he added, "you're always worried, Will our product cause harm?"
Identifying Candidates for Leadership
A critical task in the succession planning process of any organization is identifying candidates. Traditionally, candidates have been identified based on past performance. While this seems logical, it is problematic in practice.
Past performance always measures success in a current lower-level position. What is needed in succession planning is a system to identify potential for success in a future higher-level position. The best predictive model I have found is the Leadership Pipeline Model by Charan, Drotter, and Noel.
The Leadership Pipeline provides a model that describes the skills, time applications, and values required to succeed at different levels in the organization. While most leadership models and theories describe characteristics of leaders in general, the Leadership Pipeline describes specific criteria for success in transitioning from one level to the next.
The Leadership Pipeline Model helps us to see the importance of identifying candidates for positions throughout the entire organization. The pipeline must be continuously filled with leaders who have been identified for development for the next higher level. A pipeline clog at one level will clearly harm leadership development and succession throughout the entire organization. What is needed is a carefully monitored system for developing in-house talent from front-line supervisors to CEOs.
At GE and Citicorp, two companies using the Leadership Pipeline Model, leadership passages from one level to the next are seen as “turns” in the leadership pipeline. These turns (or passages) provide significant developmental experiences. If these turns are skipped the individual may not be prepared for higher levels of leadership. The focus for development should be the lack of critical skills and values for the next higher level, not past performance.
I am often asked “Is it better to recruit from outside the organization or to develop leaders from within?” The safe, but rather uninsightful answer is, “It depends.”
Recruiting from outside the organization makes sense when a major change in corporate culture or direction is needed. But, I would caution against the over-dependence on the outside recruitment of leaders. Desperate attempts to recruit leaders from outside the organization suggest an inadequate leadership pipeline.
Recruiting leaders from the outside of the organization can be very expensive. As we all know, there is a talent shortage in the marketplace. This can lead to paying high premiums (or even outright price wars) for promising talent.
The Leadership Pipeline Model offers a common language (terminology) and specific criteria for what to look for in leaders at the next higher level. The Model provides a description of the skills, time applications, and values required of leaders at each successive level. This criteria is critical in not only identifying candidates but also in their subsequent development.
The key to identifying candidates for higher levels of responsibility is to predict their potential to succeed in attaining and using the skills, time applications, and values of the next higher level. Past performance is often a poor predictor of future success. Remember the skills, time applications, and values of each successive level of leadership are dramatically different.
The challenge in succession planning and identifying candidates is making sure people are assigned to a level that is appropriate for them. The challenge is complicated by the fact that people change (hopefully for the better) over time. An appropriate position for someone today may not be appropriate three years from now.
Identifying candidates for the organization’s future leadership positions is a critical task. Do you have a system for identifying candidates that considers not only their current skills, but also their willingness to adopt new work values and time applications?