For Eng.Kelvin Only

PART 3: STRATEGIC IMPLEMENTATION

chapter 11

Strategic Leadership:

Creating a Learning Organization and an Ethical Organization

After reading this chapter, you should have a good understanding of the following learning objectives:

LO11.1    The three key interdependent activities in which all successful leaders must be continually engaged.

LO11.2    Two elements of effective leadership: overcoming barriers to change and the effective use of power.

LO11.3    The crucial role of emotional intelligence (EI) in successful leadership as well as its potential drawbacks.

LO11.4    The importance of developing competency companions and creating a learning organization.

LO11.5    The leader’s role in establishing an ethical organization.

LO11.6    The difference between integrity-based and compliance-based approaches to organizational ethics.

LO11.7    Several key elements that organizations must have to become an ethical organization.

Learning from Mistakes

Most people have never heard of Synthes, a medical device maker headquartered in West Chester, Pennsylvania. Yet in 2012 it made national news when four of its corporate officers were found responsible for illegal actions taken by the company and sentenced to prison.1

When did the problems begin? Between 2002 and 2004, Synthes conducted clinical trials of Norian bone cement, a product used to treat vertebral compression fractures (VCFs), a type of fracture that occurs in nearly 500,000 elderly people each year. Norian, a subsidiary acquired for $50 million in 1999, was already approved for several types of bone-repair treatments. However, the Food and Drug Administration (FDA) had explicitly barred the use of Norian in treating VCFs because of concerns that it could get into the bloodstream and harm patients, possibly leading to death. In spite of the FDA restriction, Synthes decided to forgo the FDA approved clinic trial, launched right into market research, and began promoting Norian for unapproved use in VCF operations. Unfortunately, the patients were unaware of the deadly risks they faced.

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The results? Three patients died on the operating table after spine surgeries in 2003 and 2004! Synthes did not report these deaths to the FDA, because they claimed that the deaths were not due to their product alone. Such disclosures, however, are required by law. The U.S. Department of Justice is still seeking to prove that the cement caused the deaths, a claim supported by the surgeons who used the Norian product. Synthes had to pay $23.2 million in fines and was charged with 44 misdemeanors. Norian was charged with 52 felony counts, including lying to the FDA with the intent to defraud. As U.S. District Court Judge Legroom Davis said, “On the wrongful conduct scale, it’s 11 on a scale of 10. It’s over the top.”

The U.S. Department of Justice prosecuted under the Responsible Corporate Officer Doctrine, which holds executives in certain positions of authority criminally liable for violations of food and drug laws even if they did not have direct knowledge of the underlying conduct. The resulting sentences the four executives received were the stiffest to date under this law.

What might be the underlying problem at Synthes that caused such disregard for the law?

In large part, it appears to have been a question of leadership. Hansjorg Wyss was the founder and CEO of Synthes, which he sold to Johnson and Johnson for $20 billion in June 2012. Prior to the sale, Wyss played an intimidating, hands-on role in managing the company and owned a 50 percent share of it. Wyss was known for paying attention to even the minutia of the company, and nothing went past Wyss without his input or approval. Even the cafeteria plates, which Wyss insisted be square, and the toilet paper brand in the corporate office had Wyss’s input! He was referred to by former employees as “the eight-hundred pound gorilla in the room who liked getting his way.” Even though Wyss was included on emails and reports citing the product’s risks, he held all-hands meetings after the reports were released in order to make a strong push for Norian’s bone cement to be used in VCF. Synthes's strategy was to

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persuade a few doctors to do the procedure on their own and then the company would try to popularize the Norian product.

Early on, it was estimated that it would take three years for an approved clinical study. However, Wyss insisted, without any explanation, that no clinical study would be undertaken. The top levels of executives were all loyal to Wyss, and he had groomed them to come up through the company’s ranks. They knew better than to confront him!

Discussion Questions

1.   Why would Synthes engage in such risky behavior for such a relatively small gain?

2.   If you are Johnson and Johnson, what aspects of the Synthes culture would you change?

Clearly, in the end, Synthes paid a high price for their unethical and illegal actions—fines, a loss of reputation, and even prison terms for some top executives. Perhaps the primary responsibility for the fiasco at Synthes lies with the CEO, Hansjorg Wyss. He was imperious and intimidating, tolerated no dissent, and focused on revenues and profits, while minimizing ethical and moral considerations. In contrast, effective leaders play an important and often pivotal role in creating an organizational culture that pursues excellence while adhering to high standards of ethical behavior.

This chapter provides insights into the role of strategic leadership in managing, adapting, and coping in the face of increased environmental complexity and uncertainty. First, we define leadership and its three interdependent activities—setting a direction, designing the organization, and nurturing a culture dedicated to excellence and ethical behavior. Then, we identify two elements of leadership that contribute to success—overcoming barriers to change and the effective use of power. The third section focuses on emotional intelligence, a trait that is increasingly acknowledged to be critical to successful leadership. Next, we emphasize the importance of leaders developing competency companions and creating a learning organization. Here, we focus on empowerment wherein employees and managers throughout an organization develop a sense of self-determination, competence, meaning, and impact that is centrally important to learning. Finally, we address the leader’s role in building an ethical organization and the elements of an ethical culture that contribute to firm effectiveness.

Leadership: Three Interdependent Activities

In today’s chaotic world, few would argue against the need for leadership, but how do we go about encouraging it? Is it enough to merely keep an organization afloat, or is it essential to make steady progress toward some well-defined objective? We believe custodial management is not leadership. Leadership is proactive, goal-oriented, and focused on the creation and implementation of a creative vision. Leadership is the process of transforming organizations from what they are to what the leader would have them become. This definition implies a lot: dissatisfaction with the status quo, a vision of what should be, and a process for bringing about change. An insurance company executive shared the following insight: “I lead by the Noah Principle: It’s all right to know when it’s going to rain, but, by God, you had better build the ark.”

leadership

the process of transforming organizations from what they are to what the leader would have them become.

Doing the right thing is becoming increasingly important. Many industries are declining; the global village is becoming increasingly complex, interconnected, and unpredictable; and product and market life cycles are becoming increasingly compressed. When asked to describe the life cycle of his company’s products, the CEO of a supplier of

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computer components replied, “Seven months from cradle to grave—and that includes three months to design the product and get it into production!” Richard D’Aveni, author of Hypercompetition, argued that in a world where all dimensions of competition appear to be compressed in time and heightened in complexity, sustainable competitive advantages are no longer possible.

EXHIBIT 11.1   Three Interdependent Leadership Activities

Despite the importance of doing the “right thing,” leaders must also be concerned about “doing things right.” Charan and Colvin strongly believe that execution, that is, the implementation of strategy, is also essential to success.

Mastering execution turns out to be the odds-on best way for a CEO to keep his job. So what’s the right way to think about that sexier obsession, strategy? It’s vitally important—obviously. The problem is that our age’s fascination feeds the mistaken belief that developing exactly the right strategy will enable a company to rocket past competitors. In reality, that’s less than half the battle.2

LO11.1

The three key interdependent activities in which all successful leaders must be continually engaged.

Thus, leaders are change agents whose success is measured by how effectively they formulate and implement a strategic vision and mission.3

Many authors contend that successful leaders must recognize three interdependent activities that must be continually reassessed for organizations to succeed. As shown in Exhibit 11.1, these are: (1) setting a direction, (2) designing the organization, and (3) nurturing a culture dedicated to excellence and ethical behavior.4

The interdependent nature of these three activities is self-evident. Consider an organization with a great mission and a superb organizational structure, but a culture that implicitly encourages shirking and unethical behavior. Or one with a sound direction and strong culture, but counterproductive teams and a “zero-sum” reward system that leads to the dysfunctional situation in which one party’s gain is viewed as another party’s loss, and collaboration and sharing are severely hampered. Clearly, such combinations would be ineffective.

Often, failure of today’s organizations can be attributed to a lack of equal consideration of these three activities. The imagery of a three-legged stool is instructive: It will collapse if one leg is missing or broken. Let’s briefly look at each of these activities as well as the value of an ambicultural approach to leadership.

Setting a Direction

setting a direction

a strategic leadership activity of strategy analysis and strategy formulation.

A holistic understanding of an organization’s stakeholders requires an ability to scan the environment to develop a knowledge of all of the company’s stakeholders and other salient environmental trends and events. Managers must integrate this knowledge into a vision of

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what the organization could become.5 It necessitates the capacity to solve increasingly complex problems, become proactive in approach, and develop viable strategic options. A strategic vision provides many benefits: a clear future direction; a framework for the organization’s mission and goals; and enhanced employee communication, participation, and commitment.

STRATEGY SPOTLIGHT

11.1    ENVIRONMENTAL SUSTAINABILITY

A VISION OF ENVIRONMENTAL SUSTAINABILITY HELPS 3M TO STAY COMPETITIVE

Vision and creative change are not solely domains of the CEO. Take former vice president of environmental engineering and pollution control at 3M Joe Ling as an example. In 1975 Mr. Ling oversaw 3M’s efforts to comply with new legal pollution requirements. Years ago, 3M focused on lowering its environmental impact through, for instance, placing scrubbers on smokestacks, treating effluence before releasing wastewater, and segregating solid waste. While this prevention strategy allowed 3M to comply with legal requirements, Mr. Ling’s vision went much further. Instead of seeing environmental concerns as a necessary evil, he asked whether 3M could prevent pollution altogether and profit from doing so. He thought 3M could, and he started 3M’s famous Pollution Prevention Pays (or 3P) program that survives to this day.

While it is challenging to introduce creative change into any organization, Mr. Ling did not shy away from setting challenging goals. Any idea that would reduce pollution must also save money for 3M. Executives at 3M stick to this ideal and reiterate that “anything not a product is considered a cost.” This sustainability strategy is firmly grounded in the 3P philosophy that everything that increases 3M’s footprint is not just pollution or waste, but also a sign of operational inefficiency.

3P not only encourages top executives to rethink products and processes, but also empowers lower-level employees to generate sustainability improvements. Mr. Ling’s vision to embed 3P in 3M’s corporate culture has grown to phenomenal success, culminating in more than 6,300 sustainability projects and 2.6 billion pounds of pollutants saved. Consistent with 3P’s mantra that pollution prevention is instrumental to 3M’s financial success, the company achieved over $1 billion in first-year project savings.

3P has been an integral part of 3M’s corporate strategy in an increasingly global marketplace. One could imagine that sustainability cost savings show up in increased profitability, yet 3M’s profit margins are roughly the same as 30 years ago. Yet 3M operates in increasingly competitive industrial businesses, reducing operating margins and making operational efficiency programs such as 3P crucial to 3M’s long-term success. Therefore, it comes as no surprise that 3M continues to challenge its employees with high sustainability standards. Over the past two decades, 3M has slashed toxic releases by 99 percent and greenhouse gas emissions by 72 percent. This makes 3M the only company that has won the EPA’s Energy Star Award every year since the prize has been awarded, and they have saved costs and stayed competitive while doing so.

Sources: Esty, D.C. & Winston, A.S. 2009. Green to Gold. Hoboken, NJ: Wiley: 106–110; Anonymous. 2012. 2015 Sustainability goals: Sometimes our toughest challenges are the ones we put on ourselves. www.3m.com , June 10: np; and Winston, A.S. 2012. 3M’s sustainability innovation machine. www.businessweek.com , May 15: np.

At times the creative process involves what the CEO of Yokogawa, GE’s Japanese partner in the Medical Systems business, called “bullet train” thinking.6 That is, if you want to increase the speed by 10 miles per hour, you look for incremental advances. However, if you want to double the speed, you’ve got to think “out of the box” (e.g., widen the track, change the overall suspension system). Leaders need more creative solutions than just keeping the same train with a few minor tweaks. Instead, they must come up with more revolutionary visions.

Strategy Spotlight 11.1 discusses Joe Ling’s visionary approach to 3M’s sustainability strategy. This example illustrates that visionary leadership is not just the domain of the CEO.

Designing the Organization

designing the organization

a strategic leadership activity of building structures, teams, systems, and organizational processes that facilitate the implementation of the leader’s vision and strategies.

At times, almost all leaders have difficulty implementing their vision and strategies.7 Such problems may stem from a variety of sources:

•   Lack of understanding of responsibility and accountability among managers.

•   Reward systems that do not motivate individuals (or collectives such as groups and divisions) toward desired organizational goals.

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•   Inadequate or inappropriate budgeting and control systems.

•   Insufficient mechanisms to integrate activities across the organization.

Successful leaders are actively involved in building structures, teams, systems, and organizational processes that facilitate the implementation of their vision and strategies. Without appropriately structuring organizational activities, a firm would generally be unable to attain an overall low-cost advantage by closely monitoring its costs through detailed and formalized cost and financial control procedures. With regard to corporate-level strategy, a related diversification strategy would necessitate reward systems that emphasize behavioral measures because interdependence among business units tends to be very important. In contrast, reward systems associated with an unrelated diversification strategy should rely more on financial indicators of performance because business units are relatively autonomous.

These examples illustrate the important role of leadership in creating systems and structures to achieve desired ends. As Jim Collins says about the importance of designing the organization, “Along with figuring out what the company stands for and pushing it to understand what it’s really good at, building mechanisms is the CEO’s role—the leader as architect.”8

Nurturing a Culture Committed to Excellence and Ethical Behavior

excellent and ethical organizational culture

an organizational culture focused on core competencies and high ethical standards.

Organizational culture can be an effective means of organizational control.9 Leaders play a key role in changing, developing, and sustaining an organization’s culture. Consider a Chinese firm, Huawei, a highly successful producer of communication network solutions and services.10 In 2012, it achieved revenues of $35.4 billion and net profits of $2.5 billion. Its strong culture can be attributed to its founder, Ren Zhengfei, and his background in the People’s Liberation Army. It is a culture which eliminates individualism and promotes collectivism and the idea of hunting in packs. It is the “wolf culture” of Huawei:

The culture of Huawei is built on a sense of patriotism, with Mr. Zhengfei frequently citing Mao Zedong’s thoughts in his speeches and internal publications such as the employee magazine Huawei People. Sales teams are referred to as “Market Guerrillas,” and battlefield tactics, such as “occupy rural areas first to surround cities,” are used internally. In addition to Mao Zedong, Mr. Zhengfei has urged his employees to look to the Japanese and Germans for inspiration on how to conduct themselves. This is exemplified by the words written in a letter to new hires that states, “I hope you abandon the mentality of achieving quick results, learn from the Japanese down-to-earth attitude and the German’s spirit of being scrupulous to every detail.”

The notion of “wolf culture” stems from the fact that Huawei workers are encouraged to learn from the behavior of wolves, which have a keen sense of smell, are aggressive, and, most important of all, hunt in packs. It is this collective and aggressive spirit that is the center of the Huawei culture. Combining the behavior of wolves with military-style training has been instrumental in building the culture of the company, which, in turn, is widely thought to be instrumental in the company’s success.

In sharp contrast, leaders can also have a very detrimental effect on a firm’s culture and ethics. Imagine the negative impact that Todd Berman’s illegal activities have had on a firm that he cofounded—New York’s private equity firm Chartwell Investments.11 He stole more than $3.6 million from the firm and its investors. Berman pleaded guilty to fraud charges brought by the Justice Department. For 18 months he misled Chartwell’s investors concerning the financial condition of one of the firm’s portfolio companies by falsely claiming it needed to borrow funds to meet operating expenses. Instead, Berman transferred the money to his personal bank account, along with fees paid by portfolio companies.

Clearly, a leader’s behavior and values can make a strong impact on an organization—for good or for bad. Strategy Spotlight 11.2 provides a positive example. It discusses how the chairman of Infosys create an ethical culture by “walking the talk.”

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STRATEGY SPOTLIGHT

11.2    ETHICS

INSTILLING ETHICS AND A FIRM’S VALUES: WALKING THE TALK

Firms often draft elaborate value statements and codes of conduct, yet many firms do not to live up to their own standards—or in other words, fail to “walk the talk.” Take the positive example of N. R. Narayana Murthy, chairman and one of the founders of Infosys (a giant Indian technology company). In February 1984, shortly after the firm was founded, Infosys decided to import a super minicomputer so that it could start developing software for overseas clients. When the machine landed at Bangalore Airport, the local customs official refused to clear it unless the company “took care of him”—the Indian euphemism for demanding a bribe. A delay at customs could have threatened the project. Yet, instead of caving into the unethical customs official’s demands, Mr. Murthy kept true to his values and took the more expensive formal route of paying a customs duty of 135 percent with dim chances of successfully appealing the duty and receiving a refund.

Reflecting on these events, Mr. Murthy reasons, “We didn’t have enough money to pay the duty and had to borrow it. However, because we had decided to do business ethically, we didn’t have a choice. We would not pay bribes. We effectively paid twice for the machine and had only a slim chance of recovering our money. But a clear conscience is the softest pillow on which you can lay your head down at night…. It took a few years for corrupt officials to stop approaching us for favors.”

Source: Raman, A. P. 2011. “Why don’t we try to be India’s most respected company?” Harvard Business Review, 89(11): 82.

Managers and top executives must accept personal responsibility for developing and strengthening ethical behavior throughout the organization. They must consistently demonstrate that such behavior is central to the vision and mission of the organization. Several elements must be present and reinforced for a firm to become highly ethical, including role models, corporate credos and codes of conduct, reward and evaluation systems, and policies and procedures. Given the importance of these elements, we address them in detail in the last section of this chapter.

LO11.2

Two elements of effective leadership: overcoming barriers to change and the effective use of power.

Getting Things Done: Overcoming Barriers and Using Power

The demands on leaders in today’s business environment require them to perform a variety of functions. The success of their organizations often depends on how they as individuals meet challenges and deliver on promises. What practices and skills are needed to get the job done effectively? In this section, we focus on two capabilities that are marks of successful leadership—overcoming barriers to change and the effective use of power. Then, in the next section, we will examine an important human trait that helps leaders be more effective—emotional intelligence.

Overcoming Barriers to Change

What are the barriers to change that leaders often encounter, and how can they best bring about organizational change?12 After all, people generally have some level of choice about how strongly they support or resist a leader’s change initiatives. Why is there often so much resistance? Organizations at all levels are prone to inertia and are slow to learn, adapt, and change because:

barriers to change

characteristics of individuals and organizations that prevent a leader from transforming an organization.

1.   Many people have vested interests in the status quo . People tend to be risk averse and resistant to change. There is a broad stream of research on “escalation,” wherein certain individuals continue to throw “good money at bad decisions” despite negative performance feedback.13

vested interest in the status quo

a barrier to change that stems from people’s risk aversion.

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2.   There are systemic barriers . The design of the organization’s structure, information processing, reporting relationships, and so forth impede the proper flow and evaluation of information. A bureaucratic structure with multiple layers, onerous requirements for documentation, and rigid rules and procedures will often “inoculate” the organization against change.

systemic barriers

barriers to change that stem from an organizational design that impedes the proper flow and evaluation of information.

3.    Behavioral barriers cause managers to look at issues from a biased or limited perspective due to their education, training, work experiences, and so forth. Consider an incident shared by David Lieberman, marketing director at GVO, an innovation consulting firm:

behavioral barriers

barriers to change associated with the tendency for managers to look at issues from a biased or limited perspective based on their prior education and experience.

A company’s creative type had come up with a great idea for a new product. Nearly everybody loved it. However, it was shot down by a high-ranking manufacturing representative who exploded: “A new color? Do you have any idea of the spare-parts problem that it will create?” This was not a dimwit exasperated at having to build a few storage racks at the warehouse. He’d been hearing for years about cost cutting, lean inventories, and “focus.” Lieberman’s comment: “Good concepts, but not always good for innovation.”

4.    Political barriers refer to conflicts arising from power relationships. This can be the outcome of a myriad of symptoms such as vested interests, refusal to share information, conflicts over resources, conflicts between departments and divisions, and petty interpersonal differences.

political barriers

barriers to change related to conflicts arising from power relationships.

5.    Personal time constraints bring to mind the old saying about “not having enough time to drain the swamp when you are up to your neck in alligators.” Gresham’s law of planning states that operational decisions will drive out the time necessary for strategic thinking and reflection. This tendency is accentuated in organizations experiencing severe price competition or retrenchment wherein managers and employees are spread rather thin.

personal time constraints

a barrier to change that stems from people’s not having sufficient time for strategic thinking and reflection.

Strategy Spotlight 11.3 discusses how Microsoft and Natura Cosméticos were able to overcome political barriers to change through creating a more collaborative environment.

Leaders must draw on a range of personal skills as well as organizational mechanisms to move their organizations forward in the face of such barriers. Two factors mentioned earlier—building a learning organization and ethical organization—provide the kind of climate within which a leader can advance the organization’s aims and make progress toward its goals.

One of the most important tools a leader has for overcoming barriers to change is their personal and organizational power. On the one hand, good leaders must be on guard not to abuse power. On the other hand, successful leadership requires the measured exercise of power. We turn to that topic next.

The Effective Use of Power

Successful leadership requires the effective use of power in overcoming barriers to change.14 As humorously noted by Mark Twain, “I’m all for progress. It’s change I object to.” Power refers to a leader’s ability to get things done in a way he or she wants them to be done. It is the ability to influence other people’s behavior, to persuade them to do things that they otherwise would not do, and to overcome resistance and opposition. Effective exercise of power is essential for successful leadership.15

power

a leader’s ability to get things done in a way he or she wants them to be done.

A leader derives his or her power from several sources or bases. The simplest way to understand the bases of power is by classifying them as organizational and personal, as shown in Exhibit 11.2.

Organizational bases of power refer to the power that a person wields because of her formal management position.16 These include legitimate, reward, coercive, and information power. Legitimate power is derived from organizationally conferred decision-making

organizational bases of power

a formal management position that is the basis of a leader’s power.

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authority and is exercised by virtue of a manager’s position in the organization. Reward power depends on the ability of the leader or manager to confer rewards for positive behaviors or outcomes. Coercive power is the power a manager exercises over employees using

STRATEGY SPOTLIGHT

11.3

OVERCOMING POLITICAL BARRIERS TO CHANGE

To overcome barriers to organizational change, companies today work more collaboratively than ever before, inside their own organizations and with outsiders. While virtual team meetings and other technology gadgets such as Facebook and Twitter facilitate discussions and employee empowerment, it is not enough for leaders to rely on technology. Instead, top management must lead by example and be good collaborators themselves. One obstacle to effective collaboration is higher-level political battles. Take Microsoft as an example. Before Apple released its tablet smash hit iPad, Microsoft had developed a viable tablet more than a decade earlier. However, entrenched interests and turf fights between competing Microsoft divisions eventually killed the project. Microsoft since then appears to be focusing on closer managerial collaboration, as the recent acquisition of Skype illustrates. The voice and video conferencing provider will become a Microsoft business unit that is required to collaborate closely with other Microsoft divisions in an effort to realize the anticipated synergies of the acquisition.

Brazil’s Natura Cosméticos provides another example of overcoming barriers to change by addressing political barriers. Alessandro Carlucci, CEO of the large manufacturer and marketer of beauty products, has implemented a comprehensive “engagement process” that promotes a collaborative mindset at all levels of the organization. As part of this process, Mr. Carlucci made it a priority to unify his top executives behind common goals and stop internal power struggles that became increasingly evident after Natura became a public company in 2004. He asked top managers to invest in self-development as part of their stewardship of the company. So each executive embarked on a “personal journey” with a dedicated coach, who met with everyone individually and with the team as a whole. Carlucci explains that “it is a different type of coaching. It’s not just talking to your boss or subordinates but talking about a person’s life history, with their families; it is more holistic, broader, integrating all the different roles of a human being.” Different from other developmental processes, this coaching approach emphasizes the human side of top team members, with all their distinct strengths but also their weaknesses. This coaching experience effectively illustrates that no top manager at Natura alone has all the answers and that collaboration is not only possible but also essential for long-term success. Carlucci’s efforts to create a collaborative mindset have started to get recognized by outsiders and have helped the firm win a top spot on Fortune’s list of best companies for leaders.

Source: Ibarra, H. and Hansen, M.T. 2011. Are you a collaborative leader? Harvard Business Review, 89(7/8): 68–75; Anonymous. 2011. Analysis: What does Microsoft’s Skype acquisition mean for businesses? www.computerweekly.com , May 13: np; Hansen, M.T. and Ibarra, H. 2011. Getting collaboration right. blogs.hbr.org , May 16: np.

EXHIBIT 11.2   A Leader’s Bases of Power

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fear of punishment for errors of omission or commission. Information power arises from a manager’s access, control, and distribution of information that is not freely available to everyone in an organization.

STRATEGY SPOTLIGHT

11.4

THE USE OF “SOFT” POWER AT SIEMENS

Until 1999, paying bribes in international markets was not only legally allowed in Germany, German corporations could also deduct bribes from taxable income. However, once those laws changed, German industrial powerhouse Siemens found it hard to break its bribing habit in its sprawling global operations. Eventually a major scandal forced many top executives out of the firm, including CEO Klaus Kleinfeld. As the successor to Mr. Kleinfeld, Peter Löscher became the first outside CEO in the more than 160-year history of Siemens in 2007. As an outsider Mr. Löscher found it challenging to establish himself as a strong leader inside the bureaucratic Siemens organization. However, he eventually found a way to successfully transition into his new position.

Naturally, in the early stage of his tenure, he lacked internal connections and the bases of power associated with inside knowledge of people and processes. Yet Siemens faced tremendous challenges, such as a lack of customer orientation, and required a strong leader with the ability to change the status quo. Absent a more formal power base, he turned to more informal means to accomplish his mandate of organizational change and increasing customer orientation.

Once a year, all 700 of Siemens top managers come together for a leadership conference in Berlin. Given the historical lack of customer focus, Löscher used peer pressure as an informal (or soft) form of power in order to challenge and eventually change the lack of customer orientation. As he recalls from his first leadership conference as CEO, “I collected the Outlook calendars for the previous year from all my division CEOs and board members. Then I mapped how much time they had spent with customers and I ranked them. There was a big debate in my inner circle over whether I should use names. Some felt we would embarrass people, but I decided to put the names on the screen anyway.”

The results of this exercise were quite remarkable: Mr. Löscher spent around 50 percent of his time with customers, more than any other top executive. Clearly, the people who were running the business divisions should rank higher on customer interaction than the CEO. This confirmed the lack of customer orientation in the organization. This ranking has been repeated at every Siemens leadership conference since Löscher took office. Over time, customer orientation has improved because nobody wants to fall short on this metric and endure potential ridicule. Löscher’s leadership style and use of soft power during his early time in office seemed to have paid off, as the Siemens board extended his contract as CEO of the German industry icon a year early.

Source: Löscher, P. 2012. The CEO of Siemens on using a scandal to drive change. Harvard Business Review, 90(11): 42; and Anonymous. 2011. Löscher soll Vorstandschef bleiben. www.manager-magazin.de , July 25: np.

A leader might also be able to influence subordinates because of his or her personality characteristics and behavior. These would be considered the personal bases of power , including referent power and expert power. The source of referent power is a subordinate’s identification with the leader. A leader’s personal attributes or charisma might influence subordinates and make them devoted to that leader. The source of expert power is the leader’s expertise and knowledge. The leader is the expert on whom subordinates depend for information that they need to do their jobs successfully.

personal bases of power

a leader’s personality characteristics and behavior that are the basis of the leader’s power.

Successful leaders use the different bases of power, and often a combination of them, as appropriate to meet the demands of a situation, such as the nature of the task, the personality characteristics of the subordinates, and the urgency of the issue.17 Persuasion and developing consensus are often essential, but so is pressing for action. At some point stragglers must be prodded into line.18 Peter Georgescu, who recently retired as CEO of Young & Rubicam (an advertising and media subsidiary of the UK-based WPP Group), summarized a leader’s dilemma brilliantly (and humorously), “I have knee pads and a .45. I get down and beg a lot, but I shoot people too.”19

Strategy Spotlight 11.4 addresses some of the subtleties of power. Here, the CEO of Siemens successfully brought about organizational change by the effective use of peer pressure.

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LO11.3

The crucial role of emotional intelligence (EI) in successful leadership as well as its potential drawbacks.

Emotional Intelligence: A Key Leadership Trait

In the previous sections, we discussed skills and activities of strategic leadership. The focus was on “what leaders do and how they do it.” Now, the issue becomes “who leaders are,” that is, what leadership traits are the most important. Clearly, these two issues are related, because successful leaders possess the valuable traits that enable them to perform effectively in order to create value for their organization.20

There has been a vast amount of literature on the successful traits of leaders.21 These traits include integrity, maturity, energy, judgment, motivation, intelligence, expertise, and so on. For simplicity, these traits may be grouped into three broad sets of capabilities:

•   Purely technical skills (like accounting or operations research).

•   Cognitive abilities (like analytical reasoning or quantitative analysis).

•   Emotional intelligence (like self-management and managing relationships).

“Emotional intelligence (EI)” has become popular in both the literature and management practice in recent years.22 Harvard Business Review articles published in 1998 and 2000 by psychologist/journalist Daniel Goleman, who is most closely associated with the concept, have become HBR’s most highly requested reprint articles. And two of Goleman’s recent books, Emotional Intelligence and Working with Emotional Intelligence, were both on the New York Times’s best-seller lists. Goleman defines emotional intelligence as the capacity for recognizing one’s own emotions and those of others.23

emotional intelligence (EI)

an individual’s capacity for recognizing his or her own emotions and those of others, including the five components of self-awareness, self-regulation, motivation, empathy, and social skills.

Recent studies of successful managers have found that effective leaders consistently have a high level of EI.24 Findings indicate that EI is a better predictor of life success (economic well-being, satisfaction with life, friendship, family life), including occupational attainments, than IQ. Evidence is consistent with the catchy phrase: “IQ gets you hired, but EQ (Emotional Quotient) gets you promoted.” Human resource managers believe this statement to be true, even for highly technical jobs such as those of scientists and engineers.

This is not to say that IQ and technical skills are irrelevant, but they become “threshold capabilities.” They are the necessary requirements for attaining higher-level managerial positions. EI, on the other hand, is essential for leadership success. Without it, Goleman claims, a manager can have excellent training, an incisive analytical mind, and many smart ideas but will still not be a great leader.

Exhibit 11.3 identifies the five components of EI: self-awareness, self-regulation, motivation, empathy, and social skill.

Self-Awareness

Self-awareness is the first component of EI and brings to mind that Delphic oracle who gave the advice “know thyself” thousands of years ago. Self-awareness involves a person having a deep understanding of his or her emotions, strengths, weaknesses, and drives. People with strong self-awareness are neither overly critical nor unrealistically optimistic. Instead, they are honest with themselves and others.

People generally admire and respect candor. Leaders are constantly required to make judgment calls that require a candid assessment of capabilities—their own and those of others. People who assess themselves honestly (i.e., self-aware people) are well suited to do the same for the organizations they run.25

Self-Regulation

Biological impulses drive our emotions. Although we cannot do away with them, we can strive to manage them. Self-regulation, which is akin to an ongoing inner conversation, frees us from being prisoners of our feelings.26 People engaged in such conversation feel bad moods and emotional impulses just as everyone else does. However, they find ways to control them and even channel them in useful ways.

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EXHIBIT 11.3   The Five Components of Emotional Intelligence at Work

	Definition	Hallmarks
Self-management skills:
Self-awareness	•   The ability to recognize and understand your moods, emotions, and drives, as well as their effect on others.	•   Self-confidence
		•   Realistic self-assessment
		•   Self-deprecating sense of humor
Self-regulation	•   The ability to control or redirect disruptive impulses and moods.	•   Trustworthiness and integrity
		•   Comfort with ambiguity
	•   The propensity to suspend judgment—to think before acting.	•   Openness to change
Motivation	•   A passion to work for reasons that go beyond money or status.	•   Strong drive to achieve
		•   Optimism, even in the face of failure
	•   A propensity to pursue goals with energy and persistence.	•   Organizational commitment
Managing relationships:
Empathy	•   The ability to understand the emotional makeup of other people.	•   Expertise in building and retaining talent
		•   Cross-cultural sensitivity
	•   Skill in treating people according to their emotional reactions.	•   Service to clients and customers
Social skill	•   Proficiency in managing relationships and building networks.	•   Effectiveness in leading change
		•   Persuasiveness
	•   An ability to find common ground and build rapport.	•   Expertise in building and leading teams

 

Source: Reprinted by permission of Harvard Business Review. Exhibit from “What Makes a Leader,” by D. Goleman, January 2004. Copyright © 2004 by the Harvard Business School Publishing Corporation; all rights reserved.

Self-regulated people are able to create an environment of trust and fairness where political behavior and infighting are sharply reduced and productivity tends to be high. People who have mastered their emotions are better able to bring about and implement change in an organization. When a new initiative is announced, they are less likely to panic; they are able to suspend judgment, seek out information, and listen to executives explain the new program.

Motivation

Successful executives are driven to achieve beyond expectations—their own and everyone else’s. Although many people are driven by external factors, such as money and prestige, those with leadership potential are driven by a deeply embedded desire to achieve for the sake of achievement.

Motivated people show a passion for the work itself, such as seeking out creative challenges, a love of learning, and taking pride in a job well done. They also have a high level of energy to do things better as well as a restlessness with the status quo. They are eager to explore new approaches to their work.

Empathy

Empathy is probably the most easily recognized component of EI. Empathy means thoughtfully considering an employee’s feelings, along with other factors, in the process of making intelligent decisions. Empathy is particularly important in today’s business

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environment for at least three reasons: the increasing use of teams, the rapid pace of globalization, and the growing need to retain talent.27

STRATEGY SPOTLIGHT

11.5

EMPATHY IN A PEDIATRIC DENTAL PRACTICE

A key strength of effective leaders is to see situations from another person’s perspective—or in other words, to show empathy. Empathy is especially important when dealing with customers who may not always be able to articulate their preferences. Take dental practices for children. Children’s dental offices often look, smell, and sound remarkably similar to regular dental practices for the simple reason that the owners design their offices in terms of what they produce (i.e., dental services) instead of what would be best for their customers.

While even many parents have negative feelings toward dental offices, it is naturally quite challenging to create some excitement or at least lower the anxieties children experience. That’s where a healthy portion of empathy enters the picture. Let’s try to view your dental practice from a child’s point of view. How to best accomplish this? Forget conventional wisdom, and experience your dental practice from your knees! Several interesting insights may emerge just by emulating a child’s experience. First, what is the first thing that you see when you enter the practice? Chances are, not much, as the reception area is conveniently set at eye level—adult eye level. Even the most wonderful receptionist remains invisible for children coming into the practice. Second, what do you hear? Again, chances are that you will hear the all-too-familiar sound of dental equipment, something that may sound to children like torturing mice in the next room. Third, what do you smell? Frankly, doctor’s offices have a distinct smell that equals panic for children and even many adults.

So what is the major takeaway from putting yourself into a kid’s shoes? Seeing the world from your customer’s point of view may lead you to lower the reception desk so children can see the sweet receptionist. You may also play some one-beat-per-second music to evoke the sense of a heartbeat. Finally, you could sound-proof the examination rooms so that dental drilling noise is reduced. Overall, this example demonstrates that empathy—or the ability to see situations from another person’s perspective—may allow business owners to tailor their service and product offerings to specific customer segments.

Source: Burrus, D. 2011. Flash foresight. New York: Harper Business: xxii–xxiv.

When leading a team, a manager is often charged with arriving at a consensus—often in the face of a high level of emotions. Empathy enables a manager to sense and understand the viewpoints of everyone around the table.

Globalization typically involves cross-cultural dialogue that can easily lead to miscues. Empathetic people are attuned to the subtleties of body language; they can hear the message beneath the words being spoken. They have a deep understanding of the existence and importance of cultural and ethnic differences.

Empathy also plays a key role in retaining talent. Human capital is particularly important to a firm in the knowledge economy when it comes to creating advantages that are sustainable. Leaders need empathy to develop and keep top talent, because when high performers leave, they take their tacit knowledge with them.

Strategy Spotlight 11.5 shows that empathy can pay off in a wide variety of settings. Here it helps a pediatric dental practice to view its business through the eyes of a child.

Social Skill

While the first three components of EI are all self-management skills, the last two—empathy and social skill—concern a person’s ability to manage relationships with others. Social skill may be viewed as friendliness with a purpose: moving people in the direction you desire, whether that’s agreement on a new marketing strategy or enthusiasm about a new product.

Socially skilled people tend to have a wide circle of acquaintances as well as a knack for finding common ground and building rapport. They recognize that nothing gets done alone, and they have a network in place when the time for action comes.

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Social skill can be viewed as the culmination of the other dimensions of EI. People will be effective at managing relationships when they can understand and control their own emotions and empathize with others’ feelings. Motivation also contributes to social skill. People who are driven to achieve tend to be optimistic, even when confronted with setbacks. And when people are upbeat, their “glow” is cast upon conversations and other social encounters. They are popular, and for good reason.

A key to developing social skill is to become a good listener—a skill that many executives find to be quite challenging. Teresa Taylor, chief operating officer at Quest Communications, says:28

“Over the years, something I really try to focus on is truly listening. When I say that, I mean sometimes people act like they’re listening but they’re really formulating their own thoughts in their heads. I’m trying to put myself into someone else’s shoes, trying to figure out what’s motivating them, and why they are in the spot they are in.”

Emotional Intelligence: Some Potential Drawbacks and Cautionary Notes

Many great leaders have great reserves of empathy, interpersonal astuteness, awareness of their own feelings, and an awareness of their impact on others.29 More importantly, they know how to apply these capabilities judiciously as best benefits the situation. Having some minimum level of EI will help a person be effective as a leader as long as it is channeled appropriately. However, if a person has a high level of these capabilities it may become “too much of a good thing” if he or she is allowed to drive inappropriate behaviors. Some additional potential drawbacks of EI can be gleaned by considering the flip side of its benefits.

Effective Leaders Have Empathy for Others However, they also must be able to make the “tough decisions.” Leaders must be able to appeal to logic and reason and acknowledge others’ feelings so that people feel the decisions are correct. However, it is easy to overidentify with others or confuse empathy with sympathy. This can make it more difficult to make the tough decisions.

Effective Leaders Are Astute Judges of People A danger is that leaders may become judgmental and overly critical about the shortcomings they perceive in others. They are likely to dismiss other people’s insights, making them feel undervalued.

Effective Leaders Are Passionate about What They Do, and They Show It This doesn’t mean that they are always cheerleaders. Rather, they may express their passion as persistence in pursuing an objective or a relentless focus on a valued principle. However, there is a fine line between being excited about something and letting your passion close your mind to other possibilities or cause you to ignore realities that others may see.

Effective Leaders Create Personal Connections with Their People Most effective leaders take time to engage employees individually and in groups, listening to their ideas, suggestions and concerns, and responding in ways that make people feel that their ideas are respected and appreciated. However, if the leader makes too many unannounced visits, it may create a culture of fear and micromanagement. Clearly, striking a correct balance is essential.

From a moral standpoint, emotional leadership is neither good nor bad. On the one hand, emotional leaders can be altruistic, focused on the general welfare of the company and its employees, and highly principled. On the other hand, they can be manipulative, selfish, and dishonest. For example, if a person is using leadership solely to gain power, that is not leadership at all.30 Rather, they are using their EI to grasp what people want and pander to those desires in order to gain authority and influence. After all, easy answers sell.

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LO11.4

The importance of developing competency companions and creating a learning organization.

Developing Competency Companions and Creating a Learning Organization

Leaders at all levels of the organization need to reflect on the skills that they have and how they can build and extend their skill set.31 Too often leaders get stuck extending the competencies they already have. However, the most promising path for an individual to learn and grow may be to develop new competencies that complement the skills and abilities they already have. For example, a leader who has great competency in developing innovative ideas can extend the value of that competency by developing strong communication skills. Such a leader would benefit from an interaction effect, a situation where the combination of two skills can generate an outcome that is significantly greater than either skill can produce on its own. By enhancing communication skills, this highly innovative leader is more likely to be able to communicate the value of both innovative ideas she has developed and also the necessity to push innovative learning and development throughout the organization.

Strategy Spotlight 11.6 provides useful insights on the benefits of developing competency companions and how to go about it.

Once leaders have reflected on and enhanced their own competencies, they can turn their attention to building a learning organization. Such an organization is capable of adapting to change, fostering creativity, and succeeding in highly competitive markets.

To introduce the concept of a learning organization, we’ll draw on Charles Handy, one of today’s most respected business visionaries. He is author of The Age of Unreason and The Age of Paradox and he shared an amusing story several years ago:

The other day, a courier could not find my family’s remote cottage. He called his base on his radio, and the base called us to ask directions. He was just around the corner, but his base managed to omit a vital part of the directions. So he called them again, and they called us again. Then the courier repeated the cycle a third time to ask whether we had a dangerous dog. When he eventually arrived, we asked whether it would not have been simpler and less aggravating to everyone if he had called us directly from the roadside telephone booth where he had been parked. “I can’t do that,” he said, “because they won’t refund any money I spend.” “But it’s only pennies!” I exclaimed. “I know,” he said, “but that only shows how little they trust us!”32

At first glance, it would appear that the story epitomizes the lack of empowerment and trust granted to the hapless courier: Don’t ask questions! Do as you’re told!33 However, implicit in this scenario is also the message that learning, information sharing, adaptation, decision making, and so on are not shared throughout the organization. In contrast, leading-edge organizations recognize the importance of having everyone involved in the process of actively learning and adapting. As noted by today’s leading expert on learning organizations, MIT’s Peter Senge, the days when Henry Ford, Alfred Sloan, and Tom Watson “learned for the organization” are gone.

In an increasingly dynamic, interdependent, and unpredictable world, it is simply no longer possible for anyone to “figure it all out at the top.” The old model, “the top thinks and the local acts,” must now give way to integrating thinking and acting at all levels. While the challenge is great, so is the potential payoff. “The person who figures out how to harness the collective genius of the people in his or her organization,” according to former Citibank CEO Walter Wriston, “is going to blow the competition away.”34

Learning and change typically involve the ongoing questioning of an organization’s status quo or method of procedure. This means that all individuals throughout the organization must be reflective.35 Many organizations get so caught up in carrying out their

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day-to-day work that they rarely, if ever, stop to think objectively about themselves and their businesses. They often fail to ask the probing questions that might lead them to call into question their basic assumptions, to refresh their strategies, or to reengineer their work processes. According to Michael Hammer and Steven Stanton, the pioneer consultants who touched off the reengineering movement:

STRATEGY SPOTLIGHT

11.6

COMPETENCY COMPANIONS: LEVERAGING A LEADER’S STRENGTHS

Leaders who want to take the next step in their career can follow a straightforward four-step cross-training process. The basic idea behind this cross-training approach is simple yet effective. While the most effective leaders have at least one competency that makes them great and eventually indispensable, it makes little sense to continually work on already great qualities. Instead, leaders can benefit from identifying and developing complementary strengths. Building complementary strengths—or competency companions—may lead to substantially greater leadership effectiveness than finding increasingly rare opportunities to improve an already outstanding competency.

First, leaders must identify their strengths in areas that usually fall into five categories: character, personal capability, getting results, interpersonal skills, and leading change. While this task can be done in multiple ways, it is important to realize that your own view is less important than how others see you, making a 360-degree evaluation the method of choice.

Second, choose a strength to focus on. Most people find it easy to identity weaknesses and focus their attention on improving them. Unless a competence is extremely underdeveloped (i.e., in the 10th percentile), however, it may pay to focus on an already strong yet not outstanding competency. Developing a competency from strong to outstanding often can raise the perceived leadership effectiveness dramatically. However, choosing between multiple strong competencies is easier said than done, because most people lack clear selection criteria. To engage effectively in this process, leaders should focus on a strong competency that is important to the organization. Moreover, leaders should choose a competency they feel passionate about.

Third, select a companion behavior. While developing a great or outstanding competency is an important step on the journey to becoming an indispensable leader, it may increasingly pay to also focus on a mediocre competency that can be developed in an interacting (or complementary) fashion. As before, this companion competency should be valued by the organization and also be something the leader feels passionate about.

Lastly, develop your companion behavior. Once you have settled on an organizationally valued and personally engaging competency, you should now work on improving the basic skills in this area. Practically speaking, you could look for as many opportunities as possible to develop this competency, both inside and outside of work. For instance, you could take courses or practice informally with friends and coworkers. Volunteer to engage in activities that allow you to practice this skill, and ask for continuous feedback.

Extensive research by Zenger Folkman, a leadership development consultancy, provides solid evidence of the benefits of pairing leader attributes. Such findings were based on an analysis of their database of more than a quarter million 360-degree surveys of some 30,000 developing leaders. Take, for example, the competencies “focuses on results” and “builds relationships.” Only 14 percent of leaders who were reasonably strong (that is, scored in the 75th percentile) in focusing on results but less so in building relationships reached the extraordinary leadership level: the 90th percentile in overall leadership effectiveness. Similarly, only 12 percent of those who were reasonably strong in building relationships but less so in focusing on results reached that level. However, when an individual performed well in both categories, something dramatic happened: Fully 72 percent of those in the 75th percentile in both categories reached the 90th percentile on overall leadership effectiveness.

Source: Zenger, J. H., Folkman, J. R., & Edinger, S. K. 2011. Making yourself indispensable. Harvard Business Review, 89(10): 84–92.

Reflection entails awareness of self, of competitors, of customers. It means thinking without preconception. It means questioning cherished assumptions and replacing them with new approaches. It is the only way in which a winning company can maintain its leadership position, by which a company with great assets can ensure that they continue to be well deployed.36

To adapt to change, foster creativity, and remain competitive, leaders must build learning organizations. Exhibit 11.4 lists the five elements of a learning organization.

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EXHIBIT 11.4   Key Elements of a Learning Organization

These are the five key elements of a learning organization. Each of these items should be viewed as necessary, but not sufficient. That is, successful learning organizations need all five elements.

1.   Inspiring and motivating people with a mission or purpose.

2.   Empowering employees at all levels.

3.   Accumulating and sharing internal knowledge.

4.   Gathering and integrating external information.

5.   Challenging the status quo and enabling creativity.

Inspiring and Motivating People with a Mission or Purpose

Successful learning organizations create a proactive, creative approach to the unknown, actively solicit the involvement of employees at all levels, and enable all employees to use their intelligence and apply their imagination. Higher-level skills are required of everyone, not just those at the top.37 A learning environment involves organizationwide commitment to change, an action orientation, and applicable tools and methods.38 It must be viewed by everyone as a guiding philosophy and not simply as another change program.

learning organizations

organizations that create a proactive, creative approach to the unknown, characterized by (1) inspiring and motivating people with a mission and purpose, (2) empowering employees at all levels, (3) accumulating and sharing internal knowledge, (4) gathering and integrating external information, and (5) challenging the status quo and enabling creativity.

A critical requirement of all learning organizations is that everyone feels and supports a compelling purpose. In the words of William O’Brien, CEO of Hanover Insurance, “Before there can be meaningful participation, people must share certain values and pictures about where we are trying to go. We discovered that people have a real need to feel that they’re part of an enabling mission.”39 Such a perspective is consistent with an intensive study by Kouzes and Posner, authors of The Leadership Challenge.40 They recently analyzed data from nearly one million respondents who were leaders at various levels in many organizations throughout the world. A major finding was that what leaders struggle with most is communicating an image of the future that draws others in, that is, it speaks to what others see and feel. To illustrate:

Buddy Blanton, a principal program manager at Rockwell Collins, learned this lesson firsthand. He asked his team for feedback on his leadership, and the vast majority of it was positive. However, he got some strong advice from his team about how he could be more effective in inspiring a shared vision. “You would benefit by helping us, as a team, to understand how you go to your vision. We want to walk with you while you create the goals and vision, so we all get to the end of the vision together.”41

Inspiring and motivating people with a mission or purpose is a necessary but not sufficient condition for developing an organization that can learn and adapt to a rapidly changing, complex, and interconnected environment.

Empowering Employees at All Levels

“The great leader is a great servant,” asserted Ken Melrose, CEO of Toro Company and author of Making the Grass Greener on Your Side.42 A manager’s role becomes one of creating an environment where employees can achieve their potential as they help move the organization toward its goals. Instead of viewing themselves as resource controllers and power brokers, leaders must envision themselves as flexible resources willing to assume numerous roles as coaches, information providers, teachers, decision makers, facilitators, supporters, or listeners, depending on the needs of their employees.43

The central key to empowerment is effective leadership. Empowerment can’t occur in a leadership vacuum. According to Melrose, “You best lead by serving the needs of your people. You don’t do their jobs for them; you enable them to learn and progress on the job.”

Leading-edge organizations recognize the need for trust, cultural control, and expertise at all levels instead of the extensive and cumbersome rules and regulations inherent

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in hierarchical control.44 Some have argued that too often organizations fall prey to the “heroes-and-drones syndrome,” wherein the value of those in powerful positions is exalted and the value of those who fail to achieve top rank is diminished. Such an attitude is implicit in phrases such as “Lead, follow, or get out of the way” or, even less appealing, “Unless you’re the lead horse, the view never changes.” Few will ever reach the top hierarchical positions in organizations, but in the information economy, the strongest organizations are those that effectively use the talents of all the players on the team.

STRATEGY SPOTLIGHT

11.7    CROWDSOURCING

USING THE WISDOM OF YOUR EMPLOYEES TO MAKE BETTER DECISIONS

CEOs are often surrounded by an aura of unfailing business acumen. Yet few CEOs live up to these high expectations over the long run, suggesting that even the most able CEOs have limited abilities. Ironically, shattering the image of the almighty CEO by realizing and identifying cognitive limitations may help us to improve organizational decision making. Consider WBG Construction, a small home builder west of Boston. When important decisions need to be made, Greg Burrill, the president, asks all employees with relevant knowledge or a stake in the outcome for their thoughts. This collaborative approach recently led to a decision that not only sold a house but also inspired a new floor plan that appealed to a whole new segment of buyers.

As another example, EMC, the data storage giant, enables participation by a social media platform called EMC | One. When the recession hit and cost cutting became imperative, EMC used this social media platform to do something most companies would leave to top management: decide where to cut costs. Several thousand employees participated and identified cost savings that were largely unknown to top management. The resulting cuts were less painful because employees had a say in the cost reduction. Empowering employees in this manner utilizes the day-to-day insights of lower-level employees and benefits both the firm and the workforce.

In some other cases, bad decisions not only cost money but also can lead to heartbreaking accidents. NASA can look back at some 50 years of pioneering success, but also tragic accidents caused by bad judgment. In February 2009, the flight of space shuttle Discovery was overshadowed by uncertainties about whether an issue with the fuel system should delay the launch. Prior space shuttle launch decisions were made by a small group of individuals supported by a culture of complacency born of many prior successes and communication breakdowns. But NASA finally implemented a much needed change of culture that now values input from all group members. As Mike Ryschkewitsch, NASA’s chief engineer observed, “One of the things that NASA strongly emphasizes now is that any individual who works here, if they see something that doesn’t look right, they have a responsibility to raise it, and they can raise it.” By utilizing the insights of individuals in their organizations, leaders hope to improve organizational decision making and secure the long-term success of their businesses.

Source: Davenport, T. H. 2012. The wisdom of your in-house crowd. Harvard Business Review, 90(10): 40; and Davenport, T. H., & Manville, B. 2012. Judgment calls: Twelve stories of big decisions and the teams that got them right. Boston: Harvard Business Review Press: 25–38.

Empowering individuals by soliciting their input helps an organization to enjoy better employee morale. It also helps create a culture in which middle- and lower-level employees feel that their ideas and initiatives will be valued, and enhance firm performance as explained in Strategy Spotlight 11.7.

Accumulating and Sharing Internal Knowledge

Effective organizations must also redistribute information, knowledge (skills to act on the information), and rewards.45 A company might give frontline employees the power to act as “customer advocates,” doing whatever is necessary to satisfy customers. The company needs to disseminate information by sharing customer expectations and feedback as well as financial information. The employees must know about the goals of the business as well as how key value-creating activities in the organization are related to each other. Finally, organizations should allocate rewards on how effectively employees use information, knowledge, and power to improve customer service quality and the company’s overall performance.46

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Let’s take a look at Whole Foods Market, Inc., the largest natural foods grocer in the United States.47 An important benefit of the sharing of internal information at Whole Foods becomes the active process of internal benchmarking. Competition is intense at Whole Foods. Teams compete against their own goals for sales, growth, and productivity; they compete against different teams in their stores; and they compete against similar teams at different stores and regions. There is an elaborate system of peer reviews through which teams benchmark each other. The “Store Tour” is the most intense. On a periodic schedule, each Whole Foods store is toured by a group of as many as 40 visitors from another region. Lateral learning—discovering what your colleagues are doing right and carrying those practices into your organization—has become a driving force at Whole Foods.

In addition to enhancing the sharing of company information both up and down as well as across the organization, leaders also have to develop means to tap into some of the more informal sources of internal information. In a recent survey of presidents, CEOs, board members, and top executives in a variety of nonprofit organizations, respondents were asked what differentiated the successful candidates for promotion. The consensus: The executive was seen as a person who listens. According to Peter Meyer, the author of the study, “The value of listening is clear: You cannot succeed in running a company if you do not hear what your people, customers, and suppliers are telling you…. Listening and understanding well are key to making good decisions.”48

Gathering and Integrating External Information

Recognizing opportunities, as well as threats, in the external environment is vital to a firm’s success. As organizations and environments become more complex and evolve rapidly, it is far more critical for employees and managers to become more aware of environmental trends and events—both general and industry-specific—and more knowledgeable about their firm’s competitors and customers. Next, we will discuss some ideas on how to do it.

First, the Internet has dramatically accelerated the speed with which anyone can track down useful information or locate people who might have useful information. Prior to the Net, locating someone who used to work at a company—always a good source of information—was quite a challenge. However, today people post their résumés on the web; they participate in discussion groups and talk openly about where they work.

Marc Friedman, manager of market research at $1 billion Andrew Corporation, a fast-growing manufacturer of wireless communications products provides an example of effective Internet use.49 One of Friedman’s preferred sites to visit is Corptech’s website, which provides information on 45,000 high-tech companies and more than 170,000 executives. One of his firm’s product lines consisted of antennae for air-traffic control systems. He got a request to provide a country-by-country breakdown of upgrade plans for various airports. He knew nothing about air-traffic control at the time. However, he found a site on the Internet for the International Civil Aviation Organization. Fortunately, it had a great deal of useful data, including several research companies working in his area of interest.

benchmarking

managers seeking out best examples of a particular practice as part of an ongoing effort to improve the corresponding practice in their own organization.

Second, company employees at all levels can use “garden variety” traditional sources to acquire external information. Much can be gleaned by reading trade and professional journals, books, and popular business magazines. Other venues for gathering external information include membership in professional or trade organizations, attendance at meetings and conventions, and networking among colleagues inside and outside of your industry. Intel’s Andy Grove gathered information from people like DreamWorks SKG’s Steven Spielberg and Tele-Communications Inc.’s John Malone.50 He believed that such interaction provides insights into how to make personal computers more entertaining and better at communicating. Internally, Grove spent time with the young engineers who run Intel Architecture labs, an Oregon-based facility that Grove hoped to become the de facto R&D lab for the entire PC industry.

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Third, benchmarking can be a useful means of employing external information. Here managers seek out the best examples of a particular practice as part of an ongoing effort to improve the corresponding practice in their own organization.51 There are two primary types of benchmarking. Competitive benchmarking restricts the search for best practices to competitors, while functional benchmarking endeavors to determine best practices regardless of industry. Industry-specific standards (e.g., response times required to repair power outages in the electric utility industry) are typically best handled through competitive benchmarking, whereas more generic processes (e.g., answering 1-800 calls) lend themselves to functional benchmarking because the function is essentially the same in any industry.

competitive benchmarking

benchmarking where the examples are drawn from competitors in the industry.

functional benchmarking

benchmarking where the examples are drawn from any organization, even those outside the industry.

Ford Motor Company used benchmarking to study Mazda’s accounts payable operations.52 Its initial goal of a 20 percent cut in its 500-employee accounts payable staff was ratcheted up to 75 percent—and met. Ford found that staff spent most of their time trying to match conflicting data in a mass of paper, including purchase orders, invoices, and receipts. Following Mazda’s example, Ford created an “invoiceless system” in which invoices no longer trigger payments to suppliers. The receipt does the job.

Fourth, focus directly on customers for information. For example, William McKnight, head of 3M’s Chicago sales office, required that salesmen of abrasives products talk directly to the workers in the shop to find out what they needed, instead of calling on only front-office executives.53 This was very innovative at the time—1909! But it illustrates the need to get to the end user of a product or service. (McKnight went on to become 3M’s president from 1929 to 1949 and chairman from 1949 to 1969.) More recently, James Taylor, senior vice president for global marketing at Gateway 2000, discussed the value of customer input in reducing response time, a critical success factor in the PC industry.

We talk to 100,000 people a day—people calling to order a computer, shopping around, looking for tech support. Our website gets 1.1 million hits per day. The time it takes for an idea to enter this organization, get processed, and then go to customers for feedback is down to minutes. We’ve designed the company around speed and feedback.54

Challenging the Status Quo and Enabling Creativity

Earlier in this chapter we discussed some of the barriers that leaders face when trying to bring about change in an organization: vested interests in the status quo, systemic barriers, behavioral barriers, political barriers, and personal time constraints. For a firm to become a learning organization, it must overcome such barriers in order to foster creativity and enable it to permeate the firm. This becomes quite a challenge if the firm is entrenched in a status quo mentality.

Perhaps the best way to challenge the status quo is for the leader to forcefully create a sense of urgency. For example, when Tom Kasten was vice president of Levi Strauss, he had a direct approach to initiating change.

You create a compelling picture of the risks of not changing. We let our people hear directly from customers. We videotaped interviews with customers and played excerpts. One big customer said, “We trust many of your competitors implicitly. We sample their deliveries. We open all Levi’s deliveries.” Another said, “Your lead times are the worst. If you weren’t Levi’s, you’d be gone.” It was powerful. I wish we had done more of it.55

Such initiative, if sincere and credible, establishes a shared mission and the need for major transformations. It can channel energies to bring about both change and creative endeavors.

Establishing a “culture of dissent” can be another effective means of questioning the status quo and serving as a spur toward creativity. Here norms are established whereby dissenters can openly question a superior’s perspective without fear of retaliation or

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retribution. Consider the perspective of Steven Balmer, Microsoft’s CEO, in discussing the firm’s former chairman, Bill Gates.

Bill [Gates] brings to the company the idea that conflict can be a good thing…. Bill knows it’s important to avoid that gentle civility that keeps you from getting to the heart of an issue quickly. He likes it when anyone, even a junior employee, challenges him, and you know he respects you when he starts shouting back.56

Closely related to the culture of dissent is the fostering of a culture that encourages risk taking. “If you’re not making mistakes, you’re not taking risks, and that means you’re not going anywhere,” claimed John Holt, coauthor of Celebrate Your Mistakes.57 “The key is to make errors faster than the competition, so you have more chances to learn and win.”

Companies that cultivate cultures of experimentation and curiosity make sure that failure is not, in essence, an obscene word. They encourage mistakes as a key part of their competitive advantage. It has been said that innovation has a great paradox: Success—that is, true breakthroughs—usually come through failure. Below are some approaches to encourage risk taking and learning from mistakes in an organization:58

•   Formalize Forums for Failure To keep failures and the important lessons that they offer from getting swept under the rug, carve out time for reflection. GE recently began sharing lessons from failure by bringing together managers whose “Imagination Breakthrough” efforts were put on the shelf.

•   Move the Goalposts Innovation requires flexibility in meeting goals, since early predictions are often little more than educated guesses. Intuit’s Scott Cook even goes so far as to suggest that teams developing new products ignore forecasts in the early days. “For every one of our failures, we had spreadsheets that looked awesome,” he claims.

•   Bring in Outsiders Outsiders can help neutralize the emotions and biases that prop up a flop. Customers can be the most valuable. After its DNA chip failed, Corning brought pharmaceutical companies in early to test its new drug-discovery technology, Epic.

•   Prove Yourself Wrong, Not Right Development teams tend to look for supporting, rather than countervailing, evidence. “You have to reframe what you’re seeking in the early days,” says Innosight’s Scott Anthony. “You’re not really seeking proof that you have the right answer. It’s more about testing to prove yourself wrong.”

Finally, failure can play an important and positive role in one’s professional development. John Donahue, eBay’s CEO, draws on the sport of baseball in recalling the insight (and inspiration!) one of his former bosses shared with him:59

“The best hitters in Major League Baseball, world class, they can strike out six times out of ten and still be the greatest hitters of all time. That’s my philosophy—the key is to get up in that batter’s box and take a swing. And all you have to do is hit one single, a couple of doubles, and an occasional home run out of every ten at-bats, and you’re going to be the best hitter or the best business leader around. You can’t play in the major leagues without having a lot of failures.”

LO11.5

The leader’s role in establishing an ethical organization.

Creating an Ethical Organization

Ethics may be defined as a system of right and wrong.60 Ethics assists individuals in deciding when an act is moral or immoral, socially desirable or not. The sources for an individual’s ethics include religious beliefs, national and ethnic heritage, family practices, community standards, educational experiences, and friends and neighbors. Business ethics is the application of ethical standards to commercial enterprise.

ethics

a system of right and wrong that assists individuals in deciding when an act is moral or immoral and/or socially desirable or not.

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Individual Ethics versus Organizational Ethics

organizational ethics

the values, attitudes, and behavioral patterns that define an organization’s operating culture and that determine what an organization holds as acceptable behavior.

Many leaders think of ethics as a question of personal scruples, a confidential matter between employees and their consciences. Such leaders are quick to describe any wrongdoing as an isolated incident, the work of a rogue employee. They assume the company should not bear any responsibility for individual misdeeds. In their view, ethics has nothing to do with leadership.

Ethics has everything to do with leadership. Seldom does the character flaw of a lone actor completely explain corporate misconduct. Instead, unethical business practices typically involve the tacit, if not explicit, cooperation of others and reflect the values, attitudes, and behavior patterns that define an organization’s operating culture. Ethics is as much an organizational as a personal issue. Leaders who fail to provide proper leadership to institute proper systems and controls that facilitate ethical conduct share responsibility with those who conceive, execute, and knowingly benefit from corporate misdeeds.61

The ethical orientation of a leader is a key factor in promoting ethical behavior. Ethical leaders must take personal, ethical responsibility for their actions and decision making. Leaders who exhibit high ethical standards become role models for others and raise an organization’s overall level of ethical behavior. Ethical behavior must start with the leader before the employees can be expected to perform accordingly.

ethical orientation

the practices that firms use to promote an ethical business culture, including ethical role models, corporate credos and codes of conduct, ethically-based reward and evaluation systems, and consistently enforced ethical policies and procedures.

There has been a growing interest in corporate ethical performance. Some reasons for this trend may be the increasing lack of confidence regarding corporate activities, the growing emphasis on quality of life issues, and a spate of recent corporate scandals. Without a strong ethical culture, the chance of ethical crises occurring is enhanced. Ethical crises can be very expensive—both in terms of financial costs and in the erosion of human capital and overall firm reputation. Merely adhering to the minimum regulatory standards may not be enough to remain competitive in a world that is becoming more socially conscious. Strategy Spotlight 11.8 highlights potential ethical problems at utility companies that are trying to capitalize on consumers’ desire to participate in efforts to curb global warming.

The past several years have been characterized by numerous examples of unethical and illegal behavior by many top-level corporate executives. These include executives of firms such as Enron, Tyco, WorldCom, Inc., Adelphia, and Healthsouth Corp., who were all forced to resign and are facing (or have been convicted of) criminal charges. Perhaps the most glaring example is Bernie Madoff, whose Ponzi scheme, which unraveled in 2008, defrauded investors of $50 billion in assets they had set aside for retirement and charitable donations.

The ethical organization is characterized by a conception of ethical values and integrity as a driving force of the enterprise.62 Ethical values shape the search for opportunities, the design of organizational systems, and the decision-making process used by individuals and groups. They provide a common frame of reference that serves as a unifying force across different functions, lines of business, and employee groups. Organizational ethics helps to define what a company is and what it stands for.

There are many potential benefits of an ethical organization, but they are often indirect. Research has found somewhat inconsistent results concerning the overall relationship between ethical performance and measures of financial performance.63 However, positive relationships have generally been found between ethical performance and strong organizational culture, increased employee efforts, lower turnover, higher organizational commitment, and enhanced social responsibility.

The advantages of a strong ethical orientation can have a positive effect on employee commitment and motivation to excel. This is particularly important in today’s knowledge-intensive organizations, where human capital is critical in creating value and competitive advantages. Positive, constructive relationships among individuals (i.e., social capital) are vital in leveraging human capital and other resources in an organization. Drawing on the

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concept of stakeholder management, an ethically sound organization can also strengthen its bonds among its suppliers, customers, and governmental agencies.

STRATEGY SPOTLIGHT

11.8

ENVIRONMENTAL SUSTAINABILITY ETHICS

GREEN ENERGY: REAL OR JUST A MARKETING PLOY?

Many consumers want to “go green” and are looking for opportunities to do so. Utility companies that provide heat and electricity are one of the most obvious places to turn, because they often use fossil fuels that could be saved through energy conservation or replaced by using alternative energy sources. In fact, some consumers are willing to pay a premium to contribute to environmental sustainability efforts if paying a little more will help curb global warming. Knowing this, many power companies in the United States have developed alternative energy programs and appealed to customers to help pay for them.

Unfortunately, many of the power companies that are offering eco-friendly options are falling short on delivering on them. Some utilities have simply gotten off to a slow start or found it difficult to profitably offer alternative power. Others, however, are suspected of committing a new type of fraud—“greenwashing.” This refers to companies that make unsubstantiated claims about how environmentally friendly their products or services really are. In the case of many power companies, their claims of “green power” are empty promises. Instead of actually generating additional renewable energy, most of the premiums are going for marketing costs. “They are preying on people’s goodwill,” says Stephen Smith, executive director of the Southern Alliance for Clean Energy, an advocacy group in Knoxville, Tennessee.

Consider what two power companies offered and how the money was actually spent:

•   Duke Power of Indiana created a program called “GoGreen Power.” Customers were told that they could pay a green-energy premium and a specific amount of electricity would be obtained from renewable sources. What actually happened? Less than 18 percent of voluntary customer contributions in a recent year went to renewable energy development.

•   Alliant Energy of Iowa established a program dubbed “Second Nature.” Customers were told that they would “support the growth of earth-friendly ‘green power’ created by wind and biomass.” What actually happened? More than 56 percent of expenditures went to marketing and administrative costs, not green-energy development.

Sources: Elgin, B. & Holden, D. 2008. Green Power: Buyers Beware. BusinessWeek, September 29: 68–70; www.cleanenergy.org ; duke-energy.com ; and alliantenergy.com .

LO11.6

The difference between integrity-based and compliance-based approaches to organizational ethics.

Integrity-Based versus Compliance-Based Approaches to Organizational Ethics

Before discussing the key elements of an ethical organization, one must understand the links between organizational integrity and the personal integrity of an organization’s members.64 There cannot be high-integrity organizations without high-integrity individuals. However, individual integrity is rarely self-sustaining. Even good people can lose their bearings when faced with pressures, temptations, and heightened performance expectations in the absence of organizational support systems and ethical boundaries. Organizational integrity rests on a concept of purpose, responsibility, and ideals for an organization as a whole. An important responsibility of leadership is to create this ethical framework and develop the organizational capabilities to make it operational.65

Lynn Paine, an ethics scholar at Harvard, identifies two approaches: the compliance-based approach and the integrity-based approach. (See Exhibit 11.5 for a comparison of compliance-based and integrity-based strategies.) Faced with the prospect of litigation, several organizations reactively implement compliance-based ethics programs . Such programs are typically designed by a corporate counsel with the goal of preventing, detecting, and punishing legal violations. But being ethical is much more than being legal, and an integrity-based approach addresses the issue of ethics in a more comprehensive manner.

compliance-based ethics programs

programs for building ethical organizations that have the goal of preventing, detecting, and punishing legal violations.

Integrity-based ethics programs combine a concern for law with an emphasis on managerial responsibility for ethical behavior. It is broader, deeper, and more demanding

integrity-based ethics programs

programs for building ethical organizations that combine a concern for law with an emphasis on managerial responsibility for ethical behavior, including (1) enabling ethical conduct; (2) examining the organization’s and members’ core guiding values, thoughts, and actions; and (3) defining the responsibilities and aspirations that constitute an organization’s ethical compass.

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than a legal compliance initiative. It is broader in that it seeks to enable responsible conduct. It is deeper in that it cuts to the ethos and operating systems of an organization and its members, their core guiding values, thoughts, and actions. It is more demanding because it requires an active effort to define the responsibilities that constitute an organization’s ethical compass. Most importantly, organizational ethics is seen as the responsibility of management.

EXHIBIT 11.5   Approaches to Ethics Management

Characteristics	Compliance-Based Approach	Integrity-Based Approach
Ethos	Conformity with externally imposed standards	Self-governance according to chosen standards
Objective	Prevent criminal misconduct	Enable responsible conduct
Leadership	Lawyer-driven	Management-driven with aid of lawyers, HR, and others
Methods	Education, reduced discretion, auditing and controls, penalties	Education, leadership, accountability, organizational systems and decision processes, auditing and controls, penalties
Behavioral Assumptions	Autonomous beings guided by material self-interest	Social beings guided by material self-interest, values, ideals, peers

 

Source: Reprinted by permission of Harvard Business Review. Exhibit from “Managing Organizational Integrity,” by L. S. Paine. Copyright © 1994 by the Harvard Business School Publishing Corporation; all rights reserved.

A corporate counsel may play a role in designing and implementing integrity strategies, but it is managers at all levels and across all functions that are involved in the process. Once integrated into the day-to-day operations, such strategies can prevent damaging ethical lapses, while tapping into powerful human impulses for moral thought and action. Ethics becomes the governing ethos of an organization and not burdensome constraints. Here is an example of an organization that goes beyond mere compliance to laws in building an ethical organization:

In teaching ethics to its employees, Texas Instruments, the $13 billion chip and electronics manufacturer, asks them to run an issue through the following steps: Is it legal? Is it consistent with the company’s stated values? Will the employee feel bad doing it? What will the public think if the action is reported in the press? Does the employee think it is wrong? If the employees are not sure of the ethicality of the issue, they are encouraged to ask someone until they are clear about it. In the process, employees can approach high-level personnel and even the company’s lawyers. At TI, the question of ethics goes much beyond merely being legal. It is no surprise, that this company is a benchmark for corporate ethics and has been a recipient of three ethics awards: the David C. Lincoln Award for Ethics and Excellence in Business, American Business Ethics Award, and Bentley College Center for Business Ethics Award.66

LO11.7

Several key elements that organizations must have to become an ethical organization.

Compliance-based approaches are externally motivated—that is, based on the fear of punishment for doing something unlawful. On the other hand, integrity-based approaches are driven by a personal and organizational commitment to ethical behavior.

A firm must have several key elements to become a highly ethical organization:

•   Role models.

•   Corporate credos and codes of conduct.

•   Reward and evaluation systems.

•   Policies and procedures.

These elements are highly interrelated. Reward structures and policies will be useless if leaders are not sound role models. That is, leaders who implicitly say, “Do as I say, not as

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I do,” will quickly have their credibility eroded and such actions will sabotage other elements that are essential to building an ethical organization.

Role Models

For good or for bad, leaders are role models in their organizations. Perhaps few executives can share an experience that better illustrates this than Linda Hudson, president of General Dynamics.67 Right after she was promoted to become her firm’s first female president, she went to Nordstrom and bought some new suits to wear to work. A lady at the store showed her how to tie a scarf in a very unique way. The day after she wore it to work, guess what: no fewer than a dozen women in the organization were wearing scarves tied exactly the same way! She reflects:

“And that’s when I realized that life was never going to be the way it had been before, that people were watching everything I did. And it wasn’t just going to be about how I dressed. It was about my behavior, the example I set, the tone I set, the way I carried myself, and how confident I was—all those kinds of things…. As the leader, people are looking at you in a way you could not have imagined in other roles.”

Clearly, leaders must “walk the talk”; they must be consistent in their words and deeds. The values as well as the character of leaders become transparent to an organization’s employees through their behaviors. When leaders do not believe in the ethical standards that they are trying to inspire, they will not be effective as good role models. Being an effective leader often includes taking responsibility for ethical lapses within the organization—even though the executives themselves are not directly involved. Consider the perspective of Dennis Bakke, CEO of AES, the $18 billion global electricity company based in Arlington, Virginia.

There was a major breach (in 1992) of the AES values. Nine members of the water treatment team in Oklahoma lied to the EPA about water quality at the plant. There was no environmental damage, but they lied about the test results. A new, young chemist at the plant discovered it, told a team leader, and we then were notified. Now, you could argue that the people who lied were responsible and were accountable, but the senior management team also took responsibility by taking pay cuts. My reduction was about 30 percent.68

Such action enhances the loyalty and commitment of employees throughout the organization. Many would believe that it would have been much easier (and personally less expensive!) for Bakke and his management team to merely take strong punitive action against the nine individuals who were acting contrary to the behavior expected in AES’s ethical culture. However, by sharing responsibility for the misdeeds, the top executives—through their highly visible action—made it clear that responsibility and penalties for ethical lapses go well beyond the “guilty” parties. Such courageous behavior by leaders helps to strengthen an organization’s ethical environment.

Corporate Credos and Codes of Conduct

corporate credo

a statement of the beliefs typically held by managers in a corporation.

Corporate credos and codes of conduct are mechanisms that provide statements of norms and beliefs as well as guidelines for decision making. They provide employees with a clear understanding of the organization’s policies and ethical position. Such guidelines also provide the basis for employees to refuse to commit unethical acts and help to make them aware of issues before they are faced with the situation. For such codes to be truly effective, organization members must be aware of them and what behavioral guidelines they contain.69 Strategy Spotlight 11.9 identifies four key reasons why codes of conduct support organizational efforts to maintain a safe and ethical workplace.

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STRATEGY SPOTLIGHT

11.9    ETHICS

ELEMENTS OF A CORPORATE CODE

Corporate codes are not simply useful for conveying organizational norms and policies, but they also serve to legitimize an organization in the eyes of others. In the United States, federal guidelines advise judges, when determining how to sentence a company convicted of a crime, to consider whether it had a written code and was out of compliance with its own ethical guidelines. The United Nations and countries around the world have endorsed codes as a way to promote corporate social responsibility. As such, a code provides an increasingly important corporate social contract that signals a company’s willingness to act ethically.

For employees, codes of conduct serve four key purposes:

1.   Help employees from diverse backgrounds work more effectively across cultural backgrounds.

2.   Provide a reference point for decision making.

3.   Help attract individuals who want to work for a business that embraces high standards.

4.   Help a company to manage risk by reducing the likelihood of damaging misconduct.

With recent scandals on Wall Street, many corporations are trying to put more teeth into their codes of conduct. Nasdaq now requires that listed companies distribute a code to all employees. German software giant SAP’s code informs employees that violations of the code “can result in consequences that affect employment, and could possibly lead to external investigation, civil law proceedings, or criminal charges.” Clearly, codes of conduct are an important part of maintaining an ethical organization.

Sources: Paine, L., Deshpande, R., Margolis, J. D., & Bettcher, K. E. 2005. Up to Code: Does Your Company’s Conduct Meet World Class Standards? Harvard Business Review, 82(12): 122–126; and Stone, A. 2004. Putting Teeth in Corporate Ethics Codes. www.businessweek.com , February 19.

Large corporations are not the only ones to develop and use codes of conduct. Consider the example of Wetherill Associates (WAI), a small, privately held supplier of electrical parts to the automotive market.

Rather than a conventional code of conduct, WAI has a Quality Assurance Manual—a combination of philosophy text, conduct guide, technical manual, and company profile—that describes the company’s commitment to honesty, ethical action, and integrity. WAI doesn’t have a corporate ethics officer, because the company’s corporate ethics officer is Marie Bothe, WAI’s CEO. She sees her main function as keeping the 350-employee company on the path of ethical behavior and looking for opportunities to help the community. She delegates the “technical” aspects of the business—marketing, finance, personnel, and operations—to other members of the organization.70

Reward and Evaluation Systems

It is entirely possible for a highly ethical leader to preside over an organization that commits several unethical acts. How? A flaw in the organization’s reward structure may inadvertently cause individuals to act in an inappropriate manner if rewards are seen as being distributed on the basis of outcomes rather than the means by which goals and objectives are achieved.71

Generally speaking, unethical (or illegal) behaviors are also more likely to take place when competition is intense. Some have called this the “dark side of competition.” Consider a couple of examples:72

•   Competition among educational institutions for the best student is becoming stiffer. A senior admissions officer at Claremont McKenna College resigned after admitting to inflating SAT scores of the incoming classes for six years. The motive, of course, was to boost the school’s rankings in the U.S. News and World Report’s annual listing of top colleges and universities in the United States. Carmen Nobel, who reported the incident in Working Knowledge (a Harvard Business School publication), suggested that the scandal “questions the value of competitive rankings.”

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•   A study of 11,000 New York vehicle emission test facilities found that companies with a greater number of local competitors passed cars with considerably high emission rates, and lost customers when they failed to pass the tests. The authors of the study concluded, “In contexts when pricing is restricted, firms use illicit quality as a business strategy.”

Many companies have developed reward and evaluation systems that evaluate whether a manager is acting in an ethical manner. For example, Raytheon, a $24 billion defense contractor, incorporates the following items in its “Leadership Assessment Instrument”:73

•   Maintains unequivocal commitment to honesty, truth, and ethics in every facet of behavior.

•   Conforms with the letter and intent of company policies while working to affect any necessary policy changes.

•   Actions are consistent with words; follows through on commitments; readily admits mistakes.

•   Is trusted and inspires others to be trusted.

As noted by Dan Burnham, Raytheon’s former CEO: “What do we look for in a leadership candidate with respect to integrity? What we’re really looking for are people who have developed an inner gyroscope of ethical principles. We look for people for whom ethical thinking is part of what they do—no different from ‘strategic thinking’ or ‘tactical thinking.’ ”

Policies and Procedures

Many situations that a firm faces have regular, identifiable patterns. Leaders tend to handle such routine by establishing a policy or procedure to be followed that can be applied uniformly to each occurrence. Such guidelines can be useful in specifying the proper relationships with a firm’s customers and suppliers. For example, Levi Strauss has developed stringent global sourcing guidelines and Chemical Bank (part of J. P. Morgan Chase Bank) has a policy of forbidding any review that would determine if suppliers are Chemical customers when the bank awards contracts.

Carefully developed policies and procedures guide behavior so that all employees will be encouraged to behave in an ethical manner. However, they must be reinforced with effective communication, enforcement, and monitoring, as well as sound corporate governance practices. In addition, the Sarbanes-Oxley Act of 2002 provides considerable legal protection to employees of publicly traded companies who report unethical or illegal practices. Provisions in the Act coauthored by Senator Grassley include:74

•   Make it unlawful to “discharge, demote, suspend, threaten, harass, or in any manner discriminate against ‘a whistleblower.’ ”

•   Establish criminal penalties of up to 10 years in jail for executives who retaliate against whistleblowers.

•   Require board audit committees to establish procedures for hearing whistleblower complaints.

•   Allow the Secretary of Labor to order a company to rehire a terminated whistleblower with no court hearings whatsoever.

•   Give a whistleblower the right to a jury trial, bypassing months or years of cumbersome administrative hearings.

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ISSUE FOR DEBATE

Pacific Investment Management Company, LLC (commonly called PIMCO), is an investment firm headquartered in Newport Beach, California. PIMCO oversees investments on behalf of a wide range of clients, including millions of retirement savers, public and private pension plans, educational institutions, central banks, foundations and endowments, among others. With $290 billion in assets, PIMCO Total Return Fund is managed by co-founder and Co-Chief Investment Officer Bill Gross.

Several years ago, Gross noted a problem brewing that could really affect his investment strategy:

“In 2006, there were signs that this had become a highly leveraged Ponzi economy and that housing was at the pinnacle of this leverage. The temperature of the U.S. housing market was always the best read here in Orange County (California). But one day that August, as I was going across the street for my daily yoga exercise, it occurred to me that we needed to get a feel for the rest of the country.”

Gross’s radical idea was to take 10 of PIMCO’s 40 credit analysts and turn them into “fake” home buyers to see what was actually happening in the housing market! While they didn’t have a bankroll and had no intention of buying a house, they each were given a territory that they would visit multiple times a month. These analysts would pretend to be a serious buyer in order to get information on mortgage lending practices. Over a two-year period, they found that many houses could be bought with no money down, or without any documentation to prove income. This was occurring all across the country!

Gross admitted that he was “not necessarily proud of the obvious deception.” However, “this little bit of trickery alerted [PIMCO] to what was really going on—liar loans and extravagant lending practices.” The information these analysts found was shocking and led PIMCO to stay out of the subprime mortgage market. Although not readily apparent at the time to all, the housing bubble and subprime mortgage market would later play a key role in the economy’s meltdown.

Discussion Questions

1.   What do you think about the ethics of pretending to buy homes?

2.   Do the means justify the ends?

3.   Was this effective leadership?

Sources: Brady, D. 2011. Etc. Hard choices—Interview with Bill Gross. Bloomberg Businessweek, June 13:88; and Vaishampayan, S. & Collins, M. 2012. Bill Miller looks to housing for redemption. Bloomberg Businessweek, October 22: 53–54.

Reflecting on Career Implications …

   Strategic Leadership: The chapter identifies three interdependent activities that are central to strategic leadership; namely, setting direction, designing the organization, and nurturing a culture dedicated to excellence and ethical behavior. Both during your life as a student and in organizations you work, you have often assumed leadership positions. To what extent have you consciously and successfully engaged in each of these activities? Observe the leaders in your organizations and assess to what extent you can learn from them the qualities of strategic leadership that you can use to advance your own careers.

   Power: Identify the sources of power used by your superior at work. How do his or her primary source of power and the way he/she uses it affect your own creativity, morale, and willingness to stay with the organization? In addition, identify approaches you will use to enhance your power as

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you move up your career ladder. Explain why you chose these approaches.

   Emotional Intelligence: The chapter identifies the five components of Emotional Intelligence (self-awareness, self-regulation, motivation, empathy, and social skills). How do you rate yourself on each of these components? What steps can you take to improve your Emotional Intelligence and achieve greater career success?

   Creating an Ethical Organization: Identify an ethical dilemma that you personally faced in the course of your work. How did you respond to it? Was your response compliance-based, integrity-based, or even unethical? If your behavior was compliance-based, speculate on how it would have been different if it were integrity-based. What have you learned from your experience that would make you a more ethical leader in the future?

summary

Strategic leadership is vital in ensuring that strategies are formulated and implemented in an effective manner. Leaders must play a central role in performing three critical and interdependent activities: setting the direction, designing the organization, and nurturing a culture committed to excellence and ethical behavior. If leaders ignore or are ineffective at performing any one of the three, the organization will not be very successful. We also identified two elements of leadership that contribute to success—overcoming barriers to change and the effective use of power.

For leaders to effectively fulfill their activities, emotional intelligence (EI) is very important. Five elements that contribute to EI are self-awareness, self-regulation, motivation, empathy, and social skill. The first three elements pertain to self-management skills, whereas the last two are associated with a person’s ability to manage relationships with others. We also addressed some of the potential drawbacks from the ineffective use of EI. These include the dysfunctional use of power as well as a tendency to become overly empathetic, which may result in unreasonably lowered performance expectations.

Leaders need to develop competency companions and play a central role in creating a learning organization. Gone are the days when the top-level managers “think” and everyone else in the organization “does.” With rapidly changing, unpredictable, and complex competitive environments, leaders must engage everyone in the ideas and energies of people throughout the organization. Great ideas can come from anywhere in the organization—from the executive suite to the factory floor. The five elements that we discussed as central to a learning organization are inspiring and motivating people with a mission or purpose, empowering people at all levels throughout the organization, accumulating and sharing internal knowledge, gathering external information, and challenging the status quo to stimulate creativity.

In the final section of the chapter, we addressed a leader’s central role in instilling ethical behavior in the organization. We discussed the enormous costs that firms face when ethical crises arise—costs in terms of financial and reputational loss as well as the erosion of human capital and relationships with suppliers, customers, society at large, and governmental agencies. And, as we would expect, the benefits of having a strong ethical organization are also numerous. We contrasted compliance-based and integrity-based approaches to organizational ethics. Compliance-based approaches are largely externally motivated; that is, they are motivated by the fear of punishment for doing something that is unlawful. Integrity-based approaches, on the other hand, are driven by a personal and organizational commitment to ethical behavior. We also addressed the four key elements of an ethical organization: role models, corporate credos and codes of conduct, reward and evaluation systems, and policies and procedures.

SUMMARY REVIEW QUESTIONS

1.   Three key activities—setting a direction, designing the organization, and nurturing a culture and ethics—are all part of what effective leaders do on a regular basis. Explain how these three activities are interrelated.

2.   Define emotional intelligence (EI). What are the key elements of EI? Why is EI so important to successful strategic leadership? Address potential “downsides.”

3.   The knowledge a firm possesses can be a source of competitive advantage. Describe ways that a firm can continuously learn to maintain its competitive position.

4.   How can the five central elements of “learning organizations” be incorporated into global companies?

5.   What are the benefits to firms and their shareholders of conducting business in an ethical manner?

6.   Firms that fail to behave in an ethical manner can incur high costs. What are these costs and what is their source?

7.   What are the most important differences between an “integrity organization” and a “compliance organization” in a firm’s approach to organizational ethics?

8.   What are some of the important mechanisms for promoting ethics in a firm?

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key terms

leadership

setting a direction

designing the organization

excellent and ethical organizational culture

barriers to change

vested interest in the status quo

systemic barriers

behavioral barriers

political barriers

personal time constraints

power

organizational bases of power

personal bases of power

emotional intelligence (EI)

learning organizations

benchmarking

competitive benchmarking

functional benchmarking

ethics

organizational ethics

ethical orientation

compliance-based ethics programs

integrity-based ethics programs

corporate credo

experiential exercise

Select two well-known business leaders—one you admire and one you do not. Evaluate each of them on the five characteristics of emotional intelligence.

Emotional Intelligence Characteristics	Admired Leader	Leader Not Admired
Self-awareness
Self-regulation
Motivation
Empathy
Social skills

application questions & exercises

1.   Identify two CEOs whose leadership you admire. What is it about their skills, attributes, and effective use of power that causes you to admire them?

2.   Founders have an important role in developing their organization’s culture and values. At times, their influence persists for many years. Identify and describe two organizations in which the cultures and values established by the founder(s) continue to flourish. You may find research on the Internet helpful in answering these questions.

3.   Some leaders place a great emphasis on developing superior human capital. In what ways does this help a firm to develop and sustain competitive advantages?

4.   In this chapter we discussed the five elements of a “learning organization.” Select a firm with which you are familiar and discuss whether or not it epitomizes some (or all) of these elements.

ethics questions

1.   Sometimes organizations must go outside the firm to hire talent, thus bypassing employees already working for the firm. Are there conditions under which this might raise ethical considerations?

2.   Ethical crises can occur in virtually any organization. Describe some of the systems, procedures, and processes that can help to prevent such crises.

references

1.      Kimes, M. 2012. Bad to the bone. Forbes, October 12:140-154; Loftus, P. 2011. 4 former Synthes executives sentenced to prison time for unapproved bone cement study. www.orthostreams.com , December 13: np; Lotus, P. 2011. Corporate News: Former Synthes officers receive prison sentences. Wall Street Journal, November 22: B4; and Synthes Annual Report, 2011.

2.      Charan, R. & Colvin, G. 1999. Why CEOs fail. Fortune, June 21: 68–78.

3.      Yukl, G. 2008. How leaders influence organizational effectiveness. Leadership Quarterly, 19(6): 708–722.

4.      These three activities and our discussion draw from Kotter, J. P. 1990. What leaders really do. Harvard Business Review, 68(3): 103–111; Pearson, A. E. 1990. Six basics for general managers. Harvard Business Review, 67(4): 94–101; and Covey, S. R. 1996. Three roles of the leader in the new paradigm. In The leader of the future: 149–160. Hesselbein, F., Goldsmith, M., & Beckhard, R. (Eds.). San Francisco: Jossey-Bass. Some of the discussion of each of the three leadership activity concepts draws on Dess, G. G. & Miller, A. 1993. Strategic management: 320–325. New York: McGraw-Hill.

5.      García-Morales, V. J., Lloréns-Montes, F. J., & Verdú-Jover, A. J. 2008. The effects of transformational leadership on organizational

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performance through knowledge and innovation. British Journal of Management, 19(4): 299–319.

6.      Day, C., Jr. & LaBarre, P. 1994. GE: Just your average everyday $60 billion family grocery store. Industry Week, May 2: 13–18.

7.      Martin, R. 2010. The execution trap. Harvard Business Review, 88(7/8): 64–71.

8.      Collins, J. 1997. What comes next? Inc. Magazine. October: 34–45.

9.      Hsieh, T. 2010. Zappos’s CEO on going to extremes for customers. Harvard Business Review, 88(7/8): 41–44.

10.    Andersen, M. M., Froholdt, M. & Poulfelt, F. 2010. Return on strategy. New York: Routledge; and 2009 Huawei Annual Report.

11.    Anonymous. 2006. Looking out for number one. BusinessWeek, October 30: 66.

12.    Schaffer, R. H. 2010. Mistakes leaders keep making. Harvard Business Review, 88(9): 86–91.

13.    For insightful perspectives on escalation, refer to Brockner, J. 1992. The escalation of commitment to a failing course of action. Academy of Management Review, 17(1): 39–61; and Staw, B. M. 1976. Knee-deep in the big muddy: A study of commitment to a chosen course of action. Organizational Behavior and Human Decision Processes, 16: 27–44. The discussion of systemic, behavioral, and political barriers draws on Lorange, P. & Murphy, D. 1984. Considerations in implementing strategic control. Journal of Business Strategy, 5: 27–35. In a similar vein, Noel M. Tichy has addressed three types of resistance to change in the context of General Electric: technical resistance, political resistance, and cultural resistance. See Tichy, N. M. 1993. Revolutionalize your company. Fortune, December 13: 114–118. Examples draw from O’Reilly, B. 1997. The secrets of America’s most admired corporations: New ideas and new products. Fortune, March 3: 60–64.

14.    This section draws on Champoux, J. E. 2000. Organizational behavior: Essential tenets for a new millennium. London: South-Western; and The mature use of power in organizations. 2003. RHR International-Executive Insights, May 29, 12.19.168.197/execinsights/8-3.htm .

15.    An insightful perspective on the role of power and politics in organizations is provided in Ciampa, K. 2005. Almost ready: How leaders move up. Harvard Business Review, 83(1): 46–53.

16.    Pfeffer, J. 2010. Power play. Harvard Business Review, 88(7/8): 84–92.

17.    Westphal, J. D., & Graebner, M. E. 2010. A matter of appearances: How corporate leaders manage the impressions of financial analysts about the conduct of their boards. Academy of Management Journal, 53(4): 15–44.

18.    A discussion of the importance of persuasion in bringing about change can be found in Garvin, D. A. & Roberto, M. A. 2005. Change through persuasion. Harvard Business Review, 83(4): 104–113.

19.    Lorsch, J. W. & Tierney, T. J. 2002. Aligning the stars: How to succeed when professionals drive results. Boston: Harvard Business School Press.

20.    Some consider EI to be a “trait,” that is, an attribute that is stable over time. However, many authors, including Daniel Goleman, have argued that it can be developed through motivation, extended practice, and feedback. For example, in D. Goleman, 1998, What makes a leader? Harvard Business Review, 76(5): 97, Goleman addresses this issue in a sidebar: “Can emotional intelligence be learned?”

21.    For a review of this literature, see Daft, R. 1999. Leadership: Theory and practice. Fort Worth, TX: Dryden Press.

22.    This section draws on Luthans, F. 2002. Positive organizational behavior: Developing and managing psychological strengths. Academy of Management Executive, 16(1): 57–72; and Goleman, D. 1998. What makes a leader? Harvard Business Review, 76(6): 92–105.

23.    EI has its roots in the concept of “social intelligence” that was first identified by E. L. Thorndike in 1920 (Intelligence and its uses. Harper’s Magazine, 140: 227–235). Psychologists have been uncovering other intelligences for some time now and have grouped them into such clusters as abstract intelligence (the ability to understand and manipulate verbal and mathematical symbols), concrete intelligence (the ability to understand and manipulate objects), and social intelligence (the ability to understand and relate to people). See Ruisel, I. 1992. Social intelligence: Conception and methodological problems. Studia Psychologica, 34(4–5): 281–296. Refer to trochim.human.cornell.edu/gallery .

24.    See, for example, Luthans, op. cit.; Mayer, J. D., Salvoney, P., & Caruso, D. 2000. Models of emotional intelligence. In Sternberg, R. J. (Ed.). Handbook of intelligence. Cambridge, UK: Cambridge University Press; and Cameron, K. 1999. Developing emotional intelligence at the Weatherhead School of Management. Strategy: The Magazine of the Weatherhead School of Management, Winter: 2–3.

25.    Tate, B. 2008. A longitudinal study of the relationships among self-monitoring, authentic leadership, and perceptions of leadership. Journal of Leadership & Organizational Studies, 15(1): 16–29.

26.    Moss, S. A., Dowling, N., & Callanan, J. 2009. Towards an integrated model of leadership and self-regulation. Leadership Quarterly, 20(2): 162–176.

27.    An insightful perspective on leadership, which involves discovering, developing and celebrating what is unique about each individual, is found in Buckingham, M. 2005. What great managers do. Harvard Business Review, 83(3): 70–79.

28.    Bryant, A. 2011. The corner office. New York: St. Martin’s Griffin, 197.

29.    This section draws upon Klemp. G. 2005. Emotional intelligence and leadership: What really matters. Cambria Consulting, Inc., www.cambriaconsulting.com .

30.    Heifetz, R. 2004. Question authority. Harvard Business Review, 82(1): 37.

31.    Our discussion of competency companions draws on: Zenger, J. H., Folkman, J. R., & Edinger, S. K. 2011. Making yourself indispensable. Harvard Business Review, 89(10): 84–92.

32.    Handy, C. 1995. Trust and the virtual organization. Harvard Business Review, 73(3): 40–50.

33.    This section draws upon Dess, G. G. & Picken, J. C. 1999. Beyond productivity. New York: AMACOM. The elements of the learning organization in this section are consistent with the work of Dorothy Leonard-Barton. See, for example, Leonard-Barton, D. 1992. The factory as a learning laboratory. Sloan Management Review, 11: 23–38.

34.    Senge, P. M. 1990. The leader’s new work: Building learning organizations. Sloan Management Review, 32(1): 7–23.

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35.    Bernoff, J. & Schandler, T. 2010. Empowered. Harvard Business Review, 88(7/8): 94–101.

36.    Hammer, M. & Stanton, S. A. 1997. The power of reflection. Fortune, November 24: 291–296.

37.    Hannah, S. T. & Lester, P. B. 2009. A multilevel approach to building and leading learning organizations. Leadership Quarterly, 20(1): 34–48.

38.    For some guidance on how to effectively bring about change in organizations, refer to Wall, S. J. 2005. The protean organization: Learning to love change. Organizational Dynamics, 34(1): 37–46.

39.    Covey, S. R. 1989. The seven habits of highly effective people: Powerful lessons in personal change. New York: Simon & Schuster.

40.    Kouzes, J. M. & Posner, B. Z. 2009. To lead, create a shared vision. Harvard Business Review, 87(1): 20–21.

41.    Kouzes and Posner, op. cit.

42.    Melrose, K. 1995. Making the grass greener on your side: A CEO’s journey to leading by servicing. San Francisco: Barrett-Koehler.

43.    Tekleab, A. G., Sims Jr., H. P., Yun, S., Tesluk, P. E., & Cox, J. 2008. Are we on the same page? Effects of self-awareness of empowering and transformational leadership. Journal of Leadership & Organizational Studies, 14(3): 185–201.

44.    Helgesen, S. 1996. Leading from the grass roots. In Leader of the future: 19–24 Hesselbein et al.

45.    Bowen, D. E. & Lawler, E. E., III. 1995. Empowering service employees. Sloan Management Review, 37: 73–84.

46.    Easterby-Smith, M. & Prieto, I. M. 2008. Dynamic capabilities and knowledge management: An integrative role for learning? British Journal of Management, 19(3): 235–249.

47.    Schafer, S. 1997. Battling a labor shortage? It’s all in your imagination. Inc., August: 24.

48.    Meyer, P. 1998. So you want the president’s job … Business Horizons, January–February: 2–8.

49.    Imperato, G. 1998. Competitive intelligence: Get smart! Fast Company, May: 268–279.

50.    Novicki, C. 1998. The best brains in business. Fast Company, April: 125.

51.    The introductory discussion of benchmarking draws on Miller, A. 1998. Strategic management: 142–143. New York: McGraw-Hill.

52.    Port, O. & Smith, G. 1992. Beg, borrow—and benchmark. BusinessWeek, November 30: 74–75.

53.    Main, J. 1992. How to steal the best ideas around. Fortune, October 19: 102–106.

54.    Taylor, J. T. 1997. What happens after what comes next? Fast Company, December–January: 84–85.

55.    Sheff, D. 1996. Levi’s changes everything. Fast Company, June–July: 65–74.

56.    Isaacson, W. 1997. In search of the real Bill Gates. Time, January 13: 44–57.

57.    Holt, J. W. 1996. Celebrate your mistakes. New York: McGraw-Hill.

58.    McGregor, J. 2006. How failure breeds success. Bloomberg Businessweek, July 10: 42–52.

59.    Bryant, A. 2011. The Corner Office. New York: St. Martin’s Griffin, 34.

60.    This opening discussion draws upon Conley, J. H. 2000. Ethics in business. In Helms, M. M. (Ed.). Encyclopedia of management (4th ed.): 281–285; Farmington Hills, MI: Gale Group; Paine, L. S. 1994. Managing for organizational integrity. Harvard Business Review, 72(2): 106–117; and Carlson, D. S. & Perrewe, P. L. 1995. Institutionalization of organizational ethics through transformational leadership. Journal of Business Ethics, 14: 829–838.

61.    Pinto, J., Leana, C. R., & Pil, F. K. 2008. Corrupt organizations or organizations of corrupt individuals? Two types of organization-level corruption. Academy of Management Review, 33(3): 685–709.

62.    Soule, E. 2002. Managerial moral strategies—in search of a few good principles. Academy of Management Review, 27(1): 114–124.

63.    Carlson & Perrewe, op. cit.

64.    This discussion is based upon Paine. Managing for organizational integrity; Paine, L. S. 1997. Cases in leadership, ethics, and organizational integrity: A Strategic approach. Burr Ridge, IL: Irwin; and Fontrodona, J. 2002. Business ethics across the Atlantic. Business Ethics Direct, www.ethicsa.org/BED_art_fontrodone.html .

65.    For more on operationalizing capabilities to sustain an ethical framework, see Largay III, J. A. & Zhang, R. 2008. Do CEOs worry about being fired when making investment decisions. Academy of Management Perspectives, 22(1): 60–61.

66.    See www.ti.com/corp/docs/company/citizen/ethics/benchmark.shtml ; and www.ti.com/corp/docs/company/citizen/ethics/quicktest.shtml .

67.    Bryant, A. 2011. The corner office. New York: St. Martin’s Griffin, 91.

68.    Wetlaufer, S. 1999. Organizing for empowerment: An interview with AES’s Roger Sant and Dennis Bakke. Harvard Business Review, 77(1): 110–126.

69.    For an insightful, academic perspective on the impact of ethics codes on executive decision making, refer to Stevens, J. M., Steensma, H. K., Harrison, D. A., & Cochran, P. S. 2005. Symbolic or substantive document? The influence of ethics code on financial executives’ decisions. Strategic Management Journal, 26(2): 181–195.

70.    Paine. Managing for organizational integrity.

71.    For a recent study on the effects of goal setting on unethical behavior, read Schweitzer, M. E., Ordonez, L., & Douma, B. 2004. Goal setting as a motivator of unethical behavior. Academy of Management Journal, 47(3): 422–432.

72.    Williams, R. 2012. How competition can encourage unethical business practices. business.financialpost.com , July 31: np.

73.    Fulmer, R. M. 2004. The challenge of ethical leadership. Organizational Dynamics, 33 (3): 307–317.

74.     www.sarbanes-oxley.com .