Under Attack: Responsibility
Once there was a young executive hired by one of the nation’s largest trust companies to fix horrendous operating issues that resulted in corporate and high-income customers receiving erroneous statements stating the values of their 401(k) accounts were “zero.”
This young man pressed into service an army of independent outside accountants to delve into the complex mess of missing information, computing errors, and mass confusion. He realized the effort was the largest responsibility he had ever faced. The board of directors had fired the previous CEO and brought him in specifically to find out what had happened and to end the crisis. A normal CEO’s job, except here the future of a company with about $25 billion in assets under management was at stake. It was the Titanic about to hit the iceberg unless he found another route within a very short period of time.
The executive learned that the previous CEO had hired old college buddies to form his executive team. Although they had credentials, this group (who called themselves the Magnificent Seven) was inexperienced and arrogant. They had summarily terminated 15 of the company’s most experienced officers, who each averaged more than 20 years’ experience, on the grounds that new computer programs could do what these people had been doing. Unfortunately, the Magnificent Seven didn’t check to make sure their newly installed software actually worked before the 15 officers were let go. As a result, the trust company’s asset records fell $8 billion out of balance, client taxes were not paid, and government regulators became concerned. So concerned, in fact, that the Office of the Comptroller of the Currency (OCC) set up an outpost at the company to keep a closer eye on operations.
The first major decision the new executive made was to fire five of the Magnificent Seven. Then he invited the 15 officers who had been terminated to join him for a lunch meeting. To his surprise, all 15 showed up. It didn’t take long before they began to vent about how unfairly and disrespectfully they had been treated and the deep pain and disappointment that their being terminated had caused them.
The executive apologized, saying there was no excuse for how they had been treated. Then he told them that the only thing he knew about trusts was that he had one for his kids. He told them that the company was in deep trouble and detailed the magnitude of the problems. He asked for their help, telling them nobody else could fix these monumental problems, and that the future of the company they had worked so hard to build was in their hands. If they agreed to come back and help with the turnaround, he said that when the company was fixed, he would make sure that they had the retirement party and recognition they deserved. By the time dessert was served, everyone agreed to come back, several even canceling planned vacations to do so.
Unfortunately, that was not the hardest decision or the most difficult conversation he had to have. The customers affected were mostly high-income business executives including the CEOs of Fortune 500 companies in town. Not the type of people who settle for answers from their local trust officer; rather, they were calling the young CEO demanding answers and threatening to move accounts.
So far, the new CEO had been able to placate clients by apologizing and telling them that he was looking into it. The young executive’s instincts said the responsible thing to do was to part the curtains on what was going on.
At the same time, insiders believed the less the customers knew the better off the firm would be. Their systems would be repaired soon and life would return to “business as usual.” The risk was that customers would move their 401(k) accounts to the competition. Because these were very large customers, it was possible that the loss of only one of them could deplete the company’s revenues to the point of insolvency. It was a perilous balance and a decision that would make or break the company and this young man’s career.
If you haven’t figured it out by now, the young man in this story was me. I was faced with this ethical challenge about 25 years ago, and I remember it as vividly as if it happened yesterday.
My gut was wrenching because of the struggle between what my instincts were telling me to do and what my business training had taught me to believe. Was it really responsible to tell our customers the truth of what was going on if it put the company at great risk? Was being transparent to customers being responsible to employees and shareholders?
As tough as it was, it took about a nanosecond for me to make my decision. Convincing others to follow me was more difficult. I told the board of directors and executive management at the holding company that I couldn’t do it any other way, and if they didn’t accept my decision they’d have to find someone else to do the job. So they went along with me, some begrudgingly.
Then I had a series of very difficult calls to make. I had meetings with the CEOs of each client firm and told them everything. I confessed that our books were billions of dollars out of balance. I explained that the problems were caused by our own management issues and misbehavior. But, I then described our solution: the 15 critical, experienced officers who had been fired had been rehired, and 60 outside accountants in addition to 30 in-house accountants were all manually balancing accounts to provide accurate input to the system that was running their 401(k) statements. And we removed Magnificent Seven–installed software and reinstalled the system which had worked for many years.
Then I made a promise: if they stuck by us for the next 90 days to give us the necessary time to repair our operations, I would guarantee they wouldn’t lose a cent, and we would make them fully whole if we didn’t get it fixed and they switched to one of our competitors. Plus, they would be customers of a very strong and stable trust company that would never forget their loyalty.
We lost only one small customer to our competition. From that point forward, the company grew to be significantly bigger than it was before the crisis, and within a short period of time it became very profitable. In the end, being responsible to customers was the right thing to do for everyone.
The real heroes of this story were the 15 critical officers who unselfishly came back to the company and, along with almost 1,000 other employees, helped the company repair and recover. When the turnaround was complete, we had a huge party for all employees including the families of the 15 officers. We presented each with a bonus of one year’s salary and a trip to Hawaii with their spouses. There wasn’t a dry eye in the place, including mine, when the 15 officers were given a standing ovation that lasted for over five minutes.
I can’t pretend to have all the answers to being a responsible business leader, but I can share the valuable lessons that I’ve learned. One: Doing the right thing is not always the easy thing. Two: The things we fail to do can be just as regrettable as the things we do that we shouldn’t. Three: Don’t underestimate the value of experience and corporate intelligence that walks out the door when a key employee or officer is fired. Four: Integrity comes first . . . but your customers are always close behind.