Chicago Booth Review Podcast How to Navigate Leadership ‘Moments of Truth’

Lucia Annunzio: One of the things I teach my students is once you tell yourself a lie and you have to believe that lie to look in the mirror, it becomes very easy to tell a lie the next time.

Hal Weitzman: Many of us face snap decisions in which two of our core values come into conflict. We could get promoted, but only by spending less time with family. We could be successful in the short term, but at the expense of long-term sustainability, we could make more money by acting unethically. How do you navigate choices like these in the heat of the moment? Welcome to the Chicago Booth Review Podcast, where we bring you insights from some of the world's top management thinkers, Chicago Booth's, Lucia Annunzio calls these difficult decisions, leadership moments of truth. She advises executives that if they don't have a plan ahead of time on how to make such decisions, they might end up regretting their choices. So how can we be sure that we make decisions that still look wise for years in the future? Lucia Annunzio, welcome back to the Chicago Booth Review Podcast.

Lucia Annunzio: It's always a pleasure to talk to you, Hal. Thank you for asking me back.

Hal Weitzman: I wanted to talk to you today about what you call leadership moments of truth. It's something you teach in your classroom. Tell us what that means.

Lucia Annunzio: Well, all leaders have these moments, and what I want to do is make people consciously aware. What it means is we all have values, deeply held beliefs, things that we truly value, and sometimes at work, two of those values come in conflict and only one can win. The more consciously aware you are of what your values are, what the cost is of living one value versus the other, or living the other value versus this, the more you think it through, the less regret you will have, the more courage you will have. Often-

Hal Weitzman: So is this kind of a decision-making tool for individuals? Is that what leadership-

Lucia Annunzio: And for companies. I do this with senior executive teams. I always do it with the CEO. When you're not consciously aware of what your values are, you've got a list of 20 and you haven't really defined them. And when you're in that moment where you have to make a critical decision and you're under pressure, it's really easy to succumb to something that if you thought about it later, you wouldn't like. So for example, you're a CEO, you really know that your future depends on innovation. The board of directors and the investment community is pressuring you to get that short-term quarterly result. And you know that if you do exactly what they're going to say, you are going to risk future innovation and the long-term viability of the company. But the pressure gets so great that what really happens, it happens so fast that you don't really realize that you are picking ambition over values.

Because if you truly value your workforce, if you truly value innovation, then you've got to stand up and have courage. But if it happens quickly and you're under pressure, that becomes very, very hard and you have to tell yourself a lie. The only way you can live with yourself then is you have to say, "Well, it really made sense. It was really in the best. I had no choice." That's the biggest one. I had no choice. Well, you did have a choice. You didn't take the time. One of the CEOs I worked with once, it was so sad because his company, he loved his company. He was a stalwart in the community, very philanthropic, church going family man. I mean nice guy, I mean truly nice guy. And the company wasn't doing well and he didn't want to lay people off and laying people off meant hurting the community as well.

And he had access to some funds that he wasn't supposed to utilize, and it was a loophole that he had access to these funds. It wasn't against the law, but it wasn't right. And he borrowed some of that money because he truly believed that he would be able to pay it back, but things didn't get better. And so because he told himself a lie that he was doing what was right, he kept borrowing it. Well, eventually he got caught. He was in disgrace. The company was in worse shape than ever. He didn't ask for help. And if you had met, I mean anybody can look at that and go, "Well, he just did the wrong thing. He's just not an ethical person." Well, no, that's not true. He had a real moment of crisis and he made a mistake.

I didn't know he made it. I didn't know he made it till after the fact and he was heartsick and heartbroken, not because he got caught. That's the interest. He didn't go to jail, he didn't break the law. He was heartbroken because he didn't save the company and that his scheme didn't work. And he realized that if he had just told the truth, if he had had the courage to tell his people, to tell his board that maybe there had been alternatives that he didn't look at.

Hal Weitzman: It reminds me of this adage about it's not the original indiscretion that gets in trouble, it's the coverup.

Lucia Annunzio: It's the coverup.

Hal Weitzman: But you're saying that if you, and the story you just told is so familiar, I feel like from Bernie Madoff to Barings Bank, we've heard that story so many times of someone who does something not necessarily for personal gain and then ends up covering it up and covering it up and it snowballs.

Lucia Annunzio: And they always get caught.

Hal Weitzman: Of course.

Lucia Annunzio: I mean, that's what I always tell my CEOs that I coach, "You're going to get caught. This is when you get caught." I mean, there are no secrets in this. We live in an open information world and if you think you can cover this up, you are wrong.

Hal Weitzman: So the case of the example you are bringing is a case where things go wrong and you do as you say, get caught. But there could be that you have phase one, these leadership moments of truth, and actually you make a decision-

Lucia Annunzio: It might've worked.

Hal Weitzman: But I'm saying you might go against your own values.

Lucia Annunzio: But you go against your own values. And one of the things I teach my students is once you tell yourself a lie and you have to believe that lie to look in the mirror, it becomes very easy to tell a lie the next time. So you're in the finance department and somebody says, "Just change this number. It's not going to change the bottom line. Just... ". Well, it's probably true. It probably isn't going to have that big overall impact, but it's lying, it's cheating. And once you give yourself permission to do that, you'd be surprised how, that's what this guy, the CEO that I was talking about, it became easy to keep doing it. He never thought he'd bleed this fund dry, but he did. I don't know if Bernie Madoff is a sociopath or not. I don't know. I know one thing for sure. He told himself a lie. He thought he could pay that money back.

Hal Weitzman: Okay, so it sounds like some of what you're saying relates to the psychology of bright lines. I don't do this. I choose not to do this. I choose never to do it. So there's no wishy-washy area where I might do it in certain circumstances and it depends. It just never depends. I'm never going to do it. And you are suggesting that you can almost set up a pre-commitment document or statement where you are going to say, "I'm definitely not going to do this under any circumstances."

Lucia Annunzio: I'm saying when a leadership moment of truth happens, you don't know what's happening unless you're consciously aware of what it means to have a leadership moment of truth. When you understand that there are two values that you hold dear that are in conflict and when you have, I make my executives write down, we do this whole exercise with a deck of cards. What are the five values you hold most dear? And I have them write it, I have them write a definition, a behavioral definition so that when those moments happen, it improves the odds of them being consciously aware and it also shows that they do have a choice. One of the things that saddens me about the world today is that I call it, I don't call it leadership courage, but the concept of leadership courage, doing the right thing because it's right is in short supply today.

It's just in short supply because people are afraid to do the right thing at the cost of the pressure that they're under. And I personally find that very sad. I tried to write an article about leadership courage, and I couldn't get anybody to be interviewed for it. Nobody wanted to tell their story. I got one leader who I happened to be sitting next to at an Economic Club of Chicago dinner, and he told me the story about how he handled something. I said, "That's great. You had a moment of truth. You picked your values. Will you be interviewed for an article?" And he said, "Sure." I couldn't get anybody else. What does that say about the world we live in today? I try to show examples of leaders showing leadership courage in my class. The only one I can come up with is a scene from Invictus with Nelson Mandela. I mean, that's really sad.

Hal Weitzman: Yeah, so it's interesting. Because it maybe suggests that we think of these moments of truth as being something that happens to big important leaders and there's a big pivotal moment. Do you think maybe it's more mundane than that something that you perhaps don't even notice and you don't think deeply about? It happens and you should let it happen.

Lucia Annunzio: When I'm working with A CEO and they're going to tell me that the board won't, and this investment community, I always use Jeff Bezos as an example. Whether you like Jeff Bezos or not is irrelevant. Jeff Bezos, he had a goal and his goal was to create the ultimate customer experience. And I knew Jeff in the nineties and nobody was going to thought he was going to do that. They didn't think he was going to be able to sell books online. It was popular. People liked it. The market cap was high, but he wasn't making any money. And when he started making money, he got dinged by the investment community because he wasn't showing a profit. And he kept saying, "I'm going to keep reinvesting my profits in the future because that is where this company is going to go."

And he had the courage, that's courage, to stand up to the investment community to be dinged in the stock market by a group of people, whoever made them God did a really bad job because I believe they have really hurt the world economy. And he had that courage. How many examples of that courage can you find today? I got interviewed by some, I think it was a Wall Street Journal, when Starbucks came up with Frappuccino in a bottle and they didn't make their quarterly first quarter numbers from cappuccino, when it went into the, Frappuccino, when it went into the grocery stores, and I was interviewed about it.

I just said, "That is ridiculous. This is a man...". I said, "Up until my forties, I never drank coffee. He gets people all over the world to spend $5 or more on a cup of coffee and you're going to ding him because his innovation didn't work in one quarter." I mean, that quarterly mentality has put too much pressure on CEOs, too much pressure on employees, too much pressure on the board. It's a ridiculous concept and it doesn't work. It backfires. Right now, no one wants to be a CEO. I mean they have a shortage of people applying for the job. Who wants to be a CEO? Who wants that pressure? Who wants everything you say or do to end up in the newspaper out of context? It's a hard job. I don't think people realize how lonely it is, how difficult it is, how much pressure CEOs are under. We just see them as the greedy, bad guys.

Well, you know what? 20 years ago when I started coaching CEOs, I thought that too. And then I met them, and then I realized most of them were really good people, decent human beings who cared about their employees but were clueless about their impact, the impact of their behavior on human beings. And that cluelessness, you could wake up and show them how they were coming across. And when you hold a mirror up to a CEO and show them how they're perceived because of what they did, they're not only shocked, they're fast acting, they're smart, they don't need a whole lot of coaching. They just need the mirror. They just need the mirror. But what employee is going to go up to their, what reasonable human being who wants their paycheck is going to go up to their CEO and say, "Well, at the executive meeting you said you want our ideas, and then when I gave you one, you shut it down." I mean, you'd have to be a not normal neurotic to do that. There'd be something wrong with you.

Hal Weitzman: It sounds like to a certain extent, the dynamic that's at play in leadership moments of truth is to do with short-term versus long-term. I know what my long-term values are, but in the heat of the moment, I forget them because there's some other pressure, like you talked about quarterly earnings or desire to show a profit or whatever it is, or stakeholders, shareholders demands.

Lucia Annunzio: I'll tell you how many people pick family, for example, is one of their deeply held beliefs. But how many times? And you ask somebody, "What's your most important thing in your life?" "Oh, my family." But then you look at their calendar, is it really? How much time do you spend with your family? How much effort do you put on your family? How much time do you spend on a PowerPoint that you're going to give to the investment community? I don't know. But if that's one of your deeply held beliefs, I'm not saying it should be equal, but is the time you spend with your family commensurate with how much you value your family? I don't care. I don't judge you. It's not my life. I don't believe in work-life balance. I don't believe there is such a thing. It conjures up a scale where that if you just put the right stuff on one side and the right stuff on, it'll even out.

No, there's life. And what kind of life do you want? What choices are you willing to make? What are you willing to give up? What are you not willing to give up? That's your choice. Nobody's doing that to you. No corporation is doing that to you. That is a choice. Own it. Whatever, if you choose to work 12-hour days because you want this job for whatever reasons, go for it. But then don't blame the company. That's a choice.

Hal Weitzman: But as you said, one of the challenges is that a lot of the structures like quarter of the earnings are set up to force you to make short-term decisions are not long-term decisions-

Lucia Annunzio: Maybe for the employee, not for the-

Hal Weitzman: We need to cut the budget for this year, not who cares about five years time. We need to show a profit now in this quarter, not in five years time.

Lucia Annunzio: Years time. Or are you willing to stand up and say, oh, okay, I'm going to give you a British example. It's an old one, but it's one of my favorites. It's Sir John Brown from BP. BP in about, I'm guessing now in about 1995, stood up to the, he's a little guy, he's smaller than I am. I've worked with Sir John, and he stood up to the investment community and he said, "BP is going to lose money before it makes money. The world is going digital and the world is going green, and we are going to upgrade and change our technology and we are going to become state-of-the-art, and we are going to be the winner." And what happened? BP bought Amoco Oil Company. I mean, he was the winner. He was a person who had leadership courage, but his predecessor did not, unfortunately. Not his predecessor, his successor.

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I was going to ask you, when you are facing this kind of situation, a moment of truth, you make it sound so, you are trying to give people clarity, which I understand. How often or when do you know when that clarity takes you to saying, you know what, this is not for me. I'm not going to make that decision. I'm not going to be that person, and it's time for me to step aside.

Lucia Annunzio: When you have a leadership moment of truth, there's going to be lots of voices. People giving you pressure one way, people giving you pressure. The other, I always say, when you think about which way you're going to go, can you look yourself in the mirror? The example I really like to use is you're in the ladies' room or in the men's room and you're talking to one of your colleagues. You don't know that your teenage child is behind one of the doors and you tell them the choice you made and they walk out. Are you ashamed or proud? Because if you're ashamed, you lied to yourself.

Hal Weitzman: So the first step to getting the clarity is to write down your values.

Lucia Annunzio: The Values. And make them behavioral.

Hal Weitzman: And make them behavioral. So in other words-

Lucia Annunzio: So you know what they look like. Yeah.

Hal Weitzman: Yeah. And when you said you had a deck of cards, by the way, these are values that just come up time and time again?

Lucia Annunzio: Yeah, it's a lot of values.

Hal Weitzman: Family is one of them.

Lucia Annunzio: Family.

Hal Weitzman: What are some of the other popular ones?

Lucia Annunzio: Honesty, courage, integrity, success, ambition. There's nothing wrong to have a value towards ambition. Loyalty, caring, compassion, empathy. The deck of cards has about 50 name [inaudible 00:19:46]-

Hal Weitzman: Okay, but those are the most popular ones that come up. Some of them.

Lucia Annunzio: Well, there's no popular. Everybody's different.

Hal Weitzman: Well, you said family is a typical one.

Lucia Annunzio: Well, yeah, family is typical, but...

Hal Weitzman: So what you advise people to do? They identify their values from this kind of list, which-

Lucia Annunzio: Well, I go through a process. They have to weed them and weed them, and then they have a really difficult choice of only picking five, and it's a forced choice and people agonize over it because they can only pick five. And what they learned from it is that when they have to make that choice, they really figure out what truly matters.

Hal Weitzman: And then what do they do with the five that they've selected?

Lucia Annunzio: Like I said, they write them down. I tell them to keep them close by, to know where they always are. And when you experience, now I've told you what a moment of truth looks like, when that starts happening, pull them out, realize that there may not be a right choice, but there is a right choice for you. And what is that right choice for you? What's going to happen if you do this? What's not going to happen? What's going to happen if you do the other one? What's not going to happen? What is the pro and con you're willing to make? That's your choice. Make it and own it.

Hal Weitzman: And when you do this exercise with executives, what do they report back to you? How has it guided them?

Lucia Annunzio: When I do it with a senior executive team, I have them all tell a story of a time they had one of these. And they share them with each other and it's so bonding. They become much more trusting of one another. They become closer, they make better decisions, but more importantly, they help each other through them because they've recognized it's not just me. Everybody's had these moments. Sometimes I've handled them well, sometimes I haven't. Some people tell stories of real regret and what they learned from it. Some people tell stories of how they made a wrong choice and they're still making the wrong choice. And people on the team helped them see that they're still making the wrong choice and that they're lying to themselves, and that helps a lot. It fosters, as Patrick Lencioni says, "Vulnerability based trust helps a team make the best decisions."

And when you can help have a team be able to tell the truth with one another, be able to share the things that they are proud of, not proud of what they've done, what they haven't, that they can get help with one another, that they can be vulnerable, that team makes better decisions, and the reason they make better decisions is that all information gets put on the table. You cannot make a good decision on a senior leadership team if information isn't being said for one reason or another. You're afraid, you don't want to look stupid, you want to be the winner. Whatever your agenda is. If you're withholding information that will water down whatever, because the senior executive team, in my opinion, only has one job, and that is to figure out, make decisions about where the company is going and how they get the money to get there. And the better that team functions as what I would call a high performance team. The more information on the table, the more trust there is, the more vulnerability there is, the more sharing there is, the better decisions they'll make.

That doesn't mean they'll make all right decisions. We're all imperfect human being, and we're all dealing with imperfect information, imperfect data. Who could have predicted COVID? You could have made great decisions in your company in 2020, and then COVID happens, or a hurricane happens or a tsunami happens. There was a hurricane in New York just was it a week ago? I mean, not a hurricane earthquake. It didn't do any damage, but there was an earthquake in New York. There are unpredictable things. I mean, it was not predicted that we were going to have higher inflation this month. Companies made decisions thinking inflation was going down and now it's going up. Now the interest rates are uncertain. I mean, in Europe, they're starting to raise them. Right now, America has hold, it's very hard for companies to make good decisions in a world of imperfect data and uncertainty, but that's the world we live in.

Hal Weitzman: Thank you for talking us through how to make those decisions, using values and thinking about leadership moments of truth. Lucia, thank you. Always fun to have you on the Podcast.

Lucia Annunzio: Thank you. It's a pleasure.

Hal Weitzman: That's it for this episode of the Chicago Booth Review Podcast, part of the University of Chicago Podcast Network. For more research, analysis, and insights, visit our website at chicagobooth.edu/review. When you're there, sign up for our weekly newsletter so you never miss the latest in business-focused academic research. This episode was produced by Josh Stunkel. If you enjoyed it, please subscribe, and please do leave us a five-star review. Until next time, I'm Hal Weitzman. Thanks for listening.