'Truthiness' Can Make or Break a Corporation

ABC's Sunday-morning news program, "This Week," recently added an online fact-checking feature. Public figures apparently felt free to come onto the program and say things that were demonstrably false. What a surprise-politicians dissembling! But what's true for elected officials is unfortunately also true for many corporate leaders. In today's world, many people seem to be unconcerned with the veracity of their statements and are able to lie with a straight face. No wonder so many surveys of employees find that between a third and two-thirds of the workforce believes that their leaders are lying to them-because in many cases, they are.

Case in point: one very senior executive at a large online company told me about his CEO denying she was being considered for the CEO job at another company even while she was being considered. And then, when that other CEO job wasn't offered, the executive said she had turned the alternative down because of her loyalty to her team at her current employer. Most everyone on the top management team knew the truth, and within a year of this incident many of the team members had left because they felt uncomfortable working for someone who so blatantly lied to them. Lying implies a lack of respect for the people you are trying to fool and also indicates little appreciation for their intelligence and skill in seeing through the stories. This story is not some isolated case. Senior leaders at several financial services firms claimed, even to their boards and their employees, that their balance sheets were fine just days before the companies went under or were forced into hastily arranged mergers.

This senior leader behavior raises a couple of questions. First, why isn't there more outrage? Possibly it's because we have such low expectations for our leaders. Confronted with leaders at all levels who don't tell the truth, we have become acclimated to lying or at least inured to its ability to provoke surprise or anger.

Second, why aren't there are more consequences for those who say things that they know are false even as they are saying them? We learn from watching others and what happens to them. When nothing happens, we learn that behavior we may have considered outrageously inappropriate maybe wasn't so bad after all. In fact, if there are few to no sanctions for violating a norm, such as the proscription against lying, after a while it's not a norm-because to be normatively valued, a violation has to provoke sanctions.

The problem for leaders is that we learn from what others do and the consequences of that behavior-the idea is called social learning. As a consequence, a culture of lying is contagious, and it's very hard to run an organization if the leader doesn't know the truth about what is actually going on. That's why when Harrah's CEO, Gary Loveman, came to the company in 1998, he made it a conscious policy to never say something that was demonstrably false. As he told my MBA class, he might not tell you something, and of course he makes mistakes, but he was determined to build a culture in which people and the company told the truth, even on seemingly small matters.

Once an employee was terminated and went home and committed suicide. Harrah's wanted to put out a press release saying that the individual had died as a result of an accident. Loveman refused to let that press release go out. He made it clear that the company did not have to say anything, or could just say that the employee had died, but it could not say there had been an accident, because the death was not accidental. As Loveman commented, this stand was not because he was some minister (he assured everyone he is not), but because lying, like most behavior, is contagious. There is a slippery slope to deceiving others and ourselves, and Loveman was not going to start down that trajectory.

If you want to understand the one cause of the recent financial carnage, Toyota's quality problems, and many other corporate misdeeds and mistakes, look to the organizational culture and whether telling the truth, even when unpopular or unpleasant, is rewarded or punished. There are, of course, lots of causes of company problems that depend on the specific circumstances, but one common thread in many of these incidents is a story of deception.

We should expect and, indeed, demand better of our leaders in both the public and private sector. People can't manage situations successfully if they don't have the facts, and the only way to get the hard facts is by requiring truthfulness. This recommendation isn't just about morality, although it is about that, too-it is a lesson about how to run a successful organization.