Opinion

Putting Trust on Cruise Control at Carnival

Jeffrey A. Sonnenfeld — February 2013

Senior Associate Dean Jeffrey Sonnenfeld writes that Carnival CEO Micky Arison is a vivid example of the public’s growing skepticism about leaders.

Published by the Huffington Post on February 19, 2013.

 

Historians have debated for 2,000 years whether ancient Roman emperor Nero really merrily dressed in costume and played his lyre while his city burned. There is no dispute, however, how a modern-day cruise emperor, Carnival CEO Micky Arison, showed his Valentine’s Day disdain for his constituents this past Thursday. After the fire engine aboard his listing ship, the Carnival Triumph, left 4,229 passengers and crew trapped at sea, he stayed out of sight, except for merrily cheering on a Miami Heat basketball game from the comfort of his owner's box.

Despite the lack of food, ventilation, elevators and sanitation—pools of urine and feces washed down the hallways—Arison, as in previous disasters at sea involving his company's ships, held tradition and did not join relief efforts, reach out to the distressed passengers and their families, or engage public officials and the media.

Arison inherited his ownership of Carnival’s nautical empire and controls 45 percent of the global cruise industry with a fleet of over 110 mega ships. But his fancy this week was watching his gladiators on the court and not his passengers stranded at sea.

Meanwhile, his subordinates failed to inform passengers in distress, leaving them in the dark about their immediate futures. Yet, back on shore they issued misleading assurances to the family members of passengers and crew, gainsaying the widespread misery in a dangerously listing ship traveling 6 knots, 30 miles off shore from Alabama.

If it were not for the human suffering, this bold public show of arrogant indifference to the safety and comfort of his customers would almost be refreshing. Most bosses have been skillfully coached to conduct themselves in public in ways where they appear to care about building trust despite how they may vary in actual leadership choices. Can there be a more frequently heard management mantra than “build trust with key constituents"? Surely this is one of the most common themes for management advisers and business speaker pitches. Yet recent events remind us that it is still too soon to hang the “mission accomplished” signs despite the frequent trust-building clichés.

In fact, just last month, the 2013 Edelman Trust Barometer revealed a disturbing crisis of confidence in leaders of both business and government. In detailed interviews with 31,000 people around the world, fewer than one in five people said that they believe a CEO or a top government official will tell the truth when confronted with a difficult issue. This isn't just business; it is personal, as there is also a growing trust gap between institutions and the leaders of these institutions. For example, globally, trust in business is 32 points higher than trust in CEOs while trust in government is 28 points higher than it is for government officials. The drops in trust of leaders fell even more in the “general public” surveys than in the polling of "informed publics" who may have been just mildly more trusting.

This research confirms the democratizing trend of recent years, with a redistribution of influence from traditional authority figures, such as CEOs and prime ministers, towards employees, peers, and people with credentials—including academics and technical experts. A professor or “person like yourself “is now trusted nearly twice as much as a CEO or a government official.

It is clear that a different form of leadership is needed and desired. High-profile crises exposing a deficiency in effective and thoughtful leadership over the past few years support this sentiment, from the dismissive but empty pronouncements in New Orleans by Homeland Security's Michael Chertoff and FEMA's Michael Brown in the 2005 aftermath of Hurricane Katrina, to the disdainful sneers of BP's CEO, Tony Hayward, in the 2010 aftermath of the massive Gulf Coast oil rig explosion, and the false assurances of safety from top officials of Tokyo Electric Power Company following the 2011 meltdown of the Fukushima Daiichi nuclear plant.

And Carnival’s Arison provides yet another vivid explanation for growing public skepticism toward our leaders. He has hidden behind the skirt of a division president, Gerry Cahill, making him the face of Carnival. Passengers reported that hours after the explosion, they had still received no explanation over what happened to cause the power loss. Only after 12 hours did they learn of possible rescue options. The ship's crew did not communicate, reportedly, because they did not know what Carnival's plans might be.

Last year, as the norovirus swept through passengers and crew of the Carnival Freedom and the Carnival Glory, the firm did its best to seek radio silence and dodge the media. We saw the same Carnival cowardice following last year's grounding of the Costa Concordia off the coast of Tuscany on Friday, January 13, 2012. Despite the loss of 32 lives, CEO Arison avoided all public engagement, again using a divisional executive as his body shield and voice.

CEOs such as Arison must recognize that the traditional pyramid of authority and top-down, elite-driven communications is no longer the ideal model for effectively communicating with key stakeholders. An inverted pyramid of community—employees, action consumers, and social activists involved in real-time, horizontal, constant peer-to-peer dialogue, has joined the traditional pyramid of authority. Smart institutions must learn how to operate within this new geometry of communications using vertical one-way communications while continually participating in the ongoing horizontal conversation.

This requires a more inclusive form of management in which leadership establishes a vision and transparently shares reasoning, purpose, and results; enlists a broader range of advocates, including employees, action consumers, social activists, academics, and think tanks, seeking their input and reaction; embraces all channels of communications, actively listening to new voices of influence, and adapting; and shifts from vision to implementation with transparent measures guided by continual engagement.

This use of surrogates regularly fails as it did in 2011 when Toyota's new CEO, family scion Akio Toyoda  tried to hide behind Jim Lentz, his North American sales executive following safety concerns over car acceleration. BP's fallen CEO Hayward also tried to hide behind U.S. division head Lamar McKay. Similarly, in 2000, Ford's failed CEO Jacques Nassar initially resisted testifying before Congress on a car safety problem, offering his lieutenants saying he was "too busy running the company."

By contrast, a decade later, a Nassar successor and Ford savior Alan Mulally not only testified enthusiastically before Congress to help fortify his industry; as his beleaguered colleagues at GM and Chrysler went begging for loan support, he was the only one prepared to answer tough questions and was ironically the one not asking for assistance!

Of course there are many examples of leaders who show a far more effective “grounded leadership” style, earning the widespread trust they enjoy. They basically demonstrate five key qualities:

1) Personal dynamism and accessibility

If leaders are to be accountable, they must be seen and visible. They have more cross-functional, enterprise-wide knowledge and only they can commit the total enterprise to problem solving.

When bad weather caused a Valentine's Day travel fiasco in 2007, grounding many JetBlue flights, company founder David Neeleman set the gold standard for CEO apologies with 17 national TV appearances ranging from Matt Lauer's early morning show to David Letterman's late night show. Neeleman followed his words with powerful action, conducting an immediate operational review, identifying and fixing the source of the problem but not scapegoating subordinates, assuming the responsibility personally.

2) Empathy and concern

Similarly JPMorgan Chase's Jamie Dimon towered over his industry peers in attitude, accessibility, and candor when he went before Congress and the public following the 2008 financial industry collapse. Moreover, while there, he respected the legitimacy of his critics and was prepared. When one U.S. congresswoman asked an ill-formed question, the CEO of a competitor bank mocked her. By contrast, Dimon patiently teased out her concerns to help her better formulate her question and then offered a mixed assessment of his bank in measuring up to those concerns.

3) Moral authenticity

Many felt Dimon's moral legitimacy would be eroded when it turned out that he was mistaken when, on April 12 of last year, he minimized reports on the loss of risk controls in JP Morgan Chase's chief investment office, calling it a "tempest in a teapot." In the weeks that followed, he learned that the trading losses were significant—then approaching a surprise $2 billion and ultimately reaching $6 billion is what was called the "London Whale" fiasco.

He realized that he had been misinformed by key personnel. Dimon quickly broke the revised story himself, making rounds to all the major media and two sets of late spring congressional hearings where he openly acknowledged that, to his surprise, the initial media reports had been more accurate that was he, apologizing for what he terms an "egregious" mistake caused by "sloppiness and bad judgment." Investigations and key terminations followed. This past January in Davos, he again termed it “a terrible” mistake, telling shareholders "I apologize deeply," with his pay sliced in half despite having led the bank to earn a record $21.3 billion last year. This past January, he and his board issued a candid, contrite 129-page report, naming names, and cited the breakdowns in management and the board which allowed this risk oversight to get past them.

After a whistleblower informed HP CEO Meg Whitman that Autonomy executives had undertaken some creative accounting to make the company more appealing to potential buyer HP, Whitman immediately addressed the issue in a forthright and aggressive manner. Speaking with Wall Street analysts, the computer giant's CEO admitted she was part of the board that approved the $11 billion purchase of Autonomy and relied upon the audited financial provided by Deloitte: "Most of the board was here and voted for this deal, and we feel terribly about that." She went on to say that HP had since begun a review of its acquisition process internally, which led to amendments of the process.

4) Inspirational Goals

JetBlue founder Needleman showed not just contrition but genuine atonement. Following JetBlue's 2007 service failure, he produced a "Passenger Bill of Rights" to ensure fairness, safety, and comfort that inspired his employees and set the high water mark of standards for his industry.

PepsiCo's Indra Nooyi has shown that setting inspiring new industry standards is possible on a larger scale. Under her "Performance with Purpose" initiative, PepsiCo raised the bar for the food industry on the use of safe drinking water and reducing waste. PepsiCo is on target to improve water-use efficiency by 20 percent per unit of production by 2015 over its 2006 baseline. Alert to the role of soft drinks and snack foods in the global obesity epidemic, she launched a major R&D commitment to take sugar, salt, and fat out of the company's products, hiring the Mayo Clinic's pharmaceutical and nutrition research director. At the same time, PepsiCo's existing "nutrition business" has been growing as a share of the company's portfolio with its "good for you" products—snacks and drinks made of grains, fruit, nuts, vegetables, and dairy growing from the present $10 billion business into a $30 billion business by 2020.

Over the summer of 2007, Mattel CEO Robert Eckard had a wrenching wake-up call. A decade earlier, the firm had been a trail blazer with its Global Manufacturing Principles setting high standards and monitoring for safety and worker treatment at its own 12 factories and its vendor facilities. Yet nonetheless, the company had become overconfident in its oversight of longstanding Chinese vendors and had to issue waves of product recalls for children's toys that had been tainted with lead paint. Some of its most trusted vendors had drawn on cheaper paint suppliers not on the company's approved list. Rather than fall victim to larger jingoistic geopolitical trade battles or finger-pointing, Eckard took responsibility. He led a housecleaning of subcontractors, improved vendor guidelines, reduced dependence on Chinese contractors, and ran ads around the world featuring his personal promise that the company would do better.

5) Personal Courage

One courageous decision is when to engage and when to walk away. As for stepping away, this past week, at a time when immoral conduct of clergy has severely damaged the institutional trust of the Roman Catholic church, Pope Benedict XVI realized the church needed strong moral leadership. However, the 85-year-old leader of the church courageously broke 700 years of tradition to enter a monastery, abdicating his role, announcing that he is too frail physical and emotionally to master his leadership responsibilities. Similarly, an immensely popular influential senator and former chairman and CEO of Automatic Data Processing (ADP), 89-year-old Frank Lautenberg, came to the same courageous conclusion this week.

Other times, engagement is the right approach as when the integrity of the enterprise is challenged. In 2007, a released and supposedly reformed notorious ex-con stock swindler, Barry Minkow, launched a false multimedia blitz charging Lennar, the nation's premier home builder, with financial fraud. Meanwhile, Minkow was shorting Lennar stock and then bought it back after the impact of his false reports, expecting a rebound. He also approached Lennar asking for a payoff to drop his false allegations. Other large companies paid off Minkow to drop his false claims and defamatory campaigns. Even though Minkow hid his libel, securities fraud, and extortion under free speech protections, CEO Stuart Miller refused to settle and, securing the enthusiastic support of the Lennar board, spent tens of millions of dollars in legal fees to protect the firm's reputation and succeeded in having Minkow returned to prison.

Miller saw the fortification of trust in Lennar as his most critical responsibility.

Johnson & Johnson's legendary CEO Jim Burke commented on the value of defending trust in the enterprise when reflecting on his celebrated national recall of Tylenol capsules and their replacement with tablets in new packaging:

“All we said was 'trust us'... We were cashing in on 100 years of trust that had been built up. [...] All the previous managements who built this corporation handed us, on a silver platter, the most powerful tool you could possibly have. What worries me most is that people don't understand that institutional trust is real, palpable, and bankable. So that every act that every person puts into an organization that builds that trust enhances the longterm value of that business and which every improper payment or every time you put a product out that is inferior, you trade off that trust.”

It was this concern about institutional trust which, in 2000, led Merck CEO Ray Gilmartin to send his scientists off to the FDA to explain a voluntary recall of their own best-selling painkiller, Vioxx, as soon as he saw their internal troubling research. Gilmartin went to the media explaining the recall without hesitation, as he told me:

“We made the decision to withdraw the drug voluntarily based on our commitment to patients as best expressed by George W. Merck, ‘We must always remember that medicine is for the people and not for the profits... the profits will follow.’ If we had not withdrawn the drug, we would have betrayed our values and the trust that has been placed in the company by patients, doctors, and Merck people.”

He initially faced a storm of controversy over this bold move while similar competitor products remained on the market. Ultimately, Merck prevailed in the expected litigation which followed and fortified trust through its revered corporate reputation and internal employee pride.

When top officials forcefully pronounce that constituents are safe, it does not necessarily make it so, as the public has painfully learned. The philosopher Spinoza once said that "citizenship is earned, not born." Similarly, public trust and legitimacy must be earned. Even emperors can no longer rely upon formal authority. Arison was born into running his father's company, but that birthright did not bring with it moral authority and the trust of his constituents.

The Edelman Trust Barometer's crisis of leadership confidence shows that our leaders must not look to Carnival's, BP’s, and Toyota's instinct for stonewalling as the model. Instead, leaders from JPMorgan, PepsiCo and HP, along with many others, show that the path for trust building is forged through genuine grounded leadership.