By Bill George for the Star Tribune, published June 23, 2012.
The tragic fall of Rajat Gupta, a man who helped so many organizations, is a vivid reminder of the frailties of human character. Convicted of insider trading, Gupta, who once headed global consulting firm McKinsey & Co., joins a lineup of failed leaders that includes ex-HP CEO Mark Hurd, investor Bernie Madoff, Berkshire's David Sokol, ex-Best Buy CEO Brian Dunn, and Chesapeake Energy's Aubrey McClendon.
Will the parade of leaders who fail to fulfill their leadership responsibilities ever end?
CEOs are public figures. Their actions are constantly being scrutinized inside and outside their organizations. For this reason their actions must be beyond reproach. The greatest failure for any leader is putting self-interest ahead of the organization's interests, which is precisely what these leaders did.
A year ago, I wrote an article titled "Why Leaders Lose Their Way" that analyzed ways in which high-profile leaders get seduced. What I learned in researching that article is that leaders who focus on external gratification -- money, fame and power -- instead of inner satisfaction, tend to abandon their roots and lose their grounding. That makes them vulnerable to small unethical violations that gradually build into unfathomable actions.
In choosing leaders, people place their trust in them, believing they will always do their best to build the organization and ensure their organizations can navigate difficult times. Leaders who put their self-interests ahead of their organizations violate this most basic responsibility of leadership.
Why? It's not because they don't understand their responsibilities. Rather, too much credit is given to leaders, who are applauded when things go well as if they were one-person bands. Eventually, they start believing their press clippings.
As Novartis Chairman Daniel Vasella told Fortune magazine: "The idea of being a successful manager is an intoxicating one. It is a pattern of celebration leading to belief, leading to distortion. When you achieve good results, you are typically celebrated, and you begin to believe that the figure at the center of all that champagne-toasting is yourself."
At this juncture, failed leaders start to believe they are above rules that govern others, and even above the law. Fueled by hubris, they violate the most basic principles, rationalizing that they won't get caught. When confronted, they try to talk their way out of it, rather than admitting their mistakes. This only compounds their problems by creating a trail of distortions that eventually brings them down.
It's easy to feel angry toward these leaders, but that misses the larger point. Violating the inherent trust their organizations place in them doesn't just harm the leader, it hurts everyone associated with the organization as well as its reputation. Their actions cause employees, investors and customers to lose confidence in their organizations. It can even put their organizations in play. That's what happened at Chesapeake Energy as Carl Icahn gained four board seats in a proxy contest. Best Buy could be next, due to Brian Dunn's misconduct and former Chairman Richard Schulze's failure to address it.
Gupta's actions tarnished the reputations of many organizations, among them McKinsey, Goldman Sachs, and Procter & Gamble. In the case of HP's Hurd, his termination left the company without a CEO or a viable strategy, leading to a decline in HP's market valuation of $60 billion, or 55 percent.
Each of us is fallible. To minimize the likelihood of leaders losing their way, it is essential to screen them carefully for their values and character. Leaders should be recognized for who they are, not just what they are, as character takes precedence over their résumés. Authentic leadership development opportunities enable them to integrate their life stories and crucibles into their thinking and understand their weaknesses, shortcomings and failures as well as their strengths. Ultimately, great leaders must be comfortable with their vulnerabilities. This requires years of careful preparation to ensure they are ready for the responsibilities of leadership.
Perhaps because of these well-publicized leadership failures, there has been a marked shift in recent years from hiring external candidates to the promotion of insiders whose character and values have been carefully tested. Recently-appointed CEOs seem to have a deep understanding of their personal responsibilities and the importance of staying grounded as leaders and human beings.
Bill George is professor of management practice at Harvard Business School, author of True North, and former chair and CEO of Medtronic, Inc.