What Creates Leader Credibility? – Bridging The Gap …

If your boss says one thing but the company does another how would you feel?

Leaders that say one thing but do another won’t have the authenticity and credibility that’s needed to be an effective leader in today’s environment.” [1] Bruce Rosengarten, executive chairman of Message Media,

One obvious consequence is to create employee distrust and disengagement. People react along the lines of: “We simply don’t believe you”.  Later, this becomes the tangible and more damaging poor productivity. There’s a noticeable reluctance to do what’s expected.

This includes a failure to speak up about potential activities that could cause reputational or regulatory damage. In the the worse case it triggers disloyalty—everything from loss of confidential data to serious security risks.

Leader credibility gaps drain employee morale and undermine efforts to build strong brands. Uncaring staff for instance will take little pride in their work, perhaps even sharing with customers a personal disdain for their employers.

Gaps in leader credibility may also undermine efforts to improve the organization. Those who can make or break these attempts respond to the credibility chasm by mentally quitting their jobs—even while continuing to trudge into work each day.

Much the same occurs with other stakeholders when a company leader’s credibility is on the line. For instance, it can ultimately influence how customers or clients view an organisation and whether they too remain loyal and keep ordering.

As for ethical leaders, their credibility is essential if they are to achieve more than just issuing the mandatory “tone from the top” message.

Credibility Under the Microscope

However, on closer inspection leader credibility is not a single measure—not an easy to use one dimensional metric for judging a top person’s performance. Instead, it has many facets—see Mind Map below.

For example, a leader may have strong credibility for achieving certain kinds of results, such as promoting innovation or change, yet still be known for a weak business sense.

Or a widely respected leader known for achieving astute business decisions never the less shows obvious flaws in how they treat people. While once Jack Welsh of GE was applauded for his management style now it looks distinctly dated. [2]

Or perhaps a leader is good at building their personal profile, such as the Uber CEO, yet lack a strong moral purpose in the job. While credibility has many facets, it’s invariably judged simply by comparing what a person says with what they do–their day-to-day behaviour.

That seems to be happening with Shell’s otherwise well-respected CEO Van Beurden. His ethical credentials for example, are now firmly in the spotlight.

Despite a powerful charisma and gift for high-flown rhetoric, Beurden‘s public message about the importance of tackling climate change is entirely at odds with what his company is actually doing. [3]

Much the same applies to senior bankers. Their leader credibility does not reduce to a simple: “do you believe me?”. Rather it’s a complex mix of factors such as the message “We need more ethical behaviour” which is still not reaching front line staff [4].

Character

Character is destiny.”
Heraclitus

Character is yet an important and often neglected facet of leader credibility. This shapes how we engage with the world around us. It influences what we notice, what we reinforce, with whom we engage in conversation, what we value, what we choose to do, how we decide, and so on.

The exact elements of leader character are debateable and certainly diverse. For example, Business in the Community has a useful tool for exploring some of the many possible behaviours which might be considered hallmarks of good character

Whatever the precise elements, character is a crucial facet of all leaders’ credibility,  even more so when it comes to ethical leadership—doing what’s right as a matter of principle.

Examples of leaders showing real character by doing what’s right, even when potentially it harms their business remain relatively scarce. When they do occur they attract attention.Because Character tends to evoke emotions, few of us remain neutral about it. Partly this reflects the lack of an agreed definition of what character means.  Even talking about it makes some people feel uncomfortable, since it may touch on something deeply personal and largely unchangeable. [5]

Consequently when discussions or reviewing their internal leadership,organisations seldom use live examples of poor leadership character

In developing leaders yet another reason for side-lining Character is the lack of any obvious link between someone’s character and the results they achieve.

The missing link

This missing link between character and results is the focus of a useful new study by KRW International, a Minneapolis-based leadership consultancy. As lead consultant Fred Keil puts it:

We were convinced that character shapes leadership decisions, tactics, and workplace behaviour—all of which play a direct role in business results. To map the connections between all of those factors, we structured a research project aimed at bringing crystalline clarity to our understanding of what constitutes character, how it’s formed, the role it plays in our self-concept, and how it shapes our interactions with the world. [6]

Kiel and his colleagues reduced leadership character to four simple observable behaviours—see mind map below
Click to see expanded mind map

Head: integrity and responsibility; and heart: forgiveness, and compassion. Using these behaviours employees were asked to judge their leaders by applying a simple rating scale.

Finally, the researchers checked the actual business results the same leaders produced.

CEOs whose employees gave them high scores for character had an average return on assets (ROA) of 9.35% over a two year period. That was nearly five times better than those with low character ratings. Their ROA was only 1.93%.  See also Ethics Pays 

“I was unprepared to discover how robust the connection really is,”
Fred Kiel, author and lead consultant KRW International. [7]

Were these leaders particularly ethical ones? Clearly those with a high integrity score could  be judged as more ethical than those with a lower score.

What this research suggests though is Character provides a foundation for ethical leaders—how they get results matter as much to them as the actual results. The  method also provides a useful way of actually measuring ethical leader credibility.

• Accept the importance of character in building and assessing leader credibility
• Begin an internal debate on what everyone means by character and how it will be assessed internally.
• Help individual leaders tackle the character issue in their development plans
• Provide ways to show leaders how best they can affect the four elements that combine to make up character.

Communication

Today we expect leaders to be great, or at least competent communicators. This particularly applies to ethical leaders, whose messages are so vital for affecting both individual employees and the wider corporation as a whole.

This facet of credibility too has multiple dimensions, the most obvious one being business leaders’ communication needs to based on reality and not wishful thinking.Leaders’ communication credibility rests on at least five abilities. They must learn to master: rhetoric, presence, authenticity, charisma, and inspiration.  All five have been subject to considerable research in recent years.

Click to see expanded mind map

Despite plentiful guidance on each, many leaders struggle with being effective in one or more of them.

The result of this struggle is to affect leader credibility across a whole spectrum of corporate activity—from public pronouncements, to generating engagement, from showing genuine integrity to making a strong personal impact.

Take CSR for example. When business leaders describe their companies’ social and environmental responsibilities they often wax lyrical.  Yet there’s frequently a serious disconnect, an obvious credibility gap.

In ten countries tracked by GlobeScan over a decade, less than two out five members of the public (38%) believed the leadership hype about their companies’ social and environmental performance.

The same study showed people thought companies and their leaders didn’t embrace CSR because they’re were genuinely committed to it, but only “to improve their image.” Yet those same people claimed to be “very interested” to learn what leaders had to say about CSR:

…by failing to address the credibility gap, companies may be missing the chance to engage constructively with an increasingly receptive public.”
GlobeScan 2012

Confirming this picture, an earlier study of 1000 working Americans found only just over half believed their company generally told employees the truth, while about a fifth (19%) disagreed. At the same time, more than half (51%) felt their companies tried too hard to “spin” the truth. [8]

“These results should be a wake-up call to senior executives. Organizations will find it increasingly difficult to motivate, engage and retain their most talented employees if their messages are not believed.”
Barbara Kaufman, principal at Towers Perrin, now Thomas Watson.

Shell’s CEO Van Beurden mentioned earlier may be a terrific communicator, but he’s personally facing a credibility gap as an ethical leader that no amount of gravitas and charisma will bridge.

• Support individual leaders with specific feedback about their effectiveness in each of the five behavioural areas
• Devise tailored development programs for each individual to leverage strengths and neutralise weaknesses.

Results

The time for excuses is over. Now you have to deliver.”
Union Investment portfolio manager to Deutsche Bank leaders, 21st May 2015

This important facet of leader credibility badly needs a makeover. Credible leaders not only get results, they expect to be held to account when these don’t occur, or where something goes wrong on their watch.

This has special relevance to ethical leaders who need to focus as much on how they and the organisation get results, as on what those results are meant to be.

When it comes to results the credibility of leaders is often clouded by a dubious distinction between whether they are accountable or responsible for what happens while in the leadership role.

Click to see expanded mind map

Responsibility and accountability are often used interchangeably. In Dutch they even translate to the same word: “verantwoordelijk“. Another interpretation is if you’re responsible you’re trusted with something—the  management of a bank for example—but if you’re accountable you’re to blame for failure or performance.

A reason why the artificial split between an accountable and a responsible leader matters is it has most recently been cleverly exploited by both bank leaders and state prosecutors.

Bank leaders have responded to the numerous cases of illegal or reputation damaging behaviours happening under their watch by, in effect accepting one and denying the other:

Of course I’m responsible, but I’m not accountable for that.”

Prosecutors too have resisted trying to pin personal accountability onto specific individuals, preferring instead to try and transform corporate cultures. This has taken the form of deferring prosecutions in favour of promises to reform. While threatened with prosecution those in charge agree to take various remedial measures to prevent future wrongdoing. [9]

It wasn’t until 2006 that a real live banker got the knock on his door. Six police officers and a prosecutor were standing there with an arrest warrant.

I know what this is about. I have been expecting you” he later recalled.

The banker ran some of the multinational bribery operations at Siemens Aktiengesellschaft, a German multinational firm, ranked in the top 50 of the Fortune “Global 500” list of the world’s largest corporations. [10].

Ignoring Madoff style fraud, this was one of the earliest and still rare modern examples of a senior banker actually being held personally accountable for financial irregularities.

More recently the problems at Deutsche Bank have led to it facing the largest regulatory fines in history from the US, the EU and the UK. You might fondly imagine the bank’s leaders felt in some way the situation was due to their actions. Not at all. As the  bank’s recent press release makes clear,

No current or former member of the Management Board was found to have been involved in or aware of the trader misconduct.”

Here the difference between accountability and responsibility is alive and well, and being fully exploited by Deutsche Bank leaders, saying in essence

Yes we were in charge (responsible), but don’t expect us to take the blame for what a few rotten traders did (accountable.)”

Promoting a semantic separation between accountability and responsibility has been a neat way for bankers in particular to avoid having to answer for being asleep at the wheel or for things going wrong while they led their organisations.

This cosy escape route though seems to have been partly addressed by new Bank of England rules that could make directors and top executives criminally liable if a bank fails. Predictably, just proposing this intention led to the first departures of some HSBC bankers, who decided they’d rather not be truly accountable thanks. [11]

While ethical business leaders may appreciate the subtle difference between the two terms of accountable and responsible most will rightly regard it as irrelevant. A leader who does what’s right does not need to hide behind the notional difference that they’re neither if someone far down the hierarchy does something wrong.

• Boards to make clear to company leaders they cannot hide behind the fact they head up a large hierarchy; even so they must be held accountable for what happens under their watch and ignorance is no excuse.
• Help corporate leaders focus on how to handle accountability in their job.
• Ensure there are adequate structures and processes that provide leaders with accurate assurances of what is going on beyond their immediate gaze.

Culture

We have previously queried with the bank itself the suitability of Mr Fitshen and Aushu Jain, the bank’s two chief executives to lead Deutsche’s cultural change…”
Director of Hermes Equity Ownership Services, FT 21 May 2015

Leaders gain or lose credibility depending on the extent to which they are able to affect the drivers of corporate culture. You could even argue it’s their raison d’etre—directing and designing company culture.

Yet even the best leaders on the planet find mobilising the drivers of organisational culture to be extremely challenging.

When the new boss of RBS Ross McEwan, says serious misconduct over the Forex rates “has no place in the bank that I am building”, to gain any credibility he will need to do far more than set a new “tone from the top. For a start he now heads what is a self-confessed criminal organisation.

The challenge of this facet of leader credibility is showing you can do more than offer “tone” and can create sustainable change, defying natural organisational inertia and a tendency to return to old ways of doing things.

Credible leaders therefore need to focus on at least five drivers of culture change efforts: vision, strategy, core values, shared purpose and building trust:

Click to see expanded mind map

Each has its own demanding requirements for establishing leader credibility.

Trust

Public trust in business for example, is now at its worst for five years. This is true around the world, not just in the UK or the US. CEOs as leaders do not fare much better, and their credibility gap with the rest of society remains as large as it ever was.

Despite anodyne words and numerous internal re-arrangements for example, financial leaders continue to fail at mobilising the five elements above to tackle culture change in their industry and organisations.

This failure surfaces starkly in the recent 2015 study be the Chartered Financial Analysts’ Global Market Sentiment Survey. Nearly all respondents (96%) describe a continuing lack of trust in the industry.

Translated into more practical and damaging effects, it may mean loss of clients’ belief in the quality of investment advice, failure to pursue valuable recommended deals, reluctance to purchase costly bank expertise and so on.

Elsewhere in business, such as motor makers GM, culture change is now a major concern of the CEO. She likens it to altering behaviours in which the workforce “owns” each other’s obstacles “”to make sure we’re solving problems together,” In particular she wants to

…drive accountability. If you say you are going to do something, do it.” [12]

So far, this particular CEO’ s personal leader credibility seems to be holding up, even though she sustained harsh criticism during four Congressional hearings. But other observers have praised her poise under fire and she has won extra credibility for the leadership she showed in restructuring GM’s safety organization and practices.

Northrop Grumman the US defence contractor is a pace setter in affecting corporate culture and has resolved to go beyond the basic legal requirements by making its ethics programs “more robust, proactive and holistic.” The company claims a “best  in class” ethics program but

… that means little if employees aren’t well-served by the culture, and by leaders who cultivate trust, initiatives, training, business conduct officers and foundation policies.”
Sandra Evers-Manly, vice president, Northrop Grumman [13]

Ethical leaders in search of credibility need to take a particular interest in organisational culture and the various drivers suggested here. For instance, their personal leader credibility may fracture if they adopt one set of values while their organisation uses another. Or a strongly results-driven leader may lose credibility in an organisation that cares deeply about how those results are achieved.

It may take a leap in a leader’s approach to gain the sort of credibility that all respectable organisations need to retain society’s confidence.

• In trying influence corporate culture leaders will gain credibility by showing they embrace the longer term, rather than short termism.
• Attention on finding ways to sustain cultural change is as important as the changes themselves.
• Organisations need to help leaders develop a better understanding of the five drivers of credibility when it comes to affecting culture.

SOURCES