There is a significant and measurable relationship between the collective character reputation of senior leaders and the conditions for compliance in a workplace. And this correlation extends to the bottom line. Conversely, leadership teams that do not demonstrate characteristics of integrity, personal responsibility, compassion and forgiveness cultivate environments more susceptible to misconduct – similarly affecting profitability.
Part of being a good leader is understanding how your actions speak on your behalf. Senior leaders have long corporate shadows. What they value or don’t value is replicated in how business systems are set up, rewards are allotted, technology is deployed, PR is tailored, and accolades are given. These decisions create ripples in the organization that define the employee experience, determine conflict resolutions, create or negate feelings of safety and ultimately create conditions for compliance.
What they value or don’t value is replicated in how business systems are set up, rewards are allotted, technology is deployed, PR is tailored, and accolades are given.
Conditions for compliance can be measured in many ways, notably character reputation has a relationship with number of non-compliance events, amount of compliance related lawsuits filed and audit fees as a percentage of top line revenue. These are meaningful metrics for any business as most key performance indicators (KPIs) reported to boards and stakeholders fall under one of these high-level categories.
8 Steps to an Effective Compliance Program: Step 2: Program Oversight, Structure & Leadership
This character/ROA (return on assets) correlation can be seen clearly in the research that resulted in the book Return on Character: The Real Reason Leaders and Their Companies Win (Kiel) published by the Harvard Business Review Press. In this study, the results of character reputation of senior leadership teams were plotted to create an ascending curve. Every time we looked at the character curve, we saw that the organization’s relationship to average ROA followed right along with it. Specifically at the lower end of the spectrum, those organizations whose employees felt their leadership teams were more self-focused at least 50 percent of the time averaged a 1.3 percent ROA across industries. On the other end of the spectrum, organizations whose employees felt their leaders had strong collective character reputation averaged a 9.35 percent ROA across industries. That’s an over 600 percent delta.
There are always the few exceptions of businesses that are successful despite themselves. These are the companies with the seemingly impervious business models, the industry disruptors or meteoric start-ups. These businesses have the luxury of not having to embed a culture of character and respect into their operations – at least at first. However, as we have seen (think Uber), character and culture have a tendency to catch up and can have a sobering impact on market share.
Most organizations and markets have no shortage of competitors or alternatives. These companies need an edge, a unique selling proposition that provides the most value to their customers. Strong leadership character reputation and cultures of compliance are the competitive edges defining the modern marketplace.
The Difference Between Intention & Interpretation
Save for the rogue manager, most leaders are well-intending. However, it’s not intent that matters but how those intentions are interpreted by others.
Nearly 70 percent of senior leaders are not aware of how they are perceived by others. Managers may see their abrasive behavior as a means of cultivating excellence for the good of the employee and the company. However, direct reports and peers may interpret that same behavior as a “jerk” manager who creates a hostile work environment. It is the latter scenario – the character reputation – that influences the conditions of compliance.
More times than not, a leader is simply overbooked, busy or trying to juggle a number of hot deliverables. But these reasons rarely get translated effectively to employees on the other end.
The character traits that create conditions for compliance are integrity, forgiveness, personal responsibility and compassion. The actions that reinforce these traits are usually unconscious micro behaviors that can appear to be relatively insignificant compared to the scope of a senior leader’s responsibility. For instance, if you tell someone you are meeting Tuesday at 3:00, and instead move it to 3:15, or send a “sorry I have to cancel” five minutes before the meeting, you could inadvertently undermine your reputation. More times than not, a leader is simply overbooked, busy or trying to juggle a number of hot deliverables. But these reasons rarely get translated effectively to employees on the other end.
As a senior leader, it is not only what you do that matters, but also who you are while doing it. Your character reputation is critical to the competitiveness of your business.