Building a High Integrity corporate culture · Professor Jean-François Manzoni, 9/11/2013 Third...

© Professor Jean-François Manzoni, 2011Professor Jean-François Manzoni, 9/11/2013 Third Asia Pacific Pharmaceutical Compliance Congress, Kuala Lumpur

Building a High Integrity corporate culture

Dr. Jean-François Manzoni

Shell Chaired Professor of Human Resources & Organisational Development.

Professor of Management Practice, INSEADOffice: +65 6799 5348 Cell: +65 8201 [email protected]


Culture matters

“The thing I have learned at IBM is that culture is everything”

Louis V. Gerstner, Jr. former CEO IBM

“The only thing of real importance that leaders do is to create and manage culture”

“The unique talent of leaders is their ability to understand and work with culture”

Edgar H. Schein, Organizational culture and leadership (2nd edition)


Meet Google's culture czar (April 27, 2007)

• (Google) may even have started a new trend by creating a job that carries the title "chief culture officer."

• Sullivan's mission is simple: retain the company's unique culture and keep the Googlers happy

Fortune Magazine, July 30, 2012

The rise of the chief culture officerBy Shelley DuBois, writer-reporter

More companies are looking to have someone around to keep an eye on their culture…


Culture has got to be more than an organisation’s «official values»…


Culture …

A pattern of behaviour that is pervasive throughout the organisation…

Across countries, functions, departments, hierarchical levels, and across time…

“Culture comes down to a common way of thinking,

which drives a common way of acting”

Goffee and Jones, The Character of a Corporation, 1998


Selected snapshot from a Group’s 360

Develop Human Capital

cohort rank score Import. Boss

Import. Self

1 14 3.91 1 2

2 14 3.91 2 4

3 14 3.93 3 4

4 14 3.86 5 9

5 14 3.87 3 5

6 14 3.79 4 7

7 14 3.90 7 6

8 14 3.74 10 8

9 14 3.86 9 6

> 500 respondents from

20+ countries each time


Selected snapshot from a Group’s 360

Lead for

Performance

cohort rank score

1 1 4.34

2 1 4.35

3 1 4.32

4 1 4.28

5 1 4.28

6 1 4.19

7 1 4.27

8 1 4.27

9 1 4.30

> 500 respondents from

20+ countries each time


FT, 21/3/2007, p.15

Cut costs that affected maintenance

& safety

Ignored the implications of

previous incidents

There was fear of speaking up

Audits documenting problems had been

sent to the top

Workers worked 12 hr days 30 days in a row

Did not apply lessons from

Scotland incidents


Chronology of events at BP

2009 OSHA review• August 2: After reviewing 3 of 28 units at the

refinery, letter to BP warning them– 270 instances where BP failed to correct problems identified from the

blast

– 439 new “wilful violations” of industry-accepted practices

– “Failure to correct the issues addressed in this letter by September 23 would constitute a failure to comply with the terms of the 2005 agreement…”

• October 30: OSHA fines BP a record $ 87 Million (previous record $21 Million to BP in 2005)

– 56.7 for failure to correct 2005 violations

– 30.7 for new violations


April 2010: Explosion on the Deepwater Horizon rig

Article July 25

• “The calamity … was not an accident in the sense of a single unlucky or freak event, but rather an engineered catastrophe”

• “BP repeatedly had to make “risk-based decisions” and in every instance they chose the least expensive option even though it potentially elevated the risk.

• That steadily whittled away at the margin of error until there was no margin left and gas found a spark on the Deepwater Horizon”

• An academic panel recently concluded:

“The disaster … can be attributed to “an organizational culture and incentives that encourage cost cutting and cutting of corners – that reward workers for doing it faster and cheaper, but not better”


Re-shaping an organisation’s culture (1)

Common way of thinking

To change thisYou must changethat first

Employeebehaviour

That’s because

human beings tend to act their way into new attitudes


Attitude vs. behaviour… which comes first?

• We do not act rightly because we have virtue or excellence, but

• we rather have those because we have acted rightly.

• Men (and women) acquire a particular quality by consistently acting in a particular way

• We are what we repeatedly do

Aristotle (i.e., not exactly new…)


Information & technology

Structure

Processes

Top mgmt behaviour

KPIs and incentives

Alignment, intensity, persistence

Of enough people

For long enough

Employeebehaviour

Employee capabilitiesHiring/Training/Firing



Why High Performance, High Integrity?

• High performance part is obvious…

• High Integrity part increasingly obvious

– Industry is dependent on governments’ and society’s support

– Their expectations of the pharma industry have increased

– The world is an increasingly transparent place � Any breakdown gets disseminated more & faster

– There is also an upside to a positive image


Meaning of High Integrity

• High Integrity

– Basic compliance – respect the law…

– Ethics beyond the letter of the law…

• Doing “the right thing” for our various constituencies

• where right thing <=> our brand proposition / the reputation we want to have

• Customers

• Employees

• Suppliers

• Environment/sustainability…


Top management must create a common way of thinking which drives a common way of acting…

• Where (tens of) thousands of people

– With different personal norms

– With different cultural norms

– Operating in very different environments

• Will be willing and able to

– Respect the law(s)

– “Do the right thing”, where …


• “I’m sorry for the hurt that has been caused by my cowardly behavior”

-- Scott Sullivan, CFO

• “At the time I consider the single most critical characterdefining moment of my life, I failed. It’s something I’ll take with me the rest of my life.”

-- David Myers, controller

• “Faced with a decision that required strong moral courage, I took the easy way out… There are no words to describe my shame.”

-- Buford Yates, director of general accounting

Source: “Creating an ethical culture”, by David Gebler,Management Accounting (May 2006), p. 30

Some individuals do transgress knowingly



• They give in to

– Fear

• Self-imposed fear of losing relationship(s), money or promotion, reputation (internal and external)

• This fear does not need a lot of external support…

– Milgram’s experiments

– Greed


• They then actively rationalise their actions, by

– Minimising the magnitude of the breach

– Comparing to other offenders

– Attributing the breach to an unavoidable/ external cause

– Attributing the breach to a higher purpose



• The process is typically incremental => start small

• => slippery slope resting on two pillars

1.Expansion of acceptable behaviour

2.Past transgressions need to be covered up



• So let’s hire “ethical people”!!

• Great companies do tend to invest more time, effort and energy in selecting the “right people for them”

• But the WorldCom people were “good people who made bad decisions”…

• In addition, research shows that the circumstances under which people operate have significant impact on their ethical behaviour


The problem is …..

• For people to have the courage to do the right thing, they first need to identify what’s “the right thing to do”

• We tend to think that between their “moral education” and the training we give them, people will be able to

1. identify “ethical dilemmas”

2. know the right course of action

• Research shows that human beings often do notrecognise that they (&/or others) are behaving unethically


Two major causes for this “blindness”

1. “Ethical fading” : Ethical aspects/implications of the decision fade away from our mind… we fail to notice them.

More likely to happen when…

– “Business” implications are heavily emphasised

• Strong performance pressure

• Lack of reinforcement of the other objectives / the end does not justify the means…

– Potential victims are numerous and anonymous

– Language euphemisms are used


Talking reality away


“Talking” reality away


Real euphemisms

• As measured from a January 2007 baseline, do we assess that present trend data demonstrates a positive trajectory, which is tracking toward satisfactory accomplishment in the near term?

White House assessing progress in Irak

(July and September 2007):

• We are more or less exactly on tract with the revised objective

Senior executive at large, well known company


Counter-intuitively, Ethical Fading can also increase with

– The existence of a large number of rules and regulations

– Small financial penalties associated with transgression

– Disclosure of the “conflict of interest”



Human beings perceive reality in an imperfect way

• Representativeness heuristic

• Availability heuristic

• Bandwagon effect

• Impact bias

• Negativity bias

• Reactance

• Anchoring effect

• Congruence bias

• Escalation of commitment

• Framing

• Interpretation bias

• Overconfidence bias

• Correspondence bias

• Hindsight bias

• Recency and primacy bias

• Selective recall

• Suggestibility

• In group favoritism

• Ordinary prejudice


2a. Motivated blindness: Tendency to

– overlook information that works against one’s best interests, &/or

– interpret available information in favor of one’s best interests

This process can be totally unconscious

Makes it quasi impossible to be "objective“ when one has a formal role in the situation

e.g., auditors ….



2b. Confirmatory biases

– E.G., Warren Buffett and David Sokol

– E.g., dysfunctional behaviour toward perceived weaker performers

• What we notice• How we interpret

• What-how we recall



2c. Need to maintain a positive self-image

• Double standard

• Note: This rationalisation consumes energy.

• Double standard privilege extended to “mates"

• Ethical in the past ⇒ less effort now

• Member of an ethical group ⇒ less effort now



Line of defence #1: Help people become more aware of their behaviour

a. Reduce ethical fading => Top mgmt to…

– Monitor the pressure placed on individuals & organisation

– People listen to what you say

• They listen to/watch what you do

• They also listen to what you do NOT say and do NOT do

⇒ Use every opportunity to reinforce the importance of ethical behaviour

⇒ Keep emphasising "other stakeholders“

⇒ Keep emphasising “performance is result of job well done“

⇒ Ensure straight talk / no euphemism



a. Reduce ethical fading

– Ethics cannot rely on an ever increasing number of rules and regulations

• Put in place process to manage number of R & R

• Develop managerial judgment throughout the organisation


b. Massive judgment re-education effort

– The challenge is not only to create leaders who are more mindful of E&C

– The challenge is to create a new leadership culturewithin the organisation

– Hiring, Performance management and reward, Firing

• Be careful with people who believe they are paragons of virtue…

• Be careful with “hard chargers”…



b. Massive judgment re-education effort

– Training – starting at the top (remember priming)

• Higher intensity – over-ride personal & national programs

• Strong focus on

– self-awareness (including cognitive biases)

– reducing knowing – doing gap

• Will be a never-ending story that needs to stay current



Line of defence #2: get people to make the right decision “every time “

• Clear incentives

– Upside for people who model and encourage ethical behaviour

– Downside – make it clear that the cost of transgression is >> their benefits

• Deal clearly with “offenders “ and breakdowns

• Avoid mixed messages and hypocrisy

• Judgment re-education effort will help

– Must start at the top

• Take advantage of opportunities for powerful symbol

– Keep emphasising slippery slope – “don’t start!”


Line of defence #2: get people to make the right decision “every time “

• E & C function as experts one can go to

– There is NO dumb or bad question

– Avoid tyranny of politically correct…

• Keep updating mental data base of cases and situations


Line of defence #3: Ensure people feel compelled to speak up when they observe transgressions

Why not speak up?

• I didn’t realise either it was an issue…

• I don’t care – I’m disconnected

• Speaking up will not help: they will not listen

– They never do…

– They care about results, not the way we achieve them (they don’t really want to know…)

• Speaking up could be costly for me; they really don’t want to know…


Line of defence #3: People speaking up

=> Ensure that people (feel that they)

• Are being asked to speak up

• Are heard when they speak up

=> Foster a supportive leadership culture so people can talk to their boss

• Modelling, training, reinforcing…

=> Create channels for upward communication directly to the top


Information & technology

Structure

Processes

Top mgmt behaviour

KPIs and incentives

Alignment, intensity, persistence

Of enough people

For long enough

Employeebehaviour

Employee capabilitiesHiring/Training/Firing


Building a High Integrity corporate culture · Professor Jean-François Manzoni, 9/11/2013 Third...

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