It’s been 11 days since Third Point, the hedge fund that owns 5.8% of Yahoo, alleged the internet giant’s CEO did not have the tertiary qualifications the company claimed he did. Scott Thompson, instated a mere five months ago, resigned this morning. His embellishment – his resume claimed he had a degree in computer science as opposed to accounting – has left his credibility in tatters.
In their seminal book Credibility: How Leaders gain and lose it, American management and leadership academics James M. Kouzes and Barry Z. Posner detail how over the past 20 years they’ve conducted a survey attempting to identify what people value the most in leadership. After 15,000 interviews, they concluded that successful leadership is a relationship, and credibility is what allows it to grow.
“People have to believe in their leaders before they will willingly follow them,” they write. “Credibility is… how leaders earn the trust and confidence of their constituents… what people demand of their leaders as a prerequisite to willingly contributing their hearts and minds to a common cause.”
Credibility is one of the most valuable assets a leader has, and one they should guard carefully. But too many leaders lose it, in a variety of ways.
1. By lying
Thompson was a CEO with experience in fast-growing technology companies. Before Yahoo, he was the CEO of online-payments facilitator PayPal. Silicon Valley is notorious for preferring to deal with tech-heads rather than corporate drones, so leaderships aspirant are under pressure to claim a background in computer science.
At this stage, it’s unclear whether Thompson lied or merely allowed the error to continue. In his statement apologising for the error, he did not explain how it came about, and the Yahoo board has previously claimed it was “inadvertent”.
But Thompson’s misattributed qualification has shot his credibility. He’s unlikely to be the leader of a high-profile company in the next few years, despite his underlying abilities not having changed.
2. By omission
In 2000, the CEO of one of the country’s then highest-profile technology companies, Solution 6, resigned and left the country, following revelations that he had been convicted of a marijuana possession charge in Texas.
Chris Tyler, whose company was a quarter-owned by Telstra, said he never disclosed the events because he had never been asked about them. The Solution 6 board, while originally defending Tyler, eventually cut him adrift.
3. Not admitting when they’re wrong
CEOs are high-profile individuals, and cop their fair share of criticism. So in a sense, it’s understandable that denying responsibility is their first instinct when blamed for something.
But reflexive denials can damage credibility in the long-term, especially when a leader is actually in the wrong.
A recent example of this are the words of former PwC auditor and partner Stephen Cougle, who has been benched since he completed the accounting firm’s error-ridden audit on Centro.
At the class action trial in Melbourne last month, he maintained that the errors in the audit were due to junior staff not doing their jobs properly.
All companies have young or inexperienced staff, who will make more errors than those more experienced. It’s the job of company managers and leaders to guide and manage them so their errors are educative and do not end up hurting their clients. By blaming the audit on his juniors, Cougle tried to avoid responsibility, ultimately unsuccessfully.
A contrary example to this is the CEO of JPMorgan Chase, Jamie Dimon, who yesterday admitted to being “dead wrong” when he dismissed concerns about the investment bank’s trading last month. JPMorgan Chase revealed a $2 billion loss last week. “We made a terrible, egregious mistake,” he said on Sunday. “There was no excuse for this.”
Dimon emerges as credible and responsive, and Cougle does not.
4. By responding slowly and defensively
This was the fault of the Yahoo board as much as it was Thompson’s. When the allegations were made, the Yahoo board released a statement acknowledging the error, but saying it was inadvertent and immaterial.
LeadingCompany interviewed experts who said this was a thoroughly inadequate response to the charge of dishonesty levelled against Thompson.
As Andres Puig said, this isn’t an isolated instance.
“There’s a trend in public life at the moment that’s infected politics and large companies where people try to get away with providing only partial explanations, or to maintain a position clearly not credible in the face of all available facts,” Puig said.
“Shareholders and the broader public have had enough of it. They’re now being much more probing in questions that they ask. They want information and they want honesty.”
“This stuff happens all the time,” he added. “People aren’t honest about their qualifications or the extent of the things they were responsible for. But in a publicly listed company that’s accountable to shareholders, there is a high standard to be met. It’s not unlike the standard that government ministers have to meet.”
5. By not doing their job
Leaders rightfully demand their underlings do their jobs well and competently. This leaves them open to accusations of hypocrisy if they do not meet the same high standard.
In order to appoint a new CEO, the board of a company is expected to conduct due diligence on possible candidates. Patti Hart, the director responsible at Yahoo, did not, and was the first to fall on her sword last Tuesday.
Hart’s dilemma was compounded by the fact that her listed qualifications, in marketing and economics, were also inaccurate.
Myriam Robin is a reporter for SmartCompany and its sister site LeadingCompany. She has degrees in economics, international studies and journalism. She likes writing about businesses taking risks and doing new things.
