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Markkula Center for Applied Ethics

How a CEO’s Self-Interest Can Cost You Money

Business handshake

Business handshake

Ann Skeet

This article was originally published in MarketWatch on August 20, 2018.

Ann Skeet is the senior director of Leadership Ethics at the Markkula Center for Applied Ethics at Santa Clara University. Views expressed are her own.

A company’ board chooses to hire a CEO known to have had a string of extramarital affairs. The CEO of Papa John’s commissions a fresco for the corporate office ceiling that includes his face. The President of the United States golfs at his resort in Scotland the day after a NATO meeting ends in Europe. What’s the big deal?

These are examples where self-interest is prioritized over the interests of the constituents that leaders are hired or elected to serve. These aren’t blatant illegal acts — but they aren’t ethical.

Let’s start with the obvious: extramarital affairs; painting oneself into a ceiling fresco, promoting private financial interests while serving in public office — these are bright red flags. People with power are using it to give themselves more than a fair share.

Such decisions are made multiple times daily in organizations around the world.

Often the flags unfurl: a newly hired CEO has to be fired for a “code of conduct” violation. When the CEO of Papa John’s International exits the company, new issues and wasted resources are created because the company — in addition to its ceiling — has been branded in his image. The U.S. president holds a summit with the President of Russia in the face of U.S. intelligence reports that Russia continues to conduct cyberattacks on the U.S. — contributing to suspicions that a foreign power has compromising information on the United States president.

Such questionable conduct matters to investors and citizens alike. Here’s why:

The financial costs are the most obvious. A forthcoming study, “The Consequences of Managerial Indiscretions: Sex, Lies and Firm Values,” links the ethical lapses CEOs make in their personal lives directly to declines in stock price and, therefore, shareholder value. Boards spend significant amounts in golden parachutes and hiring bonuses with each turnover, and more when leadership turnover happens in rapid succession.

People in formal leadership roles have power. Whether they flaunt their power or marshal it, using it strategically, influences how their decisions are received. Once motives are questioned, doubt creeps in to the minds of employees, customers, shareholders, and voters alike. Other world leaders have announced a series of meetings with countries perceived as foe, yet those decisions have often been seen as hopeful. President Donald Trump’s meetings with Russian President Vladimir Putin, for example, are viewed with hostility rather than hope because too many people doubt the two leaders’ motives. When people with power consistently put their own interests first, all actions become suspect and seen through that self-interest lens, whether they are leading a company or a country.

U.S. educators, meanwhile, are being asked to produce more leaders from the graduates of our academic institutions. Without well-developed moral judgment, people cannot lead, hurting constituents at least two ways. In companies, bad behavior at the top, or a sense of unfair treatment between senior management and everyone else, can lead to normalizing bad behavior. The same is true for government. Bad behavior begets more bad behavior.

Perhaps the most damage from a lack of moral leaders is to the institution of leadership itself. Willingness to serve collective interests and the common good, and not just ourselves, is not just Pollyannaish — it is critical to the functioning of a democratic society.

The United States is a credo nation, one of shared beliefs, rather than shared family tree or birthplace. Companies use mission statements to create the same essence of shared values. When leaders act in a way that runs counter to the credo, especially when the credo defines group membership, doubt creeps in. Once doubt is present, the leader may still have the title, but followers will be understandably leery. The next person in that formal leadership position will have to work harder to lead and restore faith.

An academic article describes an ironic aspect of leadership — precisely because of the powers and knowledge that come with the role of leader, a person in a leadership role must always be working against the sense that they are not using this power and knowledge for themselves alone: “The quality of the ethical leader, then, arises not from having achieved ethical status, but rather from an unending realisation that ethics can never be fully achieved yet must always be pursued.”

The same logic that applies to the argument for diversity in organizational leadership supports the argument for morality in organizational leadership. People identify with what they see. To be moral followers, we need moral leaders.

Aug 24, 2018

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