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HBSWK Pub. Date: Feb 27, 2006
A values-driven organization poses unique risks for its leaders—in particular,
charges of hypocrisy if the leaders make a mistake. Sandra Cha of M cGill University
and Amy Edmondson of Harvard Business School discuss what to do when values
backfire.

by Martha Lagace, Senior Editor, HBS Working Knowledge
Positive values are a fixture on corporate mission statements these days. But when leaders failto live up to the values they've articulated, it's a recipe for employee cynicism, according toSandra Cha and Amy Edmondson.
Cha, an assistant professor at McGil University, and Edmondson, of Harvard Business School,have studied the risks and rewards of organizational values in depth using a young, ambitiousadvertising agency for a field study. What they learned about positive values surprised them,and their findings were published in the February issue of The Leadership Quarterly as "WhenValues Backfire: Leadership, Attribution, and Disenchantment in a Values-Driven Organization." "Our research shows that values must be managed with care," Cha and Edmondson say.
Below, they join forces for an e-mail Q&A with HBS Working Knowledge. Martha Lagace: How did you execute this study? How did you choose Maverick as a
research site? Was the company open to this kind of study?

Sandra Cha and Amy Edmondson: Hypocrisy was not at al on our minds when we started
the research. Our initial interest in this company was team creativity. Maverick Advertising was
radical y different from large, traditional Madison Avenue agencies. Instead of having stable
teams based around individual clients, this upstart agency used ad hoc teams that formed and
disbanded with every project. Clients commissioned specific projects rather than paying a
retainer fee.
Many companies are a little hesitant about opening their doors to researchers, but when [we]cal ed up the CEO without ever having met him, he was extremely open to learning from theresearch and to our spending a great deal of time at the company—sitting in on meetings,observing interactions, chatting informally with the employees, and conducting interviews.
Maverick Advertising is a pseudonym; it captured the spirit of the agency. The CEO/founderenvisioned a new kind of unpretentious, collegial ad agency without the industry's characteristiclove of competition, politics, and chrome and swank, as he put it.
Q: How did you come to see charismatic leadership as a potential double-edged
sword? What observations led to your decision to investigate this topic in depth?

A: As we conducted our interviews with employees, there was a recurring theme: values. Many
employees told us that the best thing about the company was its values. But employees also
said that the worst thing about the company was that the CEO had been, from their point of
view, breaching the values that he himself had developed for the company. Unwittingly, even a
committed leader may appear to fol owers to be violating principles he or she has espoused.
Charismatic leadership has been defined in various ways, but a common thread acrossdefinitions is that charismatic leaders motivate people by creating a vision that revolves aroundsome set of meaningful higher ideals or values. This was clearly the case at Maverick.
Q: What were some of the conditions at Maverick that led employees to feel
disenchanted and to believe the CEO was behaving hypocritically? How did
employees show their sense of disenchantment?

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A: A key factor that set the stage for employees seeing the CEO as hypocritical was that
employees interpreted the values somewhat differently than the CEO did. Specifical y, they
interpreted the values a little more broadly than the CEO intended; we call this "value
expansion." For example, the CEO articulated values of unpretentiousness and a sense of
community. Employees interpreted his statements as implying a core value of equality—an
absence of hierarchy. As another example, discussing diversity, one employee made a leap to
broader ideals of equality and treating employees like family:
Read the story of the company, it's . . . sophisticated. [The CEO] calls it diversity;I call it love your neighbor. But I think it's exactly the same thing. At its best youfeel like you're not working for a company but a cause. . . . We're working for thisnotion of 'non-hierarchical,' 'treat people right.' It's like working for a much highercause than 'create advertising,' 'make money.' We recently saw this same type of tension at Hewlett-Packard, the Silicon Val ey technologygiant. HP is famous for its values, known as the "HP Way." Employees saw the actions offormer CEO Carly Fiorina in 2001-2002, including large-scale layoffs and the HP-Compaqmerger, as violating HP values, which they understood as revolving around mutual respect andthe company as a family. Focusing on a different element of the HP Way, Fiorina saw heractions as consistent with the HP value of seizing opportunities.
At Maverick, employees' morale had gone down, Hypocrisy may be
but no one had quit. In my conversations with the unavoidable for leaders in
CEO, he was eager to learn how employees werefeeling about the company, but did not express the modern world.
—Sandra Cha and Amy Q: In this firm or others, can such conditions
Edmondson be lessened or avoided? Are these potential
risks at most other organizations?
A: One of the next steps with our research is to look at leader strategies that reduce the
chances of becoming seen as hypocritical. We theorize—but stil need to test the ideas—that
employees are less likely to jump to and maintain this harsh conclusion about leaders when
leaders do four things:
(i) Explicitly acknowledge the tension among multiple aims. Sometimes values bump up
against one another—consider the cases in which leaders need to manage tradeoffs between
maximizing profits and investing in employees in a given year. L'Oréal manages such tensions
by explicitly assigning responsibility for different values to specific people. Senior managers
focus on short-term goals; HR is responsible for reminding them about long-term goals such
as developing employees. These different foci are meant to trigger continuous dialogue about
the tensions, leading to creative solutions.
(ii) Clarify the values' appropriate meanings, but not restrict their scope excessively.
The problems at Maverick began with employees' interpretations of the corporate values, which
were broader than the CEO intended, causing them to interpret some of his actions as
breaching the values. Obviously, greater agreement about the values' meanings would have
helped to prevent their reactions. At the same time, we believe that leaders should not clamp
down hard on how employees interpret corporate values, because it is in the process of
personalizing abstract values—of finding unique personal meanings—that employees find
inspiration.
(iii) Proactively "give sense" around actions that could be seen as values-threatening.
When another person takes an action that harms us, we tend to automatically assume that the
other person is bad and has negative intentions. When employees witness a leader acting in
ways that could be seen as threatening cherished values, they are quick to conclude that he or
she is a hypocrite. But leaders who take the time to careful y explain the reasons behind
negative decisions (which are often invisible to employees) may be able to show employees
the ways in which they are trying to sustain the values, while also managing business realities.
(iv) Create a sense of psychological safety. Employees need to feel that it is safe for them
to express negative views about leaders. Leaders can make this possible by seeking regular
feedback through anonymous surveys or other safe forums. Dreyer's Grand Ice Cream (also
sold as Edy's) is a fantastic example of the last two strategies. In the late 1980s, several
employees accused Dreyer's leaders of being hypocrites who were not implementing the
company's employee-centered values in practice. In response, senior executives began
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working hard to do a better job of supporting the values, conducting and responding to regularemployee surveys about the values. Then in 1998, Dreyer's faced a number of seriouschal enges simultaneously. Among them: Competitors were engaging in aggressivediscounting, the price of butterfat had skyrocketed, and the CEO was coping with a brain tumor.
Dreyer's senior executives decided that they needed to restructure the company financial y.
The day after they announced the restructuring to the financial community, they were on planesal over the country, meeting face-to-face with every employee to explain the situation and thechanges that would have to take place. Rather than feeling bitter or disenchanted, employeesral ied around the company. Their efforts helped Dreyer's to recover from the toughestbusiness climate it had faced in twenty years to become the leading U.S. ice cream producertoday, with over 1.5 bil ion dollars in sales in 2004.
Q: What would you like our manager-readers to be aware of as they think about your
research and try to apply it to the context of their organization? How should people on
both sides of the fence (leaders and the led) avoid or diminish the kind of tension that
happened at Maverick?

A: Leaders need to seek feedback before significant bad events transpire. At Maverick,
although morale had gone down, there was no mass exodus of employees to other
companies, no sharp decline in the quality of the work, no lost clients. Although employees
were upset with the CEO they were still loyal to the organization, and they were still there. When
people like Maverick's CEO are open to seeking feedback before there is any obvious signal
of things being bad, there is a much stronger chance of identifying and fixing problems in the
making.
Employees can help prevent their own—sometimes unwarranted—disenchantment byquestioning their knee-jerk responses to leader actions that seem hypocritical. They canconsider the possibility that external constraints and multiple, conflicting aims are driving aleader's behavior, and they can test these hypotheses by asking questions and sharing theirconcerns. But we think that the opportunity for fixing such problems lies mostly with acompany's CEO and leadership.
Q: As more companies attempt to base their mission and culture around positive
values, do you see foresee an increasing risk for similar problems at other
organizations?

A: Many studies have shown the power of meaningful values to energize employees, providing
them with a sense of purpose and identity in a world that is in flux. But our research shows that
values must be managed with care.
Hypocrisy may be unavoidable for leaders in the modern world. With rapid changes in theenvironment, it can be very hard for leaders to keep promises at "Time 2" that they made at"Time 1." Companies also have more stakeholders—parties to whom the public feels they areresponsible—than ever before. The public itself is a powerful stakeholder that is increasinglydemanding about issues ranging from the environment to employee benefits. With theincredible speed and reach of modern communications, companies are now underunprecedented scrutiny, not only from their employees and shareholders, but also fromadvocacy groups, watchdog organizations, and an ever-savvier public.
The news these days is fil ed with stories about leaders and organizations that are seen ashypocritical by either employees or the public. For instance, the public has reacted negativelyto Google's compliance with restricted access to information in China; this is seen asbreaching the company's motto, "Don't be evil." In 2003, Jeffrey Leiden at Abbott Laboratoriesset off a furor by announcing a 400 percent increase in the price of the HIV treatment Norvir.
Q: How would you like to conduct further research on how values can backfire? Do
you wish to possibly expand this study or investigate the subject from a different
direction?

A: Our research so far has laid a foundation regarding how employees come to see leaders as
hypocritical. The next step wil be to investigate how leaders can reap the benefits of values
while avoiding the pitfal of perceived hypocrisy. Most fascinating are organizations that
explicitly embrace multiple, sometimes conflicting, values and goals. For example, healthcare
organizations are increasingly facing a tension between providing quality care and access while
control ing costs. Many businesses are also incorporating employee-centered values and
social y responsible values into their core missions; these can appeal strongly to both
employees and consumers while also creating the chal enges we have identified.
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We welcome suggestions from readers regarding organizations that are explicitly trying tomanage such value tensions, and encourage them to contact us (sandra.cha@mcgil .ca andaedmondson@hbs.edu). Sandra E. Cha is an assistant professor at Desautels Faculty of Management, McGil
University.
Amy C. Edmondson is a professor of business administration at Harvard Business School.
She is currently chair of the Doctoral Programs and teaches an elective MBA course on
managing service operations and a doctoral course on field research methods.

Source: http://www.e-schoelzel.de/downloads/corporate_Values_employee_cynicism.pdf

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