We teach children to be honest. We urge them to admit mistakes and remind them of the ninth commandment: Thou shalt not bear false witness against thy neighbor.
In the business world, the responsibility of reminding the chief executive officer and other members of the c-suite of these principles often falls on the chief communications officer (CCO) or director of public relations (PR).
It’s the CCO or PR who’s charged with protecting the reputation of the company, its employees, board members, stockholders and customers.
It’s the CCO or PR who must face the reporters and answer questions with honest and integrity.
It’s the CCO or PR who must influence and persuade the CEO and the C-suite to be transparent, authentic and—most of all—honest.
The CCO or PR must always work on creating, maintaining or enhancing relationships based on trust and mutual understanding with the CEO and the C-suite. After discussing dishonesty, unethical business practices or other bad behaviors with the CEO, many CCOs or PR professionals are terminated or forced out.
Those difficult conversations must continue. Now, a new study should be a part of ongoing education and relationship building with the CEO and the C-suite.
Research shows the stock prices and profits of a company improve more rapidly if a CEO admits mistakes instead of blaming other people or factors. Companies with executives who admitted problems were faster to make corrections and profits increased more than companies with executives placing blame elsewhere.
“Poor performance and the value of corporate honesty,” will be published in the August issue of the Journal of Corporate Finance. (Purchase price: $41.95.) It’s written by Stephen Ferris, a business professor at the University of Missouri-Columbia, along with colleagues from Louisiana State University and the University of Central Missouri.
Research shows company performance continues to be poor after the CEO blames other people or factors for problems. This group offers vague generalizations while the CEOs of companies that take responsibility for problems provide more detailed information about the situations. The study’s conclusion states companies accepting responsibility for poor performance are highly valued by investors.
The most alarming conclusion: “We find that both groups of companies exhibit poor company-specific performance prior to the announcement, indicating that companies blaming external factors are not being truthful.”
“…I’ve learned that nothing builds engagement more than being accountable to the people in your organization,” wrote Whitehurst, author of the book, The Open Organziation, (HBR Press, 2015). “You simply have to have the confidence to own your mistakes and admit when you’re wrong.”
Red Hat is the world’s leading provider of open source enterprise IT products and solutions. In an industry filled with rapid change, disruption and competition, it would be easy to point fingers at others or outside influences when products are failing in the market place and the metrics are spiraling downward.
“Think about it: who would you rather trust—the person who denies anything is amiss or the person who admits their error and then follows up with a plan to correct it?” he wrote in the article. “Better yet, what if that same person who admits they made a mistake reaches out to their team for ideas on how to make things right? I’ve found that leaders who show their vulnerability, and admit that they are human, foster greater engagement among their associates.”
On June 18, 2010—two years after Whitehurst became CEO—Red Hat (New York Stock Exchange: RHT) stock was $31.92 per share. It closed at $78.27 on Wednesday.
Jackie Yeaney (@jackieyeaney) is the executive vice president of strategy and corporate marketing for Red Hat. If she ever has to have a difficult conversation with Whitehurst about responsibility, she probably won’t need the Ferris’ research. My guess is after you’ve written a book on honesty, accountability and transparency, you’ll be even more diligent in practicing and exhibiting the correct behaviors.