October 20, 2008
News & Opinion: Excerpt from The Integrity Dividend
The following excerpt is taken from Chapter 1 of The Integrity Dividend: Leading by the Power of Your Word by Tony Simons. From the publisher: In The Integrity Dividend Tony Simons shows how leaders' personal integrity drives the profitability and overall success of their organization. This groundbreaking book is based in on solid research and reveals that businesses led by managers of higher integrity enjoy deeper employee commitment, lower turnover, superior customer service, and substantially higher profitability. This improved performance is the integrity dividend. Chapter 1: The Dollar Value of your Impeccable Word Stan Myers, president and CEO of SEMI, a global semiconductor industry association, tells the following story about the impact of keeping his word. When he was CEO of Mitsubishi Silicon America, he planned to move his R&D department from the San Francisco Bay area to Salem, Oregon. Many employees were not interested in moving. As an incentive, he offered a retention bonus to people who would stay the full eight months until the move and help to recruit their replacements. If they took another job before the eight months, they would get severance, but would not get the retention bonus. One young engineer, Alan, got another job, did not get his retention bonus, and finance did not pay him his legitimate severance, which was several thousand dollars. He never asked for it. About a year later, Stan, the CEO, learned about the mistake. He had his people cut the check, found and visited Alan's new workplace, and asked the president of the company to bring Alan up to the conference room for a conversation. Alan came in and he said, 'What are you doing here? I haven't seen you for a while,' Stan said, 'Yes, Alan, but I wanted to tell you we forgot to pay you your severance.' Alan was overwhelmed. More than 15 years later, Stan heard again from Alan. Alan had started up a successful company. He sought out Stan to present him with an engraved iPod Nano, thanking him for his leadership and friendship. I draw two points from this story. One is that the simple act of keeping a promise can have a huge impact on a person. The second point is scarier: Alan did not expect his employer to keep his word. The fact that Stan acted as he did struck Alan as extraordinarily unusual. CEOs are very busy. Nobody likes to admit a mistake. There probably would have been no fallout if the check had never been written. There would have been understandable reasons for Stan Myers not to have acted as he did. But the fact that he did says something about the man as a leader. And it helps to explain his great success in that role. It's easy to break a promise. It's even easier to forget the price of breaking it. After all, who can measure that price? Few would deny that a broken promise lowers the morale of your employees, but what's the real dollar cost--the bottom line impact? Or what is the payoff of keeping a promise? It should be simple to align your words and actions in a way that employees can see. But if it's so simple why do most employees say their managers do not do it? Maybe it is not so simple. Consider how two executives described to me the benefit of an impeccable word--and the cost of lacking one:
Good leadership is, 'Whatever I say I'm going to do, I'm going to do.' That means I have to know what my limitations are and what I'm capable of delivering. As a leader if you don't fulfill your commitments, I can't think of anything that can hurt you more than that. --Frank Guidara, President and CEO, Uno's Chicago Grill If your staff see you cutting corners, then they're not going to take you seriously. And then they're not going to take the values that you're trying to instill seriously. Because you're not taking the values seriously. --Deirdre Wallace, President, The Ambrose GroupLike these successful executives, you, too, most likely want be an honest and respected leader. But this book is about more than being respected. As its title says, it's about The Integrity Dividend--and why and how keeping your word as a leader pays off on the bottom line. One thing that sets this book apart from others that discuss the importance of integrity is that it tells how I have been able to accurately measure its positive dollar impact. As you will see more in later chapters, successful executives I talk to recognize the dividend, too, but until now it has not been well measured. I am not asking you to be motivated by any intrinsic payoff, though I think there are several. Integrity, for me, is about being more effective, because people see you as consistently following through on your word and demonstrating the values you profess: more effective as a leader, because you more readily capture the hearts of your followers; as a communicator, because people know you mean what you say; as a partner, because you can be counted on; as a customer because you complete business transactions more efficiently; as a supplier, because buyers can know what they will get; and as a brand, because you keep your promises--and promises are all that a brand is. Integrity contributes hugely to executive effectiveness. Behavioral Integrity: A Recognized Fit Between Words and Actions Most successful executives intuit the importance of a reputation for integrity. It plays a major role in our public discourse, as politicians of all stripes revel in accusing their opponents of lacking it. People sense its importance, perhaps especially now, as corruption scandals break careers, lives, bank accounts, and the faith of millions. But in 2005, "integrity" was the single most looked-up word on the Merriam Webster dictionary website, which implies that people are not exactly sure what integrity means. Think about that for a minute: people know integrity is important but they are not sure what it means. Often people use the word "integrity" to describe a general quality of acting ethically. Ethics are important, but they are not what this book is about. For the purposes of this book, integrity means the fit between words and actions, as seen by others. It means promise-keeping and showing the values you profess. This book is simply about keeping your words lined up with your actions--keeping promises and living by the same values you talk about--seamlessly, as in the integrity of hull of a boat. It means being seen as living by your word. Behavioral integrity is not about the content of a person's values, though I believe that content is very important. It is about how well a person follows through on the values he or she espouses. I can judge people despicable for what they value. But if they walk their talk and keep promises, I will--grudgingly--concede that they have behavioral integrity. A colleague of mine once proclaimed at a department meeting that his decisions would be guided strictly by self-interest, and that he had no concern for what the department or the school needed. I did not like working with the guy, nor did I trust him. But he was living up to his word, and I had to give him credit for behavioral integrity. It is not enough to keep your word; others have to be aware that you are doing it. And here is where it gets sticky: Like beauty, behavioral integrity is in the eye of the beholder. Consistently keeping promises and living by your stated principles are, of themselves, difficult. Being seen as consistently doing these things is a challenge worthy of the best of us. People we manage spend a lot of time watching us and trying to figure us out. They generally notice and understand more than we realize. But they also carry their own baggage, their own hurts, cynicisms, and biases, and their judgments about our integrity are colored by everything from their own parental issues from childhood to previous bosses to personality to the particular moments they happen to witness. As effective leaders--or business partners, suppliers, board members, whatever--our challenge is to penetrate the veil of others' subjective perceptual processes and convey integrity regardless of them. That added step of managing others' perceptions makes the challenge more difficult than it might have seemed. It is not enough to manage your own level of consistency. You have to manage others' perceptions of it, without lapsing into cynical manipulation, which probably would not work anyway. Leadership, Trust, and the Integrity Dividend It is difficult for anyone to define, measure, and develop leadership, in part because leadership involves trust, inspiration, challenge, strategic vision, and much else. But leadership is critical to just about any company's performance, and there are many books about it, many offering terrific insights. Still, I suggest that the basic insight of this book--a fundamental, challenging one with a demonstrated financial dividend, has not heretofore received the kind of attention it warrants. Consider the issue of trust, about which there has been a recent flurry of leadership books. Most agree that trust is a critical ingredient for leadership, since few people will follow someone they do not trust. Most also agree that trust is complicated, involving reliance, emotion, and respect, and a sense that the trusted person will look out for you. This book will argue for looking particularly hard at reliance as a crucial ingredient for building and keeping trust. Reliance is the belief that a leader keeps his word; fulfills his promises; show the same values he professes. That is what "walking the talk" really means. If people do not see this consistency, leadership cannot happen, at all. You cannot even get out of the starting gate as a leader if people do not believe your words. Behavioral integrity is a simple idea, though very hard to put into practice. But if you can do so, your powerful word pays off in powerful, concrete dividends. Later chapters of this book will say how to capture the integrity dividend. Before moving on to them, however, let's look at some of the growing evidence that the dividend really exists. A Scientific Study: The Dollar Value of an Impeccable Word A few years ago, a colleague of mine at Cornell University's Hotel School, Cathy Enz, was fascinated by the idea of clear corporate values as a powerful tool for enhancing effectiveness. At the time I had not yet latched onto the idea that how well a leader's actions lined up with his or her words would make a critical difference in that leader's effectiveness. Through many of our conversations, I kept coming back to the idea that talking about values was one thing, acting on them was another, and that aligning those words and actions might be the most powerful combination by far. By that time I had also begun to regard as toxic the common exercise of drafting up a statement of values that sits in a few desk drawers. It gives rise, I thought, to cynical employees who see their bosses pretending to values they do not implement. And cynicism kills spirit, and so undermines the company's bottom line performance in a thousand small and large ways. But at that point my thoughts were just theory without clear supporting evidence. Management scholars have generated significant recent research on several concepts related to word-action alignment. Trust is widely recognized and demonstrated as a key performance factor in teams and leadership in general. A study of NCAA college basketball teams found that players' trust in leadership drives the quality and consistency of team performance[i][ii]. Several studies have shown that trust in leadership drives subordinates' positive attitudes and their willingness to expend effort beyond formal job definitions[iii]. Fairness perceptions[iv] and perceived violations of "psychological contracts"[v] have also been shown, over many studies, to affect employee attitudes, discretionary effort, and retention. But with a very few exceptions, the previous relevant research had focused on individual outcomes rather than company-wide outcomes. No one had zeroed in on the idea of leaders living by their word, linking it to company performance as its final outcome. I began to look for ways to test the bottom line impact of word-action alignment. Testing the bottom-line impact of anything in the real world is not especially easy. To test a single factor like integrity, you need a lot of businesses that you can compare directly to each other. Franchises make a good testing ground, as you can filter out a lot of variation, comparing the performance of independent business units that are very similar in most ways but have different managers who lead with different styles. I found help in this investigation from Pete Kline, then the CEO of Bristol Hotels and Resorts. Bristol Hotels and Resorts operated over 110 hotels in the US and Canada, including Holiday Inn franchises. Pete is a brave man who also intuited the truth of the claim I wanted to test. We focused on 76 Holiday Inn hotels that were in the US and not unionized. Bristol agreed to share the financial performance, employee turnover, and guest satisfaction information for each hotel. Bristol asked me to design its employee survey to include penetrating questions about how much people trust their bosses and how good they think that boss' word is. For the project, I collaborated with Professor Judi McLean Parks of Washington University, an expert at measuring employee perceptions of their implicit and explicit employment deals – what she calls the "psychological contract." By applying solid scientific practice (focus groups, careful pre-testing, pre-validated questions where feasible, multiple questions "triangulating" on each underlying idea, and objective operational performance measurement), we created a survey that could measure a chain of impact running from behavioral integrity perceptions to attitudes to behaviors to the bottom line. At a few hotels we ran focus groups about what behavioral integrity looked like, and pilot-tested the survey, translated into five different languages. Then we asked employees at all 76 hotels to complete the survey. They did so anonymously, on company time, with a raffle for sweatshirts and dinners out as an incentive. Most employees filled out paper surveys, but we set up "read-aloud" tables for the roughly 7% of employees with limited literacy[vi]. At each hotel, we asked line employees, supervisors, department managers, and the general manager to say how strongly they agreed or disagreed with statements like:
- My manager practices what he/she preaches.
- When my manager promises something, I can be certain that it will happen.
- I would be willing to let my manager have complete control over my future in this company.
- Where employees feel their managers keep promises and live by the values they describe, they trust their managers more.
- Where they trust their managers more, they become more emotionally committed to the company--caring more deeply about its mission and taking pride in working for it.
- Where they feel greater emotional commitment to the company, they are more willing to stay in their jobs, and to go beyond their formal job descriptions by providing discretionary service to satisfy guest requests.
- Guests who experience discretionary service from hotel employees like it and feel more satisfied.
- Satisfied guests translate to repeat business, which boosts profits. Employee retention boosts profits as well.
- Deeper employee commitment, leading to
- Lower employee turnover and
- Superior customer service; all leading to
- Higher profitability.
- The payoff of behavioral integrity is greater personal and organizational effectiveness --it builds personal credibility and trust, which enhance your ability to get things done through people.
- Employees who trust their leaders work harder and with clearer direction. Trust also leads to greater efficiency in customer relationships, supplier relationships, and union relationships.
- Some of the hardest things to manage about behavioral integrity come down to recognizing and reckoning with our own personal habits and the ways we have learned to interact with people. Some of our well-intended actions serve to undermine our integrity and thus our credibility. Elements of self-knowledge and self-control are thus integral managing behavioral integrity. You have to be willing to occasionally sacrifice in the service of keeping your word. To create a word as good as gold, you sometimes have to demonstrate the value of your word by paying for it.
- Executives can extend behavioral integrity and its dividends through leaders and practices throughout the organization. It is not just about personal relationships. Through careful modeling, training, coaching, accountability and incentives, impeccable follow-through can become a mutual expectation that forms part of the structure and the culture of the company. Make it a shared priority and watch your effectiveness build.
- Where have you seen high or low behavioral integrity on the part of your current or a previous leader or boss? How did it affect your work attitude? Your level of discretionary effort? Your peers?
- How high a priority is keeping your word? How much would you sacrifice in order to keep your word?
- Where do you find it challenging to keep promises or live up to stated values? How much does the resulting gap cost you?