Tuesday, July 10, 2012

Errors, Misjudgments and Dishonesty-Picking up the Pieces

There are quite a few variations to discuss in this space.  For the time being I'm going to only deal with the circumstance where misconduct or illegal activity has resulted in the removal or resignation of the most senior leaders in a company.  I'm also not going to deal with personal misconduct(inappropriate relationships with subordinates, falsified expense statements, inappropriate use of company resources, etc).  This blog entry will deal with removal or resignation in the pursuit of business activity.  I'll start at the point at which the senior leader or leaders have been removed or resigned under pressure.

My first point is it takes a long time to recover both inside the company and with outside stakeholders.  Recovery from the reputational damage is measured in years not months.  New leadership has to be prepared to stay after it for the long term.

Second,  appointment of the new leader or leadership team is critical.  The person needs to be of unassailable integrity and have the ability to inspire confidence with both internal and external stakeholders.  Often(I'm tempted to say always) they need to come from a different part of the business where the offensive activity took place.  In my own experience, the appointment of
Jeroen van der Veer as CEO of Shell following the misstating of reserves in 2004 was critical to its reputational recovery.  Jeroen is a no-nonsense Dutchman with a remarkable knack for simplifying very complex activities.  Maybe just as importantly, he came from the "Downstream" part of the business....far removed from the "Upstream" sub-culture where the misstatements of reserves occurred.

Third, the new leadership needs to address underlying structural issues that drive behavior.   Contrary to what many outsiders believe, there are rarely evil people who intentionally skirt law or regulation or act contrary to a companies stated values.  More often structure, either organizational or behavioral norms, are driving behavior.  To once again return to my Shell experiences two really important actions were taken to address structural issues. One, the corporate governance structure was changed to strengthen accountability of those in the corporate center.  Two, Jeroen drove a corporate initiative titled "Enterprise First" to address a previous structure that optimized at the business unit level rather than the enterprise.  Among other things, one element of Enterprise First was to establish a business performance factor used to compute variable pay at the enterprise level rather than at the business unit or function level.  Another structural change was to eliminate business or function specific leadership competency frameworks in favor of a single Enterprise-wide leadership competency framework.  The point of all this is new leadership must address structural issues that drive behavior at multiple levels.

Fourth, behaviors over time must reinforce the values and behavioral norms.  Specifically, who gets promoted and advanced in the new structure will "speak loudly" both inside and outside the company.

My last point is it takes more than a single leader or senior leadership team.  All the tens of thousands of honest, hardworking people who take great pride in their company need to collectively and individually commit to restoring the organization to its previous standing.

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