Values: A Business Case.

Values are ubiquitous. Everyone has values – even those who may be said to have ‘no values’ due to disagreeable or unethical behaviour. Our values determine what we focus on, what we pursue in life and how we behave in the process. They shape how we see the world, how we see our challenges and how we identify solutions. Values are at the heart of how homes, organisations, governments and societies function. They are central to how we live our lives.

Yet I’ve been surprised by some of the negative responses I’ve encountered when values-related topics have been on the agenda for discussion in business contexts, whether in the boardroom or the workplace. Eye-rolls and groans are sometimes more likely to be associated with discussions about values than enthusiasm and engagement. Then there are the occasions on which values aren’t discussed at all, despite their centrality to decisions that need to be made. Why might this be the case?

Why So Unserious?

Last year, Andrew Hill, the FT’s Management Editor, concluded that the lack of enthusiasm for a talk he gave on corporate values to a group of “young would-be entrepreneurs” wasn’t due to their lack of care about values – “[they] simply took them for granted.” But although values might be taken for granted, or passed off as ‘common sense’, taking a genuinely values-based approach to business requires consistent attention and effort. Values, whether organisational or personal, exist in hierarchies. And they compete with each other. The effort required for a values-based approach to business, then, may be perceived as too costly or time-consuming.

(A possible reason for a lack of seriousness, even cynicism, about corporate values among staff at the ground level is the jading effect of grandiloquent corporate expressions of goodness and virtue that belie the realities of working at the place on a daily basis. When a company states its values then it had better be committed to doing so authentically, otherwise the lived realities of its staff, customers and other stakeholders will stand as testimony against it.)

A lack of seriousness about values in business circles isn’t new, though. Writing in 1982, Tom Peters and Robert Waterman Jr (co-authors of In Search of Excellence) noted how in their experience “most businessmen are loath to write about, talk about, even take seriously value systems. To the extent that they do consider them at all, they regard them only as vague abstractions.” From their research, however, Peters and Waterman also noted that, “Every excellent company we studied is clear on what it stands for, and takes the process of value shaping seriously. In fact, we wonder whether it is possible to be an excellent company without having the right sorts of values.”

What, then, of those companies that don’t take a values-based approach? Can a business case be made in favour of taking values more seriously?

What’s it Worth?

Having the wrong values, or a value system that isn’t fit for purpose, can hit a company hard and fast. Values-related problems can appear suddenly, as if out of nowhere, and do serious damage in a short space of time. As Warren Buffett put it, “It takes 20 years to build a reputation and five minutes to ruin it.” Buffett’s contrast highlights the concerted effort and consistency required to build and maintain relationships of trust and the relatively small amount of slippage that can destroy them. Values-related problems are sometimes revealed through scandals.

A scandal is a sudden, stark manifestation of a broken or dysfunctional value system. And scandals can ruin the reputations of individuals and organisations alike. With all the ignominy and lurid detail that scandals entail, it can be tempting to focus almost exclusively on the thing itself – the errant behaviour and the damage caused to those involved (victims and perpetrators alike) – without proper consideration of why it happened. When a proper assessment of a scandal is carried out, however, values-related issues are usually at the heart of it. As Antonino Vaccaro, associate professor of business ethics at IESE, put it, “I have done more than 50 criminal cases as an investigator… Every time, the problem is not compliance, it is organisational values. If you have an organisation that is healthy and a bad apple arrives, he or she is recognised, re-educated or expelled.”

Scandals cost shareholders dearly. A scandal isn’t merely a short-term PR problem or momentary hit to the share price; in the age of social media the financial consequences are more longstanding. The Economist recently looked at the financial impact of eight significant corporate crises since 2010. (BP, Petrobras, Volkswagen, Valeant, Wells Fargo, Uber, Equifax, and United Airlines all featured.) Whereas each of these large companies suffered an absolute drop in share price following its crisis (“At the lowest point the median share price was down by 33%,”), most have since managed to recover their absolute losses. The kicker, however, concerns these companies’ relative performance versus industry peers over the same period of time: “On this basis the median firm is worth 30% less today than it would have been had the scandals not happened. For the eight the total forfeited value is a chunky $300bn.” The bosses of the eight companies paid for the scandals, too (in all but one case with their jobs).

Leaders Lead on Values

Uber founder Travis Kalanick offers an informative case study on how individual executives can fall foul of scandals. Despite leading Uber’s meteoric rise, Kalanick’s Uber started to find itself in hot water for a long list of objectionable behaviours and practices (too many to mention here). The final straw came when a blog post written by Susan Fowler, a former Uber engineer, went viral. Fowler’s blog told of her experience of being sexually harassed by her boss on the day she joined his team. (It also told of the company’s subsequent mishandling of her complaint.) For her courage in speaking out, Fowler empowered other women to speak out and was named as the FT’s Person of the Year in 2017. Uber’s brand, on the other hand, was seriously damaged. When the effects of the #DeleteUber hashtag started to kick in, some users who went to delete the Uber app received an email saying that the company was “deeply hurting”. And it was.

Senior executives left the company and investors demanded that Kalanick stand down, delaying around $10bn of investment in the company (which may in turn have delayed its IPO). Enough was enough. Erik Gordon, a business school professor at the University of Michigan, spoke of the danger of Uber suffering from a “Kalanick risk premium” also asserting that, “One of the things that has to happen before they can do an IPO is they have to be able to assure investors that Kalanick has no influence at the company.”

Values were central to the woes of Kalanick’s Uber. Uber had 14 core values under Kalanick, which included “stepping on toes” and the imperative “always be hustlin’”. But as numerous as Uber’s core values were (too numerous, perhaps), none of them spoke about tempering toe-stepping and hustling with respect for others, humility and integrity. It’s little wonder, then, that Kalanick’s Uber became an ugly caricature of win-at-all-costs; its value system simply wasn’t fit for purpose.

A company’s values are also informed by the behaviour of its leaders, which in Kalanick’s case included his reference to Uber as “Boob-er” in a magazine interview in 2014 (owing to how the company helped him to attract women) and his berating of a driver who complained about the company (caught on a dashboard camera and then shared across the internet).

Far from being “vague abstractions” that aren’t worthy of serious consideration by business people, then, values have a significant bearing on both the hardest metrics of business performance and the fate of business leaders.

“Hard is soft. Soft is hard.” – Tom Peters

There’s No Undo Button

When a company is hit by a scandal, the power in deciding when that scandal is over ultimately lies with its customers. Having landed in hot water following recent scandals involving fake news and data misuse, Facebook launched an extensive advertising campaign to tell its users through multiple mediums that, among other things, “Fake news is not our friend.” Facebook reminded users through TV ads why they joined in the first place: friendship. Earlier this year, Facebook took out full page adverts in the New York Times, Wall Street Journal, Washington Post and six UK newspapers which included a letter from Mark Zuckerberg that opened with the following line, “We have a responsibility to protect your information. If we can’t, we don’t deserve it.” This is as much an effort to restore trust in the company as it is an effort to clarify that fake news and data misuse are antithetical to Facebook’s values.

American bank Wells Fargo has also run apology ads. Scandal first hit Wells in September 2016 when its sales staff were caught setting up unwanted accounts for millions of its customers in order to hit aggressive sales targets. As the FT’s Ben McLannahan put it, Wells’ message in its apology ads was essentially, “yes, the bank let down its customers in all sorts of ways. But, the ads implied, we’re different now. You can trust us.” Unfortunately for Wells, however, several other consumer-harming lapses have come to light since the fake account scandal hit, provoking the following headline in an opinion piece on Bloomberg.com: “Wells Fargo Has Shown Us Its Contemptible Values”; with the subheading: “What should we believe? The years of scandalous behavior or the trite PR apologies?”

Ian Byrne, an analyst who works for a company that mines social media posts for indications of consumer sentiment, is doubtful about the ads' effectiveness. He doesn’t believe that consumers are buying into these companies’ claims of repentance: “These companies are all running ads . . . saying how much they’ve changed. But consumers are saying, ‘OK, we don’t really believe you’”.

Back to Mr Buffett’s point: building trust takes a significant amount time, especially versus the time required to destroy it. Once it has been destroyed, or even damaged, it takes longer still to restore it. There’s no undo button.

“What you do speaks so loudly that I cannot hear what you say.” – Ralph Waldo Emerson

A Tax on Productivity

Of course, a broken or dysfunctional values system doesn’t necessarily result in a high profile scandal. Less spectacularly, a dysfunctional values system can instead be the cause of something akin to an ongoing tax on productivity. Think of the impact that a boss who believes that “might is right” can have on a business. If he or she values being in control, perhaps even to the point of dominating, then this will likely impinge on staff’s personal identities and adherence to personal values. When this is the case it’s inevitable that staff will find workarounds to negate the boss’s impact on them (individually and collectively).

I once knew a business owner who was so determined to be in control that his entire leadership team worked around him, planning and scheming how they were going to negate his controlling, often capricious, behaviour. The scheming and tactical workarounds were such an open secret that everybody knew about them except for the owner himself! How much control did he really have of his business? And in view of how much time was spent on all the meetings before meetings, tactical telephone calls and avoidance tactics, how much did these workarounds cost his business? How many opportunities did the business miss or fail to take full advantage of due to the distraction of workarounds? The business’s productivity was taxed daily due to its dysfunctional values system.

So-called expediency can also nobble a business’s value system. In his book Moral Mazes: The World of Corporate Managers, Robert Jackall offers the following definition of expediency in corporate environments: “the swift, expeditious accomplishment of what “has to be done,” that is, achieving goals, meeting exigencies defined as necessary and desirable.” When the achievement of financial targets is defined as expedient, other values may be kicked into the long grass. In those scenarios, it’s easy for a win-at-all-costs mindset to find a home in the business’s culture. And when that happens, and the business faces stiff challenges and sweeping change (which it will), it’s also easy for its leaders to be hasty in threatening staff cuts and slow to appropriately reward staff performance, damaging trust and lowering engagement in the process. This, of course, is to the detriment of the business’s productivity and therefore profitability.

Prevention is Better than Cure

According to the views of 1,200 UK workers (as indicated in a recent poll carried out by the Institute of Leadership & Management), “50% of leaders allow their mood to dictate the climate of the workplace”. If this is true then it is a stark indication that many businesses don’t take values seriously. Mood-based leadership is antithetical to values-based leadership. Working environments that are unduly influenced by the moods of those at the top are simply not good enough for businesses that want to perform to consistently high standards.

Ultimately, dysfunctional values systems cost companies, their leadership and their staff alike with respect to the hardest metrics. Whether through the ignominy of scandal or the ongoing tax that a toxic culture imposes on productivity, a cost will be borne. And those costs are not easily recovered. Thankfully, however, it is possible (although difficult) for companies and their leaders to address and rectify dysfunctional values systems.

At a conference this summer, I met a lady who works at Uber’s San Francisco headquarters. She spoke of the positive aspect of Uber’s sexual harassment scandal coming to light, illustrating that its values were no longer fit for purpose. The company needed to be about more than just transporting people; its ‘growth at all costs’ mentality was no longer fit for purpose. The company, collectively, needed to take real ownership of its values. And the scandal highlighted the urgency of this necessity and stimulated serious internal discussion and action. Positive changes are being made at Uber under its new CEO, Dara Khosrowshahi. One of Uber’s new cultural norms under Mr Khosrowshahi’s leadership is, “We do the right thing. Period.” This might have been effective in tempering Travis Kalanick’s value of “hustlin’”, but it will take time for Uber to fully reverse the effects of its foibles from the Kalanick era. It has at least begun the journey.

But even if repentance and reparation are possible following a scandal, wouldn’t it be much simpler, and better for the bottomline, to take values more seriously in the first place?