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Regaining Organizational Trust When Leadership Misbehaves

[By Nora Jacobs, Hennes Communications]

It is a sad commentary on our times, but more and more of our work now involves helping clients who are dealing with the aftermath of misbehavior among their leadership ranks.  Accusations of sexual misconduct, charges of criminal behavior, questionable ethical behavior and significant violations of organizational policies can all thrust an organization into the public spotlight.

How the organization’s board leadership responds to these threats has enormous implications for its future success and perhaps its very survival.  Key employees may leave.  Top recruits may withdraw from consideration.  Customers may seek alternative suppliers.  Stockholders may divest. Donors may wither away.  Enrollment may plummet. Add to this unrelenting media scrutiny and excoriation on social media.  The bottom line:  the organization’s stakeholders have lost trust in it and its board leadership must take the steps to restore that trust.  Essentially, it must assume the “vindicator” role in the villain-victim-vindicator scenario that typically frames these events.

The obvious solution is to punish the “bad apple,” but in our experience, clients often wrestle with the extent of punishment they need to mete out in order to effectively address the situation.  Fire the perpetrator?  Punish him or her and keep the perpetrator on staff?  Extract an apology and force a public mea culpa?  The question we are often asked is this:  which option has the highest likelihood of restoring trust?

While every situation is unique, we know from long experience that taking some action will be far more likely to help an organization restore its reputation than the decision to do nothing and hope that the leader’s behavior will somehow be forgotten as the news cycle moves on.  That position is well-supported by a new study in the Journal of Trust reported here.

Fully footnoted and an admittedly heavy read, the article describes work researchers undertook to compare the impact of two board leadership responses to  executive misbehavior:  dismissing the perpetrator, or retaining him or her while extracting an apology, an admission of wrongdoing and a promise to do better.

Based on a clinical study conducted with 87 undergraduate business students a major university in Singapore, the research was closely based on the real-world incident that occurred in 2003 when the then-CEO of American Airlines persuaded more than 100,000 employees to take pay cuts, but then retained multi-million dollar bonus payments for himself and other top executives. As the article reports, the CEO made several attempts at trust repair, but ultimately resigned his position.

For those who wish to skip to the conclusion, the authors note:  “… in the aftermath of a CEO transgression, the bad news is that organisations (sic) need to worry about repairing trust with constituents even if the incident in question was carried out solely by the CEO ….  The good news, though, is that even if the errant CEO will not voluntarily act to repair the situation, other individuals or entities such as the Board of Directors can initial the necessary response.  Moreover, such responses can be beneficial in repairing trust in both the organisation and the CEO.”

The authors add, “For Boards, these findings indicate that taking a proactive role in crisis management in the aftermath of a CEO transgression can be effective in helping the organisation regain the trust of constituents. Large organisations often deal with these types of issues in the court of public opinion and, consistent with research in the field of public relations, our study indicates that trust can indeed be repaired.”

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