Check out the difference between Warren Buffett
and some of his peers:
“When Lehman Bros. CEO Richard Fuld testified on
Capitol Hill this month, members of Congress grilled him to own up. Fuld said
he takes full responsibility for his decisions, that he "felt horrible
about it," but that the largest bankruptcy in history was due to
circumstances beyond his control. Likewise, a trio of former AIG chief
executives — Hank Greenberg, Martin Sullivan and Robert Willumstad — deflected
blame in oral and written testimony to Congress.” From USA Today.
‘Mozilo says he was blindsided. “Nobody saw this
coming,” he told investors in a conference call. “S&P and Moody’s didn’t,
but they simply downgrade bonds. They don’t take hits. Bear Stearns certainly
didn’t.” Mozilo’s take seems to be that aggressive lending by mortgage
companies had nothing to do with the industry’s troubles: “It was the
deterioration in real estate values that was the base cause. We had none of
these problems as real estate values were going up.” Mozilo also blames the Federal Reserve. “The
Fed knowing that well over 60% of the loans made were indexed to the Fed funds
rate, increased the rate seventeen times. You never knew when they were going
to stop. So for a Fed governor to say the lending industry had this coming is
unbelievable when the Fed was a contributing factor to this.’ On former Countrywide CEO Angelo Mozilo, from BusinessWeek.
‘"Our industry … needs a bridge to span the
financial chasm that has opened up before us," General Motors CEO Rick
Wagoner told the Senate Banking Committee in prepared testimony. He blamed the industry's
predicament not on failures by management but on the deepening global financial
crisis.’ On GM CEO Rick Wagoner in
November 2008, From the Associated
Press.
‘General Motors Corp
on Monday unveiled an unusually frank advertisement acknowledging it had
"disappointed" and sometimes even "betrayed" American
consumers as it lobbies to clinch the federal aid it needs to stay afloat into
next month. The print advertisement marked
a sharp break from GM's public stance of just several weeks ago when it sought
to justify its bid for a U.S. government on the grounds that the credit crisis had undermined its
business in ways executives could never have foreseen. "While we're still
the U.S. sales leader, we acknowledge we have disappointed you," the ad
said. "At times we violated your trust by letting our quality fall below
industry standards and our designs became lackluster." GM CEO Rick Wagoner backtracks in December
2008, from Reuters.
‘Even the world's
best-known investor couldn't get it right in 2008, apologizing to his
shareholders for doing "some dumb things" with their money. Billionaire Warren Buffett said in his annual
letter to shareholders that while last year was a bad year for all investors,
he made some mistakes that he now regrets. "I made some errors of
omission, sucking my thumb when new facts came in that should have caused me to
reexamine my thinking and promptly take action," Buffett wrote in a letter
released this morning.’ From ABC
News. February, 2009.
These are hellish
times, but they are also interesting times in that they reveal a leaders’
character. Wagoner finally apologized
because he eventually realized that the American public would accept no other
account. Buffett apologized because he seems
to believe that, economic conditions aside, that he personally screwed-up and
he believes – but cannot assure his shareholders – that he has learned from
it. Note only does this show class, it
turns out that research on CEO and management apologies shows that the firms
with the best performance over the long haul are led by people who get credit
when things go well and take blame when things go badly. Taking blame indicates
that the CEO has learned something from the troubles and is going to take steps
to correct course; denying blame is seen as a sign of self-delusion, a lack of
control over the company, and an inability to learn. As Jeff Pfeffer and I wrote
in Hard
Facts:
Leaders who claim that
“it isn’t my fault” and “I couldn’t have done anything about it” aren’t doing
themselves or their organizations any favors over the long haul.
Deflecting blame might help them keep their jobs for a time, enjoy better
mental health, and persist in the face of failure. But ducking the heat
shatters the illusion of control. Investors, customer, employees, and the
press conclude that leaders who don’t take responsibility for mistakes and
setbacks lack the power to make things better. Controlled experiments by
Fiona Lee and her colleagues show that hypothetical managers who took
responsibility for bad events like pay freezes and failed projects were seen as
more powerful, competent, and likeable than managers who denied responsibility.
The wisdom of
acknowledging blame is confirmed by two studies that tracked Fortune 500 firms
over long periods. Both were careful studies designed to rule out
alternative explanations. Gerald Salancik and James Meindl examined 18
Fortune 500 firms over 18 years. They found that, especially in firms
with wild swings in performance from year to year, performance was superior
down the road when executives attributed both good and bad
performance to internal actions. Similarly,
Fiona Lee and her colleagues examined yearly stock price changes in 14
companies over a 21-year stretch. They found that taking blame for setbacks
wasn’t just effective in companies with wild performance swings. In years when
senior management blamed their firm’s troubles on internal and controllable
factors, stock prices were consistently higher the next year, compared to when
executives denied responsibility for setbacks.
Of course, taking
blame isn’t enough, a leader actually needs to change the organization’s
course, but I do admire for Buffett refreshing bluntness. And if anyone can turn things around, he can.
P.S. Also see this related post on "mea culpa"
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