Business Today

Not always right, but never wrong

CEOs and founders should lead from the front when it comes to transparency in actions and owning up to failures and mistakes.

Apurva Purohit | February 22, 2019 | Updated 15:01 IST
Not always right, but never wrong

Do you have an extremely health-conscious smoker friend? Someone who makes it to the gym thrice a week - come hell or high water - eats fresh, sleeps on time? And yeah - smokes two packs a day? I know a handful of such people. Try listening to them justify their life choices sometime. You'll be surprised with how astute they are, how they carefully evaluate their choices, and why they feel they're quite alright, maybe even better off than you.

Psychologists and behavioural scientists call this cognitive dissonance - a state of tension that occurs when an individual holds two sets of beliefs/views that are inconsistent with each other. Something like - 'I smoke two packs a day. But I work out, so I'm good.' Or 'I have figured out several ways to avoid paying taxes but I do so much charity and after all, the government will also misuse all the money in any case.'

Yes, human beings have clearly mastered the art of fleeing from reality. We convinced ourselves that we're so morally upright and infallible, that in the event of a lapse in judgment, we are incredulous and torn. To be sure, dissonance is no fun - it threatens our sense of self.

To admit that we screwed up would be to accept this dissonance - so we either justify it, or then sweep it under the carpet. Perhaps there is no greater example of a clean sweep than Watergate - a shining example of how humans respond to cognitive dissonance. And of course, the aforementioned smoker friend, who's allegedly figured it all out. In fact, the European Journal of Social Psychology found that people who refused to apologise after a mistake actually had more self-esteem and felt more in control than those who did.

Obviously, business can't be too far behind.

According to academic research, professional managers aggressively reveal news that is positive and industriously hide the ones which are negative. In fact, investors actually expect a typical firm to hide bad news and reveal good news. There's even a word for it - casting, which refers to corporations hiding unfavourable financial information from investor communities by calling upon favourable analysts only, since they're less likely to ask probing questions. Academic research also states that the average professional manager actively pursues personal interest and displays the maximum disregard for investors' interests when operating from a position of power.

What a time to be alive, huh! The average human is actually expected to act deplorably whenever possible.

Maybe this is why the dialogue about ethical corporate governance is so important in today's times. You never know when seemingly innocuous actions from somebody in the system leads to the downfall of the empire.

And since we all can agree, to err is human, to forgive is divine, to confess is rare, CEOs and founders should lead from the front when it comes to transparency in actions and owning up to failures and mistakes.

If you are falling short of your sales targets, inform your investors before the news becomes public. If that product update didn't work, let them know about that too. You see, honesty with your shareholders keeps speculation at bay and most importantly, helps to sustain investor confidence because inevitably, the cat will jump out of the bag. More so today, when anyone with a cell phone and access to a computer could conceivably bring down a billion-dollar corporation.

A recent example of great corporate transparency is Apple's CEO Tim Cook announcing, in a letter to its investors, that the company had lowered its revenue guidance to $84 billion. This was $5 billion short of its projected earnings, and this is the first time in more than 15 years the tech giant had lowered its quarterly sales estimates. Imagine having to have that talk with your investors. Thankfully, today, more and more stakeholders and investors are expecting and rewarding values-based leadership with increased appreciation for honesty and transparency.

Fortunately, there is no dearth of such examples. If you need a quick dose of inspiration, just read up on the Ethisphere Institute's 'World's Most Ethical Companies List' (infact, our very own Tatas and Wipro feature regularly in it).

The list has been published every year since 2007 and 2018 marks the twelfth consecutive appearance of some rather well-known honourees, like Starbucks, GE, and Xerox Corporation, amongst many others. Imagine upholding the baton for twelve years in a row! As a business leader myself, I can say that it takes tremendous rectitude to be in the belly of the beast and still come out shining.

And if you are still not convinced, what adds impetus to the dialogue about ethical corporate governance is the innate correlation between ethics and profitability. According to a statement by the Ethisphere Institute, the companies included in their list outperformed the large-cap sector over five years by 10.72% and over three years by 4.88%. Amazing, right?! Interestingly, historical research has always reported that sales figures are directly linked to levels of trust because when choosing between multiple products in the same category, consumers and investors alike are most likely to choose brands who walk the tightrope of economic and ethical sustainability.

On that note, let me clarify - smoking two packs a day will kill you. And admitting that you're wrong may just save you. Here's hoping that we all listen to the angel on our shoulder a little more this year.

The writer is President of the Jagran Group

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