The first fundamental of a Winning Business is to “Do the Right Thing.” The first fundamental of doing the right thing is to be ethical. That is, to have integrity and honesty.

I leave to a later blog my discussion of ethics and integrity. Today, I want to focus on honesty.

Honesty can go by a number of different names: truth, candor, face reality… Despite the many names, honesty remains uncommon in the business world.

Jack Welch, the former CEO of GE, writes that “lack of candor is the biggest dirty little secret in business.”

In business today…

1. Companies are not honest and candid about the performance of the company
   
2. Managers are not candid in their performance evaluations
   
3. Leaders and employees are often not honest with themselves
   

This lack of honesty is so pervasive in business today, that we just expect a lack of candor or honesty and are surprised when someone is blatantly honest.

Consider this fictional excerpt from a quarterly earnings statement that you and I will never read:

“Today, Acme Corporation announces a 25% increase in earnings year over year. This increase exceeds the analyst projections and entitles me to the full complement of my bonus. But, it is not a great thing for the company and let me tell you why. In short, despite the increase, we did not have a good quarter.

1. The economy was just stronger than anyone had expected. So, demand was higher and we rode that to improved sales despite continuing to lose market share.
   
2. The weather was perfect. We had screwed up and over-stocked on swimwear for the summer, but warmer than expected weather throughout September and October on the West Coast and in the South helped us move those items. Moreover, on the East Coast, it was much colder than expected so we got a great head start on selling out our Winter line.
   
3. The charge that we took last year when we were really sucking wind was, of course, much too high so we were able to write some of that back to profit.
   
4. Finally, as I am 65 and retiring soon, we have continued our aggressive program of eating our seed corn and being focused on the short term. Product development and marketing expenses remain below the appropriate level to grow the business and our market share continues its steady decline.
   

In short, we made our numbers. But, we really are not as good as you give us credit for.”

So, how do we as leaders create a more honest and more candid culture in our organizations?

1. Lead by Example
   
2. Publicize Failures and the Lessons Learned
   
3. Look Gift Horses in the Mouth
   

Lead By Example

By now, many of you are aware that I value the example of the leader as absolutely crucial in how effectively he or she can do his or her job. In the case of honesty and candor, the leader needs to set the example once again.

1. Admit mistakes
   
2. Refuse to speak and accept BS
   
3. Be candid in performance reviews
   

Admit Mistakes

My favorite episode of the 1970’s sitcom, Happy Days, involves the Fonz and his inability to admit that he made a mistake. Throughout the episode, Fonzie tries to say that he was wrong. All that comes out is: “I was wrrrr. I was wrrrr.”

As leaders, many of us are like the Fonz. We just cannot admit that we made a mistake, even when it is obvious to everyone within the organization that we have made a mistake. We make excuses. We pass the buck. We refuse to express regret. In short, we exhibit all the behaviors that limit us as leaders and weaken our standing among our employees. [Note: see my blog post on What Got You Here Won’t Get You There by Marshall Goldsmith for a full list of these weaknesses in leadership behavior.]

Refuse to Speak and Accept BS

Noble Prize Winning Physicist Richard Feynman had it right when he said: “The first principle is that you must not fool yourself, and you are the easiest person to fool.”

In short, speak the truth as best you know it or say nothing at all. All of us as people, leaders, and employees have very astute BS detectors. We just are not fooling anyone by speaking or letting someone get away with speaking BS. The more insidious result from speaking and accepting BS is that we may lose touch with reality.

You will often see this happen in failing companies where the leaders and employees believe sincerely that they are performing well, even heroically. They have accepted the BS from their leaders so long that they do not know what is up and what is down. To change this mindset will then require a cold bath of “Face Reality.” Avoid the shivering and start requiring the truth, painful and ugly as it can be.

Be Candid in Performance Reviews

When I have acquired or taken over other operations, I often begin by reading everyone’s performance reviews. As such, I am whisked back to Lake Wobegon, Minnesota. Lake Wobegon is the fictional town of radio personality Garrison Keillor where “all the women are strong, all the men are good looking, and all the children are above average.” It is surprising how organizations can fail while all employees are receiving above expectations and superior ratings in their performance reviews.

This is something to avoid. So begin to be honest in your performance reviews. Knowing someone’s weaknesses is vital as their manager. It may mean that they need to work hard to improve on the weaknesses. It may mean that they need some help and a re-definition of their job responsibilities to focus on their strengths while someone else covers for their weaknesses. It may mean that they are a wrong fit for the job. But, it definitely means that the weaknesses need to be addressed and spoken about.

Publicize Failures and the Lessons Learned

If you have lead by example in being honest, then publicizing failures in your company will come naturally. Moreover, developing lessons learned from these failures, even if only a one page, five bullet point list of lessons learned is invaluable for organizational learning.

Leading companies conduct post-mortems on all their major projects, initiatives, and acquisitions, both the successes and the failures. These post-mortems are then disseminated and become a source of learning and continuous improvement.

1. What went well?
   
2. What went wrong?
   
   1. What could we have done better to detect earlier what went wrong?
      
   2. What could we have done better to correct what went wrong?
      

The answers do not need to be very long; but they will be productive the next time you try to do something similar.

Look Gift Horses in the Mouth

As my fictional quarterly earnings statements attests, it is the rare company that analyzes what goes right and why. For most companies and leaders [I have been guilty of this], the common response is: “You have made your numbers. Great job.” But, a deeper look is often needed to avoid getting burned.

1. John made his numbers yet again. But, did he play with the numbers to get there or stuff the inventory channel or ???
   
2. Sales are up. But, are you losing market share?
   
3. Profits are up. But, are you continuing to invest in new product and market development?
   

Focus on the good parts of the results as well as the bad parts.

Summary

Being truly honest in an organization creates a stronger, more realistic company that continues to do the right thing, retain the best employees, and respond to and excel in changing market conditions.

In short, honesty is an essential ingredient of a “winning business.”

Until Next Time.