Petraeus affair: 5 lessons for companies
(MoneyWatch) The unfolding scandal involving Gen. David Petraeus is not confined to the upper echelons of the U.S. military -- it also has been a recurrent drama in the corporate world, felling top dogs at dozens of companies from Hewlett Packard (HPQ) to Lockheed (LMT). Yet while the sexual proclivities of top executives pose a risk to corporate value, rather than to national security, such scandals have common themes -- and similar lessons, experts say.
Aside from ordering chastity belts for corporate chief executives and generals, what can be done to reduce the chance that an indiscretion will damage an organization? Here are five lessons of the Petraeus affair, along with five measures that companies can put in place to avert similar scandals or mitigate the damage that existing indiscretions might be doing now.
Power corrupts; absolute power corrupts absolutely. This statement is no less true today than it was when first muttered by Lord John Emerich Acton in the 1800s. Understanding this basic tenet of human nature is why the U.S. government is set up with three distinct branches, each of which provides a check on the others. It's also why corporations are supposed to have powerful and independent boards of directors who can actively oversee top managers, says Paul Hodgson, chief research analyst at GMI Ratings, a corporate governance research firm.
"Power is an aphrodisiac," he says. "Part of the problem is that the power that's given to the president or CEO gives them the impression that rules that apply to other people do not apply to them. Reduce that power and you reduce those problems."
The key here is oversight. Every company needs to have an active, independent chairman of the board who is in no way beholden to the CEO. That chairman needs to be empowered to gather information about what's going on in the organization from sources other than the CEO. And he or she needs to be both able and willing to issue warnings when problems are minor and punishment -- including termination (with the approval of the rest of the board) -- when they become significant.
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It's lonely at the top. Top leaders often become isolated from the rest of their organizations, sitting in expansive offices, surrounded by other corporate executives who are either too like-minded or too fearful to provide a dissenting opinion. "Leaders don't have enough confidantes who are willing to say to them, 'What the heck are you thinking?' " says organizational culture expert David Gebler, author of "The 3 Power Values: How Commitment, Integrity and Transparency Clear the Roadblocks to Performance."
Corporations can and should set up a system where leaders hear "devil's advocate" opinions, whether that's from members of the board or members of the staff, Gebler adds. If necessary, they should designate a member of the staff to prepare and present a dissenting view just to get the conversation going. "Whether it's Elliot Spitzer or David Petraeus, if they had somebody saying 'what are you thinking?', I think they would have been better able to fight the temptation."
Risk takers take risks. One reason why many corporate leaders in high-profile positions seem to take chances with their personal lives is because the creative problem-solvers who land in top positions tend to be risk takers by nature. Taking risks can lead to great success, but the more successful risks an individual takes the more likely he or she is to fail to recognize risk as risk, says Beverly Flaxington, a career advisor and author of "Understanding Other People: 5 Secrets to Human Behavior."
Wise organizations couple creative problem-solvers with practical mentors or confidantes, who can point out flaws in a leader's thinking before it's too late.
Delay magnifies problems. A leader must be the role model for all employees, Gebler says. When he or she doesn't live by the rules, it creates a trickle-down effect that spreads impropriety throughout an organization. Moreover, employees may see a lack of personal integrity on the part of the CEO as something that eventually affects them, reducing their loyalty to the company. "People begin to wonder, if a leader can treat loved ones like that, how will he or she treat us?" he says. "Without trust, a leader has no authority."
When board members discover a problem, they must act quickly and decisively, adds Hodgson. "You need to have a strong board and clear rules that are consistently enforced," he says.
Humility protects. If power corrupts, a little humility can help protect an organization, Flaxington says. Some companies require executives to occasionally leave their top-level jobs and spend a day or two on the front lines -- answering phones, waiting on customers, working the factory line. These programs not only help the executive see what the average worker confronts each day, but also can provide a better perspective on his or her role in the company. And it can foster better communication between rank-and-file employees and the executive suite.
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