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Avoid Half-Truths and Misperceptions

If you examine failed CEOs' histories, you'll nearly always find a major contributing factor: Leaders acted without sufficient or complete understanding of key information.

This doesn't seem to make sense-at first. CEOs have the position power, authority, influence, and all manner of tools to get the information they need to make informed decisions. A difficult-to-hear reality is that vast numbers of CEOs operate with partial, incomplete, biased, or heavily shaded facts and representations of the situation they seek to address. CEO position power comes with the expectation these leaders can deliver results, but most lack the complete, unbiased, fully integrated information required to make critical decisions.

A colleague who was in the Navy told me a quick story that illustrates how savvy leaders recognize that they may not be getting all the facts. A senior admiral related that when he came onto the bridge of a major aircraft carrier, he knew two things with absolute certainty: He was never going to get handed a cold cup of coffee, and he was never going to hear the whole truth. Useful advice for all CEOs.

The organization's natural hierarchy, human nature/psychology, and the stresses of managerial decision-making create barriers to truth telling. In most managerial hierarchies, employees wish to please their leaders and fear that the full and complete truth, not appropriately framed and balanced, is unlikely to further their careers. Human behavior drives people to focus on the positive rather than the negative; most want to share good news, not the challenging news. All managerial decision-making requires trade-offs, and it is much easier to share options rather than address the underlying, often conflicting, positive as well as negative analyses, which are needed to ensure balanced decision-making.

Political, military, and social history is filled with examples of leaders receiving contrasting and biased perspectives from those who report to them, which often leads to failure. The situation in corporations is no different.

WHEN GOOD NEWS IS BAD ADVICE

I experienced this challenge of truth telling early on in my career. One of the most vivid examples occurred when I was serving General Motors in the 1980s. At that time Chrysler had launched a wildly successful minivan which had stolen share from General Motors and created a whole new segment in the passenger auto market. GM management knew they had to respond. GM took their commercial van and made a number of adjustments to make it into a passenger van and used it as a stop gap as they rushed to design a competitive minivan. GM designers and engineers developed what was to become known as the "dust buster" minivan, so named because of its distinctive front end, which had a massive windshield that created a dust buster-like angled/pointed front end to the vehicle.

The engineers were anxious to get consumer reactions to this new and exciting design and so took the concept car to a "car clinic" where several hundred prospective minivan owners were allowed to look at this new concept vehicle and compare it to other offerings in the market. The results were deeply disappointing. Consumer reactions were brutal. As one participant, a high school history teacher, memorably said during the focus group that followed the viewing, "Looking out at the sea of glass from the driver's seat suggests to me of how Vasco Balboa must've felt as he looked out over the Pacific Ocean." Another observed that "If they placed their sunglasses on top of the dash and went down a hill they would have to wait until they went uphill for the glasses to be returned to them." It was a disastrous outcome.

Yet, on the plane ride home there was a discussion among the engineers as to how best represent the data to senior management. What was surprising was the degree to which the data was massaged, positioned, summarized to make it sound far less of the disappointment than it was. In the subsequent debrief with the key senior executives of North America I was surprised and disappointed at the lack of candor as to the results. (When asked my summary, I was far more negative. My advice was dismissed because of my youth and lack of design expertise.) The design was adopted and was a huge disappointment in the market. (Even today a Google search under dust buster minivan will showcase this product.)

This challenge is not confined to the operational details. It can pertain to larger strategic issues as well. For instance, I was contacted by the general counsel of a West Coast professional service firm that was engaged in merger talks with a Midwest competitor. I was told the talks were well advanced and the deal only required that "a few details be ironed out"; they were seeking consultative counsel on how to consummate and enact the upcoming merger. The details to be finalized included the decision to locate the headquarters on the West Coast and the CEO/chairman split-the West Coast CEO would become the CEO of the combined firm, and the Midwest CEO would become chairman for a short period. Finally, the West Coast firm's name would come first on the newly combined firm name. I was assured that these details had been communicated and agreed to by the Midwest CEO and that the merger conversations were ready to accelerate.

When I spoke with the general counsel for the Midwest company, he too told me that it was "almost a done deal" and that all the communications of the details had been shared with his CEO. He then went on to add that his company's expectation was that the merged company would be located in the Midwest, their CEO would lead the new organization, and that their name would be the primary one. I wasn't shocked to discover this miscommunication. I sensed neither general counsel wanted to tell their CEO the truth. They knew that these details could precipitate explosive disagreements, sinking the deal they both had sought.

I booked a dinner reservation for the two CEOs and said to them both, "Here are three questions you both have to answer before proceeding on a deal plan:

• Who is going to be the CEO?
• Where will the company be headquartered?
• What will be the name of the firm?"

They had dinner and were shocked to discover that the deal that seemed imminent was nothing of the kind. They separately had their general counsels call me to say, "They can't agree on the basics, so no deal."

This vignette illustrates that a truth that should have been obvious-the irreconcilable conflicts created by a merged company-were hidden from CEOs. The general counsels weren't being disingenuous; they thought that a merger would be good for both organizations and wanted to make it happen. In their minds, they were being optimistic that the "details" could be worked out and that both companies would find a way to negotiate a deal that addressed these and other obvious conflicts. The CEOs, though, were operating on the assumption that their general counsels were being completely transparent about the agreement on who was going to be the CEO, the headquarters location, and the firm name preference. Instead, the general counsels were soft-pedaling the conflicts still to be negotiated in order keep the talks moving forward.

In this instance, no harm was done because of the failed merger, but if word had leaked to the markets, clients, and media that the companies were in talks, the odds are such that they both would have been in play and become the target of other companies seeking acquisitions or mergers.

IT TAKES TWO TO TANGO: CEO ARE PART OF THE DANCE AROUND THE TRUTH

This type of information deficiency is a well-known phenomenon within hierarchy-based organizations. Surprisingly, however, many CEOs are in denial about this reality. Many CEOs are unaware of or in denial about the significant barriers to the free flow of information between themselves and their organizations. Many new leaders, after the fact, learn what more seasoned CEOs do come to know-many interactions with their staffs rarely yield the "whole unvarnished truth." Sadly (even after interventions), the most seasoned and savvy leaders come to know that no amount of remedial action will result in their getting all the truth, all the time.

In preparation for this book, I have interviewed many CEOs on this (and other topics). Almost inevitably, this issue of truth telling grabs the attention of the leaders being interviewed. Almost all express the following sentiment: "This is an incredibly important point and something you must say to other aspiring and soon-to-be CEOs!" They then go on to add, "But of course my situation was so different: I always got the 'real story.'" In my experience, this is often not the case. CEOs are in denial even as they're recognizing the validity of this hard truth.

My fear is that you will read this and say to yourself, "Solid advice, and I hope other people listen, but here at ABC company, things are different. I understand how that could happen, but I am a different sort of leader, and this won't happen to me." Please beware!

Whether you're a long-tenured leader or new to the role, you are likely to believe you won't fall victim to what you've observed in others. It also...