Assuring Ethics and Integrity while Chasing Success

by Na Boon Chong, Apr 24 2009 Companies need leaders who are able to manage complex sets of priorities, says Na Boon Chong.

While there are many contributing factors to the current global financial crisis, there is one factor at the behavioural level, ie, how the executives 'bet the farm' by taking undue risk in the aggressive pursuit of growth. Caught up in the exuberance of growth in the last few years, executives chased growth at the expense of prudence, risk management and long-term sustainability, frequently with the encouragement of the boards and the shareholders.

Increasing attention is being put on corporate boards for their failure to provide fiduciary oversight in the affected financial institutions. A board is entrusted to oversee how executives grow the business, mitigate the downside risks and create shareholder value. Along with this responsibility, the board manages the executives' performance, compensation, development and succession.

Ethics and integrity are fundamental to good governance. There needs to be a set of universal principles in any organisation, which would enable motivated and competent people to excel and not go astray. These are invariably transparency, disclosure, accountability, collaboration and performance orientation. And these principles need to be applied from the top-end of the house, at the board level, down to the shop floor.

Permeating these principles into the daily decision making process at every level of the organisation would probably be the single greatest achievement of an outstanding corporate leader, be that a chair of the board, CEO or his executives. It is about culture, behavioural norms and role models that will sustain the change.

On a day-to-day basis, executives need to ensure that policies and practices are helping to build a culture of open dissent, trust and candour. Such a culture will help to address potential problems as opposed to merely following the leader (to the ruin of the company as we have seen in a number of recent fraudulent cases).

Not Just Money
In the prognosis of the executive failure that led to the global financial crisis, many have pointed to the need for incentive compensation to take into account risk-adjustment and risk time horizon. Less has been discussed about what drove the executives. Was it greed for more money? While incentive compensation does shape behaviour in a big way, does it really make a difference to a CEO if he or she makes $20 million or $100 million? Beyond a certain compensation level, there is probably no discernible difference. The psychological effect of satiation would have set in although purchasing power has multiplied by five.

Then, why did the executives take the risks they did and jeopardise the business, their careers and reputation? I'd suggest that it is less about money but more about power, ego, the aura of success, competitiveness, winning, standing out, etc - all the alpha male attributes. Research has linked these attributes to executive success. When these drives run rampant without the check of principles and values, the danger of undue risk-taking sets in.

It would not work too by having the right values and culture to check the success motivators, but without competence. The global financial crisis makes salient the inadequacy of the leadership skills in the affected financial institutions. The inadequacy lies in managing both growth and risks simultaneously, in achieving short-term results while ensuring long-term sustainability, and in balancing the team and individual performance.

Leadership competence is no longer single dimensional but about managing equally important dichotomous business priorities. Managers should discard their overly simplistic single-dimensional leadership competency model and help their organisations in developing leaders who are able to manage complex sets of priorities in a coherent manner, not merely aligning to one polar end versus the other.

In summary, the major challenge to corporate leaders is to instil the appropriate values and principles, and reinforce the desired motivators with an integrated set of performance, compensation, development and succession practices.

Na Boon Chong is director, consulting, SEA, Aon Consulting.