Does it Matter What CEO’s Believe?
By Fred Kiel, Ph.D. & Doug Lennick
Authors of Moral Intelligence: Enhancing Business Performance and Leadership Success, Wharton School Publishing, 2005

Another CEO bites the dust. Hank Greenberg has been a CEO of the world’s largest insurer for more years than many readers of this piece have been alive. His business results have been impressive, if not unmatched. The stock in AIG has provided shareholders an astounding 6000% return over the past thirty years. An index fund mirroring the S&P would have given only half this much.

So, why is he being canned? Well, the directors apparently are worried that he has become a liability and the Department of Justice seems to think he might be a crook – it is investigating whether or not to bring criminal charges against him for having inflated AIG’s financial figures. That’s called lying by most ordinary people.

How can we explain the behavior of people who have contributed so much but yet flame out like this? It’s as if one element of their “winning formula” was a clinker – or more precisely, a time bomb waiting to go off and erase the otherwise impressive history of winning.

Our research suggests to us that a leader’s behavior is the expression of a set of underlying beliefs and that all behavior is aligned with a corresponding belief. We believe that this part of an individual’s “moral compass” and it contains a relatively short list of beliefs about human nature, the world and how to best influence people—one’s “worldview.” These beliefs inform one’s decision making and drive behavior. We believe that this set of beliefs operates mostly at a background level, much like the operating system in a PC – and thus, is not easily revealed or brought into the foreground of consciousness. Yet, it both allows and limits the “software” you can run.

These are not likely the same set of beliefs that people will tell you about – those are the socially acceptable ones that most of us aspire to hold. And it’s not that people are deceptive in this way – it’s simply that the real, powerful beliefs that determine behavior are most often beneath the surface and not easily accessible.

So, what was the clinker for Hank? Does he believe in his heart of hearts that it’s okay to cheat if you don’t get caught? Or a slightly more socially acceptable version – “Everyone has to bend the rules from time to time in this competitive global market. The good guys come in last?”

What are the core beliefs that drive moral behavior? Is it important that our leaders endorse the universal principles of integrity, responsibility, compassion and forgiveness honored in cultures all over the globe? Does it really matter what CEO’s believe? We believe it matters a great deal. And we think that there is a “right” view on this matter – even though it has yet to be proven with research. These are empirical questions that beg to be answered.

Some interesting research along these lines has begun. Kotter and Heskett in their 1992 book, Corporate Culture and Performance, analyzed over 200 companies and uncovered the relationship between organizational culture and business results. Revenue, stock prices and net income were found to be far greater for those companies with “adaptive” cultures vs. those with “unadaptive” cultures. The differences were rather dramatic – revenue growth from 1977-1988 for the adaptive culture companies was 682% compared to 166% for the unadaptive culture companies. Stock price was 901% compared to 74% and the bottom line, net income, grew 756% for the adaptive culture companies compared to a paltry 1% growth for the unadaptive culture companies. Additional studies since have supported their findings.

Kotter and Heskett reported that the adaptive culture companies had managers who cared deeply about customers, stockholders, and employees and who valued people and processes that created useful change. They described them as people who “…pay close attention to all their constituencies, especially customers, and initiate change when needed to serve their legitimate interests, even if that entails taking some risks.”

The unadaptive corporate cultures, by contrast, have managers who “…are often characterized by some arrogance, insularity, and bureaucratic centralization, all supported by a value system that cares more about self-interest than about customers, stockholders, employees, or good leadership…And they tend to turn people off—particularly those individuals whose personal values include an emphasis on integrity, trust, and caring for other human beings.”

More recent research reported by Collins in his book, Good to Great, also lends support to the idea that what leaders believe impacts business results. He found that all good-to-great executives were similar in important ways. They were both modest and willful, humble and fearless. He describes them as the opposite of ego-maniacs – “more plow horse than show horse.” He calls them “Level 5 leaders” and notes that they are driven to produce results but in a morally intelligent way. They attribute success to factors other than themselves and take full responsibility when things go poorly. They set their successors up for success in the next generation. Collins goes on to say, “Our research exposed Level 5 as a key component inside the black box of what it takes to shift a company from good to great. Yet inside that black box is yet another black box–namely, the inner development of a person to Level 5. We could speculate on what might be inside that black box, but it would mostly be just that—speculation. So, in short, Level 5 is a very satisfying idea, a powerful idea, and, to produce the best transitions from good to great, perhaps an essential idea.”

No one to date, however, has isolated the contents of Collins’ “black box” or identified all the elements in our “winning formula” metaphor. These basic questions remain to be answered: What developmental learning experiences produce this type of leader? What are the beliefs of these amazing leaders – their core convictions and worldview? What do they believe about human nature? What do they believe about themselves? Why are they so driven to achieve sustained business results by following universal rules of human conduct instead of bending the rules?

Answering these questions might be the most important research that can be done. After all, no amount of new rules about compliance or newer versions of the Sarbanes-Oxley bill will accomplish what we need. Simply staying technically within legal boundaries (although that’s a step in the right direction) is not enough. Instead, we need to develop self-monitoring moral individuals who then go on to create virtuous circles and become moral educators in their own right. For better or worse, CEO’s teach us all by their behavior.