Yesterday, my post on Mea Culpa described how there is
some trend in hospitals for doctors to admit and apologize to patients for
mistakes. The initial evidence suggests this practice saves money because it
reduces litigation costs, and money aside, is a more emotionally constructive
process for both doctors who make the mistake and patients and their families
who are damaged by such errors.  Unfortunately, whether we are talking
about doing surgery or leading an organizations, or just about anything else in
life, there is no doing without mistakes, and no learning either.  As
Diego and I like to say, failure sucks but instructs.

Continuing this theme, there is also growing evidence that leaders of companies
who choose to apologize for mistakes may actually help their careers and their
firms by apologizing in the right way.  Although most mistakes and
setbacks seem to provoke leaders to cover them-up, claim that it wasn’t their
fault, to point fingers at others, say”no comment,” or perhaps say
something mealy-mouth like “I misspoke, but it really wasn’t a
mistake”  I especially love the term “mistakes were made,” as it almost seems to be admission of error, but the leader or politician
in question never quite associates the term “mistake” with “I” or
“we.”  It is as if errors somehow have made themselves, without
any human action or involvement.   Consider the story below for a
different tactic.

The Chef Executive ran a story in 2003 about a rather
nasty statement made by then Goldman Sachs CEO Henry Paulson Jr. (now the U.S. Treasury
Secretary). Paulson’s error and recovery is instructive, and the plot line is
reminiscent of the Hew York Times article on doctors that I wrote about
yesterday. I quote:

‘Henry Paulson, Jr., chairman
and CEO of Goldman Sachs Group, recently demonstrated how an apology from the
top can help repair the reputations of both a chief executive and his or her
company. During a question-and-answer session at a Salomon Smith Barney
conference in January, Paulson seemed to imply that between 80 and 85 percent
of Goldman Sachs’s employees were irrelevant to the company’s success. “I
don’t want to sound heartless,” the CEO said, “but in almost every
one of our businesses, there are 15 to 20 percent of the people who really add
80 percent of the value. I think we can cut a fair amount and not get into
muscle and still be very well-positioned for the upturn.

Paulson’s comments drew an immediate and overwhelmingly negative reaction.
Rather than wallow in explanations as to what he really intended, or suggest
that the comment was taken out of context, Paulson faced the music. In a voice
mail to all of Goldman’s 20,000 employees, he acknowledged that his remarks
were insensitive” and “glib.” In other words, he apologized.’

Stories like these are heartwarming to hear. But there are still plenty of
CEOs, lawyers, and PR firms who will advise leaders that that they should never
apologize, and also some theory in psychology that suggests self-serving
attributions — taking credit when things go well and blaming others and
outside forces when they go badly — is an effective impression
management.  BUT a series of studies by psychologists suggest that
managers and leaders who apologize when things go wrong, report what they’ve
learned, and then convey how and in what way the organization’s direction will
change as a result not only enjoy more favorable reputations than leaders who
point fingers at others and external events, there is also evidence that their
firms do better over the long haul.  There seems to be two reasons this
happens, one more objective the other more subjective.  The more objective
part is that by admitting mistakes and updating their behavior, this means the
leader and his or her team is learning along the way.  Jeff Pfeffer and I
have (borrowing from psychologists and philosophers) called this “the attitude of wisdom,”
which means have the courage to act on what you know and the humility to change
course when new and better information comes along that you are heading in the
wrong direction.   The second theme is that one of the main
challenges for leaders is to convince insiders and outsiders that they are in
control of the organization — which is a big challenge because — although
there is a lot of evidence that leaders get lots of credit and lots of blame
for what happens to their organizations — there is also a lot of evidence that
they have only modest control over organizational processes and performance. As
such, one way that leaders fuel the illusion — and to some extent the reality
— of control is by convincing people that when they do something good, good
things happen to the organization and when they do something bad, bad things
happen to the organization.   This may all sound a bit weird, but as
we show in Hard Facts, there are few situations where
leadership actions appear to be able to affect organizational performance by
any greater than 10% (small, young companies appear to be an exception in some
studies).

So to return to apologies, there are not only sound conceptual reasons for
leaders to make them, there is also some interesting evidence to support
apologies in this context.  Here is an excerpt from Chapter 8 ofHard Facts
that provides a nice summary of major studies — and also indicates that,
although apologizing works for managers and leaders, it may not be effective
for politicians, at least if they want to get elected. Here is the excerpt, plus
I left in the citations for those who want to dig deeper.

‘[R]esearch
on winning vs. losing U.S. presidential candidates shows that – in 80% of
elections between 1900 and 1984– winners avoided talking about negative events
and, when setbacks were raised, winners were more likely than losers to deny
blame and point fingers at others and events they couldn’t control.

On
the other hand, it turns out that company executives are different than
politicians.  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.

What do you think? Should leaders
apologize when things go wrong?  If so,
what is the most effective way to do it?  

Here are some of the key references:

Lee,
Fiona., & Robinson, R. (2000). An attributional analysis of social accounts:
Implications of playing the blame game. Journal of Applied Social Psychology;

Lee, F., & Tiedens, Larissa.
(2001). Who’s being served? “Self”-serving attributions and their implications
for power. Organizational Behavior and Human Decision Processes, 84:254-287.

Salancik,
Gerald., & Meindl, James (1984). Corporate attributions as strategic
illusions of management control. Administrative Science Quarterly, 29, 238-254.

Lee,
Fiona, Peterson, Christopher, & Larissa Z. Tiedens (2004) Mea culpa:
Predicting Stock Prices from Organizational Attributions.  Personality
and Social Psychology Bulletin. 30:1-14