Corporate Accountability, Culture of Openness Yields Results

Many years ago, Michael Douglas said that famous line “Greed is good.” Douglas was playing the proverbial wealthy bad guy Gordon Gecco in the movie Wall Street, and so his character, and pronouncement, is readily viewed as symbolic of the avarice of the financial markets. Eventually, the light of truth shown down upon him, and his patterns of unethical gathering of insider information to gain advantage over other investors ultimately led him to jail. The proverbial Street was cleansed, and the markets marched on.

Today the financial markets are recoiling from a series of high profile and massive allegations of unethical practices at global enterprises WorldCom, Enron and Tyco. Investors have lost billions of dollars in wealth, and the United States has even started to see its currency slide as the parade of corporate crises cause worldwide investors to lose confidence in American management. However, despite the declines in shareholder wealth and the embarrassment of the corporate community, American businesses will ultimately become stronger.

The process of corporate renewal is not always easy or enjoyable, but it ultimately weeds out low and non-performers, ethical or not, leaving those left standing stronger and more capable. Business executives and managers might watch the news and grimace at the alleged actions of these high profile corporate chieftains. But there are valuable lessons to be learned from this macro-process happening publicly in our financial markets that can be applied at the company level. In short, actively exposing issues facing an organization and discussing them openly fosters common understanding, higher performance, ethical behavior and a stronger company.

A process of renewal takes place as leaders identify areas of strength and weakness, best practices or incompetence, and subsequently use that knowledge to improve their business. Few can deny that an open environment, where actions or conduct are illuminated for all to see, doesn’t create a greater attention to detail and a more proactive effort to focus on achieving results. Scrutiny, despite its discomfort, yields diligence and an adherence to the values, standards, and expectations of those applying the scrutiny.

Many years ago when I was a young Officer in the U.S. Army, I learned three golden rules that have universal application among leaders. First, and foremost, was that there must be accountability at every level. Applying pressure to the lower ranks without applying equal or greater accountability to management breeds resentment and destroys morale. Secondly, setting high standards begets high achievement. This is critical with respect to ethics. Openly communicated and written standards of ethical conduct create a much higher standard of behavior across the entire organization. It also makes it much easier to identify those whose standards fall short. Finally, the military, which is perhaps the foremost authority on holding inspections, teaches that you must “inspect what you expect.” If high standards are set, but periodic reviews or inspections are not made, performance will take a back seat to maintenance of the status quo. Subordinates are often overwhelmed with juggling tasks, and will focus their time based on where management focuses their eyeballs.

Recently our firm engaged with a client that was looking for strategic and tactical ways to grow their business. During the process, many managers had identified projects that would lead to increased sales and profitability. However, few of the managers had documented their ideas, even in an informal “back of the envelope” manner. Their plans were not openly discussed with executives or their peers, and were thus subject to being put on the back burner. Nor had the executive team, as talented as they are, established a formal method of communication to facilitate the process. Our recommendation was for the executive team to hard code the planning and execution process with a formal, quarterly Operations Review.

Far from a negative, in fact a review offers managers an open forum with executives to discuss and formalize their objectives, and then subsequently be measured against them. And the executive team, to encourage results, would compensate managers based in part on their ability to achieve objectives. Our view is that this process, as simple as it is, would foster positive, open communication between executives and managers against reachable performance targets, and reward performance appropriately. And regardless of the ultimate outcome, the illumination and documentation of management’s efforts would be an enlightening exercise. The review helps the communication links become stronger, thereby strengthening the company.

The task of illuminating the internal activities of a company, industry or financial market is not typically a relished responsibility. Scrutinizing, and being scrutinized, is often perceived as a negative exercise with difficult consequences. We may see things we didn’t want to see, as in the allegations facing Enron and WorldCom, and would then be obligated to deal with them. As a result, it is common for executives and managers to avoid wielding this critical tool. But human nature being what it is, an open environment encourages a greater attention to detail and a focus on results, higher achievement, more ethical business practices and more effective communication.

Openness is the foundation of transformation, and fosters a spirit of corporate renewal. And this constant state of renewal ultimately makes our companies, markets, and country the strongest in the world.

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