Translator: Leonardo Silva Reviewer: Mile Živković
Thank you, Michael, and thank all of you.
I'm so excited to be here.
This is the first time that I will make a public presentation
about the research that I've been doing for the last six years.
Before I get into my subject of the talk itself,
I want to ask each of you here to stop and think for a minute
about someone that you might know in a leadership position,
maybe in your own company,
and ask yourself: do they fit any of these descriptors?
Are they maybe manipulative?
Easily pass blame onto others?
And, in spite of all of that,
they still are admired by people in the senior management?
I thought you might.
Wherever I go, people instantly recognize that description
in somebody that they know that's in a leadership position.
Do any of these faces look familiar?
And another Bernie.
And the latest, who was just convicted recently of insider trading,
Now, these four people all have one thing in common,
and that is they've all been convicted of white-collar crimes.
And, according to news reports,
they have ripped off a lot of people financially and emotionally,
and I know, in some cases,
that people even committed suicide because of their fraudulent behavior.
In 2005, I was the co-author of a book called "Moral Intelligence,"
and my co-author and I simply made the claim in that book
that high-character leaders will get
better sustained long-term business results than low-character leaders.
Now, we kind of thought it was obvious,
but, believe it or not, we got a bunch of pushback,
and the pushback was this,
"Don't tell me that, you're a psychologist,
and all that soft stuff is nice to have,
but it's not really essential as long as you stay legal,"
that what really creates value is the business model,
and that this is just sort of frosting on the cake.
And I thought, "Well, you know, fair enough.
I don't have the data."
So, we set out to get the data, and, over the past six years,
we've enrolled 100 CEOs in a national research study
aimed at understanding and researching the connection
between character and business results.
We've enrolled CEOs in Fortune 100 companies,
Fortune 500 companies,
a lot of privately held firms,
and we actually have ten CEOs of non-profits in our study.
Now, we didn't set out to study psychopathic leaders,
and frankly we were mostly interested in the other end of the continuum.
We wanted to understand high-character leaders,
the impact that they have,
but we encountered a few of these bad actors as well.
But I'm here today because I want to share with you
two results from our research that I am most excited about,
and the first is that high-character leaders
do in fact deliver better business results.
There is a significant return on character.
And the second result that we discovered from our research
you might find a little surprising
is that character is something that can be taught.
So, I want to talk about these two outcomes.
The first one: return on character. What do I mean by that?
Well, first of all, I need to define character.
Character is something that other people notice.
You can infer what a leader's character is
by how they treat other people in the workplace.
And we concluded that there are four moral principles
that, when leaders follow them, they will be seen as people of deep character,
and there are two of the head and two of heart.
When a CEO or a leader of any kind demonstrates integrity,
it tends to generate trust among the workforce.
And when they demonstrate responsibility, it tends to be inspiring to the workforce.
When they see that a leader or a CEO demonstrates forgiveness,
that's what generates innovation in the workforce.
And finally, when they show compassion,
that's what drives up workforce engagement
and talent retention.
So, that's what I mean by character.
When I say "return on character," I mean something else.
I'm talking there about hard business metrics.
And so, we chose to study two: the return on assets
and the level of workforce engagement.
But, before we could really proceed with our research,
we needed to come up with a way
of creating a single character score for a CEO.
So, the way that we did that
is that we asked random samples of employees simply to rate
how well their CEO demonstrated these four principles
of integrity, compassion, responsibility and forgiveness.
And then, we took all of those ratings and put them into one average score,
and that became the CEO's character score,
which then allowed us to create this character curve.
Each dot on this character curve represents one of the CEOs in our study.
And we ended up with complete data sets on 79,
and we have almost 8,000 employee observations,
which gives them their character score.
So, this is a lot of data. We have a lot of confidence in it.
Now, first thing you'll notice
is there are no real psychopaths in the study.
Well, how many psychopaths do you think line up at the door
for a research study on integrity in the workplace?
They just don't show up.
But we did get a few that -
We did get a few that could be called "almost psychopaths,"
and the only real difference between an almost psychopath and a real psychopath
is that they're more functional.
The almost psychopaths are people
that often have outstanding professional skills in one way or another,
but they still are the kind of people
that match that profile I mentioned at the beginning:
don't care about other people, have no conscience,
have no remorse on the impact that they have on other people.
We encountered one in our study. His name was "Tom."
That's not his real name, but the name I'll give him.
And the thing that most impressed me about Tom
when I walked into his office
was that there was literally no more room on the wall
for a picture of Tom and some important person.
It was all filled.
And Tom spent the entire interview trying to convince me
what a wonderful company he had, and what a wonderful CEO he was,
and how everything was going just wonderfully well.
Well, when we got the data from his employees,
it told a different story.
In fact, the employees said that Tom lied to them about half the time.
They said that it was not safe to tell the truth to senior management.
And, furthermore, the employees said
that all of senior management would alter business outcomes,
they thought, if it was to their advantage to do so.
Well, then, that crisis in 2008 came for that particular company,
and it exposed their weaknesses,
and, within a few weeks after that crisis hit,
Tom and his leadership team were fired
and the company was broken up into pieces and sold to its competitors.
That was one of my almost psychopaths in this study.
Going up the character curve,
you'll notice next the low-character underperformers
and the average CEOs, and, for sake of brevity,
today I've put them into one category.
These are not bad people.
They're so much as underdeveloped people.
It's as if their level of character development
was sort of arrested at about the 9th grade.
They are people who are kind of fearful,
and that's their biggest agenda item, to achieve security,
and that translates into pursuit of money.
So, these are CEOs that are all about themselves.
Their biggest objective is to make as much money as they can.
And, of course, their employees see through this as well.
Their employees say that these CEOs also tell the truth about half of the time
and that they care for people as people even less than half the time.
But that brings me to the top of the character curve
and this amazing group of men and women
that we've chosen to call the "virtuoso CEOs."
These are men and women I really came to admire and love
in the course of this study.
When I read the open-ended comments that their employees said about them,
my first responses were, "I wish I could have found a CEO like that to work for.
I would have gone to work for them in a heartbeat."
Now, one of the dots in that circle is a well-known CEO right here in Seattle.
It's a name that I'm sure you will all instantly recognize,
and that is the recently retired CEO of Costco, Jim Sinegal.
When we saw the ratings that Jim got from the random sample of Costco employees,
they were some of the highest we had seen
on integrity, responsibility, forgiveness, and compassion.
And, when I saw those ratings, I thought,
"Huh, I go to Costco warehouses all the time.
I think I'll see if I can find a disgruntled Costco employee."
So, I have a new hobby,
and that's trying to find a disgruntled Costco employee in a warehouse.
And so far, no luck.
I kind of sidle up to them and I say,
"Tell me, what's it like to work at Costco?"
And I always get the same response, "Oh, I love it here."
And, after we talk about their wonderful pay and benefits,
I say, "Well, anything else?"
"Oh, yes, it's the way I'm treated. It's my manager, my boss.
She always stands up for me. I know I can depend on her."
So, obviously, Jim honoring these four moral principles we talked about earlier
has made that a part of the culture.
He has insisted that all the managers, and leaders, the entire company,
behaved in that way, and it shows.
Now, we asked ourselves, "If all we knew about a CEO was their character score,
would that allow us in any way to predict
what business outcomes or business results would be?"
And we thought an interesting way of looking at that
might be to divide this curve in half, at the median,
and let's look at the hard business metrics
for CEOs above the median on character
versus those below the median on character.
And we managed to get complete financial statements for two years
on 40% of our sample,
and here's what we discovered.
It's that the CEOs above the median
create almost three times the return on assets as those below the median.
And the only difference between these is their character score.
Now, we had hoped that we would find a difference that was significant,
but I didn't expect that it would be three times as much.
And then, even more compelling is that -
Let's look at the results of the virtuoso CEOs at top circle
compared to the ones at the very bottom.
The virtuoso CEOs contribute an average of 8,4% return on assets,
and those at the bottom of the curve lose money for investors.
This was pretty compelling evidence.
So, we looked next at levels of workforce engagement,
and they tracked exactly the same with these figures on return on assets.
So, high-character CEOs create these wonderful,
high-energy, positive work environments where people love to come to work.
The low-character CEOs create these painful work environments for people.
They don't even want to be there and try to leave as soon as they can.
So, we concluded from this hard data on two metrics business results
that character does matter,
that we were right when we wrote that first book.
So, I'd like to talk now about the second outcome of our research,
and that is that character can be taught, because people generally don't think that.
And, as I said before,
a measure of your character is how you treat other people.
And, you know, the most clear indication of that
is when there's no apparent gain for you.
So, think a minute: how do you treat the person that cleans your office?
Or the checkout clerk at the grocery store?
That reveals your character.
The other thing that we discovered that was really fascinating for me
is it dawned on us about halfway through this study
that character is mostly a matter of habit.
It's not a kind of a thing you do a lot of thinking about.
These are character habits that you've acquired through life experiences,
that you don't stop and think, "Now, how should I treat the person?"
You just automatically treat them well.
If you have a well-ingrained integrity habit,
your first response will be to tell the truth and to keep your promises.
If you have a well-ingrained responsibility habit,
your first response will be to own up to your own mistakes
and be concerned for the common good.
It's like muscle memory.
So, once we understood that, we thought,
"Well, habits can be changed. People do it all the time."
So, developing character is about strengthening moral habits
more than anything else.
It can be a little more complicated than that,
I don't have time to go into it, but it's mostly by strengthening moral habits.
So, that we thought was good news.
So, we wondered, back to our virtuoso CEOs,
"Do they have a particular set of moral habits
that are different from those at the bottom?
And, even more, do they all have a set of habits in common?"
And we found, in fact, that they do,
that there are three habits
that the high-character, virtuoso CEOs all seem to have in common.
And the first is what I call the empathy habit,
and the empathy habit is kind of what is sounds like,
it's immediately being able to sense what other people are feeling.
Now, virtuoso CEOs, this is a core competency for them.
You were born with a perfect skill in doing this,
but, growing up in our culture, it's probably often been trained out of you.
You've probably been also told in our culture that business is business,
and, "Don't get personally involved in business decisions", right?
Well, wrong, if you're a virtuoso CEO.
They do get involved in personal relationship
to the decisions they are making.
The first thing they think about when they make a difficult business decision
is, "How is this going to impact the people that are involved?"
The second habit that the virtuoso CEOs have
is what I call the other first habit.
When they're making a significant business decision,
the first thing they think about is, "How is this going to impact other people?
And what's best for other people? What's best for the business?"
And it's never about "me," and "my salary," or "my status."
Now, the paradox of that, of course,
is that the high-character CEOs enjoy a lot of career success
and make a lot of money.
So, that's kind of interesting.
The third habit that they have is what I call the "I screwed up" habit,
and that's admitting to their own mistakes.
One of the CEOs in the study said that, early in his career,
when he was still a young man in his 30s,
he was already reporting to the CEO,
and one day the CEO called him into his office and said, say,
"We have a crisis on our hands.
I made a bad decision. I really screwed up."
And he said he almost fell off his chair.
He'd never ever heard a senior leader ever say something like that before,
admitting to his own mistakes.
But he said, "It had a wonderful impact on me because it freed me up."
He said, "From that point on, I knew I could do that as well."
So, more than anything else, when a leader admits to having made a mistake,
it communicates trust and respect for the people in the room that you're talking to.
It says to them, "I'm just like you.
We're all in the same playing field, we're all in this together,
we're all coequal as people."
It's very energizing to people when a leader does that.
So, I have a three-point map for you.
If you want to try to increase the strength of your moral character,
practice empathizing, move from "me first" to "others first,"
and start owning up to your own mistakes.
Now, I know this is easier said than done,
but you can change habits, it's not impossible to do by any means.
And I would suggest that perhaps
you take a page out of the virtuosos' playbook, and do it the way they did it.
They have a particular strategy
for acquiring and strengthening their moral habits,
and that is that every one of them had one or more important mentors
in their career.
They often had multiple mentors in their career.
They started early at getting mentored,
sometimes before they got even into their career.
And I'm sad to say that the CEOs at the bottom of the character curve
had hardly any mentors, or none.
So, my advice to you is, do it like the virtuoso CEOs do.
If you want to strengthen your moral character,
find yourself a good mentor, but remember it should be somebody
that's higher up on the character curve than you are.
You would not think about trying to climb Mount Rainier
with a guy who had not climbed it before, right?
So, that would be my advice to you.
In closing, I have three dreams,
and one is that, in the near future,
character development will be part of the core curricula
for next-generation leaders in companies in leadership development programs.
The second dream I have is that executive search firms and recruiters
will find a set of tools that can accurately assess for character,
and that they'll use it to screen out
the superficially warm, friendly, manipulative psychopaths,
so that they don't even get into leadership positions,
because, when they do, they destroy so much value and cause so much pain.
And the third that I dream about is what Michael mentioned at the beginning,
that business schools will embrace character development
as the core of their curricula,
and maybe put all that other stuff online - well, just kidding -
but that it'll be the core of the curricula, instead of how it is now.
It's mostly ignored or it's bolted on as an ethics course.
So, that's my dream for the future,
and, in closing, I just want to point out
that high-character CEOs do produce better financial results,
they do enjoy higher levels of workforce engagement,
and you can increase the strength of your character habits, it's not too late.
That's what star performers do.
So, return on character is significant. The data is in. Thank you.