Cash or Character?
Not too long ago, I was asked to give a talk about organizational culture and why it matters. Before I walked up to the podium, one of the attendees cornered me. He wanted me to know his strongly-held position. In an emphatic tone, he nearly shouted:
“Skip, cash matters, not culture, not character, not creativity! Cash is the only thing you can spend.”
How fortunate that my slides started with financials so I could demonstrate the power of culture change. But, what I wish I had was the book that crossed my desk a few weeks ago: Return on Character: The Real Reasons Leaders and Their Companies Win. In the most comprehensive study of its kind, Fred Kiel reveals the research that proves that good character wins. We discussed his findings at length and I know many organizational leaders will want to study the results.
Tell us just briefly about your study and its methodology. Where did you get the idea, how many CEO’s were involved, etc.?
In 2005 I and my co-author, Doug Lennick, published a book entitled Moral Intelligence in which we claimed that highly principled leaders obtained better long-term business results than leaders who were not so principled. The book has done very well, but shortly after it was published we received some pushback. One person said, “Fred, I know you like all of this soft stuff. But let me give you a little lesson in economics. The business model is what creates value. If a business is profitable and makes a lot of money, all that culture stuff will come along with it. And if it doesn’t, that’s not a big deal as long as management stays legal. What you talk about is just icing on the cake. It’s nice but not necessary. And, besides you don’t have any hard data to back up your claim.”
This really got to me. He was right about me not having any data to back up our claim that character matters – and that became the call to action for our study.
Over the next seven years we signed up 121 CEOs and their senior teams to participate. Eighty-four completed the study, so we have complete data sets on these 84 CEOs, their senior teams, and their organizations. Over 8,500 randomly selected employees completed our surveys about these CEOs and their teams. We have nearly one million separate data points in our research base. This is the largest study of this kind to date.
4 Universal Character Habits
How do you define character in the Return on Character (ROC) matrix?
We scoured the cultural anthropology research and discovered that humans all over the world share many common practices and beliefs. Parents all over the world teach their children to tell the truth, keep promises, own up to mistakes, forgive others, and to care for people – at least in their tribe. We added to this understanding the recent findings from the neurosciences and genetics to come up with our definition of character as it applies to leaders.
The ROC Matrix shows the four universal principles and the character habits that are aligned with these principles.
Lincoln said, “Character is the tree. Reputation is its shadow.” Likewise, the habits we all have for how we treat other people is our character reputation. That’s what we measured in our research – a leader’s reputation for how he or she treats people.
Probing the Leader’s Childhood
In several places in the book, you delve into the CEO’s childhood and upbringing. Why? What did you find? Why is the CEO’s life story so important?
If you took the resumes and employment histories of high character CEOs and compared them to low character CEOs, you’d be hard pressed to see much difference. Both groups are competitive, driven to succeed, rational, high energy, and often wicked smart – they know how to command a room and nail an interview.
Where we started to see significant differences was when we surveyed their employees and asked about their behaviors around the 4 universal character habits – integrity, responsibility, forgiveness and compassion. So that begs the question – how did each group come by their different postures around these habits? Where did they get their beliefs about how the world worked and how to succeed in that world?
Turns out the clues are in their childhoods and upbringing.
We found that high character CEOs had advantages that the low character CEOs didn’t – they were born into homes with more functional parents, or they were lucky enough to have extended family who were more engaged with them than lower character leaders. Also high character CEOs seemed to attract the attention of teachers, coaches and mentors who guided and nurtured them. Of course you could ask, which was the chicken and which was the egg – did these adults engage with them more because they were the kinds of adults who sensed kids who needed help or was there something inherently different about these CEOs that attracted mentors? I don’t think there’s any way we can answer that – we can just observe that high character CEOs had more supportive parents, adults and more mentors than their lower-character counterparts.
Okay – so you might say, so what? They had it easier. How does that translate into higher character?
The answer lies in the lessons these supportive adults provided – knowingly or not. Nurturing parents, teachers, coaches and mentors all find ways to encourage kids to reflect and learn from their behavior. You stole the bubblegum from the store? You march right back and return it and accept the consequences the shopkeeper metes out. You saw the new kid getting bullied on the playground? You stand up for her and help her out. You dropped the ball on the 1 yard line? You show your team you will do better next time and run drills until you collapse.
Through our research, we have come to understand that these supportive adults helped the high character CEOs learn how to reflect and create coherence around their experiences and stories — to be able to tell a coherent life story and find meaning from it that provided guidance for their decisions and behaviors.
And the best news is that if that kind of examination, reflection and learning can be done in childhood and adolescence, it can be done at any time in life. It’s the surest path to developing stronger character habits.
Measuring the Consistency of Character Habits
What’s a virtuoso CEO? Contrast that with a self-focused leader. What are the main, observable differences?
The CEOs in our study obtained character scores ranging from a low of 58 to a high of 92 on a 100 point scale.
We chose to study the CEOs and their teams at the two extremes. The ten CEOs and teams with the highest character scores we labeled as Virtuoso. These CEOs and their teams created nearly five times more bottom line Return on Assets (ROA), enjoyed a workforce engagement score 26% higher and had much lower levels of corporate risk than did the ten CEOs at the bottom of the scale – who we labeled Self-Focused.
But this is the research definition of Virtuoso and Self-Focused. The way to spot Virtuoso leaders is from the strength and consistency of their character habits. You can trust that they tell the truth, keep promises, own their mistakes, are curious about others’ mistakes (aren’t blaming but are asking questions) yet are hard-nosed about performance. They might not know the first names of 50k people in a large organization, but they demonstrates their caring in other ways – through professional development efforts, offering living wages and other ways that show they believe the people in their workforce are not a number but are respected, cared for and treated openly and honestly.
Contrast that with Self-Focused leaders who are primarily focused on their own success and who see the workforce as a means to an end. The name says it all really – they are self-focused rather than other-focused.
I’ll never forget when I went to the office of one of the lowest ranked CEOs in our study and lost track of time in the waiting room counting how many photos and trophies he had on display. Contrast that to Jim Sinegal whose desk was in the corner of a low-budget office space.
Focus on What’s Right
As a CEO, I am pained when I read negative, stereotypical articles about a CEO making major ethical missteps, using corporate funds to buy golden shower curtains and the like. It’s rare to see the positive story of a corporate leader who wants to contribute and give back. Your research indicates that CEO character does have another side. Would you share more about this?
All of our Virtuoso CEOs were people who were primarily motivated first to succeed and achieve bottom line results, but what distinguished them from the Self-Focused CEOs was their positive view of human nature — they believed that people like to be challenged, treated with respect, like honest and accurate feedback and that they all want to be engaged in a business that is both successful and does some kind of good. None of the Virtuoso CEOs were overtly concerned about their personal financial success or career progression. Of course, they were all very successful on both counts – personal financial gain and career success – but that was the result not the focus.
Virtuoso leaders illustrate that success comes from focusing on what’s right about the world around them, and this causes them to approach people and challenges fundamentally differently than more fear-based, Self-Focused leaders.
Open-ended comments from the employees of the Virtuoso CEOs were very inspiring. I found myself thinking as I read these that if I had been recruited by such a CEO earlier in my career, I would have gone to work for them in a heartbeat. People love going to work for these CEOs and their teams. The work environments created by the Virtuoso CEOs and their teams are high energy, positive and supportive as well as demanding and performance focused.
And, Wall Street loves them as well. Consider Jim Sinegal at Costco, one of the Virtuoso CEOs. If you had invested $1,000 in Costco when it went public in the 1980s, your investment would have had a compound return of 16.5% and would be worth nearly $60,000 today.
Boards and Leadership Recruiters, Take Note:
From your research, are there characteristics, interview questions, or background information that you would suggest learning about potential CEO candidates beyond what is typically asked?
We are convinced that the best screening tool for assessing potential CEO candidates is to conduct a scientifically valid survey of the candidate’s character reputation. The people in the candidate’s life who know them well are the source for this information. We call this tapping the “wisdom of the crowd” to assess the individual’s character reputation.
Of course, each person asked to complete the survey must be confident that the ratings they submit will be truly anonymous. When twenty people who know the candidate weigh in and rate the specific twenty five character habits we’ve isolated by our research, you will have a crystal clear understanding of the individual’s foundation of character upon which all of his or her other skills rest.
Such a survey allows us to compute the individual’s Virtuoso Similarity Index Score.
As Warren Buffett said, “Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without [integrity], you really want them to be dumb and lazy.”
Did any of your research findings surprise you?
Until we did this research, we were victims of the bad idea that is embedded in the mentality of nearly everyone in the business world. And this bad idea is that it is the hard-nosed, take-no-prisoners, kind of leader that delivers the most value. As long as the leader stays legal and is honest (integrity) the belief is that this is all that matters. For that leader to learn to own up to his or her mistakes (responsibility), to be curious when someone makes a mistake instead of blaming (forgiveness) and to show a personal commitment to people’s personal development and growth (compassion) is just fluff and not really necessary. It’s icing on the cake. Boy, were we wrong about that.
We found that integrity alone doesn’t carry the freight. All four of the character habits must be in place to get the 5x return, the 26% gain in workforce engagement level, and to reduce the risk profile. Think about it: Someone with high integrity but low responsibility, forgiveness and compassion scores would probably spend all their time micro-managing and would fail to engage the workforce to execute. Integrity isn’t enough, and neither are any of the other three traits on their own. You need all four to achieve Virtuosity.
Millennials and Character
You end the book with a nod to the next generation. What is your hope for the millennial generation?
The millennial generation will occupy all major leadership roles in business, government, and non-profits within ten to fifteen years. The millennials seem to be openly vocal about wanting businesses to focus on more than just pleasing investors. They appear to view a successful business as one that serves all stakeholders, not just the investor. The early signs are that this is a generation that is much more focused on the common good of all humanity than the current generation of leaders. So, not just concerned with the Return On Character, but more a Return To Character.
This generation has grown up in a world of internet connectivity – the typical millennial has, according to a study by the Pew Research Foundation, 250 Facebook friends – and they are spread across the globe. Perhaps because of this, the millennial generation appears to embrace an identify with all humans, rather than an us vs. them mentality that seems to be the root cause of so much pain and destruction, both in financial terms and in terms of human suffering.
I’m putting my money on this generation.
Return on Character: The Real Reasons Leaders and Their Companies Win