>> Kim Ricketts: Visiting speaker series. Today we welcome James O'Toole to
Microsoft Research, here to discuss his latest book co-written with Warren
Bennis and Daniel Goleman, a deceptively small book about a very big idea,
transparency.
What is this transparency? As Bennis describes it in the introduction,
transparency encompasses candor, integrity, honesty, ethics, clarity, full
disclosure, legal compliance and other things that allow us to deal fairly with each
other.
Sounds good, doesn't it? And yet and with the advance of technology,
transparency is actually not an option, it's actually a matter of survival. Yet as
organizations and leaders speak of openness, true transparency is rare as
leaders hoard information, corporate structures, set up roadblocks to
communication and people are afraid to speak truth to the power. In other
words, creating a culture of candor whether it is a country or a company is harder
than it sounds.
James O'Toole is the author of over 70 articles and 14 books on leadership
management and organizational transformation and has worked in the
government, in academia, and in media.
He was also the executive vice president of the Aspen Institute. He is currently
the Daniels Distinguished Professor of Business Ethics at the University of
Denver. Please join me in welcoming James O'Toole to Microsoft Research.
(Applause)
>> James O'Toole: Actually we planned that with the fire department.
Everybody knows that worst time to give a talk is right after lunch. Everybody
sort of falling asleep and so we took care of that problem anyway, we got you
awake to start with.
Now, my talent is to see if I can keep you awake for about the next 35 minutes.
The topic may not, you know, appear to be one that is very exciting, it just
sounds like in some ways perhaps a new management buzz word, and I don't
think we need any more buzz words than we have.
But actually this is a pretty useful word, transparency, because I think it puts a
name on a whole bunch of real issues that have been in the forefront in the
organizations over particularly the last seven or eight years. It's very hard to
define transparency because it is basically a kind of an expansive and all
encompassing word, it just means it's capable of seeing through something.
But the way to understand it I think is to think about the opposite of a transparent
organization and the opposite of transparent is opaque. Opacity actually
characterizes most organizations in the world today. Opacity is a characteristic
of secrecy, of closed doors, and the kinds of surprises that will shatter
reputations today as fast as at the click of a mouse.
Now, I first became aware of opacity as a problem when I was very young, it was
1969, and I had my first job when I was working for McKenzie and Company
leading a transformation of a company in a little town across the border up here
called Vancouver. And up in Vancouver there was a company called MacMillan
Bloedel, and they were a lumber company and they were starting to get into all
kinds of financial trouble, and they sent a team of McKenzie people in to deal
with the problems.
I remember a conversation that I had at the time with one of the managers at
MacMillan Bloedel and I asked him what it was like to work at that company. And
in those days we didn't use the word corporate culture, we talked about the
climate of the place. And he characterized the climate a little bit like working in a
mushroom farm.
And I said well what do you mean working in a mushroom farm? He said well,
the people here are kept in the dark and they're fed manure. Now, I'd never
heard that metaphor before and I probably would have forgotten it if it weren't for
the fact that since 1969 I probably worked in several hundred organizations and
the metaphor that I have heard more than any other to describe the culture of the
places where I've been working is that mushroom farm.
This is the way in which most people feel about the companies in which they
work. And in fact, there's a tremendous amount of data that leads us to conclude
that opacity characterizes most organizations in America as opposed to
transparency.
We actually recently polled some top executives in the Midwest. We found that
63 percent of these people, of these top executives when they are characterizing
their own companies characterize them as being opaque. It was very few who
talked about enlightenment or bright sunshine, most of them talked about their
companies in terms of shades of gray.
And the problem is found in all kind of organizations, in government, in
professions, in non profits. But it really came into focus recently at publically held
corporations like Enron and WorldCom and Arthur Andersen.
This entire sorry elk brought to attention the fact that organizations are
dangerously and self-defeatingly opaque in this country.
Now, probably the issue would not have become urgent but what really changed
the nature of it were things that people like all of you were doing, and that is you
why enabling us all with this new technology and the technology took this issue
from being kind of a back burner issue to one that was at the forefront and
became at the top of the agenda of a great number of executives in this country.
Today transparency is all but inevitable thanks to the new technology.
Now, there's an interesting aspect of this because it's very paradoxical. What is
happening is a result of a new technology. The opportunity for privacy has
vanished as well as the opportunity for secrecy. We are living in a world in which
there's increasing enlightenment, but over which we have decreasing control of
information. It's a world in which the powerless are made more powerful and
more free but at the same time it is a rather Orilian (phonetic) world in which our
liberties are becoming more constrained.
We saw this in the -- on one of the places where we would least expect to find it
to happen, and that is in China. Recently within the last year or so in a city called
Jiao Min, secret plans have been drawn up to build a factory that would produce
toxic (inaudible). Now, even a decade ago the factory would have been built
before anybody noticed what was going on, but now thanks to email, blogs and
text messages, word spread very quickly in the area around Jiao Min and a
protest was organized and people all came to the city hall.
Well, of course Chinese officials know how to deal with protest, they called out
the police, they arrested people but as they were arresting people, the people
who were being arrested, the people who were standing by all picked up their cell
phones and they started taking pictures of the cops, this was sent out all over the
whole region, and what -- the net effect of it was more and more people came to
the Jiao Min city hall to protest what was going on, the thing got completely out of
hand, the officials tried to cut down on the Websites, they tried to stop the
blogging, they tried to do everything that they possibly could, but they found out
that the technology was so far beyond them that they could no longer control it
the way people had been controlling this in China for absolute ages.
So what we saw there was that nowhere today can we hide from this new
technology because we no longer can hide at all. We no longer can have
secrets. The truth is ultimately going to emerge and the only choice given all that
is for us to embrace it. Organizations need a free flow of information as much as
the heart needs oxygen. And leaders who fail to ignore that fact may try to fight
transparency soon try -- find themselves trying to explain embarrassing
coverups.
I learned about this firsthand when I was relatively young. I worked in the Nixon
administration and Richard Nixon tried, perhaps the biggest coverup ever to
occur in our government, and he failed. And one would have thought that others
would have learned the lesson from this, but after that we had Reagan and Iran
Contra, we had Bush and the WMDs, we had Clinton and Monica and Clinton
and Jennifer and Clinton and -- well, you get the picture.
You know, I mean, so well, I mean it's happening everywhere. You know, even
what's happening in China where the leaders of the communist party have been
able to shroud themselves in a cocoon of secrecy, kind of like the emperors of
old sequestered in the imperial palace, but even they have suffered the fates of
public exposure.
Now, we can think about this in negative terms but actually it should be viewed
positively and particularly from an organizational point of view. An organization's
efficiency and its effectiveness depends upon a free flow of information, an
organization's capacity to compete, to solve problems, to innovate, to meet
challenges and to achieve goals depends upon a healthy flow of information, a
healthy flow of intelligence. It is essential for leaders to receive news and
information, even stuff that they don't want to hear, even from people who are
really afraid to bring it to them, they need to get that information fast and they
need to get it very effectively.
We have some research that shows that companies that have the highest rates
of transparency outperform those that have the lowest rates. Inc surveys of
medium size companies showed this, but even if you look at big companies, the
34 most transparent companies on the standard -- on the S&P 500, outperformed
the others that are less transparent by about 12 percent in financial terms.
Now, what this tells us is that there is a tremendous opportunity for companies to
become transparent in terms of just better business sense, in terms of becoming
more productive organizations and innovative organizations.
At the same time, this is becoming apparent, we also have the new technology
that is actually forcing it or viewed positively facilitating it.
Corporate internal blogs, whether they are simply contrarian or perhaps even
some cases wise are actually benefitting organizations by challenging the
dominant assumptions of the leaders. They prevent tunnel vision and they
remind the powers that be that they don't have a lock on truth.
Another thing that these blogs are doing is they help to energize expertise from
the bottom of organizations. In almost any organization the information is there,
and quite often almost always it is not in the C suite. The information that is
really vital is held by somebody way down the line in the organization.
In the past it was difficult to identify those people. Today it's much easier and it's
much easier to access that information than it has ever been. There's always
somebody down in the organization who has information that is needed. As
much as there is always somebody in the organization who knows the secrets
that the people at the top are trying to keep.
Now, in essence it is necessary for the right information to get to the right people
at the right time in any organization. Now, let me give you an instructive positive
example of this. And it's probably one of the most improbable ones that you
could imagine.
It's a company that is entirely unlike the world that you know. It is just the
opposite of your entire experience here at Microsoft. A company called SRC
holdings, it's somewhere in the rust belt in the Midwest and they are engaged in
the most primitive technology, they rebuild diesel engines. And the people who
rebuild diesel engines and rust belt cities in the Midwest are not like all of you,
they tend not to be very well educated.
As a matter of fact, at SRC Holdings, the average amount of education is less
than 12 years in the entire work force. But when Jack Stack took over that
company about 25 years ago, he was a newly admitted MBA, and he decided
what he would do with these people, many of whom were illiterate, was to teach
them everything that he had learned in business school. He taught them how to
read and interpret balance sheets, income and cash flow statements, and then
he made sure that they had access to all the financial data and managerial
information in the company so that there were no -- all the numbers having to do
with every single part of the company was readily available to everybody and
everybody was taught how to use those numbers, and they were given the
authority to act upon that information.
Now, there were two consequences of this. The first one was that once the
people had that managerial and financial information, the workers started to act
as though they owned the place, they started to take initiative in finding ways to
improve efficiency and effectiveness in the company.
As a result of that, in the space of about ten years, the value of the company had
increased something like 1,000, 2,000 times. And all the workers owned shares
of the company, so they benefited from it. So the company has become a
tremendous financial success. They now have spun off something like 20
companies, they have created all kinds of new jobs for people. It just has turned
out to be a tremendous economic success story.
But at the same time, and almost equally important, during that whole time of all
the corporate scandals at WorldCom and Enron and the like, this company has
never had a hint of scandal. As a matter of fact, they don't worry about all the
stuff in Sarbanes-Oxley they don't worry about having people come in and check
the books.
As the chief financial officer of the company pointed out, he said you couldn't
cheat around here if you wanted to. It's like having a couple thousand internal
auditors when all of the data is available to everybody.
So what they have created in this culture of candor in this organization is not only
an organization which we see that the benefits of having everybody open and no
managerial secrets lead to financial success, we also create an ethical culture
and one that doesn't have to worry about all of those reporting problems and all
the costs of internal auditors and all the rest because ethics become a part of the
day-to-day life in the organization.
So there's tremendous value in creating cultures of candor. Transparency is in
the self interest of executives. And it takes a while quite often for them to
understand the value of it but ultimately they do.
Now, in one regard they're being forced by Sarbanes-Oxley to embrace
transparency, vis-a-vis their shareholders. But what the most farsighted
managers are discovering is that transparency is necessary for all of the
stakeholders of a company. All the employees need that information, customers
need that information, dealers, everybody needs to have a sense that the
organization is fully transparent.
Now, it's not easy to do, it is incredibly difficult thing to do. And I'll give you an
example that is I think really quite instructive and certainly illustrative.
Some of you know who John Mackey is. He is the CEO of Whole Foods. Many
of you probably go there because you buy great food, the company's a leader
and CSR and environmental sustainability, and it's always listed as one of the
best places to work in America. Just really quite marvelous place.
And one of the reasons why it's so marvelous is because the company's basic
culture revolves around their no secrets policy. As much as at SRC Holdings,
everything is open to every employee and all the stakeholders at Whole Foods to
a degree that is actually mind boggling.
For example, most companies believe that people's salaries are a very important
secret to keep, but at Whole Foods the salaries of every single person, every
single employee in the entire organization are posted and available for everybody
to check on. As a result of this, there's tremendous trust in the organization and
tremendous amount of initiative and incredible sense of community.
Now, given all of that, one would have thought that John Mackey would see the
value of this and be completely committed to in all aspects everything that he did
to candor and to transparency. But I don't know if you were following about a
year ago when Whole Foods was attempting to take over Wild Oats.
Now, during the year or so that built up before the attempted takeover, John
Mackey had been blogging, using a handle called Rahodeb. Rahodeb was an
anagram for his wife's name which is Debra. And what Rahodeb was saying
online, that is Mackey was saying online on all these various blogs was how
incompetent the CEO of Wild Oats was, how worthless Wild Oats was, what a
great company Whole Foods was, and particularly how brilliant John Mackey
was.
And of course he thought that he was going to get away with all of this. All right.
He would have expected a person who is talking about the value of a no secrets
policy of all people would have figured out that there are people who have got
nothing else to do on these blogs but to be able to figure out a simple anagram
like that and to be able to figure out who the hell this guy is who is blogging. So
of course when does it come out, it comes out just as the SEC is getting or the -the SEC was getting ready to approve the antitrust -- to apply antitrust, and they
nearly lost the acquisition. They got so close to this because when this came
out, it was a violation of almost all the SEC rules, and here was everything that
Mackey had worked for was almost lost.
Now, how could a guy who was so smart who should have been learning this
lesson have been so dumb as to done that? But then you think about it a little
bit, even the people who are the smartest when it comes to the technology are
making the same damn mistake all along.
All right. Steven Jobs has been called out on the web at least two or three times
for lies. He was called out just as recently as last week. All right. So I mean if
anybody ought to understand this stuff that you can't get away with it anymore, it
ought to be them. Just goes to show you how difficult all of this really is.
Transparency runs against the grain of natural corporate behavior and it runs
against the grain of human nature. You know, the top guys have to hoard
information. There's just really numerous impediments to transparency.
Because if you think about it rationally, ethically in terms of efficiency and
effectiveness, transparency makes a hell of a lot of sense. But it doesn't happen.
It very seldom just happens.
What we really learn when looking at even the best run companies, leaders are
always trying to hide their mistakes. Leaders are trying to control people, trying
to control organizations, trying to exert their power by hoarding information.
Even some of them view knowledge as (inaudible) of power.
All the research shows us that effective organizations to be effective require clear
decision rights, that is we have to know in an organization who needs to have the
information in order to make the decisions who is empowered, who has to be in
on the decisions. But we don't have that in most companies, so therefore we
don't have accountability.
There are all kinds of structural impediments, and it starts right at the top. We
look at the people who are most likely to act in ways that are not transparent. It's
really the CEOs and it's quite often celebrity CEOs, people like Steve Jobs,
because there's a shimmer effect around them. Celebrity executives get away
with murder.
You may have read about a man by the name of Conrad Black, a company
called Blackstone. His board closed their eyes while Conrad black spent 8
million dollars of shareholders money to amass a private, a private, personal
collection of memorabilia for president Franklin Roosevelt, right. And when
board member Henry Kissinger was called up by the Wall Street Journal, weren't
you watching out for this guy, he goes about in awe about how marvelous a guy
Conrad Black is. His job was to watch Conrad Black. But he didn't. And Conrad
Black, like most CEOs believed that they were entitled.
Well, power confers a sense of infallibility among leaders. You take even a
person like Jack Welch. Jack Welch was getting ready to retire is perhaps the
CEO with the greatest reputation. But what happened is he had worked a secret
deal on his retirement package. Just as he was coming out, this retirement
package, a blogger found out about it, it came out on the Internet, everybody
knew about it and Jack Welch's reputation was tarnished and tarnished forever.
What happens? Why does this happen? It's uberous, it's executive ego.
Leaders think that they are smarter than everybody else, and they are reinforced
with that at the top of organizations. What you see happening in any
organization is that there is a kind of caste system. The fast-trackers, the
insiders, the good-ole boys, the golden boys, the A team. They are the insiders,
and everybody else is outsiders. And some people are in the know, and some
people get heard, others are left out.
And when the outsiders are left out, it works to the detriment of the organization
and in fact it also works to the detriment of the very leaders who are on the
inside, and that's the irony of the whole thing.
Now, the value of transparency is that it keeps organizations, and particularly it
keeps the leaders of organizations honest to others and also honest to
themselves. Transparency broadens the perspective of insiders because any
group after a while will start to engage in group think, particularly if you are in the
C suite of an organization, you end up telling the everybody else in the C suite
how smart you are, how successful you are and how you want to keep doing
what you have been doing in the past.
Now, the information that those leaders need can be located anywhere in the
organization, and they need unimpeded channels of communication to get it. But
they usually reject it because they do not have respect for the barriers, the
bearers of information. Those of you who are Shakespeareian scholars know
that when Julius Caesar was on the way to the Forum that he ignored the
warnings from a powerless outsider to beware of the Ides of March. Big Julie
looked at this outsider and said who the hell are you, I'm the emperor around
here, what do you know, and well, we know what happened to big Julie.
Now, another problem today that Caesar didn't have but most of us have is that
we all succumb to the myth of speed. We believe that we have to act, we have
to act now, we have to act quickly, we have to act even without added
information.
We also, if we are a leader and particularly if we're a man, we believe that it's
better to make a bad decision than to look indecisive. All that of course the
baloney. Of course you can't have all the relevant information before you act, but
you can reduce the risk of a bad decision by just exercising a little bit of
prudence.
Give you another example, a scientific example this time of what I have in mind
here. One of the great social science experiments was conducted by NASA in
the late '70s. What they did is they took intact airline crews, they took a pilot, a
co-pilot, the navigator, and they put them in a flight simulator, and they simulated
an accident in the sky, that something would happen in which an accident was
eminent, a truly serious accident.
Now, it ends up all the research shows that even at the worst accidents pilots
have at least 30 seconds in which to make a decision. Now, when they
simulated, they gave them the information that the pilot got that the plane was in
trouble, the pilots reacted in one of two ways. Most of them were the top gun,
take charge, tough fly boys, decisive leaders and they showed their macho stuff
by making a decision right away. That's the way we teach them in business
school.
The other ones stopped for a minute, and they were more inclusive and
participative, and they turned to the co-pilot and the navigator, and they said holy
crap, what is going on here? Do you have any information? That takes five
seconds. Then they said what do you think we should do? That takes five
seconds. Then they still had a good 15 to 20 seconds to make up the -- make
the decision because ultimately the pilot has to decide.
Now, the difference between these two approaches, though, was really
remarkable because the tough take charge leaders almost always made the
wrong decision and actually put the plane and the passengers in peril. The
people who took the couple minutes to gather the information who understood
that all this is smarter than any one of us, they made the right decisions, the safe
decision.
Now, the NASA researchers went to the crews, working for the take charge guys,
and they say well look at, when you saw (inaudible) making the mistake, why
didn't you speak up? The reason why they didn't speak up is because they knew
those guys, they knew what would happen if they spoke up. They wouldn't listen.
And also when they -- when the certain people, if other people tried to come
forward with their ideas they would get dissed or shot down. They did not trust
those pilots to act appropriately on the information that they were getting. That's
why they didn't speak up.
And that problem repeats itself almost to a tee in business organizations. And it
also repeats itself even if the -- NASA in another experiment found something
quite interesting that was parallel to it many, many years later. Remember the
challenge or the problem with the O rings? Well, what they discovered was that
among engineers there was an unspoken rule that you don't identify a problem if
you don't have a solution, all right. So there were many of the engineers who
actually saw that there was a problem, but because of the culture of NASA you
don't speak up if you don't have a -- you don't have a solution as a result, well,
you have that -- those infamous O rings.
Now, there are many reasons why organizations have blind spots and black
holes. To understand this, what happens in any organization, you have to think
about that organization with which we were initially enculturated first, which is the
family. Most families have little lies that every family teaches to each of its
members. We all know growing up that there are things that we notice and
things that we don't notice. There are things that we say about problems, things
that we don't say about problems. There are things that we would never say to
outsiders that there are certain taboo subjects.
We have a father in the family who is abusing the children, we have an alcoholic
mother. We find all the data shows that people understand these things, but they
never talk about them, they never confront them because they have been
properly socialized by the family to not say those things. They know what they
can and cannot say.
It's the same in business organizations. I worked many years ago for one of the
largest tobacco companies in America and I noticed that every single top
executive in the company smoked. I raised the question, I said what would
happen around here if one of the executives didn't smoke? You know, is
smoking, is it necessary to smoke to get ahead around here? You know, they
looked at me like I came from the moon. This was a topic that could not be
discussed in their culture.
I'm not just blaming those people. Professors have the same problem. In
universities it's very, very clear, all the research shows that tenure is no good for
students, it's no good for professors, it's no good for universities but nobody can
speak out against tenure, right, because that subject is taboo. There are these
taboos that exist almost every where because we're all part of a corporate family.
And to be part of a group we learn what we can and what we cannot say.
There's always the office bully that nobody confronts. There's the sales folks
whose skew numbers to exaggerate expectations. There's the corporate board
that fails to reign in an abusive CEO. Why do these things happen? They
happen because nobody wants to be the skunk at the party. Nobody wants to
rock the boat. Nobody wants to be the one to tell the boss that his fly is open.
Now, we recognize this about ourselves, and we laugh at it, but we seldom
address it. One of the ways in which I've seen people laugh at it was at a
cabaret in Aspen, Colorado, it was called the Crystal Palace and for 50 years all
the big fat cats in America went out to Aspen and they would always go to the
Crystal Palace to be entertained. And the theme song of the Crystal Palace was
a song called Peanut Butter on the Chin.
Now, peanut butter on the chin was about a CEO who was rather in a hurry one
morning to get to work, and he had been eating some toast with peanut butter on
it and got a big blob of it on his chin, but he didn't have time to go to the mirror
and to clean up before he had to run off to the office.
And when he got home at night, he discovered the end of the day he still had that
big blob of peanut butter on his chin. He had been there the whole day with a
blob of peanut butter on his chin. He would go in and washed it off and he was
so absolutely embarrassed about it, but of course nobody mentioned it, nobody
told the boss, nobody wanted to tell the boss.
So he thought okay, they think that I'm such an idiot, he said you know, I'm going
to go in there tomorrow and I've lost all credibility, this is just the most terrible
thing, I'm so embarrassed. So he walks back into the office, and you know what,
all of the other executives in the company had peanut butter on their chin.
Okay. The story tells you two things, all right. First of all, it tells you about the
fact everybody wants to belong, the boss has got peanut butter on the chin, I'm
going to have peanut butter on the chin. Am I going to tell him he has peanut
butter on the chin even though he looks like an idiot? No.
This is part of the way organizations work. This is what it means to be part of a
culture of an organization, to be fully enculturated. That's why CEOs have to
create cultures of candor, why leaders have to create cultures of candor where
employees are free to speak up, and they are encouraged and rewarded to tell
the boss when that emperor is wearing no clothes.
Now, before that happens, organizations have to address the oldest of all
organizational issues, that is one that Kim mentioned earlier which we call
speaking truth to power. Now, we have to start by recognizing the fact that the
truth that makes men free is the truth that for the most part men preferred not to
hear. And I speak about men advisably because this issue of the importance
and the problems and the perils in speaking truth to power became apparent to
this country in 2002 when Enron's Sharon Watkins, WorldCom's Cynthia Cooper,
and the FBI's Coleen Rowley were named Time Magazine's persons of the year.
They were named that because they had the courage to bring news to the men
at the top of their organizations that those men did not want to hear.
And the issue that Time reported on was how these women were received by
their organizations and by their bosses for their efforts to actually try to save their
organizations. They were marginalized, they were isolated, they were reviled,
they were scorned by their own bosses and by their own co-workers, much as
Antigone was put to death when she acted on principal in the year 400 BC.
It takes tremendous courage to stand up and to tell the boss that the boss has
peanut butter on his chin. What motivates a person to have such courage, what
motivated those women? Well, it was actually what they saw as a violation of an
important moral principal. In Martin Luther King's words, our lives begin to end
the day we become silent about things that matter.
To those women, those three brave, courageous women, they can no longer
remain silent because it was a matter of moral principal. So when we speak of
creating cultures of candor, what we're really talking about is not just creating
organizational effectiveness, but we're talking about a moral imperative.
Now, some of you are comfortable here with this talk because we're talking about
culture and organizational culture and suddenly we're talking about morality and
ethics, but in fact they are all one and the same. And we have to go back to the
ancient Greeks to understand this. The word for culture in grease is ethos and
we talk about the ethos of a company we're talking about the culture of a
company, which means the character of a company is also the same Greek word
that is the root for the word ethics. Ethics has to do with the character of the
individual, ethos has to do with the character of the organization. The culture
candor has to do with the moral character of the organization.
Now, we have had in the last couple of months a marvelous example of the perils
involved in speaking truth to power. We had front page news about this when
Scott McClellan wrote a book talking about the administration's, the Bush
Administration's fabricated rationale for invading Iraq. When he came out with
his book, he was immediately slammed on the right for being disloyal and he was
slammed equally on the left for lacking moral courage and waiting until it was out
of harm's way before he spoke up.
Well, anybody who is being slammed on both the left and the right can't be all
bad, right? So let's think about him for a minute before dismissing his tardy
dallying with the truth of simple spineless kiss and tell exercise by dispelled
former employee. I think it's worth weighing the moral value of McClellan's act
and a considerable body of social science knowledge.
As it turns out that in all organizations, families, sports teams, corporations, those
lower down the pecking order will from time to time experience the terror of
having to tell unpalatable truths to those people who are ranked above them.
Now, few of us have to call attention to Iraqi style fraud and deception but most
of us have experienced retaliatory fury from rather enraged alpha dogs who
we've mustered the courage to confront.
My own case I had in the early 1990s a quite telling experience of this. I was at a
conference in Aspen in which there was a CEO there at the time, and his name
was Donald Rumsfeld, and Mr. Rumsfeld made a point during the conference
that I questioned the factual basis of what he said. I'll never forget when I
questioned him, he came after me with bone chilling intensity, his face was red
and angered and he was coming at me, and I thought he was going to kill me.
And he said no one questions me. Do you understand that? I am never wrong.
Look at the guy. I mean, I was still shaking from the encounter hours later, and a
couple days later I learned he had tried to get me fired.
I remembered that when I started reading about McClellan and thinking about
those women at Enron and WorldCom and places like that because during this
strict truth to power often entails considerable risk, whether it's at the hands of an
irate parent, a neighborhood bully or a boss. Image the courage it would take for
Sharon Watkins to have to face Jeff Skilling and tell him about his and the
company's financial deception. Even if at General Electric under Jack Welch
nobody would dare to question the boss. Nobody would ever question Jack
Welch. He berated, he insulted and he abused people. Even one of his closest
followers said the following about him. He conducts meetings so aggressively
that people tremble. He attacks almost physically with his intellect, criticizing,
demeaning, ridiculing, humiliating. I talked to one head of a division, former head
of a division at General Electric and he said he dared to question Jack Welch at a
meeting in front of his peers and Jack Welch came after him the way Rumsfeld
came after me, and this poor man admitted that he said I soiled my pants. He
was practically in tears.
Can you imagine what courage it takes to speak up to some of these very tough
bosses? In the 1970s there was a professor at MIT by the name of Albert
Hirschman, and he posited the following. He said that employees who disagree
with company policy only have three options. Exit, voice, or loyalty. That is they
can offer a principal, principal resignation, that's exit. Or they can try to change
the policy, that's speaking truth to power. Or they can remain loyal team players
despite their opposition.
Well, research shows that most people choose option three, the path of least
resistance. Most people swallow whatever moral objections they may have to
questionable dictates from above because they conclude that they lack the
power to change things or worse, that they're going to be punished if they
attempt to change them.
All of the scientific data supports Hirschfeld's thesis. In a survey of a cross
section of American workers, over two-thirds report having personally witnessed
unethical behavior on the job. But only one third of those also reported what they
had done, what they had seen to their supervisors. Why did these people who
saw something terrible at work, why did they not tell the supervisors about it?
The reasons that those people gave for their reticence range from fear of
retaliation to the belief that management would not act on the information
appropriately. That is they simply did not trust their bosses. Now, docile
employee behavior is assumed. Most people believe that their people are going
to go along with what they say, that they're going to be good soldiers, that they're
not going to question company policy, or if they do that they're going to go away
quitely.
And when they -- if they go away noisily or if they make a fuss, they're accused of
disloyalty because disloyalty is obviously the organization's trump card.
Experience shows employees who muster the courage to question prevailing
group think in an organization open themselves to charges of disloyalty and that's
why most people have to be really teed off before they will go public to get angry
enough to face an onslaught one's character requires not only fundamentally
disagreement on policy usually involving a moral principal, but also some deep
personal hurt.
If you remember seeing that movie the Insider about the scientist that cigarette
maker Brown and Williamson, he finally became a whistle blower but it was only
after he had been really, really badly mistreated by the company, and once he
was badly mistreated and won't public the company responded with a standard
response that they use against all whistle blowers which is that the testimony
should be discounted because these employees were disgruntled, angry nut
cases with enough skeletons in their closet to outfit a Halloween ball.
Now, McClellan is getting pretty much this same treatment today and the charge
of disloyalty is easy for leaders to bring against followers and it's very hard for the
accused to counter or to disprove.
And moreover, we have to realize that loyalty is an admirable trait. But it's also a
conveniently safe blind for cowardly followers to hide behind.
Now, if you look at what's happened in recent times in the Bush Administration,
Treasury Secretary Paul O'Neill, Economic Adviser Lawrence Lindsey, Pollster
Matthew Dowd, National Security Expert Richard Clark, Ex-Army Chief Eric
Shinseki, all of them left the administration and the response was that they were
all disloyal and too angry to be trusted.
Well, obviously they weren't they would still be in the inside trying to change
things but they tried that and it didn't work. I think we have to be careful not to
demand that when people do step forward, they not be angry because if that's
what we demand we immediately assume that they're disloyal, I think that fewer
and fewer people are going to step forward and there are going to be fewer
safeguards on the public interest.
I think what we learned from the whistle blowers in both government and whistle
blowers in business over the last decade is that we should cut some slack to
people who don't speak up when they're in power and who step outside and
finally do. As I said, you have to keep in mind that speaking truth to power is
dangerous and the truth that makes men free is all from the truth that those
leaders prefer not to hear, and what is required is not only a courageous speaker
but also a willing listener. And we need both of those things in order to have a
true culture of candor.
If you're interested in during the Q and A period, I can give you some examples
of how business leaders are creating cultures of candor, people all levels in an
organization, it's not just the people at the top. But what we found in our
research was that the very best companies in America, very best companies in
terms of their effectiveness and also in terms of their ethics were almost all
governed by one rule when it came to information. And that rule is this: When in
doubt, let it out. Any questions, comments? I could give you some examples.
Please.
>>: (Inaudible) is in regards to organizational transformation and creating the
culture where we default to giving voice to their concerns instead of defaulting
(inaudible) and going along with things? What are some of the traits that you've
experienced in organizations that drive for that kind of culture, and what advice
would have for us individually and collectively to create that kind of (inaudible).
>> James O'Toole: Say how do you create a climate in which people are willing
to speak out? Well, there are several things that are necessary and clearly the
fundamentally ethical issue that you're talking about is trust. People will speak
out when they know that it's safe to speak out. If people get punished for
speaking out, people don't get promoted people, turned into outcast as a result of
speaking out or not paid attention to, people get the message very, very quickly,
all right.
So trust is something that accrues over time, all right. Trust is not something that
you can do in one day. Trust is something that you earn over a long period of
time by behavior that causes the followers to know that they are safe, and not
only are they safe, but they are actually rewarded for speaking out.
Let me give you an example of one of the ways in which this is created, a
personal example that I had. There is a man who some of you may have heard
of in a related industry to yours, his name is Bob Galvin, and he was the CEO of
a company called Motorola. And Bob Galvin got his job the old-fashioned way,
he inherited the company from his father. And Bob was a C student in
engineering at Notre Dame, and he knew to get ahead he had to hire a lot of
guys who were A students. And to hire them, he also had to listen to them. And
to make sure that they were free to speak up, speak up to him even though he
owned the company, they had to be free to talk to him.
And he did it -- he showed in every single thing that he did day after day after
day, that it was safe. And I was walking down in the probably about the year
1980, I was at the headquarters in Schaumburg, and walking down the corridor
with Bob Galvin. Bob Galvin looked like he got his job not from inheriting it but
from central casting. He really looks like a CEO. He's one of these really
distinguished guys. You know, he was in his late 50s at the time, shock of white
hair, very handsome, just really looked marvelous as a leader.
And this young guy comes running down the hallway in Schaumburg, he's
dressed like you. He comes up to the old man, he grabs him like that, he's
probably 27 years old. Looks at him, he said Bob, I heard what you said in that
meeting this morning and you're dead wrong, I'm going to prove it, and I'm going
to shoot you down. The kid charges off. And I go holy Christ, the kid's career is
caput. You don't talk that way to the guy who owns the company, to the boss.
And I looked up, and there was Galvin and he was absolutely beaming.
And I said, you know, what's wrong with this picture? And he said that's how
we've overcome Texas Instruments lead in semi conductors. He said around
here, he said the reward goes not to those who tell me when I'm right, because
there's no value in that, it goes to the people who show us when we are wrong,
who shows when we are making a mistake. He said even if I'm the one who is
causing the mistake.
But that, what Bob Galvin did every single day, every single day that he was the
CEO, he went in, and there was a table in the dining hall at Schaumburg, and
new executives were allowed you to sit there, new top managements were
allowed to sit there, because they could get to Bob anytime. Bob would sit there
and the employees would come, and different ones came all the time. And when
people saw year after year after year that this guy was open, that it was safe,
then he created that kind of culture of trust and that kind of culture of candor.
Now, once you lose that, it is very, very hard to regain, because you can lose all
of that in one fell swoop, just one fell swoop, and that's the hard thing about trust.
Now, I can tell you about how some companies go about doing this sometimes in
a practical way. There's a CEO at a company called DaVita or something like
that. I can never remember the name of the company. Thank God I haven't
used their product, because they make kidney dialysis machines. His name is
Kent Thiry and he's the CEO of DaVita.
What this CEO does is he meets regularly with all his employees and he asks for
candid feedback both about himself and about the company. In addition to that,
he systematically collects data from employees, from ex-employes, from
suppliers, from dealers, from customers all trying to make sure that the company
is not doing things that's going to cause them to screw up. Now, this is a small
company. I mean, this is like most of you probably run a bigger company than he
runs.
But his entire approach to leadership is based upon speaking truth to power,
upon candor, upon absolute and utter transparency. And so the people
understand when he meets with them, you know, normally when you ask people
who work for you how are things going, they say they're going okay. He never
accepts that. He says no, they're not going okay, things are never going okay in
an organization, there are always problems, what are the problems?
One case they just going through a merger and he asked the people how is the
merger going, it's going fine, two cultures are coming together fine. And Thiry
says no they're not, two cultures never come together well. There are real
problems here. Unless you talk about these things and you make them open, we
can't deal with them. Constantly pushing people to get the problems out because
once they get out then you can work on them and then he go away very, very
quickly. It's when they fester that that's when the problems occur.
Any other questions, comments? That was a long answer.
>>: How do you attribute success in companies that do have a culture of
secrecy?
>> James O'Toole: Well, we don't know how, and I've been working on this
problem now probably for about 35 years, starting with my friends at McKenzie,
Peters and Waterman and trying to figure out how do you account for success in
an organization? We don't know how. We can't even answer that question.
What we do know is that in terms of the behavior of leaders, the leaders can be
successful if they take the high road or the low road. We have examples of
leaders who actually are unethical who don't listen to anybody else, who are
stubborn, pigheaded and kind of person who you wouldn't want to have a beer
with, right, but who are incredibly successful.
We also have examples of people, you know, who are really good people who
develop their people, who listen to their people, who help them grow and to
become leaders themselves. All right. And there's absolutely no correlation
between success between one or the other. The lesson of that is you got a
choice, you don't have to do it. You don't have to take the low road. You actually
can take the high road and be a success. That's the good news. Does it mean
that if you take the high road that you will be a success but also if you take the
low road it doesn't mean you're going to be a success either. We don't know
what causes you to be a success. All right. Maybe it's luck.
But the good news is that these ethical questions are questions of which we have
a choice. You have a choice to be open to your people. We think from the
research that we have that you are open, you increase your chances of success
because what you do is you inform the decisions you are making, an informed
decision is going to be a hell of a lot better than a decision that's not informed.
Just as simple as that.
Yes, sir?
>>: So in your research, have you seen or can you recommend from being in
your organization or in a culture of who want transparency but people in power
are too powerful to let it happen and (inaudible).
>> James O'Toole: Well, a personally believe that every leader has the
responsibility to develop his or her followers. The same time every follower has
the responsibility to develop his or her leader. One of the biggest challenges that
anybody in an organization faces is how do you tell your boss the bad news.
Now, it is morally when the boss is doing something that is clearly self defeating
for the boss and certainly when it is self -- when it is harming the organization, we
all have responsibility to get that message across. We know that some people
don't listen, they say you have to have a willing listener.
The challenge then is for each of us is to find the way in which we can have that
conversation with your boss, and all of the sort of skills that a manager needs to
have. One of them that the people never talk about but which I think is very
important is the skill involved in having difficult conversations. You think about
what's the most difficult conversation that any of you have to have? It is if you
have somebody working for you it is when you have to do the annual evaluation
and you have to tell them they're not doing well. Nobody wants to have that
conversation. It's so hard to tell somebody look, you're screwing up, look, you're
not going to get a raise, look if you keep doing it the way you're doing you're
going to get fired, right. Nobody wants to have that conversation.
But there are all kinds of difficult conversation that is are like that, including
perhaps even more difficult one is when you have to tell your boss that your boss
is the one who is screwing up.
A friend of mine just recently retired, he's an executive at the Northrop
corporation. He said one of the most important skills we all need to have is
learning how to have difficult conversations. And the only way you can do it is by
practicing. He said that if we can each of us understand that it is to our benefit
and the benefit of the organization if we can learn first of all how can you tell
somebody bad news, people below you or the people above you?
You are going to be a much more effective leader and it's going to be much
better for the organization if you can learn how to do that. This requires what my
colleague Dan Goleman, who is a co-author, some of you know about Dan
Goleman, he wrote a book called Emotional Intelligence. What Dan is talking
about is really this is emotional intelligence, being able to find the way to bring
that message to your boss or to the people below you, message that they don't
want to hear.
And it is perhaps one of the rarest traits that there is, but it's something actually
that can be learned if you practice it. And I think it is one of the really one of the
most important skills. And I've seen people do it. And I've seen people get to
bosses who were doing stuff that was really dumb and who for all the world
would have said there is no way this person would ever have listened, and
people found a way, whether it was offline, whether through analogy, whether
through getting them to go to attend a course, whether helping them get a coach,
whether going to their bosses, whether going to their peers, with the CEO going
to member of the board, one way or another finding a way to get the information
to the person so that the person has a chance to change.
I just think that the -- although it isn't easy, it is clearly an organizational
imperative as well as a moral imperative. We learn how to have those kinds of
difficult conversations.
Doesn't help you? Yeah. Because you still don't know how to do it. Practice,
practice, practice, that's how you get to Carnegie Hall. Yes?
>>: With all the candor and (inaudible) how do you prevent (inaudible) with
everyone arguing about different things?
>> James O'Toole: All right. That's really a good question. You know, I only
had a few minutes here and I went pretty quickly through all this. I said you need
to have both a -- you have to have a willing listener, but you also have to have a
virtual speaker. And it isn't the case that all candor is good. This gets back to
this question here, too, you know, that how do you have these difficult
conversations?
There's no reason to bring up people's personal lives, there's no reason to let
information, personal information out. That should all be very private. As a
matter of fact, one of the problems with the new technologies is having legitimate
privacy, keeping legitimate privacy.
You also, you know, we don't want the world to know what Microsoft's next
generation of product is going to look like. That's a legitimate secret. You've got
to keep those secrets. We were talking about that. Before one speaks truth to
power, there are several kinds of ethical tests that must be met. All of -- it really
requires moral reflection before one speaks truth to power. You have to ask the
first question, the most important question is is it in fact truth, how do you know
that it's truth? Have I really done my research? Do I know that whatever I'm
telling the boss that it really is actually factually true?
The second is that whatever that truth is, it can't do any harm to innocent people.
There's collateral damage that can occur by speaking the truth. There is a lot of
innocent people can get hurt. You have to be very careful that when you convey
information, whatever information you're bringing out that it is done in such a way
that innocents are not harmed.
Equally important and related to that is that before speaking truth to power,
before it can be virtuous it has to be in the interest of the organization or in the
interest of others, that is self interested speaking truth to power is not virtuous.
You're just speaking up because you're trying to advance your own position,
because you're angry at somebody, because you want to get even with
somebody, you're grand standing, none of that stuff is virtuous.
What is virtuous is I have to speak up because organization is being harmed or
because you yourself are harming yourself then you can speak truth to power.
And just we have to be realistic about this, too. There is no virtue in speaking up
if there is not at least a chance for success. There's no virtue in tilting at wind
mills. And so therefore you have to make sure that you thought this all through
and thought through in a morally ethical way and in a strategic way, how's the
best way to get this message across so that it has at least a chance of
succeeding, just barging in and telling the boss something he doesn't want to
hear probably will get you thrown out of the office.
So this is not easy. It is not easy. And it is -- it requires real moral imagination to
be able to figure out how do you get information to people who don't want to hear
it? And there are all these kinds of -- it takes some really reflection. It's not just
something that you do on the fly or off the cuff.
Any other questions? Yes, sir.
>>: There's the one thing that's usually secret in an organization is the salaries
of people and you could say it makes sense because it helps you, the
organization minimize the amount of money that they pay their employees while
they are still happy. So I mean think about that.
>> James O'Toole: Well, let me give this -- this one you raised which is in the
eyes of most organizations is the most difficult question but in fact is actually the
easiest. Most companies have all kinds of reasons why they can't post salaries.
All kinds of reasons. And the employees, because they do not have access to
that information, always assume the worst. All right. They assume that the -that some people are getting more than they're actually getting, that the people
who are not high performers are not getting very well paid, that the whole system
is rotten and unfair because it is hidden.
Research shows -- my colleague Ed Lawler I've worked with many, many years,
done a lot of research on this is that once salaries are posted, two things occur.
First of all everybody is interested and they go look. The second thing is that
they almost always discover that it wasn't as bad as they thought it was and
therefore the issue goes away.
And so all the mistrust that was building up around this and all this misperception
when people actually see it, most of the time people get roughly what they -- you
know, what you think they were getting, what they should be getting. Very few
companies it's really badly skewed. There's no way nearly as badly skewed as
you assume it was when you don't know what actually happens. And so the post
thing -- this is really a marvelous example of the benefit that comes about as a
result of full disclosure because what does it gets back to the issue that was
raised in the back, it's one of those things that you do to build trust in an
organization. It just, it's a very nice first step, it's actually a relatively easy thing
to do and although the people are trying to hoard the stuff like mad when it goes
away, they say I was so stupid, why the hell did I try to hoard that, it doesn't
make any difference.
And it does not make any difference to anybody. Yes, sir, in the back?
>>: In your research, when have you found -- in your research, what does your
data tell you about the perception around the level of transparency that
Microsoft --
>> James O'Toole: I don't know. I don't know. I have absolutely no data
whatsoever on that subject. But you know, you know the answer. You know the
answer. Okay. You know the answer. And the question is, you know, how can
you get people talking about the issue, all right? Because the only way in which
the issue transparency is going to get addressed, it sounds like a chicken and
egg proposition, is if you raise it. All right. So you have to find out how can you
get the issue of transparency as part of the currency of discussion, and how can
you work that up, how can you find that?
You know, it ends up that actually, you know, this transparency is kind of a short
hand for lots of problems that organizations have. And it is kind of a useful word
once managers started to use it. You know, we had the example of that today
with Starbucks, you know. Howard Schultz who should know better, Howard
Schultz is a protegee of my colleague Warren Bennis. And Warren is telling him
all along the importance of transparency, the importance of transparency. And
here he's been for the last couple of months trying to keep secret what stores
they're closing down, right? And as a result of that, the climate inside Starbucks
has gotten very bad, the level of trust is getting very bad, the respect that people
have for Schultz is going down, right.
Now, as Kim mentioned the other day he's finally now releasing some information
and he's saying I think it's important to become transparency because he's
seeing the cost of it. And so it is a very, very useful concept for top executives to
have. Once they see the benefits of transparency they'll start to use it am they
will start to become a part of what they need to do. I was of course hoping here
and kidding myself as all professors do that maybe.
Mr. Balmer would be sitting here in the room and he could hear this message
and he could start from the top. But I'm going to have to leave it up to all of you
to get him the message.
>> Kim Ricketts: Thank you.
>> James O'Toole: Thank you.
(Applause)