Thursday, May 2, 2013

Penn State pedophilia scandal: Lessons for CEOs

CEOs may argue that cover-ups protect their companies’ interests. An HBS Working Knowledge column on why these arguments may be totally invalid

The most damaging portion of former FBI Director Louis Freeh’s report on the Pennsylvania State pedophilia scandal is his conclusion that four senior university officials concealed football coach Jerry Sandusky’s child abuse from 1998 to 2011, even from its board of trustees, because they wanted “to avoid the consequences of bad publicity”.

In so doing, these officials – including legendary head football coach Joe Paterno and President Graham Spanier – placed their own reputations ahead of the harm that Sandusky did to young boys for the next 14 years.

Ironically, had Penn State turned Sandusky over to legal authorities in 1998, the public would have viewed its actions as protecting the victims, thereby enhancing the University’s reputation. Instead, these men caused grave damage to a great university while allowing Sandusky free reign to destroy lives. Sadly, the Penn State situation is not unique. Consider these other cases:

Had President Richard Nixon acknowledged his role in the Watergate scandals, he could have saved his presidency and his legacy. Had the hierarchy of the Roman Catholic Church acknowledged its pedophilia scandals, it would have protected victims and its moral authority. Had President Bill Clinton admitted his relationship with Monica Lewinsky, the scandal would have subsided, enabling him to focus on his pro-growth policies to balance the budget and create jobs. Had Martha Stewart and Rajat Gupta admitted their roles in insider trading, they could have plea bargained, moved past their ethical lapses, and possibly avoided prison time. Had Best Buy founder Richard Schulze not covered up CEO Brian Dunn’s improprieties, he could have retained Best Buy’s reputation for sound values (and his own).

Contrast these actions with JPMorgan CEO Jamie Dimon, who took immediate responsibility for his firm’s recent trading losses, calling them “stupid and egregious”. While Dimon took considerable heat, his reputation as a “truth teller” remains intact. Eventually, JPMorgan will be restored and corrective actions put in place to mitigate future risks.

The deeper question raised by these examples is – what causes leaders to cover up inappropriate actions instead of acknowledging them immediately?

Many leaders strive for such perfection that they are unwilling to admit mistakes. They feel tremendous external pressure to be perfect, but in reality they are far more successful when they are authentic. Were they to think rationally about what to do, they would see it is better to acknowledge the truth, no matter how painful, because the truth will surface eventually. More importantly, they can prevent further harm to the victims. While leaders may rationalise that a cover-up protects the interests of their organisations, the damage of one typically harms their institutions far more than the direct admission of a mistake.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
 
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