When CEOs go rogue in a big way, causing employees to lose trust in the organization, what can be done to repair the damage?
Whether talking about cases of sexual harassment and misbehavior (Dov Charney at American Apparel), financial misconduct (Dennis Kozlowski at Tyco), or outright perjury (John Browne at British Petroleum), a decisive response from the company’s board of directors can help redeem a company’s reputation.
That’s the finding of a new study in the latest issue of the Journal of Trust Research. It reports that companies can avoid being tainted by CEO misconduct by firing the CEO or, if they can’t be dismissed because they own or founded the company, have them apologize for their sins and show true repentance while the company institutes safeguards to ensure the betrayal of trust won’t happen again.
Experts say the best companies won’t just respond to the trend of the day–for example, financial misdealing in 2008 and sexual harassment in 2018. Instead, their boards of directors and other leaders will develop detailed policies and procedures that address how the organization will investigate a violation, determine an appropriate response and then communicate to key stakeholders in a timely manner.
Companies find themselves in a very difficult position when the CEO commits a misdeed, says Joe Ungemah, North America practice leader for talent management and organizational alignment at Willis Towers Watson.
“The expectation is that [the organization] will have to make a judgment call very quickly, often before they make a full investigation,” he says. “That’s why they should have a governmental structure in place and a playbook for how to deal with [these issues].”
Study co-author Cecily D. Cooper, an associate professor at the University of Miami Business School, defines trust as the willingness to be vulnerable, based on positive expectations of the behaviors and intentions of other people–a fundamental response that spans all cultures. Organizational trust is when employees and other stakeholders place their faith in the integrity, competency and benevolence of leadership, knowing that their actions will affect everyone’s economic health and wellbeing. Since people associate the organization’s reputation and culture with CEO behavior, an individual’s misconduct will affect how people regard the company, according to her research.
“People perceive violations of competence very differently than violations of integrity,” says Cooper, who has researched trust since 2001 with colleagues from Singapore Management University, Washington University in St. Louis and the University of Southern California. “They are more likely to forgive a competency issue than an integrity issue.”
That means complex infractions require close examination to determine how they will affect trust, says Ungemah. In sexual misconduct cases, for example, internal investigators should consider whether the CEO flagrantly violated the rules, bent them slightly or was able to continue the bad behavior because colleagues or culture were complicit in tolerating his or her actions. “You can’t just say sorry and move on,” he notes. “You have to go further.”
That also means putting policies into place to prevent repeat offenses, which become ever harder to rebound from. “This is where organizations get into trouble,” he adds.
Seymour Adler, a partner in the talent and rewards practice for Aon Hewitt, agrees that looking at the organization’s past performance regarding violations is critical. “Is there a history of fairness?” he says. “Has the senior leadership’s bad behavior been tolerated for a long time?”
Ungemah suggests companies should decide who will conduct the investigation and designate an alternate in case the original investigator is the one under investigation. Boards should list different scenarios and set up governance for how to deal with each one and think carefully through the implications of each decision.
When these events occur, says Patrick Hyland, a principal with Mercer Sirota, companies need to understand employees’ perceptions of what has transpired.
“Hearing what their concerns are is the basis of the rebuilding process for trust,” he says. “The organization needs to assure employees that the violation is being addressed and that it won’t happen again. Employees will remain skeptical until they see evidence that something has changed. And, the organization has to remain vigilant and communicate how it is living up to the new rules.”
He warns that not taking decisive action can impact a company’s bottom line, for when employees lose trust in their leadership because of such events, engagement and productivity will decline and, eventually, the company will lose valuable talent.
Adler notes that responding appropriately takes organizational courage. He cites the example of a company whose high-potentials action learning team developed a new model for leadership behavior. They presented their recommendations to the CEO and, without naming names, made it clear that one regional manager with impressive financial results had a well-founded reputation as “a total jerk who left dead bodies all over the place.” As a result, the man was gone within six months.
This was a good example, Adler says, of a company building a culture of trust by setting higher standards for behavior at all levels, especially at the top. It requires measuring leaders’ behavior as well as their KPI performance in their annual reviews. And, he says, it can be an effective way to keep people who might commit infractions from ever climbing to the C-suite in the future.