Return on Character: The Real Reason Leaders and Their Companies Win

Fred Kiel: Well, what I mean by character in this context is the viewpoint of how leaders treat their workforce. Their behavior is a reflection of their character. And there's really two aspects of character: one is what you know to be your character, you know what's inside your heart, what your intentions are – but what other people see is not your intentions, they see your behavior. And so, if you think about your character as reflected in how you treat other people, at least your reputation is reflected in that way.

When you think of somebody that you would admire as a person of strong character and you're drawn to them because they are so admirable, it's because they tell the truth, it's through their behavior. They tell the truth, they keep their promises, they stand up for what's right and then they have a certain humility about them where they own up to their own mistakes and accept the consequences. They tend to look first at what they did wrong then what other people did wrong; and when other people make mistakes they tend to be curious rather than blaming and shaming. And then they treat you as a human being and not as an object. And when you see someone like that you admire them and you describe them as a person of strong character, well that's because of their behavior. So we decided to limit our study to the behavior of leaders, defined in that way.

Rachel Salaman: So just sticking with definitions for a moment, do you see a difference between high character, good character and strong character, or are they synonymous?

Fred Kiel: No, I would say they are synonymous.

Rachel Salaman: Okay. Now, it may surprise some people that a book like this is needed. How far from leading with character are most of the leaders that you encounter?

Fred Kiel: Well, I can only speak accurately from the data that we collected. We collected data from over 8,500 employees selected at random, about 84 organizations' senior teams and their CEOs, and in that sample we looked at those that their employees described those as almost always telling the truth, almost demonstrating those characteristics that I talked about – and that was only about 12 percent of our sample that met that criteria. Now there were a lot that were close to that and that people said they tell the truth frequently, but not always. And then at the bottom of the curve were those that they said well, about half the time they don't tell the truth and about half the time or less than half the time they demonstrated they treated us as people or care for us. And those were people that their employees saw as being mostly focused on themselves and their own needs and their own financial security, and they clearly tended to treat people as objects.

Rachel Salaman: So how accurately can character be measured, particularly since what people say when they're asked in a survey and what they actually think and do on the job can be quite different?

Fred Kiel: If you're asking about you assessing your own character, we are notoriously poor at that. We found that all of the 84 CEOs in our study rated themselves quite highly. Now those that were the strongest character rated themselves a little bit lower than their employees rated them, and those that were viewed by employees as being low character rated themselves a little bit higher than the strong character leaders did, but their employees rated them 15 points lower, so there was a big difference there. So from that I pretty well concluded that self-awareness is pretty limited with regard to what your real reputation is. We go throughout life acquiring habits and how we treat other people, and nobody is going to give you feedback unless they are a very close dear friend, or maybe a spouse, or somebody who dares to! But suppose that you are a person who others see as having "sharp elbows." Chances are you don't know that they view you that way because everybody works around it or they try to avoid you, one of the two things.

Now if you're asking how accurately can you assess character from the perspective of other people – what we depend on there is what is called the wisdom of the crowd. When you have 40 or 50 people that claim to know you well enough to have had experience with you, or know about you well enough that they feel comfortable in rating your character on behavioral dimensions… some will be biased one way, some will be biased the other way, but the beauty of the wisdom of the crowd is that errors tend to balance out and negate each other. So that what you end up with is a pretty pure measure of how often you tell the truth, or how often you forgive people, and that sort of thing.

Rachel Salaman: How then can you quantify the link between a leader's character and their business's success?

Fred Kiel: The way we did that is we asked all of the participating organizations to provide us with a hard financial metric called the "return on assets." That's what the academic world of accounting uses to assess profitability as a sort of universal. A lot of companies don't use that particular metric, but it's one that you can compute for all organizations who have a balance sheet and a profit statement: you can get a return on assets even for nonprofits. So we chose that and then we just simply sorted by character and saw was there differences. So the low-character leaders, we looked at what their return on asset score was, and the high-character leaders, what their return on asset score was, and it was like almost five times higher for the strong character leaders.

So did we prove that there's a causal link? No, because this is not that kind of research, this is descriptive research, but we looked at all kinds of other factors that might explain. So we sorted by age and then we looked at return on assets: no difference. We sorted by tenure: no difference. We sorted by education: no difference (they were all pretty highly educated anyway). We looked at gender: no particular differences there. We looked at political beliefs – we had their political voting records that they'd furnished for us, so we could tell who voted on the conservative side and who voted on the liberal side: and no differences. We looked at their religious practices – there were CEOs that claimed to have very engaged religious practices weekly in their lives and others that had none whatsoever and we sorted by that: no differences.

One that did show a little bit of difference was when we sorted by size of organization: the large organizations tended to produce better financial results than the small organizations. But then we looked within each of those groups at the high character versus low character, and the high-character ones in both groups got the highest return on assets. So that effect persisted even through that variable.

Rachel Salaman: In the book you give these categories of CEO names: the high-character CEOs you called virtuoso CEOs and the lower character CEOs you called self-focused.

Fred Kiel: Yes, those terms evolved as our research teams struggled with this. At first we just called them the high and the low group and then we called the low group the challenge CEOs for a while, and then we finally looked at what's the overriding characteristic of them – it's that they are self-focused rather than other-focused.

Now we could have called the strong character leaders other-focused and that would have been valid too, but they are really truly virtuosos in that sense. I like that metaphor because one of my friends once said that leadership is a performing art and I thought, you know it really is in that sense. And just like for a conductor it's not only what they know how to do from a musicology standpoint and their understanding of the dynamics and mechanics and all of that of music, but it's also the energy that they as a person inspire in the orchestra to play. And the real inspiring conductors, people would tend to describe them as virtuosos, so we borrowed that metaphor.

Rachel Salaman: In the book you identify four universal moral principles or keystone character habits that virtuoso leaders demonstrate, which are: integrity, responsibility, forgiveness and compassion. So could you just briefly talk us through those four principles giving a few examples?

Fred Kiel: Sure. Well, first of all we found these in the cultural anthropology literature which… cultural anthropologists have focused in recent decades on what all societies around the world have in common rather than their differences. And a book called "Human Universals" was published in the 1990s that is basically an encyclopedia of all practices and beliefs that are honored in all cultures around the world. And we chose four of those and those are the four you just mentioned.

So integrity: we said what does integrity look like when it's practiced by a leader? Well it's a leader who tells the truth, who keeps promises, who stands up for what's right, who does not try to mold the truth to fit the situation, but tells the truth as it is… And we actually came up with a total of 65 behavioral descriptors for those four categories, about half negative and about half positive.

And the responsibility: is owning up to the mistakes, accepting consequences for your decisions and expressing a concern for the common good. Forgiveness is a lot like it sounds like but it's also a component of forgiving yourself as well and not beating yourself up, but also treating other people's mistakes with curiosity rather than shame and blame.

And then on the compassion: it's kind of interesting… we found that the items that best demonstrated that had to do with being interested in the development of other people, and as a leader, your followers' developments, and clearly showing them care and respect and treating them as people, not as objects.

So we started out with 65 of those behavioral descriptors and we found out through statistical analysis that there were only 25 that we really needed to accurately come up with a character score – that you add the scores on the others and it didn't change it that much, so we eliminated those. So we have an elegant set of 25 behavioral descriptors that we think are very valid for the North American culture.

We're now expanding our research into the U.K. and into France and into Germany, and probably the Nordic countries as well, and we'll be looking for how to modify those behavioral descriptors so that they are culturally sensitive and specific. Because there may be nuances in how integrity is expressed by a leader in a French company compared to a high-character leader in an American company. And we recognize that those differences were there, we just don't know what they are until they've done the research. The universal principles won't change because they're universal!

Rachel Salaman: It's interesting in the book that you talk about the characteristic called mental complexity, which is the ability to perceive the nuances that separate similar ideas, issues and events, and you say the better the leader, the greater their mental complexity. How can we improve our abilities in that area?

Fred Kiel: The whole process of becoming an integrated human being operates on a number of levels and one of them is on an intellectual level. That the more individuals become what we call integrated as human beings, they have a coherent life story, they understand the events in their lives and the impact, have an explanation for how events in their past life and early life have impacted who they are today. That's part of it.

But the other part of it is the growing awareness that the world is big and complex and at some point you begin to become aware that there's more that I don't know, that I do know. And you become very cautious about coming to quick conclusions about things and have a constant attitude of curiosity and "there must be something I don't know, what can I learn?" And that takes a certain level of mental complexity. The world is no longer as black and white as it might have been when you were 15 or 18 or 20 or whatever, and it becomes much more a world that's full of nuances and surprising explanations if you're open to hearing about them.

Rachel Salaman: You're saying that it's a process that naturally occurs, or do we have to tell ourselves to be open to that?

Fred Kiel: Again research has been done on this. A Harvard professor named Robert Keegan has done a lot of research on mental complexity and quotes others who have done this research, and sadly there only appears to be about 7 percent of the North American population that would have attained that level of transformative level of self-reflection, that most people are in the lower level.

Over 50 percent are at the level where they look towards someone that they admire and respect to tell them what to believe, and they just embrace it and "that's my leader, that's my boss, my father in law or my minister" or whoever, someone in authority. Then there's about another roughly 40 percent of people who do question what others tell them to believe and they come to their own conclusions about what to believe about the world, their model of reality – but then they lock into it and freeze into it and they have the attitude that "I'll tell you what you are to believe!"

So the first group says "tell me what to believe," the second group says "I'll tell you what to believe" and the third group is yourself offering yourself for transformational level of mental complexity. And their model is "I'm not sure what to believe in all cases because there's a lot that I don't know."

Rachel Salaman: So what does character-driven decision making look like?

Fred Kiel: Character-driven decision making: it follows what your first response is from a character standpoint, impacts the kinds of decisions that you make. For example, if you are a leader who has a strong character habit of caring for people, and caring for the workforce as people, you are going to think carefully about how you go about a business that requires a reduction in force. No question, you don't avoid that, that's stupid, you have to do what the business requires. But a lot of research has shown that a reduction in force can be done in a way that actually increases the level of employee engagement for those that are left, and if it's done with openness, transparency, making the business case, telling people what the process is going to be like, with regard to eliminating jobs, and then being generous to them when they go out the door.

I know of a CEO who has 10,000 or 12,000 employees and during and after the financial collapse had to reduce the workforce by 17 percent and there was never a negative piece in the local press about how that was done. Because the person was so admired as a person with strong character, everybody knew that it was not what he wanted to do, but what they had to do to save the business, and it was done very openly, transparently and generously. So that's an example of character that influences decision making on a business decision.

Rachel Salaman: You talked about workforce engagement there and in your book you say that your research has underscored the connection between the level of engagement and the executive team's strength of character. Could you explain that link a little bit more?

Fred Kiel: Well sure. We took the approach of measuring workforce engagement by measuring the conditions in the organization that if they are present, we claim, will in fact lead to a highly engaged workforce. Most of the literature doesn't do it that way, most of the employee engagement firms that are out there and the surveys that are done ask you as an employee to report on your subjective level of happiness, your subjective level of how you feel engaged, how eager are you to come to work on Monday, how many friends you have in the work environment, how you feel that you've been treated etc.

We think that those are byproducts of organizational factors and the organizational factors that we studied are a dimension of respect. So does management treat the workers with respect? If you ask workers to constantly work extra hours and weekends with no additional compensation or no voice in the matter, that begins to be viewed as disrespect after a while. Are the policies and procedures for compensation and recognition fair? And if they aren't, that sends down workforce engagement, but if they are perceived as fair and there is no favoritism, we think that's important.

We think also that the level of energy in the organization, and the positive… The kind of energy, the kind that you can sense when you walk into almost any organization or when somebody comes in a room and most people can sense whether they have no impact on the energy or the energy is drained out of the room, or it lights up the room. I mean, it's that kind of thing. A general culture of care and support, if that's present, and then finally if the workforce has confidence in the decisions of the senior management that they are smart business people.

If those five conditions are there, we say that you will in fact have an engaged workforce, and we did ask similar subjective questions and we looked and sure enough they bore us out on that. So we looked then at the high-character senior teams and the low-character senior teams, and the high-character senior teams had those conditions reported as almost always being present, the low-character teams' employees reported those conditions as being present like a little bit, half the time or sometimes less than half the time.

Rachel Salaman: Strength of character is linked to the idea of thinking for yourself, so, if everyone in the senior leadership team has a strong character, how do you avoid clashes of will?

Fred Kiel: Well you don't! Strong teams have a lot of clashes of will, but a strong team has a lot of other characteristics as well. A strong and highly effective team are all unified around a common vision and a common purpose so they share that. There is real clarity around their roles and there is also clarity on the norms of how we work together, what's confidential and what isn't confidential, how are decisions made and all that. And then finally there is deep mutual respect for each other.

Now hopefully there will be a lot of disagreement about business issues so that every aspect of a decision that's gonna be made, or whether the team makes it or the team leader makes it, is thoroughly discussed and vetted and all the opposing viewpoints are considered – and that sometimes can bring about a lot of conflict. There are a lot of stories in some of the more successful companies about people that have these shouting matches and then go out and have a beer afterwards: it's not a personal thing, it's a way of debating. Conflict happens in healthy teams.

Rachel Salaman: In the book you provide a workshop for becoming a virtuoso leader. How easy is it to move from being a self-focused leader to becoming a virtuoso leader in your experience?

Fred Kiel: We've been in the business of helping leaders, for years, elevate their effectiveness in their character scores. We just didn't have the model and the means of measuring it like we do now. But we can tell a number of stories over the years of senior executives who were viewed pretty negatively and within a few months of the experience, their co-workers are asking, "what happened?" They seemed to have a personality transplant. So it can happen suddenly or it can never happen. There are a lot of people that are so contained by their fear and held in that they won't even consider that possibility.

But a wakeup call, or as I call it in the book, an invitation to change, can happen in many forms. Most often that invitation is a painful one that happens when you as an individual find yourself in a situation that you don't have anything in your toolkit that helps you figure out how to behave. This is new territory, this came as a surprise, and that's why it's called a wakeup call often. If that's painful enough and severe enough some people will be motivated to hunker down and deny it and go off and avoid it, others will be motivated to try to learn from it.

Rachel Salaman: Let's talk about the six steps that you recommend in this workshop, starting with the first one, which is "acknowledge invitations to change" which you were referring to. So how might these wake up calls or invitations to change appear, what do they look like?

Fred Kiel: I think I gave a case study in the book about a young executive who had had a long history of success, had gotten an MBA and went to work for a big multinational consulting firm, great success there, and then went to work for this company and climbed right up the leadership ranks and ladders. And it was clearly thought that he was next in line to become named as president of a major business unit by the CEO. His invitation for change, or wakeup call, came when the CEO invited him into his office and he came in expecting to get the good news, and instead he was told, "I'm sorry, but I'm not giving you this job, I'm giving it to your peer instead."And that was a very traumatic event for him because he'd never ever had a failure experience to deal with before, so that became a real invitation for him to change.

Rachel Salaman: So that leads to step two, which is "discover what you want to change." So what's the process of discovery here?

Fred Kiel: The process of discovery is how much pain are you in or how inspired are you to become a different person? If you're neither inspired nor are in enough pain that you want to try to get at the root of it then you probably are not going to change, but for this particular person in this case study, he was completely destroyed by it. I mean it caused a lot of angst and a lot of depression and anxiety and all of that, and he was clearly wanting to find his way out of that state of confusion, and that became a motivator for him to lean in to try and change. And luckily, his boss gave him an opportunity to work with us as a consulting practice to help him in that process.

The other way to find the fuel for change is to be inspired about how I could become as a person. My favorite example there is when I once knew a woman who had a smoking habit and consistently tried to quit and was never able to quit. She got married and she got pregnant, and the day she found out she was pregnant she instantly quit. So there was enough motivation and being inspired to be a good mother, so "I'm not going to harm my baby."

Rachel Salaman: And that is actually the third step, find the fuel for change. So then the fourth is identify the keystone change. So could you talk us through that?

Fred Kiel: Usually when people have a vision of a new person they want to become, they can probably make a list of half a dozen, or dozen or more ways in which they could change, it would be along that path. And it's sort of an intuitive kind of process for the person to look at all those changes and focus in on the one that seems to be the most meaningful. And if you look at making that particular change… and sometimes it's hard to figure that out and you need to get input from other people and ask them and it would be surprising how much clarity other people often have. If you go to someone and say, "if there was just one thing, what's the one thing that I could do that would make me more effective as a person in this kind of way, what would you say that it is?" You would be surprised that most people have a lot more clarity about that than you do.

Rachel Salaman: Yeah, which goes back to self-awareness, what we were talking about earlier, yeah. So the fifth step is a little bit cryptic: "disarm your security system." What do you mean by that?

Fred Kiel: What I mean by that is that, when you think about a new way that you want to behave and you're not behaving that way, you are behaving in other ways though, that are counter to that. And those are usually motivated by unconscious habits or ways of thinking. And it may have gotten "installed in your software" early in life to be mistrustful of other people, and you may have had very good reasons for that when you were 12 years old and abused by your family, or whatever the situation may be. But to let that dominate your life in later years is no longer serving you well. Well, if you're unaware of that, and unaware that – what's your first response? Your first response is to mistrust other people. And when you become aware of that, then you can build in means of checking yourself on that, but if you're unaware of it you will go on blindly mistrusting people. And no matter how much you say "I want to become this other kind of trusting outgoing person," you probably won't get there unless you check yourself.

Rachel Salaman: And finally step six: "rewire your brain." In the book this includes some tools to achieve focused attention and the advice "practice, practice, practice." What have you observed among leaders who are working to complete this final step?

Fred Kiel: It is a difficult one because focused attention requires that you have built in constant reminders for yourself – and you can do that in a variety of ways. You can program your smartphone to vibrate every half hour or whatever, and you can ask other people to remind you, or you can put yourself reminder notes around, and all that. But mostly it's reminding yourself of the "why am I trying to change? Oh yeah, I really did want to be different!"

But it's also going public to help make a commitment to those that are close to you, to help you in this process, and when they see you behaving in a certain way that you don't want to behave, give them the safety and the permission to point it out to you as well as to praise you when you are making attention.

Those will all be ways of helping you keep a focused attention. What focused attention does to your neural pathways is that it creates new ones and what you are trying to acquire is a new habit that is counter to the old habit.

Rachel Salaman: We've covered a lot of ground in this discussion. What would be your top two or three takeaways for leaders who are looking to increase the return on character in their organization?

Fred Kiel: First of all it's to start out with a baseline assessment and find out what is your reputation because you probably don't have an accurate picture of what it is. And find out specifically what is it about my reputation that I can change that would improve the ratings of my behavior and therefore will probably be recognized as having an impact on workforce engagement and therefore on the bottom line – so it's becoming aware of it.

What I think is most missing is not integrity, believe it or not. (I think a lot of leaders get higher marks for integrity than they do for the others.) It tends to be in the habits of the heart: the compassion and forgiveness, with people feeling like they're treated like furniture or like numbers. And also being aware and afraid to make mistakes and afraid to be innovative because I'm fearful that I'm putting my career on the line if I do that. Those are the two that seem to come up most frequently for them and that would certainly be the takeaways.

So be open to it, be willing to make a turnaround, give up the bad idea that the most effective leader is a hard-nosed driver. The most effective leader is the one who holds people very accountable and is very driven to produce results, but does it in a way that is respectful and caring and forgiving. Then own up to your own mistakes, that's a huge one, because most senior leaders feel it's a sign of weakness – it's a sign of tremendous strength.

Rachel Salaman: Fred Kiel, talking to me in London. The name of Fred's book again is, "Return on Character: The Real Reason Leaders and Their Companies Win," and you can find out more about it at returnoncharacter.com [now krw-intl.com].

I'll be back in a few weeks with another Expert Interview. Until then, goodbye.