Webinar: How Ethics & Compliance Shapes an Honest Company
Transcript for How Ethics & Compliance Shapes an Honest Company
Giovanni Gallo: Okay, everyone, welcome to our webinar today. I’m Giovanni Gallo, co-CEO of ComplianceLine. We have Nick Gallo and Ron Carucci on today. We’re super excited to host this webinar today and to talk with you about how ethics and compliance shape an honest company. Ron is a great thought leader and a great influence in this market in talking about this kind of compliance 3.0 concept, where we’re not just trying to get things done, but we’re trying to have an impact and trying to be effective on building cultures of integrity and making people’s lives better. So we’re super excited that you’re sharing some of your day with us. We hope that this is a really helpful webinar to get you thinking about ways, not to just kind of understand what it takes to lead within your role, but also to make a really positive strategic impact from your position on your entire company. So, I’ll hand it off to Nick and go off-camera here. And just please know that this webinar and all of the things that we do like this are meant to help you, to serve you, and help you become a growing strategic influence on your immediate team and the company around you. Take it, Nick.
Nick Gallo: Thanks for that intro, Gio. So yeah, thanks, everybody for joining us. A little housekeeping. Ron’s put together a great presentation, which we’ll be going through. But we’d like to keep this as conversational as we can, just like the last few that we’ve done. So as you have questions, please drop those into the chat. And as appropriate, we’ll kind of interweave them into the conversation and/or cover them at the end. Also, everybody who is showing up today is entered into a drawing for five copies of Ron’s book, “Rising To Power.” He has a new book coming out, which we’ll be talking a little bit about, but this book is phenomenal. I’ve learned a lot from it. And someone from our team is gonna be sending out an email after this to see if you have any questions or if you want the slides or whatever. And if you respond to that with either feedback or, you know, any questions or anything like that, that’s gonna 3X your chances of winning, so we’ll be sending those out later in the week. They’re gonna be signed by Ron, a great book to add to your library, put behind your desk so everybody can see how sort of ethically-minded you are. So, with that, Ron, let’s jump in. Thanks for joining us, Ron.
Ron Carucci: Great to be here, Nick, and you too, Gio. Thanks for having me.
Nick: Absolutely. So what are we talking about today, Ron?
Ron: So I am in the throes of finishing the research for my… I’m writing my next book called “To Be Honest: Lead With The Power of Truth, Justice and Purpose.” And I’m so excited to share with your audience some of the findings from our research and some of the implications for them, you know, as E&C professionals or anybody in, you know, an organization really who wants to touch the culture and shape an organization of honesty. So let’s dive in. I’m super excited to be here. And thank you, everybody, for spending part of your day with us to have and engage in a really important conversation. I think we can all agree that for such a time as this, honesty is way too elusive and something we’re all deeply hungry for. So, let’s jump in here.
In the mid-1980s, two companies discovered that their products were poisoning people. Patagonia discovered in one of their retail stores through the process of unpacking some of their cotton garments, that the formaldehyde in some of their garments was toxifying their employees. And as they decided to dig in further and launch an investigation, they found that the entire cotton supply chamber because of the way cotton was made and manufactured and milled was highly toxic and poisonous. DuPont, actually they learned this in the ’50s but it really came to the surface much more clearer in the ’80s that one of the chemicals, C8, used in the manufacturing of the surface we all grew up with, Teflon on our pots and pans, was highly toxic and being thrust into the waters of the Ohio River in West Virginia and poisoning an entire town of people, and their cattle, and their livestock.
Two stories. One of the companies launched an incredibly deep investigation on why this was happening. When they learned what they did, they gutted their supply chain and completely overhauled how they made their product to make sure that nobody else got sick no matter what it cost. The other company launched an incredibly complex legal coverup to squash the information and not let it leak it out, heavy information until one attorney on a mission came after them with a major class-action lawsuit and it all came to light and cost the company almost $700 million. Two companies, similar situations. What determines which way the story goes? I wanted to find out.
So we set out on a 15-year study with more than 3,200 Interviews with leaders from all over the world to understand what factors would shape whether or not people behave honestly and what factors will shape the reality of whether or not people won’t? We learned a couple of really important things in our research. One is, honesty isn’t just about telling the truth, that today in organizations, there’s three parts of honesty. There’s truth, there’s justice, fairness, doing the right thing, and then there’s purpose, so very rarely good. Today, these parts of organizations are living separately. So we have the diversity inclusion people with the best of efforts campaigning for equality and justice. You have the market whose purpose is washing everything to create the illusion of purpose. And you have the psychological safety experts and the ENC folks, like yourselves, nudging people to try and speak up and tell the truth.
But the reality is what my research revealed is that these are three parts of one thing. To have one, you need all three. And honesty isn’t just a character trait. It’s a muscle. You have to be good at it. You have to work at it every day. This is a capability. It’s a team sport. And it’s not something we all show up naturally good at. You actually have to practice honesty if you wanna actually master it. So, why do we care? Well, none of this will be all that surprising to you guys. What we now know about the workplace in terms of the lack of trust, the lack of regard, the lack of honest behavior is just stunning. Fifty-four percent of companies experienced a material drop in trust and huge losses or revenues because of unethical breach.
Fifty percent of people in the workplace lack a sense of meaning and purpose. Sixty-eight percent of employees are disengaged. There’s no discussion of the future in organizations. Fifty-one percent of the world has stopped pressing institutions. I won’t bore you with a dramatic reading of all these stats, but suffice to say the ability to think about the wholeness of our organization, the health of our organizations is struggling. The good news is the hunger for it has not stopped. Right? So when we look at ethical companies, people who are purpose-driven, they perform their counterparts in the S&P 500 by about a hundred percent. Sixty-six percent of consumers will switch to companies when they believe that it’s an honest and purpose-driven brand.
Seventy-three percent of employees believe that business can and should serve a larger set of constituents. You know, purpose-driven companies that are honest and ethical have a 30% higher level of innovation. The companies on the most ethical companies list outperformed the S&P 500 by about 14.5%. So, the great news is that while the current situation may feel a little bit bleak, the hunger for more, the hunger for better is strong. And for those of us in the profession of trying to shape organizations in some way, whether you’re in HR, finance, strategy, or E&C have an opportunity In front of us right now to step in and help close that gap.
Nick: Yes. So, they’re hungry. Our people are hungry and only one in four of them believe our values from your previous slide, which is just an astronomically low number. And so I think it just creates a really big opportunity for us to start to bridge that gap. It’s not like we have to try to instill honesty in people that have no idea what we’re talking about. They want it, they want that purpose, and it’s there for us to take.
Ron: And I think the problem, Nick, is that, and we’ll see this in the findings of the research in a minute, when you have a set of words that the company says, “This is who we are. This is our brand promise. This is our purpose statement. This is our mission statement,” but I don’t see that backed up by actions, I get confused. I don’t know how to make sense of that. And so I conclude that here we say one thing and do another. We don’t really mean the words we say. And the reality is that sprinkling a little honesty, pixie dust with the culture, you know, and hoping for the best, running people through a couple of videos or training programs isn’t gonna cut it. That’s not what shifts behavior.
What we learned in our research was that there are four predictives, four sets of the conditions that will predict whether or not people will behave with truth, justice, and purpose, or whether they’ll act with self-interest, lie, and cheat. Here they are. The first one is a clear, consistent identity. We are who we say we are. But the problem is when companies lose their way, you know, what we heard from one of our interviews was, “When we don’t know who we are, we make things up.” Fair accountability. When accountability systems, the way we measure contribution, not the way we reward it, but the way we measure it is seen to be fair or unfair. And, you know, the dark side is when I feel unfairly assessed, I have to self-protect by covering up my shortfalls or exaggerating my contributions.
Transparent decision-making. The way we bring people together in meetings, the information we share, the level of honesty, exchange in those conversations, and the transparency about the decisions made in those meetings cascaded down. When that doesn’t happen, and there’s no place to tell the truth, it goes underground. So now I’ve gotta rely on that channel of information to get good information. And lastly, one of the biggest surprises to us was cross-functional collaboration. When there are border wars, when marketing and sales are at war, when R&D operations are at war, when we fragment the organization, we create dueling truths. And so now it no longer is about the truth. It’s about my truth versus your truth.
Here’s the stats on these things. So, when you have consistency between who you say you are and what you do, meaning your statements of identity, the way you shape your future, and the way that transposed to your organization, you are three times more likely to have people tell the truth, act fairly, and serve a greater good. When you don’t, you’re three times more likely to have people lie, cheat, and steal.
Nick: Wow.
Ron: Fair accountability, when people perceive that the way my performance is managed is fair, meaning it includes dignity, I’m treated with dignity and justice, you are four times more likely to have people act with honesty, justice toward each other, and put others’ interests before their own. But when you don’t, when I think that the way my performance manager is unfair, then you’re four times more likely to have people be dishonest. Transparent decision-making. When the systems by which information is moved and resources are allocated feels transparent, meaning I understand them, I don’t have to agree with them, but at least I understand how we got here, you are three and a half times more likely to have people be truthful with the information, do the right thing, and serve a broader agenda. But when they’re not, when I go into a meeting, and I feel like it’s orchestrated theater, and I feel like this is a ruse, and the decision you think you’re gonna make, you already made yesterday, now you’re three-and-a-half times more likely to have people withhold the truth, spin it, and be self-interested.
Nick: Hey, Ron, quick question.
Ron: Yeah.
Nick: So these are obviously super material. These are not… We’re not talking about a 10% difference. We’re talking about 3X, 4X difference. Do you feel like this has always been the case or do you feel like this…? Like, if you did this study 20 years ago, do you think you would have come to these same, you know, factors or do you think that those have sort of shifted over time?
Ron: I think they’ve intensified, Nick. You know, I mean, these are… If you look at these realities, they’re not new issues in their condition, right? But what we’ve never done is correlated them to dishonest behavior. Right? In accountability, we talked about excessive goal setting or unreasonable targets or compensation systems that reward problems. Transparency, we’ve talked about cover-ups and secrecy. So we’ve dabbled in these conversations, but we never actually correlated the actual organizational actions to their influence on people’s choices to behave honestly or not. I think that’s, for me, the big aha because these are very tangible and they’re fixable. It’s not some elusive set of character traits that we have to sprinkle on a poster and hope people adopt them.
The last one was probably the most surprising and the largest factor, which was border wars. When there is cross-functional cohesion, when people are aligned, and their metrics are aligned, you’re six times more likely to have people tell the truth, act fairly, and serve the needs of others. But when there’s border wars, when you allowed unhealthy tensions and rivalries to exist at the seams of the organization, now you’re six times more likely to have people, you know, attack, go on the offense, and create internal enemies in the service of their own needs first. The interesting thing about these statistics, two important points, what is their cumulative? So, if you have all four of these conditions, now you’re the lucky winner of a 16X, 16 times factor to put yourself on the front page of a headline story you never wanted to be in. But it’s not all or nothing, right?
So, if you improve, you can improve, for example, cross-functional collaboration by even just 10% or 15%. We played with these statistical models to see this. You can get a 25% improvement in truth-telling and a purpose behavior. So you don’t have to… It’s not an all or nothing deal. You can improve these things, and we not only just reduced your risk of dishonest behavior, but raised the chances in the eyes of performance because what we know is, yeah, the most honest companies are the highest-performing companies. We’ve proven that for a long time. So, scandal avoidance isn’t the reason to wanna fix this. Risk reduction is right, and for us in those in the security, certainly a critical part of your remit to the organization. But the real reason to go after it is to create an organization people are proud to work at that has a great impact in the world and that outperforms your competitors.
Nick: Yeah, it’s sort of a positive acclamation versus this sort of loss reduction acclamation. Quick question, Ron. In the context of your research, how do you define justice? Is it accountability, repercussions, cause and effect? How do you think about that term?
Ron: It’s fairness. And it has… The most important component is dignity. So when we get to that dimension, we’re gonna dive deep into that.
Nick: Okay, good.
Ron: But suffice to say is that the right thing is being done. And most importantly, the playing field for success is level for everybody.
Nick: Okay.
Ron: Meaning, there are no roles, ranks, identities that are privileged over others, right? So in tech companies, we know the engineers are privileged. In brand companies, we know the marketers are privileged. Certain levels of ranks and status are privileged. Sometimes genders and other aspects of identity are privileged. Right? So right away the system’s rigged So, those kinds of biases have to be addressed. And a little bit of a spoiler, the biggest challenge in fairness, you know, I mean, you never hear anybody say, “Wow, I can’t wait until my performance appraisal.” Right? What the people would say. People dread those conversations because the system was built… We say it was built in the system of equality and fairness, right? What it was really built to do was to neutralize the variance of advantage over judgment. We don’t trust our managers to actually give honest appraisals. So we create false categories. We create quotas. You know, we create these systems that are so undignified to human beings, that are inhumane, right?
Nick: Yeah.
Ron: And later I’ll tell you about… We’ll get to that brain study that showed how people react to categorical thinking when they get put into a rating system. So our accountable systems are designed, unfortunately, to be really offensive, rather than affirming. So, big conclusions here before we dive into each dimension. The dishonest behavior is not random, right? People are choosing dishonest behavior for a reason. There’s a need they are meeting. We have to ask ourselves, what need do they believe that was meeting that the organization couldn’t meet? Why do they feel they really had to do that, in order to get that need met? The need for recognition, for awareness, for advancement, for affirmation, for significance, those are legitimate needs, right? The choice to do something unethical is not but rather than a sort of just slapping them on the wrists and firing them or sending them to jail which, you know, those may be required actions, we as organizational folks need to step back and ask ourselves, “Why was that the only option? Why did they not believe there was another way?”
Nick: Right.
Ron: Because when somebody says the words, if you hear their words, “That’s not fair,” your alarm bells need to go off. That has set the stage for entitlement, duplicity, and misconduct. When people feel purposeless, they feel meaningless, they’re gonna go on the hunt to meet that need, right? So we all know that at the core of every human being is a need to feel that we matter, to know that our work and contribution is significant. When that need is not met, we go to the second most important need we have, which is to look like we’re important, to look like we matter, and to convince everybody else that we do. And once you’re on that slippery slope, there’s no telling what lever you’re gonna grab for to demonstrate to the world and your organization how important you are.
Nick: Yeah because then at that point, you’re just kind of making things up. Right? You have to bridge that gap.
Ron: Yep.
Nick: Right.
Ron: And then once you’ve made it up, Nick, you have to keep it made up. You gotta keep the illusion. And that automatically puts you on the take. Whether you’re taking from the company or taking from other people, you’re living a lie.
Nick: Right.
Ron: So, first dimension, so to give you clarity. Who we say we are and what we actually do match. We have purpose statements. We have values. We live them. Our internal and external strategic identity are understood and consistent. So who our customers and marketplace see us to be is the same as who we are. When we create strategic targets, we cascade them, so everybody can have a line of sight between how their work contributes to the greater good. There’s no sort of random goals being cascaded. When this is not the case, when your words and actions don’t match, you have now institutionalized duplicity. You have said to the organization, “In this place, we say one thing and do another.”
Now, what you said is… And since we do that with who we say we are, we might as well do that with more things too, right? So once duplicity becomes the norm, you can’t regulate what it becomes the norm of. It’s now just the norm. So we all know, wink, wink, nudge nudge. Yeah, that’s what we say. That’s on the poster. That’s on the screensaver. That’s on the mugs and the t-shirts. But the way things actually work is a little bit different. In the research… So the book, “To Be Honest,” is really meant to be a book of exemplars. I didn’t wanna go trolling through anymore, you know, Toronto’s Wells Fargo books, wagon stories. We’ve heard those to death. I wanted to go find out who was doing this well, who is living these truths and modeling it for us so that we can emulate them? Hubert Joly was the chairman and CEO of Best Buy for eight years. He set up in the brink of their almost bankruptcy and decided he would turn…
His turnaround strategy was, “We will do well by doing good.” And he said to his shareholders, “When you can connect the purpose of the company to everybody’s individual reason for being on the planet, that’s when the magic happens.” And so that’s what they did. They went to hundreds and thousands of their employees on the store floors, studied them, watched them, asked them, “When are we at our best? When are you at your best?” And first and foremost, wanted them to be humans that are solving problems for people. And so, enriching lives to technology became the purpose, the core reason they… And then they aligned their systems to match… So the organization… I mean, so when he left being CEO, the stock had run 4X. They were incredibly profitable. One of, you know, an admired company, best places to work. They had… The turnout was dramatic, mostly because Hubert had a vision. And in my interview with him, you know, he was humble, and kind, and smart. And you can just tell that he wanted to infuse the entire organization with a sense of meaning that they’re there to change lives.
Nick: Well, you know, our companies are full of human beings that are really these nuclear reactors, if we can tap into them. And this thread of purpose, fullness that we all desire is present in every organization, in every industry, and so forth. So we have this massive opportunity if we can tap into it. And I love that you took this positive angle with the book, focusing on these positive examples of people that seem to have gotten it right because that’s really what we can emulate and learn from. We got a question, and before we move on, I just wanted to ask it.
On the last slide, you were kind of talking about performance reviews and how they’re flawed, and they’re really this sort of systemic type of response to kind of, you know, opaque goals that are kind of hidden behind the scenes. So this question from somebody in our audience said, “If performance management systems are flawed, then how do we the employees tell our manager who is appraising us? How do we work some of that…? You know, and how do we kind of push some of that influence to that person to help turn those light bulbs on and say, “You know, this is not that effective. We’re checking a box here. We’re not actually altering behavior?”
Ron: So, a great question. When I get to that kind of position, I’m gonna hold that question then because I got a whole slide on that instead. The good news is, there’s mountains of research and data to prove it.
Nick: Okay. Good.
Ron: And what I love about the question is that the person is talking about their boss because at the core of accountability, the core element of accountability… before you have any other process or device, there will be a genuine relationship between a boss and the person they lead. That is the determinant of what shapes good accountability, the forums, the processes, the quarterly check-ins, all that just ruins it.
Nick: Yeah, that connection is the kind of covalent bond In the molecule. You know what I’m saying? That’s where that direct interaction point is.
Ron: And to build on your nuclear metaphor, you know, what you wind up getting is fission rather than fusion.
Nick: That’s right. Wow. There’s something in here, Ron. We should maybe do a little something on that.
Ron: I see a nuclear reactor in our future. Okay. So E&C folks, what can you do? These are a couple of off-the-cuff ideas. Go to your head of strategy, and talk about how can we build in metrics into our strategies and systems that tell us if our actions are aligned, if who we say are and what we do is aligned, or whoever owns your employee engagement survey, and put in metrics that tell us whether or not what we say, what we do match. Partner with your CMOs. If you have CMOs out there, you know, sort of trying to extend their illusion of purpose, talk about, where’s the tangible evidence in our purpose statements? If we say this is what we’re here to serve, whether they’re just sort of putting out greater or prettier CSR reports, where is their evidence? Where would their employees point to if they wanted to say, “This is the evidence that backs us up.”
Create tools as part of your ethics and compliance training. Create tools that allow leaders on a regular basis to sit around and talk about what a department leader could pull out a permission and dire statement, and talk about his team and say, “Hey, how often do we live these things? If somebody followed us around with a video camera for a day, could they use that video as a training program on how to live out these values?” You can do that, as it create the tools that leaders need to embody the statements of identity. Partner with HR to create incentives and rewards that align words and actions so when people are embodying their purpose, you know, there’s a kicker for that. So, again, these are simple examples, but you guys in E&C who I know are trying to get beyond just compliance and into truly shaping innovation, these will be classic and important actions you could take. I get that one of the challenging parts about any kind of oversight role like the E&C role is that your distribution channel is somewhere else, right, heads of strategy, heads of HR, heads of finance. Other leaders own the functional processes that shape conduct. So your partnerships with them have become really critical.
Nick: But there’s a massive opportunity here, Ron, because this kind of helps attack that border war element, right, that fourth category from your research where there’s, you know, this can increase the collaboration, kind of reduce that 6X honestly impact, and really activate this function in E&C that wraps around the entire organization and can help build some of those bridges.
Ron: Yeah, well, you’ll be a role model, right? So when we get to that collaboration slide, we’ll talk about the broader implications for that, but you certainly get to say, as an E&C person, you’re going first. You’re modeling crossing those divides. And, you know, I’ve done lots of workshops with E&C professionals. Typically, when I’ve done them for, like, conferences, I’ll say, “I want you to bring your HR person with you,” which is usually like, “What? Well, I don’t know their name.” I’m like, well, get to know them. I think for a lot of E&C professionals, it’s a lead to wanna cross over there because they’ve been rewarded and trained to do so many things in the compliance and policy space that the role is shifting, right? So there’s definitely a disruption happening in the E&C space. And my encouragement is just push past it. It’ll be clumsy and awkward but just do it because those people in HR finance and strategy are felling the same marginalization you are. They’re feeling the same level of oversight, fatigue that you are. And together rather than being competing for the marginalized space of the C suite, join forces because now together, you become a force the organization has to reconcile with.
So let’s get to that accountability question that you asked before. And by the way, whoever you are, thanks for asking it. So, one of the challenges that happened over the last 30 years is, you know, spoiler alert, the industrial revolution is over. We are really in a knowledge economy. But our systems are still built for massive economies of scale and efficiencies in production. The problem is when I was just on a line making widgets or I was contributing to repetitive work, the connection between who I am and what I did was distant. Today, in a knowledge economy, my output, my remit is my ideas, my analysis, my creativity, my imagination, my speculation. Who I am and what I do is more fused than ever. So, even though people say, “Don’t take it personally, it’s just business,” or, you know, the self-helpers would tell us, “Separate who you are from what you do. You’re more than just your job,” all well and good, but the fact of the matter is I am my job. Every contribution that you’re assessing is a reflection of its contributor. And when you talk to the contribution without acknowledging the contributor who made it, it’s offensive because now I feel unseen. I feel invisible. I feel a cog in your wheel. One of my interviews… One of my… I talk about this story in the book. I was talking to one of my regular clients, and then he opened the meeting with this irate tirade. He’s slamming his desk because, “She gave me a 3. I’ve always been a 4. In my last company, I was even a 5. I’ve always been the top-rated, but just because she has a quota of forcing that, I get stuck with a 3.” I mean, I thought he was, like, lividly irate.
It turns out brain studies show that when we get categorized with a number, our amygdala, the part of our brain that sends this threat, is triggered. We literally feel unsafe when we get labeled. We feel like our destiny, our future is out of our control. And so we react harshly, even if we get the top rating, right? So, we now know that categorical thinking, rating systems, many companies are abandoning them, but some companies haven’t. Many companies, unfortunately, abandoned performance appraisals altogether when they weren’t working. But they didn’t have a good backup plan. We have to talk about contribution. We have to talk about where are you doing well, where are you delivering on what you committed to, and where are you falling short? If we choose dignity, if I as a leader believe that dignity is the core of why we’re having this conversation, my definition of accountability is no longer who do I blame when something goes wrong or how do I find fault with your work? My definition of accountability is my job is to create the conditions under which you do your best work and feel proudest of that work.
So, my response to the person who asked the question is go to your boss and say, “We may not have control or change in this process but can we have a conversation about us? I hired you to be my boss. And as my boss, I need you to create the conditions in which I improve and excel, and do my best work. I need hard feedback. I need to know what I’m doing well. I need assignments that allow me to stretch. And I need to know I have an equal shot at success here.” Work on the relationship with that boss. And if you just Google why are performance management is ineffective, you’ll get about 80,000 articles and with well-backed up documented research on why the process is wrong. If you have a boss, you know, that can champion with HR saying, “Can we rethink this?” Most people it’s a game, right? I thought the forms for my boss, give them to him or her, and she signs them, and sends them in, right? It’s not even a legit process. People don’t take it seriously because it’s not an honest conversation about contribution. So, first and foremost, reshape the conversation with your boss. And then if you can sort of overachieve, reshape the process.
Nick: In your research or in your experience, do you think that when rating employees that, like, is there a different reaction across, like, countries? Is this resistance to being labeled and sort of categorized? Do you see that sort of spike up in other cultures, you know, cultural differences that should be taken into account, like, the most outspoken culture may have a difference?
Ron: In cultures where hierarchy is valued, in cultures where there’s a lot of deference to hierarchy around the world, you might have people who feel less irate over the rating, I’m sure, but in an extremely different culture, they already feel insignificant. They’re already made to feel less than so they wouldn’t expect it. I think the reality is that around the world, the universe, you know, you can’t rewire the human soul, right? We’re all wired to want to matter. We’re all wired to want to contribute and feel proud of why we’re on the planet. We all wanna feel meaning in our work. That may get expressed differently in different cultures. But this is the device that makes or breaks that.
Nick: And then how have you seen folks, like, come up with a good alternative? You mentioned some guys have gotten away from it altogether or real-time feedback. Like, what do you think can stand in so that we have that feedback loop that allows for some kind of, like, repeatability, you know?
Ron: So one of the things I spoke with Kathleen Hogan, she’s the Chief People Officer at Microsoft, and they’re doing some extraordinary things there. You know, and we all know that culture, since Satya took over, has come from a place of being highly individual, a little bit toxic and Darwinian, and a little bit, you know, highly competitive and people had to know it all. You know, as Sadie has said, “I wanna go from a culture of know-it-alls to a culture of learn-it-alls.” So the way Kathleen has helped reshape their performance appraisal system, it used to be highly individualistic performance, right, but they’ve added leveraging others, meaning building on people’s ideas and asking for help, and helping others.
So, how do I collaborate? How do I contribute to other people’s success? And how do I learn as I go? So they’ve added these two other dimensions to individual performance that force people to share success, right? They’ve also added a really important part of their process, which is how do we treat failure? A big part of accountability is, you know, everybody says we should learn from failure, fail fast. We hear all the words, but most people don’t, right? If you ask leaders, “How many failures are actually blameworthy,” in the evidences research, right, they’d say probably 3% or 4%, right? And if you ask them, “Well, how many failures are treated as blameworthy,” you know, they laugh. Now, we’re in the 90s, right? So, Kathleen said, “We now reward people who fell short but got us closer. So, we reward them for the progress they did make despite not hitting a goal.”
So, many companies have replaced the annual device moment with monthly check-ins or quarterly check-ins or more frequent… More frequent conversations is great but the sort of the asterisks I would put there is what’s happening in those conversations? Is it really an intentional conversation around performance, contribution, development, you know, feedback on where you can improve feedback, or where you doing great, offers of help, offers of development? If that’s really what’s happening, great. If I said, “Hey, how’s your week going,” or, “How has it been this month,” or, “Anything for me,” it’s just go to this check the box off thing, then we haven’t improved anything. We’ve just rearranged the lecture. So, I would say, if you actually are replacing a bad process with more frequent interactions, Microsoft has apps so that they dip into their technology DNA, and feedback can be exchanged in real-time almost daily.
Nick: Cool.
Ron: They submit an employee feedback, you know, from the statements of their employees every day to see how they’re doing. So, you know, they are committed to becoming who they say they are, and to making the environment one where people feel purposeful and proud of their work.
Nick: Awesome. Thank you.
Ron: So, what can you do? Get with your HR person and partner on asking, “Does our performance management process encourage fairness? Does it create dignity in people?” In your E&C training, include dignity. Teach about the importance of dignity and how leaders treat their people. Go to your head of finance, and say, “Can we create an ethical screen by how we set targets? Can we look at…? Can we get feedback on, are people rolling their eyes? Are they sandbagging in their plans?” Work with your head of finance to shroud the target-setting process with an ethical screen. Partner with your DEI folks. The DEI… I mean, equality is the ethics issue of the day. If you are not like this with your DEI person, get there.
Do we have a culture of voice? Is the psychological safety needed here that people can speak their minds and talk about their own performance? So, again, go build those partnerships. Decision-making, right? So what happens in the meeting stays in the meeting or what happens in the meeting is transparently talked about. Which is it? Do we encourage dissent? Do we have a culture of voice where people are speaking their minds? When people disagree with the decision, can they voice that decision? Are leaders inviting dissent? Are you looking for ways to say, “Tell me where my thinking might be flawed.” I have one CEO that I work with who’s brilliant at this. He knew, you know, people can make… It used to be the information was power, right? You could hoard it and get a lot for it. These days, that makes no sense because information is ubiquitous.
Now, the power is in the interpretation of the information, right? So, whose interpretation prevails? So, we know that we can make data say anything we want it to be. So the CEO was simply asking for a basis. If he knew the head of marketing was coming in to present some set of analytics about what a consumer said, he’d ask the head of finance or the head of operations, “Bring me in an alternative fact base. Bring me in the contradictions here. And we’ll fight it out the room.” He knew if he didn’t do it, he knew it would go round and round, right? So let’s put it on the table and have a good fight about it. So, how are leaders in your organization shaping the conversations and making the decisions they make? If meetings are orchestrated theater, we go in the room, and the leader’s goal is to make it look like you’re engaged in this decision, but really what I’m doing is leading the witness to have you come to my side of the street. Everybody knows it, right?
Whenever I ask audiences that I speak to, “How many of you have ever been in a meeting that you were invited to solve a problem or make a decision that 20 seconds in you realized it was a ruse?” Yeah, almost everybody raises their hands, right? We all know what it looks like. In the ’80s, everybody was taught to be empowering, but they couldn’t let go of the control, so now, the goal becomes the empowerment illusion. My job is to make it look like you’re being included so that I feel your commitment to the decision I want you to make it. You’re just corrupting your entire governance structure, right? So ask yourselves, “Are our governance structures, the way we move information, resources, and decisions, are they honest? Are the right people around the right tables? Are they given the right authority? Do they have the right resources?”
Where there’s disconnect between, you know, people being set up to fail, right, you’re being held accountable for this, but you haven’t got the authority to do it, your governance has become corrupted. So, you guys in the E&C community are in great space to help here because you already own corporate governance, you know, from the board out. That’s a big part of your remit. Now, include organizational governance, right? So go to HR. Look at the org designs. Look at where governance systems are designed. Do leadership know how to make decisions? How many leaders…? You know, how many times do you see the game played? Whose decision is it anyway? I had one client they called the Waffle because you knew he played the last word-in game. So people would try and book time on his calendar five minutes before the meeting. They’d fight for that slot because they do whoever got in last, got their way.
So if you know… And then whatever happened in the meeting was fine because nobody actually… How many times have people walked out of a meeting and thought, “Did we actually make a decision? What was it?” Of course, that ambiguity is an asset, right, because if we don’t know, I get to decide that whenever it meant served my interests. So, confusing governance is encouraging dishonesty or self-interest because if I don’t know who made the decision, I’m gonna make the one I wanted. Go to your head of strategy to look at the governance reviews. You have QBRs. You have your top 100 meetings. You have broader governing mechanisms and ask yourself, “Are we designing these meetings to have open conversations about shortfalls? Are we being honest about where the company is not performing well and why? Are we inviting people to talk about that?”
You know, who’s involved in decision making? Right? In your E&C training offerings, teach leaders how to invite dissent, how not to get defensive when they get feedback. Help the culture. Work on making transparency real. And I know, most people just go, “What does that mean? Do we have to tell them everything?” Well, you know, I can’t tell you how many leaders I’ve coached during the pandemic who were in serious trouble financially, who squirreled away in their own organization, you know, trying to work out the books before having to do layoffs. And I said, “Open your books. Get your people to the table. They know things are bad. They’re gonna have the best ideas.”
Nick: That’s right.
Ron: Every leader that opened their books wide with all the red in those books to their organizations, and said, “Help,” found ways to minimize the carnage or not have any layoffs at all, and cut costs other places. People furloughed certain hours because if you ask people for help, they’ll be committed. But most leaders find a risk of that level of transparency inclusion to be too high because of their own vulnerabilities, but it’s the safest place you can be.
Nick: Exactly. It’s an ego thing. It’s an ego protection thing that if you can forego that and get past it, you now can tap into the ownership potential in this entire group of people that are working with you.
Ron: That’s a level of insights and ideas you’re never gonna have on your own. They’re the ones closest to those problems, who are the cost structure you’re trying to try to adjust. They’re the ones that will be able to tell you and who will want to tell you how to… I saw at one company people volunteering for furloughs or even severance pay. But in the cases where they didn’t want that to be the case, they found other means. The leaders that went to the closet on their own, you know, worked the spreadsheet for themselves, slashed and burned the furniture, and came out with announcements decimated their companies. Maybe they felt they had no other options. But I tell you when this pandemic begins to work its way into history if you were the company on the wrong side of history, how do you navigate through this, I think the market’s gonna have some feedback for you.
Nick: You got that right. Hey, Ron, I got a great chicken and egg question here? Do you mind if I just read this to you…
Ron: Yeah, sure.
Nick: …for collaboration? So, how can we articulate our organizations toward the highest standards of ethical conduct and beyond that, ethical thinking? Does your research suggest that the best way to grow a culture of ethics is by addressing behavior first or is there another way that alternatively, we’ll begin to affect positive behavior in this area? Is this a chicken and egg situation?
Ron: I think it’s address systems first, right? So, the behavior is shaped by systems, right? So…
Nick: Right, your response to that. Yes.
Ron: And so, make sure the systems you need to shape the behavior… And it’s not… As my research has shown, it’s not just reward systems, right, or target- setting systems. It’s all these four systems. So, first of all, start your diagnostic lens with these four systems. But then recognize that honesty is a muscle, right? So we can learn honesty, truth, justice, and purpose. So it needs training. You have to give people the skills and content. And there’s, I mean, a 30-minute webinar that they watch on their own time, right? If you want this, it means you have to impose it. People have to want to get better honesty. So, I would say start with the systems first, then the skill set to shape the behavior, and then behavior should follow. The one thing you cannot do is campaign your way to honesty. Posters that say, “If you see something, say something, or speak up” or, you know, promoting your compliance hotline, or, you know, all the other devices we have that encourage the anonymous reporting of things, am I saying to lose those things? I’m saying, by and large, those are mechanisms for specific types of adverse misconduct or adverse events. They’re not gonna shape the environment of honesty.
Nick: Updating your values page, yeah, to your point from that earlier stat about 27% who don’t even believe it, updating your values page with no follow on actions that close that gap between actions and words is just gonna fall, you know, among the den of other, you know, meaningless things that they see and are stimulated by every day.
Ron: It’s actually worse than that, Nick. If you see your HR people or somebody say, “Hey, we should live up to our values,” and the E&C antenna should go up on red alert because almost always when people reach for the values levers, it’s been a problem. You know, integrity becomes a value when there’s been a scandal. Diversity and inclusion and respect become a new value or at the highest value when there’s been tweeted lawsuits or discrimination cases are now in the case of racial justice uprising. Speed becomes a value when we’re too slow to market. Innovation becomes a value when four products have failed, right? When we shape values to fix behavior, you can bet 100 bucks, and win, that’s the last thing that’s gonna happen is behavior is gonna change.
So if you’re an E&C person and you hear in your organization, somebody’s thinking about doing the values refresh, barge in, and say, “We’re about to unload cynicism and skepticism here.” People are gonna roll their eyes, and those values become weaponized, right? They become the yardstick I use to hold up to your behavior to point out all the gaps, how you’re not modeling this, and they become my justification for not to try. So, I would say values refresh is a deterrent. It’s not even a neutral intervention. It actually makes things worse. And you as an E&C person should be asking, “Unless we’re gonna do all the follow-up actions to make sure these values become real. We’re gonna embed them in our selection processes and our reward processes. We’re gonna train for them. We’re gonna root out places where they’re being contradicted,” right?
So, you said we’re gonna value teamwork and collaboration, but your reward system rewards individual behavior. Your decision-making processes are highly empowered individuals. You know, in other words, there’s little about your structure or culture that encourages teaming, but you say that collaboration is not about you. It won’t work. So you as the E&C officer, you have to be the cop. But you can be the trusted adviser, and part of it says, “Are we gonna follow this to ground because if we’re not, you’re gonna make my hotline ring off the hook. So, please don’t do it, if your intention is to stop at the campaign.”
Nick: Right. And I think one other step that E&C folks can take is to begin to model all of this stuff that we’re talking about in the E&C department, right?
Ron: Yeah.
Nick: Get good at that, building these techniques, and these sort of approaches, so that they become sort of part of your mini-culture, which is, you know, just some subset of the larger culture so that when you reach across the aisle, and when you start trying to push these things, it’s gonna be sort of second nature at that point.
Ron: Yep. Yep. Let me get through this last one, then we can have a little bit of time for some questions. So, cross-functional collaboration. Goal and metrics are aligned. And we know how often this doesn’t happen, right? We see border wars between sales and marketing, between operations and supply chain or operations and R&D. We know inherently that this alignment is often not just a wide loop between leaders. But your KPIs are meant to conflict, right? So, you have those in marketing analytics being rewarded on driving traffic to a website. You have those in, you know, digital sales and online sales being rewarded for converting that traffic to sales, two very different sets of behaviors, which means that website becomes a warring ground, right? They won’t share data. So, make sure that part of how you work together means the seams of the organization where the value is actually created…
So innovation happens at the intersection of R&D, customer analytics, and manufacturing, and innovation, or R&D. Customer service happens at the intercession of sales, customer operations, and customer service. It’s the blending of these capabilities that makes you competitive. Make sure those seams can hold conflict, that there’s trust there, that there is the ability to resolve conflict, and that when there are border wars, they’re not ignored. And you can help. So, partner with HR, you know, to build cross-functional collaboration and critical seams. Go in and get your OD folks. So get your O&D folks at the seams, helping those seams work better. Use your ethical hotline complaints to identify when conflicts are resolved or unresolved. So, when you hear an unresolved rivalry on your hotline complaints, bring those to the leaders of those functions. Help your geographic leads and your functional leads work with their partners to set aligned KPIs that don’t conflict. Teach empathy, conflict resolution, you know, as part of your E&C training. Do a whole bunch of training on emotional diligence, right? Teach leaders the power of what it means to build trust-based relationships across the organization.
Last story. Quickly, this is Manuel Marulanda. You might not know that name, but he was the head FARC. He was one of the people that founded the Colombian Revolution in the ’60s. And for the next 40 years, they waged war in Colombia against the government. They lived in the forests and the countryside of Colombia. And in 2016, a peace agreement was reached with the government and FARC where they disarmed and they agreed to stop the killing. Over those 47 years, it’s estimated that more than 20,000 people were killed, many of which were children. Millions were displaced. It’s the second-largest internally-displaced population in the world of people. Horrible conflict. When the CIF conflict ended, we had really one important question that was an answer, which was we have 14,000 combatant gorillas living in the forest. What do we do with them? How do we patriot them? The country wasn’t, like, eager to welcome them back into the country.
Nick: You’re right.
Ron: This is Jamie Gongora. He was a biodiversity scientist at a university in Australia. And he was originally Colombian and sad about the state of his country. The Colombian rainforests were long known to be rich sources of biodiversity and ecosystem studies that had never been studied. He thought, “I’ll turn those 14,000 combatants into biodiversity scientists because they know the terrain. They know where the things are. They had to live in those struggles. And they can guide us and teach us.” So they began a training program called peace conflict or peace diversity and decided through this training program to train the ex-combatants to find purpose in their life by becoming biodiversity citizens and learn this piece of expertise on how to conduct biodiversity audits on how to identify rare species to develop ecotourism routes and create ecotourism as a part of the growing economy in Colombia. He partnered with 10 Columbia institutions, universities in the UK, universities in Australia to create this incredible transformation, right? Two troops got reconciled. We needed to stop the warfare. Scientists needed to study this incredibly uncharted terrain, and we needed something to do with these 40,000 gorillas.
Justice was served because they got to be repatriated back into their country. The places where they had lived, and feared, and hidden themselves for 40 years now became the place of their future and reshaped their story. And interesting enough, in these workshops, those combatants sat alongside members of the police and military. Right? So one of the things Jaime talked about in one of his interviews was how surprised he was that that biodiversity could become a place of reconciliation. So, it’s an incredible story of what the redeeming power of truth, justice, and purpose looks like. I think every one of our organizations, every one of our families, every one of our teams has a story of transformation, of redemption waiting to happen that honestly, it can become the antidote for. And it imparts hope. We need to keep hope.
And the last thing I’m gonna say before we open up for questions, this is a special offer for E&C professionals. If you want to include this research or my book as part of your ethics and compliance training next year, if you order, make the investment, we can do a special in the book for you. So we can put your company logo on the cover.
Nick: Cool.
Ron: We can make the first page be a letter from you or your CEO, you know, or even from me. And with your pre-order of those books will come a free webinar or a virtual keynote from me. So if that’s of interest to you and you want the details on that, you can email me at Ron@navalent.com. I can tell you how you can take advantage of that offer for your upcoming year’s E&C program.
Nick: That would be so cool to have that, right, have the company logo on it and it’s part and parcel of this new, you know, initiative to really kind of close that gap between the ideal, you know, company that we’re trying to be and who we actually are as sort of dictated by our words, you know.
Ron: Yeah. So, if you’re interested, we’d love to talk to you about that. So, that’s a race through the material. But I know we have a little bit of time left. Nick, any questions or comments?
Nick: Of course. Yeah, we got a couple of good questions here. So, do you have an opinion about Donna Hick’s dignity model from Harvard? Are you familiar about that or are you familiar with that? Do you have any opinion about it?
Ron: You know, I don’t. I’m not… I know of her work. I not well versed in it enough in it to comment intelligently. I’m guessing there must be a specific definition of what dignity is.
Nick: Yeah, I’m not familiar enough with it either. So I’ll just say that it sounds really, really interesting and I’ll have to learn some more about it.
Ron: But what I’ll say is this, and I think it’s actually the case. If it actually proves to treat people more humanely, to treat people’s identities with more respect and regard for their sense of purpose than I’m all for it.
Nick: Here’s another good one. So the mood in the middle is key to having these values actually living within the culture. So how do we recruit, correct, and monitor that when so much of the misbehavior can go unreported, or how can we catch them before it becomes a big problem?
Ron: Yeah. So let’s talk about each of the recruit, report, and correct, and what were the three?
Nick: Recruit, correct, and monitor?
Ron: So what’s the three different interventions, right? So let’s start with recruit. You should be partnering with your HR folks on selection. So make sure that you’re… You know, anything that you have dictated as part as far as your culture, you can select for to make sure that you’re hiring people who already are predisposed to that value and make sure it’s not just because it’s a value because you like it, but you really a value that your company needs to be competitive in this thing. Our cultural values shouldn’t be just nice to have. They need to be there has to be a reason those values are important to us.
Correct. And so, you know, I would say if you’re seeing… You know, so in your Salesforce, if you’re seeing bribery on the front line, if you’re seeing people misreporting data, the first thing you need to do is step back and before you correct is diagnose and ask yourself, “What is it? There’s something about our culture.” This is not a random thing, right? It’s not just some isolated bad apple here. “There’s something in our system that is proliferating this behavior.” So look diagnostically deeper at your system to understand, “Where is the disconnect in our system that is proliferating this behavior or encouraging this behavior and making it possible for someone to behave like that?”
In terms of monitor, I think feedback. People will tell you the truth you ask for it and you really want it. So, you, as E&C, sort of, you’re the closest thing to Switzerland the company has. Find ways to get to know your initiatives and know your department heads and to spend time with individuals and not as the police officer but as the person who cares about people’s employee experience. Monitor in a way that’s pre-emptive, right? Monitor in a way that gets you data because you’ll be if you spend time in the organization out with people, you’ll begin to spot patterns. You’ll begin to hear concerns.
You’ll begin to hear things that don’t quite connect or make sense. Look at your employee engagement data, if you collect it, to understand where are their consistent shortfalls because every one of those shortfalls about, you know, actions matching words or my boss is accessible or I have the resources to do my job, any of those questions are clear indicators of whether or not the stage is set for problems. So become very diagnostic and anthropological in how you monitor to be proactive. Don’t just turn to surveillance as the answer.
Nick: Last question I’d like to squeeze in. So I loved all those takeaways and all those like action items for each of these four areas that you studied. What do you think E&C leaders…? So this is a little bit more of a meta-question. What do you think E&C leaders can do with minimal budgets, minimal buying, etc., to gain that buy-in from the other departments before the end of the year, right, gain that buy-in from marketing or HR, strategy, finance, whatever?
Ron: Fabulous question. First of all, pick one. And you have to build the relationship, right? So you’re not going to walk into your CMO or your CEO’s office or a counterpart in those departments and say, “Hey, let’s partner on something.” So first and foremost, invest in the relationship. Invest in the partnership. Invest in how to connect with that person. You already know you have lots of common ground. So I’d say pick one, whether it’s HR, or it’s strategy, or finance, and go and ask them to virtual coffee, ask them to lunch, and say, “What are you working on these days,” and find out about their world. Don’t go with an agenda to say, “I need your help.” Go and learn about their world because you may be or you are likely able to as much help them as they are to help you but it may take several conversations to explore, to find that common ground. So, invest in building relationship. Pick one and start.
Nick: Well, Ron, this was phenomenal, man. I learned a ton in this one. I just love how, you know, we talked about a lot of theory and a lot of research but we brought it down to the ground and gave some real kind of actionable items for people to start implementing, you know, really today. So, I appreciate that. Everybody, again, those who stayed to the end, be looking for that email from our team, seeing if you want some, you know, if you want the slides or you want the recording. And please respond if you want to increase your odds of getting this phenomenal book “Rising to Power.” And, you know, give this a think. Think about, you know, doing this idea that Ron had with pre-ordering a few copies of the book and making this really a new initiative for this next chapter that we’re stepping into.
Giovanni: Yeah, thanks, everybody for joining today. Ron, you really blessed us with your insights. You obviously have thought deeply about this and are pushing this forward in a way that can really transform companies and, I think, transform our workplace culture. So, thank you to everyone for joining us today and sharing some of your day with us. I think that in a lot of ways, Ron, you’re preaching to the choir here. We all want to see this happen. But in addition to kind of talking about ideas and what’s right, you’re giving us actionable ways to step this forward because, you know, your comment about E&C being Switzerland, you know, that’s a blessing and a curse in that we’re kind of unbiased and we can kind of see the whole organization but we need to build leadership and step up into this strategic role where we can have an impact across all the other divisions. And you’ve helped us a lot with that, Ron, today.
Ron: Thanks.
Giovanni: So, thank you so much.
Ron: Thanks for having me. It’s been a pleasure, guys. I appreciate it a lot. And E&C community, please never doubt the world needs you. Never doubt that your voice matters. and lean in.
Giovanni: Yeah. And follow Ron on LinkedIn. He shares great articles and is just a super great resource for our community as we elevate. So, thank you. Thank you, everybody.
