Translator: Leonardo Silva
Reviewer: Mile Živković Thank you, Michael, and thank all of you. I'm so excited to be here. This is the first time that I will make
a public presentation about the research that I've been doing
for the last six years. Before I get into my subject
of the talk itself, I want to ask each of you here
to stop and think for a minute about someone that you might know
in a leadership position, maybe in your own company, and ask yourself: do they fit
any of these descriptors? Are they maybe manipulative? (Laughter) Deceitful? Arrogant? Easily pass blame onto others? And, in spite of all of that, they still are admired by people
in the senior management? I thought you might. Wherever I go, people instantly
recognize that description in somebody that they know
that's in a leadership position. Do any of these faces look familiar? Bernie. And Martha. And another Bernie. And the latest, who was just
convicted recently of insider trading, Rajat Gupta. Now, these four people
all have one thing in common, and that is they've all been convicted
of white-collar crimes. And, according to news reports, they have ripped off a lot of people
financially and emotionally, and I know, in some cases, that people even committed suicide
because of their fraudulent behavior. In 2005, I was the co-author of a book
called "Moral Intelligence," and my co-author and I
simply made the claim in that book that high-character leaders will get better sustained long-term business
results than low-character leaders. Now, we kind of thought it was obvious, but, believe it or not,
we got a bunch of pushback, and the pushback was this, "Don't tell me that,
you're a psychologist, and all that soft stuff is nice to have, but it's not really essential
as long as you stay legal," that what really creates value
is the business model, and that this is just
sort of frosting on the cake. And I thought, "Well,
you know, fair enough. I don't have the data." So, we set out to get the data,
and, over the past six years, we've enrolled 100 CEOs
in a national research study aimed at understanding
and researching the connection between character and business results. We've enrolled CEOs
in Fortune 100 companies, Fortune 500 companies, a lot of privately held firms, and we actually have ten CEOs
of non-profits in our study. Now, we didn't set out
to study psychopathic leaders, and frankly we were mostly interested
in the other end of the continuum. We wanted to understand
high-character leaders, the impact that they have, but we encountered
a few of these bad actors as well. But I'm here today
because I want to share with you two results from our research
that I am most excited about, and the first is
that high-character leaders do in fact deliver
better business results. There is a significant
return on character. And the second result
that we discovered from our research you might find a little surprising is that character is something
that can be taught. So, I want to talk
about these two outcomes. The first one: return on character.
What do I mean by that? Well, first of all,
I need to define character. Character is something
that other people notice. You can infer what
a leader's character is by how they treat other people
in the workplace. And we concluded that there are
four moral principles that, when leaders follow them, they will
be seen as people of deep character, and there are two of the head
and two of heart. When a CEO or a leader of any kind
demonstrates integrity, it tends to generate trust
among the workforce. And when they demonstrate responsibility,
it tends to be inspiring to the workforce. When they see that a leader or a CEO
demonstrates forgiveness, that's what generates innovation
in the workforce. And finally, when they show compassion, that's what drives up
workforce engagement and talent retention. So, that's what I mean by character. When I say "return on character,"
I mean something else. I'm talking there
about hard business metrics. And so, we chose to study two:
the return on assets and the level of workforce engagement. But, before we could really
proceed with our research, we needed to come up with a way of creating a single
character score for a CEO. So, the way that we did that is that we asked random samples
of employees simply to rate how well their CEO demonstrated
these four principles of integrity, compassion,
responsibility and forgiveness. And then, we took all of those ratings
and put them into one average score, and that became the CEO's character score, which then allowed us to create
this character curve. (Laughter) Each dot on this character curve
represents one of the CEOs in our study. And we ended up
with complete data sets on 79, and we have almost
8,000 employee observations, which gives them their character score. So, this is a lot of data.
We have a lot of confidence in it. Now, first thing you'll notice is there are no real
psychopaths in the study. Well, how many psychopaths
do you think line up at the door for a research study on integrity
in the workplace? They just don't show up. But we did get a few that - (Laughter) We did get a few that could be called
"almost psychopaths," and the only real difference between
an almost psychopath and a real psychopath is that they're more functional. The almost psychopaths are people that often have outstanding professional
skills in one way or another, but they still are the kind of people that match that profile
I mentioned at the beginning: deceitful, manipulative, don't care about other people,
have no conscience, have no remorse on the impact
that they have on other people. We encountered one in our study.
His name was "Tom." That's not his real name,
but the name I'll give him. And the thing that most
impressed me about Tom when I walked into his office was that there was literally
no more room on the wall for a picture of Tom
and some important person. It was all filled. And Tom spent the entire interview
trying to convince me what a wonderful company he had,
and what a wonderful CEO he was, and how everything was going
just wonderfully well. Well, when we got the data
from his employees, it told a different story. In fact, the employees said
that Tom lied to them about half the time. They said that it was not safe
to tell the truth to senior management. And, furthermore, the employees said that all of senior management
would alter business outcomes, they thought, if it was
to their advantage to do so. Well, then, that crisis in 2008
came for that particular company, and it exposed their weaknesses, and, within a few weeks
after that crisis hit, Tom and his leadership team were fired and the company was broken up into pieces
and sold to its competitors. That was one of my almost
psychopaths in this study. Going up the character curve, you'll notice next the
low-character underperformers and the average CEOs,
and, for sake of brevity, today I've put them into one category. These are not bad people. They're so much as underdeveloped people. It's as if their level
of character development was sort of arrested
at about the 9th grade. They are people who are kind of fearful, and that's their biggest agenda item,
to achieve security, and that translates into pursuit of money. So, these are CEOs
that are all about themselves. Their biggest objective is to make
as much money as they can. And, of course, their employees
see through this as well. Their employees say that these CEOs
also tell the truth about half of the time and that they care for people as people
even less than half the time. But that brings me to the top
of the character curve and this amazing group of men and women that we've chosen to call
the "virtuoso CEOs." These are men and women
I really came to admire and love in the course of this study. When I read the open-ended comments
that their employees said about them, my first responses were, "I wish I could
have found a CEO like that to work for. I would have gone to work
for them in a heartbeat." Now, one of the dots in that circle
is a well-known CEO right here in Seattle. It's a name that I'm sure
you will all instantly recognize, and that is the recently retired
CEO of Costco, Jim Sinegal. When we saw the ratings that Jim got from
the random sample of Costco employees, they were some of the highest we had seen on integrity, responsibility,
forgiveness, and compassion. And, when I saw those ratings, I thought, "Huh, I go to Costco
warehouses all the time. I think I'll see if I can find
a disgruntled Costco employee." So, I have a new hobby, and that's trying to find a disgruntled
Costco employee in a warehouse. (Laughter) And so far, no luck. I kind of sidle up to them and I say, "Tell me, what's it like
to work at Costco?" And I always get the same response,
"Oh, I love it here." And, after we talk about
their wonderful pay and benefits, I say, "Well, anything else?" "Oh, yes, it's the way I'm treated.
It's my manager, my boss. She always stands up for me.
I know I can depend on her." So, obviously, Jim honoring these four
moral principles we talked about earlier has made that a part of the culture. He has insisted that all the managers,
and leaders, the entire company, behaved in that way, and it shows. Now, we asked ourselves, "If all we knew
about a CEO was their character score, would that allow us in any way to predict what business outcomes
or business results would be?" And we thought an interesting way
of looking at that might be to divide this curve
in half, at the median, and let's look
at the hard business metrics for CEOs above the median on character versus those below
the median on character. And we managed to get complete
financial statements for two years on 40% of our sample, and here's what we discovered. It's that the CEOs above the median create almost three times the return
on assets as those below the median. And the only difference
between these is their character score. Now, we had hoped that we would find
a difference that was significant, but I didn't expect that it would be
three times as much. And then, even more compelling is that - Let's look at the results
of the virtuoso CEOs at top circle compared to the ones at the very bottom. The virtuoso CEOs contribute an average
of 8,4% return on assets, and those at the bottom of the curve
lose money for investors. This was pretty compelling evidence. So, we looked next at levels
of workforce engagement, and they tracked exactly the same
with these figures on return on assets. So, high-character CEOs
create these wonderful, high-energy, positive work environments
where people love to come to work. The low-character CEOs create these
painful work environments for people. They don't even want to be there
and try to leave as soon as they can. So, we concluded from this hard data
on two metrics business results that character does matter, that we were right
when we wrote that first book. So, I'd like to talk now about the second
outcome of our research, and that is that character can be taught,
because people generally don't think that. And, as I said before, a measure of your character
is how you treat other people. And, you know, the most clear
indication of that is when there's no apparent gain for you. So, think a minute: how do you treat
the person that cleans your office? Or the checkout clerk
at the grocery store? That reveals your character. The other thing that we discovered
that was really fascinating for me is it dawned on us
about halfway through this study that character is mostly
a matter of habit. It's not a kind of a thing
you do a lot of thinking about. These are character habits that you've
acquired through life experiences, that you don't stop and think,
"Now, how should I treat the person?" You just automatically treat them well. If you have a well-ingrained
integrity habit, your first response will be to tell
the truth and to keep your promises. If you have a well-ingrained
responsibility habit, your first response will be
to own up to your own mistakes and be concerned for the common good. It's like muscle memory. So, once we understood that, we thought, "Well, habits can be changed.
People do it all the time." So, developing character
is about strengthening moral habits more than anything else. It can be a little more
complicated than that, I don't have time to go into it, but it's
mostly by strengthening moral habits. So, that we thought was good news. So, we wondered,
back to our virtuoso CEOs, "Do they have a particular set
of moral habits that are different
from those at the bottom? And, even more, do they all have
a set of habits in common?" And we found, in fact, that they do, that there are three habits that the high-character, virtuoso CEOs
all seem to have in common. And the first is what I call
the empathy habit, and the empathy habit is kind
of what is sounds like, it's immediately being able to sense
what other people are feeling. Now, virtuoso CEOs,
this is a core competency for them. You were born with
a perfect skill in doing this, but, growing up in our culture, it's
probably often been trained out of you. You've probably been also told
in our culture that business is business, and, "Don't get personally involved
in business decisions", right? Well, wrong, if you're a virtuoso CEO. They do get involved
in personal relationship to the decisions they are making. The first thing they think about when
they make a difficult business decision is, "How is this going to impact
the people that are involved?" The second habit
that the virtuoso CEOs have is what I call the other first habit. When they're making
a significant business decision, the first thing they think about is,
"How is this going to impact other people? And what's best for other people?
What's best for the business?" And it's never about "me,"
and "my salary," or "my status." Now, the paradox of that, of course, is that the high-character CEOs
enjoy a lot of career success and make a lot of money. So, that's kind of interesting. The third habit that they have
is what I call the "I screwed up" habit, and that's admitting
to their own mistakes. One of the CEOs in the study said
that, early in his career, when he was still a young man in his 30s, he was already reporting to the CEO, and one day the CEO called him
into his office and said, say, "We have a crisis on our hands. I made a bad decision.
I really screwed up." And he said he almost fell off his chair. He'd never ever heard a senior leader
ever say something like that before, admitting to his own mistakes. But he said, "It had a wonderful impact
on me because it freed me up." He said, "From that point on,
I knew I could do that as well." So, more than anything else, when a leader
admits to having made a mistake, it communicates trust and respect for the
people in the room that you're talking to. It says to them, "I'm just like you. We're all in the same playing field,
we're all in this together, we're all coequal as people." It's very energizing to people
when a leader does that. So, I have a three-point map for you. If you want to try to increase
the strength of your moral character, practice empathizing,
move from "me first" to "others first," and start owning up to your own mistakes. Now, I know this is easier said than done, but you can change habits,
it's not impossible to do by any means. And I would suggest that perhaps you take a page out of the virtuosos'
playbook, and do it the way they did it. They have a particular strategy for acquiring and strengthening
their moral habits, and that is that every one of them had
one or more important mentors in their career. They often had multiple
mentors in their career. They started early at getting mentored, sometimes before they got
even into their career. And I'm sad to say that the CEOs
at the bottom of the character curve had hardly any mentors, or none. So, my advice to you is,
do it like the virtuoso CEOs do. If you want to strengthen
your moral character, find yourself a good mentor,
but remember it should be somebody that's higher up on the character
curve than you are. You would not think
about trying to climb Mount Rainier with a guy who had not
climbed it before, right? So, that would be my advice to you. In closing, I have three dreams, and one is that, in the near future, character development will be
part of the core curricula for next-generation leaders in companies
in leadership development programs. The second dream I have is that executive
search firms and recruiters will find a set of tools
that can accurately assess for character, and that they'll use it to screen out the superficially warm, friendly,
manipulative psychopaths, so that they don't even
get into leadership positions, because, when they do, they destroy
so much value and cause so much pain. And the third that I dream about is what
Michael mentioned at the beginning, that business schools will embrace
character development as the core of their curricula, and maybe put all that other stuff
online - well, just kidding - (Laughter) but that it'll be the core of the
curricula, instead of how it is now. It's mostly ignored or it's bolted on
as an ethics course. So, that's my dream for the future, and, in closing, I just want to point out that high-character CEOs
do produce better financial results, they do enjoy higher levels
of workforce engagement, and you can increase the strength of your
character habits, it's not too late. That's what star performers do. So, return on character is significant.
The data is in. Thank you. (Applause)
