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How leaders go wrong Professor D. Quinn Mills Harvard Business School.

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Presentation on theme: "How leaders go wrong Professor D. Quinn Mills Harvard Business School."— Presentation transcript:

1 How leaders go wrong Professor D. Quinn Mills Harvard Business School

2 Capital markets The Capital Markets are an Engine of Progress The Social and Economic Utility of Capital Markets

3 How some vcs and bankers led entrepreneurs in the wrong direction Having to go to the Venture Firms Pressure to Spend A Strategy’s Limitations Like Sheep to the Slaughter Get-big-fast instead of Get-it-Right

4 How venture firms changed their criteria

5 Building to flip Venture Capital Rushing to an IPO Exiting an Investment How their own Rules were Changed by the Venture Capital Firms The Baby Goes out with the Bathwater

6 Choosing the wrong people Whom to Back Garden.com: A Mistake from the Get-go Boo.com

7 How banks inflated the bubble The Banks Bend the Rules Who Brought Those Duds to Market? Mass Hysteria or Fraud What Did the Venture Firms Know? Did Wall Street Cross the Line?

8 Influencing factors: where does responsibility lie? What the Accountants Should Have Done and Didn’t The Hype Machine The FED Was Also At Fault Alan Greenspan And The Great Bubble

9 Systematic deception What Was Going On? Corrupt Accounting Restatements CEOs Ask for Misrepresentation Hiding Relative Importance Just Like the Others The Common Accounting Dodges SEC Oversight The Criminal Mind

10 More than a few bad apples Conflicts of Interest: The Core of the Problem The Conflicts of Interest Which Fed the Scandals Awards for “The Best” in Corporate America

11 Infectious greed: who got the money? Shareholders Versus CEOs: The CEOs Make It Big CEOs Made Fortunes Without Building Companies Aligning CEO and Investor Interests Stock Options Begin to Dominate CEOs Pay Packages

12 The role of the accountants Peer Review Deceiving Investors Legally An Insidious Dynamic Develops Other Commercial Ventures The “Integrated Audit”

13 The failure of checks and balances Neither Prevent Nor Punish Rubber Stamps—Boards of Directors Protection for Deception: The Role of the Attorneys The Failure of the Regulators What the Prosecutors, Courts, and the SEC Didn’t Do What the Fed Didn’t Do

14 Ordinary business at the banks Conniving with Corporations to Deceive Investors Greasing the CEO’s Palm via IPO Allocations

15 The corruption of the analysts Use It or Lose It May Day Maybe 20 Percent Are Honest What’s Said Isn’t What’s Done

16 The temptation to steal The New Very Rich: CEOs How CEOs Get Rich The Ignorant CEO So Strong a Temptation The Crucial Importance of Leadership The Courage to Speak Out

17 The ethics of the gutter Do What’s Right: Why Ethics Are Very Important What Are Ethics? The Failure of Ethics Programs in Companies The “Push the Limits” Environment The Role of the Business Schools

18 An ethical or legal embarrassment can be devastating to a firm Nyse Martha stewart Citigroup’s japan unit Merrill at enron Citigroup at world com Aig, marsh mclennan, the hartford

19 Restraining Self-Inflicted Wounds Proposals to Strengthen Corporate Boards The Danger of Ineffective Reforms Power Struggle: What Will Happen with Governance Reforms if the CEO Retains His or Her Power

20 Why individuals are very important President Bush, Alan Greenspan, Warren Buffet all agree Failures in business arise in the individual executive and cannot be successfully dealt with by law or board process

21 The limitations of conventional approaches Four common mistakes made by executives promoting ethics in their firms –Believing that having corporate compliance programs means higher ethical standards in the company –Believing that increased community involvement means higher ethical standards in the company

22 The limitations of conventional approaches (2) –Confusing company culture with individual’s ethics – paying lipservice to corporate ethics doesn’t necessarily translate into ethical behavior –Failing to recognize the limits of an ethical code imposed from above –Focusing on others to the exclusion of one’s self

23 Sources of the decline of individual standards Overly tolerant acceptance of market outcomes Broader social endorsement of greed Preference for detailed rules rather than ethical judgments Thinking of ethical issues as pubic relations matters Seeing ethics as purely instrumental – it’s valuable to be thought ethical The push-the-limits environment

24 Five basic impediments to ethical behavior Human nature – greed, dishonesty and hypocrisy A polygot society in which there are few common norms of ethical behavior – multiculturalism A large and varied society in which there is no strong sense of community, so those outside the group are fair play for sharp dealing

25 Five basic impediments to ethical behavior (2) Modern myopia about ethics – a focus on social issues – environment, etc – social responsibility rather than personal ethics The widespread adoption of relativism – each person has his or her own ethics, as his own truth, so that there is no standard for choosing among different approaches

26 Individual behavior today Complex and subject to disagreement Difficult for a company or an executive to navigate Dangerous to transgress

27 Legality and right behavior Related, but different –Something may be unethical and illegal, –But –Something may be legal and unethical –And –Something may be illegal and ethical

28 Alternatives for what an executive sets as standards Whatever the law allows Avoid bad publicity Set absolute standards –Faith-based –Fiduciary rule (the client benefits) –A universal standard – the golden rule –Borrow from a profession, like medicine  Do no harm (to customers or employees) –Set of corporate-specific guidelines

29 Key to coaching executives about behavior Don’t deal in platitudes Deal with real issues –Challenges that arise in the business –Problems that arise from different ethical standards of business and media and public –Problems that arise from different ethical standards of different people in the firm


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