Integrity is Free

by Elizabeth Doty adapted from her article in strategy+business

When Lab Fellow Maryam Kouchaki, Harvard Business School Professor Francesca Gino and I came together in 2012 to collaborate, we wanted to understand the processes of making and keeping business commitments as an essential element of institutional integrity. In particular, we wanted to study the dynamics of “commitment drift,” (perceived systematic breakdowns in fulfilling a company’s most important commitments to its stakeholders).1

Over the past three years, as we piloted a “Commitment Scorecard” in a Fortune 500 company, we found that some leaders viewed keeping commitments to multiple stakeholders as essential to profitability and others viewed the practice as an aspirational goal, but one that could be trumped by pressing business concerns.

Thus, I wrote a post for strategy + business magazine summarizing the case for keeping commitments as a path to profitability, drawing on the classic business book, Quality is Free. The post is relevant to the Safra Center’s study of institutional corruption in two ways: 1) It reminds us that even the day to day challenge of delivering quality products can be viewed as an integrity issue, and 2) it points to a rich body of business literature concerned with systemic breakdowns and their solutions.

Below is a brief synopsis. You can view the complete post at Integrity is Free.

In 1979, Philip Crosby, a businessman and author known for his quality management theories, wrote Quality is Free: The Art of Making Quality Certain. His book, which became a bestseller, outlined the counterintuitive economics that fueled the quality revolution in the U.S. and Japan at the time. His logic was clear: It is always cheaper to do things right the first time than to go back and do them again. Crosby’s extensive research showed that investments in prevention  paid for themselves by reducing the costs of poor quality—inspection, measurement, rework, repairs, or lost business—that could be as much as 30 percent of total expenses. The downstream benefits were not always easy to measure, but they were invaluable. Crosby noted: “Quality is free. It’s not a gift, but it is free.”

Quality methods are usually applied in manufacturing or repeatable services, but if we relegate these lessons to the factory floor we may miss their broader implications for leadership and ethics. For Crosby and his contemporaries, W. Edwards Deming and Joseph Juran, quality was a question of integrity. When there were problems with quality, they usually arose because senior leadership had not been clear about what they were committing to deliver (by setting requirements) or acted in ways that did not align with those commitments in practice (through consistent budgets, rewards, recognition, and so on). And when companies transformed, it was because senior leaders became convinced that defects were not inevitable and that accepting the status quo was costing too much.

Integrity—or lack thereof—remains a critical challenge for companies today. Whether it involves promising a client that a company’s software will work in a specific setting, adhering to investment guidelines with people’s retirement savings, or performing the correct medical procedure, society depends on companies to be responsible about what they commit to and what they deliver. But integrity isn’t easy: It stretches the imagination to envision a world in which businesses deliver on 99.99966 percent of their commitments, as factories do with Six Sigma quality methods. Every day, every leader faces opportunities or even pressure to side-step the truth, fudge the numbers, play politics, or pass the buck on hard decisions. In the moment, doing the right thing, or doing things right, always seems to cost more.

As a result, it is easy to view compromise as inevitable, and become accustomed to “commitment drift.” But although there are very real personal and professional costs involved in telling the truth, keeping a promise, and living our values—consider, for example, what it means to be a whistleblower—there are also great benefits. Acting with integrity prevents the unintended “costs of compromise,” such as damaged reputation, stress, and added complexity, which are detrimental to companies but often hidden from view. Honesty and transparency make things simpler. When you have the courage to own your values and make clear commitments and keep them, employees, partners, suppliers, and customers are more likely to commit and engage as well. And when yes means yes, and no means no, people can make decisions because the facts are out in the open and they know you are serious.

Researchers are now able to show that companies with high integrity cultures reap financial benefits. In The Integrity Dividend: Leading by the Power of Your Word, Cornell University professor Tony Simons outlines a 2000 study of 76 franchise hotels that revealed a 3 percent difference between two hotels’ average employee “behavioral integrity ratings” translated into a difference of U.S. $250K in profit per hotel per year. More recently, when University of Chicago professor Luigi Zingales and his colleagues analyzed employee survey data from 1,000 U.S. companies, they found that those with a culture of keeping their word were significantly more profitable.

Yet perhaps the most important benefit of integrity is the least obvious. Put simply, committing to act with the highest integrity forces individuals and companies to innovate. When we focus on confronting reality as it is, we stop focusing so much on managing impressions. Rather than looking like we are achieving results, we have no choice but to achieve them. I spoke with one leader who had been on a team tasked with developing a “zero-to-landfill” printer—just the sort of green initiative that often falls short of the goal. Week after week, the project team met and checked off their status reports on various tasks, but never tackled the difficult challenges: the toxic chemicals and outdated production processes that made zero-to-landfill a moonshot goal. One day, a team member stood up and said, “I think zero-to-landfill is a good goal. How about we make it real?” That was when they began the work in earnest—and ultimately delivered an environmentally-superior product.

Waffling on integrity almost always involves some element of avoidance. But when you make a clear commitment, you are more likely to face mistakes courageously and confront the honest challenges facing your business. Paradoxically, these challenges are likely to be the key to galvanizing your employees and your leadership team. Yes, committing to high integrity means making sacrifices, and initially the results may look worse, simply because you are telling more of the truth. Yet as businesses learned with the quality movement, the biggest barrier to improvement may be overcoming our default assumptions about what is possible. Over time, companies propel their results to a level where others are asking how they can afford to do it that way. Their answer will be, “Actually, contrary to popular belief, we have found that integrity is free.”

Elizabeth Doty has consulted for businesses and other organizations for more than 25 years. She was a 2013-2014 Fellow with the Edmond J. Safra Center for Ethics at Harvard University and is the author of The Compromise Trap: How to Thrive at Work without Selling your Soul (Berrett-Koehler, 2009). Her website is LeadershipMomentum.netView her full profile.

This post is adapted with permission from an article published by Elizabeth Doty in strategy+business entitled, Integrity is Free.

 


1. As we are defining it, Commitment Drift refers to perceived systematic breakdowns in keeping an organization’s most important commitments to its stakeholders. Commitment Drift becomes institutional corruption when it involves an organization’s most important commitment: to pursue a given purpose. In addition, we view any commitment drift as an erosion of institutional integrity, since keeping promises is viewed by many philosophers and applied ethicists as an essential element of integrity for individuals and institutions. (Kant, 1785Rawls, 1971Donaldson and Dunfee, 1999Paine, 2005)