What is integrity? Integrity is like an iceberg. We can easily see the visible part above the waterline, but the larger part is below the water. “Above the waterline ethics” are usually very clear and written. Violating codified ethics can get you fired, fined, or thrown into jail.
While there are few grey areas above the waterline, integrity goes much deeper. What’s under the waterline is grey and not immediately visible. There are no laws, bibles, regulations, or company ethics guides to lean on. You won’t go to jail, you probably won’t get fired or maybe even promoted for compromising your integrity. But colliding with the invisible part of an iceberg can sink a person, an organization, or an entire nation. The Titanic sank because the iceberg popped rivets far below the waterline that held together the hull plates of the “unsinkable” liner.
Integrity and intellectual honesty ultimately determine your value as a human being, the trust of society, friends, and family. The cultural integrity of an organization is a strong factor in its long-term results. Success requires vision, being in the right business at the right time, innovation, resources, and a good bit of luck. But without integrity the right ideas can’t flourish. Without integrity, the wrong initiatives are funded for political reasons when it is impossible to have an intellectually honest discussion.
One of the telltale signs of an organization that has lost its integrity is forecasting. I have observed organizations that quite frequently missed their projections by a wide margin. Good planners often develop plans with optimistic and pessimistic assumptions, and then run the business with a realistic plan somewhere in between. But some organizations tend to present an overly optimist plan to their stakeholders. Unless everything goes perfectly the company is forced to announce missed earnings and usually layoffs. I have observed the most glaringly optimistic “hockey stick forecasts” in declining businesses, projecting a bright future where none exists, to postpone the inevitable downsizing. The same is true in government, in this case to protect positions and budgets for services that are no longer important.
Another symptom of compromised integrity is evident in new product development. Product programs are launched with unrealistic cost targets and revenue projections until “make or buy” decisions are settled in favor of “make”. By that time, the company invested too much to abandon the project.
Missed forecasts are often the result of a culture that lacks integrity, from the individual sales rep and product manager up to the CEO. Everybody knows that the projections are unrealistic, but over-commits to obtain funding or save their job for another quarter. This culture avoids “fessing up” until the CEO has to announce quarterly results, and then the stock takes a dive.
Integrity does not mean that forecasting is an accurate science, or that intellectually honest organizations never miss their projections. A trustworthy company can miss their objectives, and that presents an opportunity for the smart investor. The key question to ask is whether the underperformance was caused by one time, unpredictable and temporary market conditions, the delay (not loss) of a key deal, weather – or due to more fundamental problems. Investors may accept a quarterly earnings shortfall, or an “extraordinary charge”, and the stock recovers, but the market is astute enough to sense a downward spiral.
The downward spiral of many companies can be linked to a culture of compromised integrity. It starts with unrealistic projections leading to disappointing results, R&D cuts, layoffs, low morale, the avoidance of innovative risk taking, outdated product lines, the loss of key talent, more layoffs… the cycle continues.
In the downward spiral, organizations reward compliance rather than promoting an open dialog that is needed for success. A sign of trouble is frequent reorganizations, designed to show activity to stakeholders, but without a clear vision on how the change deploys resources and talent more effectively and makes the company more competitive. In survival mode, weak management often sidelines the brightest talent that may challenge the status quo. These reorganizations accomplish nothing more than rearranging the deck chairs on the Titanic.
Without a radical change in management and culture, the slow and agonizing downward spiral caused by a missing integrity culture can be more damaging than “above the waterline” offenses. Changing top management alone usually does not solve the problem. A low integrity culture that has spread throughout the organization is like cancer. It requires radical and painful surgery and a long recovery.
When caught, organizations that violated laws usually end up in bankruptcy, or pay the fines and recover. But companies who lack integrity, especially technology companies who rely on innovation, seldom recover. They are sold at bargain prices, dismantled, or shrink to a fraction of their former value.
The most admired and successful companies are in a similar but positive cycle: Apple, Google, Berkshire Hathaway, and Amazon. Google gave up market share and potentially billions in revenue to avoid censorship in China but the stock is at near record heights. Winners attract the best minds, who seek not just big paychecks and stock options, but belonging to an organization they can be proud of.