Friday, November 6, 2009

The Hush

Kudos to Wharton School Professor Tom Donaldson. He is being honored today in New York City by the Aspen Institute Center for Business Education with a Lifetime Achievement Award, a preeminent recognition during Aspen's 2009 Faculty Pioneer Awards event. Dubbed the "Oscars of the business school world" by the Financial Times, this annual event celebrates business school instructors who have demonstrated leadership and risk taking in integrating social, environmental and ethical issues into the MBA curriculum.

Prof. Donaldson wrote a very popular article for Directors & Boards titled "Dangerous Currents." In it he analyzed six factors that contribute to "almost every major corporate ethical disaster." One of those factors was Discussion Vacuum. Here is what he wrote about that:

"When bad things can't be talked about in a company, even worse things can happen.

"The most striking example is the U.S. tobacco industry, which was forced eventually to settle allegations against it for a cost of nearly $300 billion.

"The allegations centered on the claim that it hid the truth about cigarette smoking from its customers. From the 1950s until nearly the end of the century, lawyers in the tobacco industry concerned about liability suits had come so firmly to dominate the culture of the industry that discussions of smoking and health were virtually impossible.

"I remember a personal experience in the mid-1980s in which I spent a day conducting a workshop in Aspen, Colo., for executives of a leading U.S. tobacco company. Near the end of that day I suggested that we could no longer leave aside the question of tobacco and health.

"The response stunned me. After what seemed like a full minute of embarrassing silence, one participant announced, 'We don't believe there is a connection between smoking and health'! That was the extent of discussion of tobacco and health that I managed that day.

"I learned later that a name existed for what I had experienced — the 'tobacco hush.' Fear of liability had come so fully to dominate the tobacco industry's culture that people felt forced to remain silent. Yet, arguably, the 'tobacco hush' eventually cost the industry hundreds of billions of dollars."

It's a powerful story. It made a big impression on me when I first published his article five years ago. It certainly makes you wonder how many discussion vacuums contributed to the financial and business performance crises of the past two years. For example, was there a "leverage hush" that quashed any discussion of whether being levered at a 30 to 1 ratio made any sense?

As a board member, you need to be particularly attuned for any hushes that seem to settle unnaturally when certain issues are raised. Take a tip from Tom Donaldson's tobacco story — where there's a hush, there may be a fire.