I will start this post with an old story. CEO of Sunbeam Corp.,
Albert Dunlap, known as an expert in turning around troubled firms and selling
them for a profit, was sued by the SEC in 2001 for accounting fraud. He was
eventually barred from serving as an officer or director in any company, plus
ordered to pay investors defrauded money in a class-action lawsuit. Albert Dunlap was clearly someone in need of flattery,
not just money, as he had the classical flattery-sickness symptom of a book
written to celebrate his successes (see also his picture!). How he managed things internally in each
firm he led is disputed, but much was said about his intimidation of other
managers, who probably would conclude that a lot of flattery and ingratiation
might help their career. Of course, managers still did better than employees,
because his signature move in turning firms around was mass layoffs.
An interesting detail of his downfall was that managers
around him were quick to release information that helped the investigation,
which is distinct from the many firms with management teams that do all they
can to deter and obstruct investigators. Is there a systematic reason for this
difference? Possibly. A recent article in Administrative Science Quarterly by
Gareth Keeves, James Westphal, and Michael McDonald looks at what happens when
managers ingratiate their CEO through flattery and other tools. Their findings
are interesting. First, managers who flatter lose their liking of the CEO. Somehow
when people artificially put others on a pedestal they also start looking down
on them.
Second, managers who flatter may go on to undermine the CEO.
The light-handed version of this is to undermine the CEO’s messages to
journalists, as this research showed. The heavy-handed version is what happened
to Albert Dunlap. Among other events, his comptroller reported that he had been
pushing for accounting practices that crossed the legal boundary, and sales
people were quick to report “channel stuffing.” Channel stuffing is to sell too
many goods and selling them too early, which is not illegal in itself (the
sales channel can return unsold goods, so it is safe for them), but it is
illegal when the sales are accounted as if they were final. Those were practices that the SEC (and some
investors) suspected, and that meant that what looked like a turnaround in sales
and profits was actually a fraudulent scheme.
Seeking flattery is never thought of as a good thing. What we
now know is that it also triggers undermining, and for those who have real
weaknesses – like a CEO engaged in fraud – that undermining can be very
consequential.