Why we lie and what it costs

If you’re in any sort of large organisation today you have to be ready to answer questions from journalists, analysts, activists and shareholders based on ethics and culture.

18 October 2019

Of course, after the banking royal commission the usual suspects argued that companies should appoint chief ethics officers and chief culture officers. In reality, such appointments would cause the same sort of silo problems all organisations face. Lying is an ethical issue, for example, but it is also an important part of corporate culture. Hmm. Which manager would take the lead there?

Here’s a real-life example. Three years ago, the UK operations of a major US multinational invested hundreds of millions of pounds in a new supply logistics system. Within weeks it was clear to everyone that it had severe problems and that productivity was worse than before. The key message from top management? “Don’t tell Chicago.” The system remains, productivity is lower, customers complain but at least Chicago still doesn’t know.

New research from Harvard Business School’s Leslie John, Hayley Blunden and Heidi Liu points out the wisdom of not telling your boss the bad news. Their study confirms that “when receiving bad news, we shoot the messenger”. Professor John says that “our findings imply a kind of triple whammy for those delivering and receiving bad news”. First, the bad news messenger is always seen as unlikeable. The boss must grapple with a “new and undesired state of the world”. And because people don’t like accepting advice from those they dislike, the boss won’t see the messenger as a resource who can help solve the problem.

Ten years ago, a survey done for Microsoft in the UK found that three quarters of workers felt they were forced to lie at work, with more than half owning up to what Microsoft euphemistically terms “blagging”. The research found that one in five employees would lie to their boss or their colleagues, but only one in 10 to their subordinates. “This further increases the likelihood that those people at the top of the chain will make serious business decisions built on a precarious tower of flawed logic and spun answers,” former Microsoft boss Mike Pryke-Smith said.

As US consultant and author Ron Carucci writes in the Harvard Business Review: “When there is no effective process to gather decision makers into honest conversations about tough issues, truth is forced underground. We found that when effective governance is missing, organisations are 3.03 times more likely to have people withhold or distort information.”

So, there’s not that far to go when looking for the real reasons for the breakdown in trust between large companies and the real world. If an organisation can’t tell itself the truth, what hope does it have of being straight with its customers and shareholders?

The other truth is that often the longer a leader has been in place the more hubris takes hold. Telling him or her what a genius they are is a better predictor of promotion than bringing up anything that could look like failure.

Carucci also talks about silos: “Silos aren’t just annoying to work across; they’re an impediment to honesty. When cross-functional rivalry or unhealthy conflict is left unaddressed, an organisation is 5.82 times more likely to have people withhold or distort truthful information. Fragmentation, especially across divisional lines, creates duelling truths.”

Often all these issues are whitewashed by using engagement and satisfaction studies. We regularly find employees believe HR tracks these surveys and looks for troublemakers. When a new CEO takes over it makes sense for him or her to recommend running some independent focus groups to find out what his or her employees really think.

Does it matter if companies lie?

The 2018 Accenture Strategy Competitive Agility Index scored more than 7000 companies across interdependent dimensions of competitiveness. The study revealed that 54 per cent of the companies examined experienced a material drop in trust at some point during the past two and half years.

“When we compared companies that experienced a trust drop to those that did not, we saw a trend. Those that had a drop in trust saw their Competitive Agility Index scores decrease more than those that did not. While trust accounts for a fraction of a company’s total score, it disproportionately impacts revenue and EBITDA,” the authors say. “If we define ‘material’ as anything that could change the perceived value of a company, trust is now a bona fide poster child for materiality.”

This article by John Connolly appeared in the October 2019 issue of The Deal.