CEOs and Board Members: Be Aware of Unethical Leaders

CEOs and Board Members: Beware of Unethical Leaders

Article originally published in the Philadelphia Business Journal on August 14, 2018

The CEO or a division executive is incentivized to deliver stellar financial and growth results, but doing so with a demanding and intimidating style that causes some subordinates to violate ethical norms or the law. Does the CEO or division executive they think that they won’t get caught, and if caught, the board will turn a blind eye? What does this say about the individual and the culture of the organization?

In an October 2015 article headlined, “VW employees responsible for ‘Dieselgate:’ Where’s the legal, moral and ethical compass,” I wrote about the scandal involving Volkswagen, whose employees deliberately installed software on diesel cars that would give lower than actual readings in the emissions testing process. Not only did this action permit these cars to pass emission tests, the results were also used in VW’s strategy to market their “clean diesel” vehicle technology.

When questioned about diesel car emissions, Volkswagen at first denied there was an issue, management knowing full well that they were gaming the testing protocols. It was only after the EPA threatened to withhold certification of the company’s new car model did Volkswagen come clean and admit to the fraud.

After the Dieselgate scandal became public, the company’s stock price tumbled. Volkswagen CEO Martin Winterkorn was forced to resign. Two executives were sentenced to prison for their roles in the fraud. The global cost to Volkswagen is estimated to be $63 billion. That is what can happen when a company acts unethically and violates the law.

In a January 2016 article in Entrepreneur Magazine, “The Biggest Lesson from Volkswagen: Culture Dictates Behavior,” Robert Glazer wrote, “Culture is a powerful force that can cause people to make decisions that aren’t in their companies’ best interests.”

Glazer said, “CEO Martin Winterkorn was a demanding boss who abhorred failure. Former executives described his management style as authoritarian and aimed at fostering a climate of fear. A culture that discourages open dialogue and limits checks and balances can prompt cheating and fraud. A culture with high standards that accepts failures as growth opportunities, on the other hand, benefits both the company and employees.”

So, whose job is it to watch for the tell-tale signs that the CEO is so demanding that subordinates act unethically or violate the law to achieve results in order to please the CEO? It is the board’s job. For the direct reports of the CEO, it is the CEO’s job to ensure his or her senior team does not act in an unethical or illegal manner.

How is unethical or illegal activity uncovered? By the audit committee of the board and how it responds to reports that come through the employee hotline. By ensuring that there are controls, checks and balances surrounding the accuracy of key metrics. If data for these metrics are not checked and verified, there could be serious adverse consequences to the company if they are incorrect due to fraudulent intent.

In my August 7 Philadelphia Business Journal article, “Tone at the top & culture are mission-critical to all organizations,” I quoted Sabine Vollmer who wrote in the July 2018 issue of the Journal of Accountancy, “Boards that prioritize corporate culture, watch for red flags and set clear expectations will encourage ethical behavior throughout the company.”

Vollmer said, “Research over the past 20 years has continued to underscore that integrity drives performance. Corporate culture and tone at the top are considered key drivers of ethical behavior, but boards of directors often devote little time to the topic.”

Having once worked for a boss whose style was similar to that of Volkswagen’s Winterkorn, being promoted around him, eventually becoming his boss and then firing him, I have first-hand knowledge of the damage this type of boss can cause. I replaced that fired individual with the best general manger within the company at the time, who changed the culture of that organization.

Shortly after the start of my tenure as the president of one of my company’s world-wide businesses, I called a meeting of all our country managers to launch our continuous improvement program and to develop our operating principles. On that list was “we would obey the laws of the lands in which we operate,” an important principle that sometimes needs to be expressed explicitly.

My message to boards and to CEOs: Don’t tolerate individuals that act unethically or violate the law. Get rid of them, even if they are meeting or exceeding their financial and growth objectives. They are not worth keeping around. When their unethical or illegal activity becomes public, it will cause significant reputational and monetary damage to your organization.

Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker, advisor and nationally syndicated writer on leadership, entrepreneurship and corporate governance. Silverman earned a Bachelor of Science degree in chemical engineering and an MBA degree from Drexel University. He is also an alumnus of the Advanced Management Program at the Harvard Business School. He can be reached at Stan@SilvermanLeadership.com. 

Close up of college graduates holding diplomas walking down the isle.

Graduates: Take Risks, Fly High and Never Compromise on Your Ethics or Integrity

Article originally published in the Philadelphia Business Journal on May 21, 2018

As the former chairman of the board of Drexel University’s College of Medicine and as the current vice chairman of the board of Drexel, I have the honor each year of addressing the University’s College of Medicine graduates. I always try to share some advice that may help them navigate their careers.

At this year’s commencement, I shared the following message:

Graduates, you have just completed an enormous undertaking. As you seek solutions to work or life’s challenges, I urge you to remember what you learned here about the power of teamwork, and the importance of interpersonal skills in accomplishing your goals.

Many of you will dedicate your lives to the practice of medicine, healing the sick. Others will become researchers, or work in other areas of the healthcare profession. You will be making a difference in the lives of others, working towards the betterment of the human condition.

The best advice I can share with you as you pursue your careers is to be open to new opportunities that come your way and embrace change – the only constant in life. In addition to taking advantage of opportunities that come your way, I encourage you to be proactive and create your own opportunities. You never know where these might take you.

I am a chemical engineering graduate from your University, who just happens to be the vice chairman of its board. Now, how does that happen? How does an engineer become the vice chairman of the board of his alma mater?

Shortly after becoming CEO of my company, I was honored to be asked to join the Drexel board of trustees. The following year, I was named chairman of the board’s finance committee. A number of years later I became chairman of Drexel’s College of Medicine, followed by being named vice chair of the University’s board of trustees.

I can look back to the first day after my commencement and recall the steps along my career pathway. I took advantage of opportunities and accepted assignments outside of my comfort zone to learn and to broaden my knowledge and experience. I took risks. Sometimes I failed, but I never let that stop me from moving forward.

Tomorrow is the first day after your commencement. Take risks, and step out of your comfort zone. To quote Stephen S. Tang, president and CEO of the University City Science Center, “Failure is a valuable experience. It is a natural consequence of [taking] risks.”

Always take advantage of opportunities to do something new and different. And someday, you may have the honor of addressing graduates at their commencement ceremony, as I am doing today.

The story of Icarus, a character in Greek mythology, is a great metaphor for how one should manage their career. According to legend, Icarus flew too high, too close to the sun. The wax holding the wings to his back melted and he crashed into the sea.

Should Icarus have played it safe, and flown lower, avoiding the risk presented by the sun?

Seth Godin, the author of “The Icarus Deception: How high will you fly?” writes, “It is far more dangerous to fly too low than too high, because it feels safe to fly low. We settle for low expectations and small dreams, and guarantee ourselves less than what we are capable of. By flying too low, we shortchange not only ourselves, but also those who depend on us, or might benefit from our work.”

During your career, be sure you don’t fly too low. Take risks and fly high, and if you crash, you will pick yourself up and fly again.

The following achievements and personal attributes will help you advance in your career:

  • your commitment to yourself and others to always strive for excellence,
  • how you differentiate yourself by doing new things, and proactively implement positive change in everything you do,
  • your interpersonal skills and how you lead others,
  • your good critical judgment and common sense,
  • your contacts and personal network, and
  • your ethics, your integrity and your professional and personal reputation among your colleagues, your patients and the public.

During your career, be sure to protect your good name, integrity and reputation. Once damaged, you never earn them back.

There is a passage in the West Point Cadet Prayer that reads, “Make us to choose the harder right instead of the easier wrong.” Remember this, especially when you run into situations that require difficult ethical decisions.

Good luck, and may the wind always be at your back.

Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker, advisor and nationally syndicated writer on leadership, entrepreneurship and corporate governance. Silverman earned a Bachelor of Science degree in chemical engineering and an MBA degree from Drexel University. He is also an alumnus of the Advanced Management Program at the Harvard Business School.