“Gutless Leadership”

“Have you returned one nickel of the money that you earned while this scandal was going on?” asked Ms. Warren, Democrat of Massachusetts. “Have you fired any senior management, the people who actually oversaw this fraud?”

“No,” Mr. Stumpf answered.

Ms. Warren added: “Your definition of accountability is to push this on your low-level employees. This is gutless leadership.”

So reads part of the exchange between Wells Fargo CEO John G. Stumpf exchange and Senator Elizabeth Warren during a hearing of the Senate Banking Committee on September 20th.

Righteous indignation, however well-justified by the scandal, was on full display as Senators took turns before the cameras to tear a strip off of Stumpf. Yet Warren was right; this CEO was displaying gutless leadership.

The truly amazing and concerning thing is that “gutless leadership” is found in abundance all over. Sometimes (we hope rarely) it takes the form of unethical and possibly illegal practices; many other times it manifests itself in the small, everyday acts of gutlessness that stealthily corrodes trust.

At the same time this drama was playing out in the U.S., Deloitte issued a report titled The future belongs to the bold. They wrote:

Over the past year, Deloitte surveyed 1,200 Canadian business leaders to evaluate the state of courage in our businesses. This marks that first time that courage in business has been measured, and its impact quantified.

Our findings reveal that only one in 10 Canadian companies is truly courageous.

By their own admission 90% of Canadian businesses said they are not courageous.

Deloitte posed three criteria for courage; I think they are a good list.

That only 10% of organizations is courageous is, upon personal reflection, not surprising. All around us we see and participate in everyday acts of anti-courage (or maybe we should just use the more direct “gutless acts”). These include the things we do and say and the things we don’t do and don’t say.

Although every member of an organization has a hand in this collective timidity, the bulk of the responsibility falls to the senior executives and to senior middle managers. From my experience there are four things that seem to drive leaders towards gutless inaction, watered-down actions, and actions designed to spare themselves embarrassment, effort or discomfort.

1. The focus on short-term shareholder value. 3 years is not actually a very long time span, but for many organizations even 3 months seems to qualify for “long-term thinking.” I’ve observed that timid companies might “stretch” their vision to a 2 or 3 year time horizon but events, consequences or benefits that fall outside of even a couple of years into the future seems to some leaders as only relevant to “the next administration” in the same way politicians kick the can down the road when benefits do not fall within the re-election cycle. The problem with a pre-occupation with shareholder value creation is two-fold: first, if the shareholders are impatient this reinforces short-term thinking; second, shareholders should not be the focus of a company — the focus should be on the customer, whose needs we need to understand and meet, and with employees who need to deliver against customer expectations effectively, efficiently and consistently. Shareholder value is an outcome, a by-product, an effect while its root cause is the successful intersection of customer need and company execution.
2. Conservative managers who learn to keep their heads down. CEOs may talk about wanting “transformational change” and “breakthrough thinking” and “revolutionary products” but the gap between such rhetoric, however genuine, and the reality of what really happens down in an organization would be funny if it did not also represent enormous levels of frustration and wasted potential amongst staff. In the organizations I have observed both as an employee and as a consultant, managers and staff are constantly looking for what gets rewarded and what gets punished. If, as the Deloitte report says, organizational courage is defined in part by taking calculated risks, then the leaders of companies need to walk the talk. Taking calculated risks by definition implies a certain rate of failure. Innovation by definition requires a stream of attempts many of which are “failures” and yet contribute to eventual innovation by what is learned from these so-called failures. Yet in many organizations a “failure” is perceived as a CLM, a career limiting move. So what happens? An enormous amount of B.S. is generated to spin failures into successes. Rather than embrace the failure and systematically learn from it, I have seen managers massage PowerPoint decks to avoid the use of the words “failure” or “problem” and in general there is a funereal atmosphere attending any meeting to discuss said “failure”. Employees see this and they learn how to survive the politics of the organization: don’t be too daring, manage the message, and CYA (often with mountains of emails).
3. A desire for silver bullets e.g. software and/or technology. Meaningful change in culture and behavior requires consistent hard work from the ground up each and every day and not just for the length of a 12 month campaign. What if, instead, a piece of software could leapfrog all these difficult culture and behavior issues? What if there was a new technology that could fix issues without having to get people to do things differently? I think that is the implicit wish of some managers, certainly those for whom the whole “people thing” is a mystery and messy work. The search for and application of breakthrough technologies is not in and off itself a bad or foolish thing. But what it requires is long-term thinking, an ability to take big calculated risks and the ability to successfully implement the technology with people. The prevalence of leaders prone to short-term and risk averse thinking goes a long way to explain the sad track record of IT/technology investments to transform the performance of organizations. Short-termism and risk aversion leads to a combination of budgets that are sometimes penny-wise but pound foolish, unrealistic schedules, and project management approaches that are predicated on “waterfall” development methods (complete Phase 1, then complete Phase 2 etc. before you turn on the switch and cross your fingers) versus short-cycle methods (a cycle of design, try, learn from what goes right and wrong, and adjust repeated several times). Most importantly human factors are either ignored or are minimized, often because the waterfall approach lends itself to “presenting” the new technology to people and hoping that training will paper-over the problems. By comparison, the short-cycle approach involves users throughout the design process and leads to changes in the design based on their feedback through each cycle.
4. Avoidance of recognizing senior leadership behaviour as an issue. Getting hauled in front a U.S. Senate Committee is one way of recognizing senior leadership behavior as an issue. But the Deloitte study involved hundreds of companies 90% of which are not courageous, that are not engaged, by their definition, in intentional acts of moral risk. The issue they raise is more than the occasional example of a company getting outed for their unethical actions. It represents a broader and deeper state of affairs. A focus on “silver bullets” such as technology or the latest management fad (e.g. “block chain technology,” “mindfulness,” “big data” etc.) is that it conveniently places the spotlight not on how the leaders need to change but on this new thing that the company needs to adopt or implement. A great many books, seminars and consultants tell us about the pivotal role of leadership. So either senior leadership is important or it is not. If it is, then how can one interpret this result as anything other than a direct reflection of what senior leaders do and say? Where are the Boards in all of this? What are people taught in the biz schools? Is this really what the large institutional investors want? Do elected officials have anything to contribute or are they merely a public service version of the same courage deficit?

In my opinion the issue this study raises is real but it scratches the surface of a bigger challenge, namely that the arena for courageous thinking and acting lies well beyond the confines of companies. No doubt individual companies can and should up their games but the big issues requires a more holistic approach to the so-called “private” and “public” sectors that gets beyond the caricatures of “capitalism,” “free enterprise,” “socialism,” “right-wing” and “left-wing.” We must open up the issue not only of courageous leadership but also of citizens that are also willing and able to support courageous actions – that is to say, calculated but risky actions for the collective interest.