A short essay on why giants can be so small
At HP, a name once synonymous with business integrity and forthrightness, the company continues to reel from the backlash over an investigation turned witch-hunt that collected personal information, improperly obtained, about the telephone calls and comings and goings of certain directors and reporters. At Westjet, Air Canada’s top competitor in Canada, court records reveal that CEO Clive Beddoe made much more use of purloined e-mails, acquired when company employees hacked into Air Canada’s computers, than previously admitted. And in the House of Representatives, the fallout over Congressman Mark Foley’s dissent into the world of cyber molestation of House pages has shaken the very foundation of confidence in the Republican leadership.
There is an interesting common factor in these scandals. All of these organizations had written codes of ethical conduct. All have made a big thing about the importance of ethics and regularly trumpeted their commitment to the highest standards of integrity. And each had a governance system which was supposed to prevent these kinds of wrongdoing from occurring, but which failed to do so. Why?
I’ve given a fair bit of thought to this over the years because it is a phenomenon that recurs with stunning frequency in the worlds of business and government. I’ve seen first-hand the damage that ethical transgressions can inflict upon organizations. In many cases, I have been asked to assist in investigating the cause of the problems and in repairing the damage.
If you look at the ethical lapses at Enron, WorldCom, CIBC or Hollinger, to take just a few examples, you will see the disconnect between nice sounding words and actions which fell dramatically short in backing them up. What I once dubbed the high cost of ethical folly has seen companies descend into ruin, governments fall and political careers destroyed.
The fact is that most organizations are weak on execution when it comes to ethical matters. There is little outside monitoring of ethical compliance or independent auditing of ethical performance. There is too much reliance on lawyers whose ethical standards are often no higher than any other profession, and on many occasions have been shown to be much worse. The resources companies and governments put into ethical oversight are pitifully inadequate. It is a corporate function which seldom attracts the best and the brightest. All this sends significant signals throughout the organization which suggest the real priorities lie elsewhere.
Those at the top, including boards of directors and leaders of political parities, seem happy to have the situation continue, or they would have changed it. People in power are generally transaction-oriented types who prefer to be doing things which they think will add numeric value –whether that means bumping up the numbers on the balance sheet or in the public opinion pools. They are far less comfortable dealing with values. Their interest in ethics is usually peaked during the short life of a scandal and suddenly wanes when the newspapers stop calling. And there is a problem learning from experience. No matter how often they hear “iceberg ahead” being shouted around them, the large egos that govern and run our giant institutions (or perhaps it should be the giant egos that govern and run our large institutions) always think the warnings of reality apply to someone else and not to their own organizational Titanic.
For a number of years, many of them working directly with those at the top of business and government, I have been of the view that the ethical deficit so often evident in large organizations arises from having the wrong people running them, and that we need a different kind of person in the boardroom and in the political arena. This is all the more important in an era when the public entrusts so much of its personal information to corporations and governments and when the Internet has become so pervasive a tool for the collection and abuse of this kind of information, as these most recent incidents attest. As the HP, Westjet and Foley scandals unfold, I expect we will see evidence that more was known than previously admitted and that more could have been done by the people at the top to prevent it. The same picture has emerged with every scandal of the past 100 years, from the sinking of the Titanic and the Wall Street scams of the 20s and 30s to the disintegration of Enron and numerous smaller fiascos in Canada involving Bre-X, YBM Magnex, Livent, Nortel and Hollinger. Time and time again we have seen the gatekeepers asleep at the switch.
It is difficult to understand why, for instance, otherwise worldly and experienced people around HP’s boardroom table would not have inquired about the source of the telephone records that had been obtained. Yet not a single question on that score was raised according to all available reports. Former HP CEO Carly Fiorina paints a rather unflattering picture of the HP board. “Some board members’ behavior was amateurish and immature,” she writes in her new book Tough Choices. “Some didn’t do their homework. Some had fixed opinions on certain topics and no opinion at all on others.”
One of the most important functions of a director, after all, is to ask discerning questions. It is a task at which directors often fail and, apparently, in HP’s case, they were incapable of posing the kind of basic question that would have been asked around most kitchen tables in America. By the way, I think they probably asked too few questions about HP’s disastrous acquisition of Compaq –another business move I always had difficulty understanding and thought showed remarkable naivety and poor judgment on the part of both Ms. Fiorina and the board (apart from Walter Hewlett, whose position I applauded publicly and in the press at the time).
Ultimately, however, why there are so many ethical lapses in business and government comes down to the fact that the public appears infinitely tolerant of such betrayals and has not yet voiced its demand for change with sufficient volume. If ethics were a bridge that collapsed as often as the moral foundation of many organizations, people would be hollering for an investigation and demanding the prosecution of those responsible. Repeat performances would not be tolerated. Heads would roll and changes would be forthcoming. In our market economy and system of democratic rule, the public is supposed to determine the destiny of business and government. So it seems reasonable to conclude that until we begin to realize that bad ethics is about more than big headlines in the New York Times and that it carries serious consequences for the moral fiber of society and our own well being, we will continue to see these kinds of disasters unfold again and again.
We can and should bemoan the ethical blindness that sees so many organizations founder and the failure of those at the top to steer the straight course. But if genuine change is desired, we need to instill a better ethical compass in our institutions of business and government and demand a new kind of person to captain these great ships. We are, after all, the citizens and shareholders who own them.