A degrading sense of accountability has been underway for decades now and corporate America is at the center of the ongoing storm.
Any discussion about accountability has the risk of quickly slipping into a “back in my day…” eye-roller of a conversation. That said, we do have a structural accountability problem in this country, and it’s expansive. Ineffective politicians are shielded through gerrymandered districts. Ineffective teachers and professors are protected by union deals and tenure. Ineffective CEOs are protected by friendly boards, one-sided legal agreements, and dual-class share structures. Poor performers are insulated from accountability by systemic flaws.
Unfortunately, it goes beyond that. The more pervasive problem is that this accountability deficit is not just structural, it’s attitudinal. People don’t like to be held accountable, so they deny that problems exist, pass the buck, and make excuses. Most managers don’t like to hold their people accountable, because it’s uncomfortable and can lead to tough truths and conversations.
And what’s the end result of our growing accountability deficit? Well, let’s look at an example that has been top of the headlines – WeWork. Adam Newmann, the eccentric founder of the co-working space company, deserves credit for positioning a deeply flawed real estate rental business as a new-era tech play. The company’s private market ‘valuation’ soared to nearly $50 billion before a failed IPO unearthed the reality of the situation. Now, SoftBank has effectively acquired control for an estimated $7.5 billion. Newmann is out, thousands of employees will be fired, and investors have seen the value of their stake decline in an unprecedented way.
Typically, when a company with a flawed business model (and capital structure) gets caught in a crisis of its own making, the CEO will be held accountable. In Newmann’s case, yes, he was forced out by the Board. BUT, he is also having his shares repurchased for an estimated $1.7 billion, getting bailed out of a $500 million loan from JPMorgan Chase, and will be receiving $185 million through a consulting agreement. This is in addition to the hundreds of millions of dollars he has received through previous share sales. Not bad for a guy who has made a series of strategic and capital-allocation blunders that have led to real questions about whether WeWork is a viable concern. WeWork is a high profile example of a CEO who is walking away from the wreckage caused by their own mistakes with millions (or billions) of dollars while employees and other stakeholders are left holding the bag.
What does this have to do with ethics and compliance? Isn’t this just a case of a CEO who struck a great deal for himself?
Well, ask yourself this: When those at the top aren’t held accountable for their ineptitude, mismanagement, self-dealing, misconduct or unethical behavior, what message does that send to the rest of the organization? Simple – it’s often a green light for a range of bad behaviors.
When a CEO isn’t held accountable for destroying billions of dollars of shareholder value, will that VP expect to be held to task for sexually harassing a subordinate? When that VP leaves the company with a huge financial payout, will others be deterred from engaging in the same behavior? When Steve Wynn skips his own mandatory harassment training, should we be surprised when other executives turn a blind eye when workplace conduct issues arise? When employees know that management isn’t taking harassment seriously, will perpetrators hesitate to perpetrate? Will victims ever be willing to come forward to complain? The original lack of accountability transforms into a downward spiral of bad behavior. And it’s not just harassment – the same patterns will lead to a culture that effectively condones bribery, corruption, and other unethical and illegal behaviors.
“Do as I say, not as I do…” is a pervasive and persistent attribute of today’s corporate environment. That needs to stop, and it needs to stop now. Maybe it’s time for the Business Roundtable to issue a strongly-worded statement about that as well.