Trust in Companies with Responsible Leaders

Physician's Money Digest, May 2006, Volume 13, Issue 5

Business 2.0

Business 2.0

More than just about any other profession,doctors know that they need to ownup to their mistakes on the job. And accordingto , accountability is alsothe best policy for CEOs if they want theircompany's stock to rise. Many corporateleaders are quick to point fingers andblame myriad sources for their company'sproblems in an effort to salvage their stockprice. But in a 2004 study, it was found thatcompanies that accepted responsibility forpoor performance by citing controllableinternal factors saw their stock price rise ayear later. While some CEOs may see takingresponsibility for a crisis as a threat to theirjob security and the confidence of consumersin their company, points out that in reality it is seen as goodleadership. Tossing blame to outside forcesnegatively affects the morale of companyemployees because they mistakenly believethat their work doesn't have an impact oncompany performance. This only exacerbatesthe company's crisis. But if a CEOacknowledges the company's culpability,that is the first step toward fixing the problem.For example, in 2001 Xerox CEO AnneMulcahy admitted after only 5 months onthe job that their business model wasimperfect. As a result, she made clear to heremployees the challenges they faced,which led to a significant turnaround forthe company. How this affects your portfoliois simple: If the CEO of one of the companiesyou own stock in owns up to poorperformance, consider sticking with themand their responsible leadership.