The honesty that underpins credibility demands above all the willingness to face facts, however unpalatable, and to move away from denial to acceptance of reality and the actions it demands. Anything else is liable to be costly and even catastrophic in its results, for nothing prolongs business agonies more surely than denial. That's defined by one consultant as 'an unconscious coping mechanism to block out and not deal with major change that may have some pain associated with it'. The mechanism is highly effective - or, rather, ineffective.
Chief executives in trouble, naturally, deny to themselves and others that their own failings are causing the problems. Boards often not only accept the denials, but go one stage further - denying to themselves and the outside world that their support for the incumbent boss is mistaken. Eventually that support has to be withdrawn, but not before terrible damage has been done to the accounts, in the market and to the morale of managers and managed alike.
Denial is much more comfortable psychologically than facing hard facts or taking hard actions. A study led by Professor Jeffry Nutter of the University of Georgia provides resounding evidence on this point: all but 5% of 46 major companies, each with sales of over a billion dollars, blamed losses made in the Eighties at least in part on 'poor economic conditions'. Fortune reports, however, that 'Only 13% said that bad management or mistakes may have had anything to do with it, and invariably these forthright types were new executive teams pinning the tail on their ousted predecessors'.
Any business journalist can tell the same story. New managements are perfectly prepared to confess to the dreadful failures of their forerunners. Managers who are still in place after presiding over awful setbacks are only slightly more likely than politicians to admit their mistakes. That's the antithesis of integrity. It took the new man, Louis V.Gerstner, to confess publicly in March 1994 to IBM's sins of sluggishness, internally and externally. Yet those sins had been evident to outsiders for at least a decade.
It isn't suprising, perhaps, that massive, long-term failings were missed by an IBM board whose business experience was either negligible, or confined to other big battalions. But what about the managers further down? Many lower executives in troubled companies know full well - none better - how grave and grievous the problems are. At General Motors, for instance, David C.Munro was the car giant's chief economic forecaster for ten years. When he left, the company had already halved in size since his arrival - and he wasn't sure 'what will be left when the company enters the next millenium.'
Munro diagnosed two main ailments - 'elephantine mass' and insularity: 'GM doesn't have a very good history of pulling in information and ideas from others, and at the top it has a history of resisting change from outside. There are an awful lot of people in that bureaucracy who only know what others are thinking down the hall'. We have heard similar painful observations inside many other companies. It isn't just a question of resisting change from outside, though: resistance to change proposed from inside can be even more deadly.
Consider Case One: The chief executive of a major bank composes a mission statement for the company. It is to be 'the best retail bank' in the nation by 1997. Asked how they will know they are the best, executives down the line haven't the slightest idea. The boss hasn't attached any measures or targets to his ambitions: and the management cadre has played no part in the formation of the mission. What are the chances of said mission being successful? Significantly less than evens.
Case Two: A large financial services company sets up informal, separate sessions at which the top management and the stratum immediately below look at the composition and purpose of the board and the executive committee. The lower managers point out that the two bodies have five members in common, yet persist in the fiction that they are entirely separate. The juniors propose reforms that will greatly improve the effectiveness of both bodies and of the departments beneath them. What are the chances of the proposals being adopted?
The answer to that question - almost zero - is strongly suggested by another aspect of the same company. It had recently celebrated its 150th year of existence, and was proud of its past. Yet nobody had given any thought to the next 150 days. No business plan existed, even for the current year. A committee had once been formed to draw up a five-year corporate plan: in presenting the document, the committee argued for a small planning department to monitor the plan's implementation. The department was rejected, and the plan was never enacted.
The true-life stories may sound bizarre, but the situation they portray is common. Time and again, talking to managers at all levels, we're struck by their competence, knowledge of the business and its key people, and understanding of what modern, effective management requires - even if they've spent all their lives in one narrow industry and have very little knowledge of thought and action beyond its frontiers. Yet their cynicism is equally striking: they don't believe that what needs to be done will be done. In a word, top management lacks credibility.
That means it also lacks the ability to lead. 'What we found quite unexpectedly in our initial research and have reaffirmed ever since is that, above all else, people want leaders to be credible'. That statement from Credibility: How Leaders Gain and Lose It, Why People Demand It, by Jim Kouzes and Barry Posner, is credible to the point of truism. Who doesn't want to believe that their leaders' 'word can be trusted, that they have the knowledge and skill to lead, and that they are personally excited and enthusiastic about the direction' in which the led organisation is headed?
The two authors couldn't, however, find much research into credibility and leadership. No doubt, there isn't too much research about motherhood and love, either. Credibility is something which people want to take for granted, although they are often disappointed. Integrity is its most important element: survey respondents selected, as 'characteristics of admired leaders', honest (87%), forward-looking (71%), inspiring (68%), and competent (58%).
Intelligence, moreover, has only half the score of honesty, which surely demonstrates the emotional appeal of credibility and integrity rather than exercise of considered judgment. Trust absolutely in incompetent, unintelligent, but honest leaders and you're in the Charge of the Light Brigade, which is no place to be. Anyway, these data, for whatever they are worth, don't answer the vital question. How many people find what they seek? Kouzes and Posner quote another source - 1991 research into the statement, 'management is honest, upright and ethical': while that is 'very important' to 85% of US office workers, only 40% found it 'very true'.
That's far from encouraging. Once the importance of credibility has been asserted, however, what can be said that's specific? The authors have 'derived six practices' from their 'analysis of common themes in the cases we have collected'. These 'six disciplines of credibility' are discovering your self [sic], appreciating 'constituents' (subordinates, etc), affirming shared values, developing capacity (i.e capability), serving a purpose, and sustaining hope.
These qualities differ not at all from other recipes urged on managers by today's improvement literature. If managers want to achieve credibility, they have little choice but to engage in the collaborative, cooperative, bottom-up, consensual, value-driven, coaching, coaxing, self-aware and progressive management that is enjoined by all the gurus - what a British company, Harvester Restaurants, calls 'servant leadership'. One Harvester 'team member' self-avowedly 'gets up in the morning and you clean your teeth in the values...and you know you're not going to screw up because it fits with the values, it's going to be right.'
Don't get carried away by such warming anecdotes. In real-life bossing, leadership skills are part of competence, not the other way round. Top managers lose credibility by allowing huge gaps to open up between their perception of their own management excellence and the reality. That dangerous gap means that the right questions often don't get asked, even by managers who know perfectly well that they should be. The contrary behaviour, however, enhances credibility - and vastly improves results.
For instance, SGS-THOMSON's top managers (emulating the vast majority of Nutter's sample) could have declined all blame for the losses incurred when the semiconductor cycle turned sharply downwards in 1990. 'Poor economic conditions' undoubtedly existed. But these managers dug down below the easy explanation to ask why excessive numbers had been hired just in time for the downturn. Better quality of management wouldn't have prevented the decline, but would have ameliorated its impact.
The company duly set about achieving that quality. Cutting costs and firing people were still required - but the negative was combined with a positive, bottom-to-top change in the targets which the organisation set out to achieve and the ways in which it sought to achieve them. The phrase 'bottom-to-top' is crucial. The Nutter study noted that, in its billion-dollar-plus subjects, although average employment had fallen by about 5%, there was 'no evidence of abnormally high levels of forced turnover in top managers'.
Coupled with abnormally high salaries for the latter, this creates another dangerous credibility gap: between how top management values itself and how it is valued by its internal customers - the rest of the staff. You can extrapolate some tell-tale signs of this gap from Fortune's exploration of companies in denial. The tell-tales are:
1. A higher energy level after meetings than beforehand. Do people talk about what wasn't said rather than what was?
2. Managers who pass down top-level messages while stating that they don't agree.
3. Aversion to taking risks, external or internal.
4. Political jockeying for the favour of superiors.
5. Failure (see above) to seek out and live by meaningful measures of performance.
6. Excessive top management interference in operations.
The sixth point often leads to the sudden adoption of fashionable techniques, like TQM or business process reengineering. As one academic puts it, managers who 'deny the need for change' instead 'adopt an efficiency focus, pounding the same thing over and over rather than asking, "Are we doing the right thing?"' That guarantees failure, for true TQM, like true reengineering, demands radical reshaping of the organisation as a sine qua non.
Another sine qua non is that management itself must be reshaped in order to be 'aligned' to the new processes. That's the word selected by James A.Champy, co-founder of the CSC Index consultancy, which specialises in reengineering. His much-quoted book Reengineering the Corporation, written with Michael Hammer, featured an estimate that 50-70% of all reengineering efforts fail: that's since fallen to 30-40%, Champy believes, but the failures are still down to the same fault: 'poor alignment of management.'
That will follow inevitably if managers believe that reengineering is the same as downsizing. 'The latter doesn't change what you're doing', says Champy. If people suspect that managers are using reengineering as a smokescreen simply to cut jobs, credibility will be zero. We have seen the same damage done by boards which launch change programmes, but suddenly announce management redundancies without consultation - and with the promise (or threat) of more, unspecified dismissals to come.
Credibility starts with a credible plan. The true reengineer, says Champy, begins with the 'business case for change', asking 'How do we want to appear in the eyes of our customers?' Then you build the vision, and identify the core processes needed to deliver the vision. Next, teams are redesigned so that they can go straight into implementing. Management is not only personally involved but 'always driving'. As Champy tells his audiences, 'never let up and always judge by progress against the objectives in the vision.'
It should go without saying that at all stages everybody has to be involved and informed. 'The team must have contact with senior management', says Champy, who argues that 'a statement of culture is a statement of aspirations.' Unless managers have credibility, others will share neither their aspirations nor their belief that the aims can be accomplished - which means that they won't be. Unwilling soldiers fight badly. What Champy calls 'a culture of willingness' reads like a credo of credibility:
1. Always perform up to the highest measure of competence
2. Take initiatives and risks
3. Adapt to change
4. Make decisions
5. Work cooperatively, as a team
6. Be open, espeically with information, knowledge and news of forthcoming or actual problems
7. Trust and be trustworthy
8. Respect others (customers, suppliers and colleagues) and oneself
9. Answer for your actions, and accept responsibility
10. Judge and be judged, reward and be rewarded, on the basis of performance
Those ten points set forth the ideals for team performance in any sport, any activity, any organisation. Managements and others in denial deny this credo. That's how boards of directors can stress the need for the business to become 'competitive' and 'world-class', while simultaneously standing in the way of achieving those ends. That means they themselves are neither world-class nor competitive. They also must lack credibility - which is one reason why the majority of 'restructurings', with their 'down-sizing' and 'right-sizing', have failed to achieve corporate renaissance.
Those euphemistic therapies, though, have had terrible, counter-productive side-effects among the managerial ranks. There's a crucial trade-off between the potential gains of a reorganisation and the potential losses in credibility, morale and security. In companies in upheaval, the good people of all generations will tend to see better opportunities outside - better than those in a company undergoing continuous shake-ups against a background of deep uncertainty about its future and therefore their own. They are very unlikely to stay, or to join another company in the same mould.
The brightest and best of the younger generations will be first out of the door. Like top-class rugby players, they want to belong to winning organisations, and will shun losers - which is why strong clubs get stronger and weaker ones stay weak. This preference for winners was unearthed by the independent think-tank, Demos (Generation X and the New Work Ethic), from a study of the North American and European young. They're a demanding bunch, who also want careers with open options.
Moreover, they demand honest feedback from their bosses, which is a key aspect of credibility and a key test of character, on both sides of the relationship. They seek project-based variety in their work: which means they need (and relish) skill-based ability to move from job to job and firm to firm. Their better elders won't be any different. As these professional men and women gravitate towards the best employment, the least credible employers will be trapped by the brain-drain.
Loss of the brightest and best virtually guarantees that the corporate accidents and the problems of bureaucracy, 'elephantine mass' and insularity will recur. Those characteristics are inimical to the new environment, in which opportunities have to be taken, to stand still is to fall behind, and the increasingly demanding customers call the tune. If you want the internal talent to respond to this challenge (and if it doesn't, the corporation is doomed), the recipe is obvious. In fact, it's the one which the relatively junior executives in that 150-year old financial services company worked out for themselves - in a 90-minute workshop, at that.
They wanted to divorce the board from the corpocracy, separate the most senior management from the operations, and devolve authority down the line to self-managed teams headed by effective leaders. On the other hand, they didn't believe that their seniors would accept any such solution. Lack of credibility, like some toxin, had infected a company whose top management sincerely wanted to take the organisation out of denial and into action. In contrast, you can easily recognise the truly non-denying, credible company: its characteristics reverse the signs of denial.
Meetings will have defined objectives and will always result in agreed action commitments. Top managers won't settle strategies and policies until they are supported by a fully informed consensus among the teams and their leaders. Balanced risk-taking is expected, encouraged and, if successful, rewarded. Internal politics are suppressed by insistence on promotion on merit and by instant, generous recognition of achievement at all levels.
Just like Champy's credo, that demands living by meaningful measures of performance and targets to which all managers subscribe. Most important of all, top management recognises that its own job is to add value, and that the board's function is to ensure that this happens - not through mergers and acquisitions, but through building the businesses and the talents within them to create organic growth. That's the acid test. Managers in denial not only fail that test: they are incapable of providing outstanding leadership, credibility, or anything else.