Enough has been written about the war for talent. While “war” is probably the wrong word and “talent” has in some cases come to mean “personnel” instead of sharp, imaginative, effective people at the far end of the bell curve, it is in shorter supply than ever, and getting shorter, and is one of the more substantial challenges businesses face. But there’s a far worse shortage of human resources and it’s barely been addressed.
The key business story of the first years of this century was of course the scandal-rama of Enron, Tyco, Worldcom and Adelphia, and the reaction of the investigations by Eliot Spitzer (later ensnarled in a scandal of his own), the subsequent trials and Sarbannes-Oxley legislation to correct these ills. This sort of periodic malfeasance and its correction could be seen as a natural part of a cycle of loosening and restriction that has occurred before in business, but for some noteworthy sidebars. For one thing, the ink was still wet on SarbOx when the push for “reforming” it began. When I misbehaved as a boy, I tried to be angelic at least until the memory of my transgression faded. By comparison, the pattern here seems more akin to merely filing down the points on one’s horns for a few months. SOX became law only in 2002. Not even half a decade later it came under serious assault, including by Hank Paulson when he was Secretary of the Treasury and cheerleader for a new Committee on Capital Markets whose aim was to soften the post-Enron laws.
Another discouraging note is how quickly further scandals erupted. Before the seas calmed after the first wave, we had the turbulence of international mutual fund shenanigans, hedge-fund failures and stock options backdating. Subprime mortgages would come later, along with overdue examination of excessive executive compensation.
This is America, where every problem is met with a law to correct it. In the case of CEO comp, some have pointed out that the very efforts to regulate it ten years ago were key elements helping to inflate pay packages. The problem isn’t rules, regulations or laws.
When Enron and other scandals broke, some observers speculated that no laws had been broken. Dennis Kozlowski’s defense was largely that his board had known and approved everything. Accounts of the case against Ken Lay show prosecutors digging mightily to discover what law they could actually charge him with breaking. Martha Stewart, while not my favorite person, seemed guilty mostly of being obnoxious and arrogant; insider trading couldn’t stick, but luckily she lied to prosecutors. The central maxim of the Watergate Age is “it isn’t the crime, it’s the cover-up.” Lying to prosecutors is illegal, I suppose, but somehow it doesn’t seem fair to put someone away for it. If I was a criminal, I not only wouldn’t consider lying to prosecutors wrong, I’d consider it a sacred trust.
That is, if there were honor among thieves. I don’t believe in that concept generally, but I do believe there is honor in the executive suite. There are chairmen who pay themselves fairly, presidents who can clearly distinguish between using the corporate jet to visit a factory in Nebraska and flying it to their vacation homes in Aspen, directors who sweat the details for modest compensation, managers who husband their businesses in the interests of shareholders, employees, communities and the public at large. And they don’t do it because a law compels them or incentive comp motivates them, they do it because it’s right.
They don’t think about it’s being right and if their company has a formal Code of Ethics, Chief Ethics Officer, compliance people or thought police, none of those largely factor into their actions. It’s hard-wired into them.
So it isn’t the war for talent that should be our chief concern, it’s the war for character. The thicket of law and regulation, the plethora of ethics codes and compliance training can’t make scoundrels behave. But we can hire fewer of them. It isn’t easy. Interviewing today steers clear of what used to be called “character questions” because of fears of discrimination lawsuits. Proscribed competency testing and past behavior interviewing more clearly focuses on talent, but divorces the effective from the ethical. A good interviewer today, especially if equipped with modern assessment techniques, can reliably identify superstars, but not discern which will do well while doing right from those that will boost quarterly profits only as long as he can stay out of Danbury Correctional.
Ironically, the same psychologists who have designed many of today’s preferred interviewing protocols have ample tools for identifying character traits, including honesty, keeping one’s word and knowing in your bones when something’s dicey. But companies have to actively include these requirements when they search for management. Some of them haven’t thought about this in the chaos of the war for talent – why introduce still another hurdle when it’s already so hard to attract strong performers? Others may hesitate for the same reason people don’t talk to psychoanalysts at cocktail parties: they don’t want their own motivations too closely examined. We’ve all been tempted ethically, and most of us have fallen short at least occasionally. But that’s no reason to exclude character considerations from hiring. Character isn’t about dividing the world into black and white, but about knowing when shades of gray cross the line.
In the scandals of recent years, some see problems of disclosure, others of proportion, a few of ignorance, many of hubris. But the common denominator is that people who may or may not have known they were breaking or bending rules strayed deeply beyond boundaries men and women of character would have recognized instantly. We can never legislate enough to prevent future Enrons. We can never regulate effectively enough to prevent future bubbles. We can’t prosecute all those who over-leverage, or invent financial instruments legal but exotic to the point of being inherently destabilizing. But we can temper the search for talent with the knowledge that star managers who are untethered from ethics jeopardize their entire companies. A bad quarter is a bad quarter, tough news for suppliers, maybe some layoffs. A corporate scandal on the other hand can be the death of a whole corporation, tens of thousands of jobs, vendor companies dragged down in bankruptcy. And it can mean a host of new laws that unfairly penalize the people and corporations who are doing the right thing without them. Ultimately, it doesn’t make the search for talent harder. Walking away from self-interested candidates with flexible views of morality in business and actively seeking out and hiring men and women of character is the ultimate efficiency. And oh yes, it’s also the right thing to do.
David S. Moyer