Culture and Leadership

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Copyright 2011 by Sage Publications, Inc.

C CH HA A PP TT EE RR
14
5
Culture and Leadership
Laura Guerrero
The University of Texas at El Paso
When we sit together as Germans, Swiss, Americans, and Swedes, with many of
us living, working, and travelling in different places, the insights can be remark-
able. But you have to force people into these situations. Mixing nationalities
doesnt just happen. You also have to acknowledge cultural differences without
becoming paralyzed by them.
Percy Barnevik1
A
lthough there are no formal theories of global leadership, there are several ways in
which culture affects leadership. As the trend toward globalization continues, there
is increased frequency of contact between people of different cultures (Daft, 2005;
Dubrin, 2007; Yukl, 2006).
Adler and Bartholomew (1992) suggest that global leaders need to develop the follow-
ing cross-cultural competencies. First, leaders need to understand the business, political,
and cultural environments worldwide. Second, leaders should learn to understand perspec-
tives, tastes, trends, and technologies of many other cultures. Third, they need to learn to
work with people from other cultures. Fourth, they should be able to adapt to living and
communicating in other cultures. Fifth, leaders need to learn to relate to people from other
cultures from a position of equality rather than a position of cultural superiority.
1
Percy Barnevik is the president and CEO of ABB (Asea Brown Boveri).
413
414 CASES IN LEADERSHIP
Culture, Diversity, Ethnocentrism, and Prejudice

Culture can be defined in several ways. Northouse (2010) defines culture as the learned
beliefs, values, rules, norms, symbols, and traditions that are common to a group of people.
Related to culture are terms such as multicultural and diversity. Multicultural refers to
a way of seeing or doing things that takes into account more than one culture. A multi-
cultural leader is one with the attitudes and skills to build relationships with and moti-
vate followers who are diverse across lifestyles, social attitudes, race, ethnic background,
gender, age, and education (Dubrin, 2007). Diversity refers to the existence of different
cultures, ethnicities, socioeconomic levels, sexual orientations, or races within a group or
organization (Yukl, 2006). Some people now use the term inclusion instead of diversity to
highlight that organizations need to include as many diverse people as possible in orga-
nizations (Dubrin, 2007).
Related to leadership and culture are the concepts of ethnocentrism and prejudice.
Ethnocentrism is the tendency for individuals to place their own group (ethnic, racial, or
cultural) at the center of their observations of others and the world (Northouse, 2010).
Although ethnocentrism is a natural tendency, it can act as an obstacle to effective lead-
ership because it prevents leaders from understanding and respecting the views of others.
Ethnocentrism creates challenges for minority leaders and subordinates (Daft, 2005).
Another natural tendency is that of holding prejudices. Prejudice can be a pejorative
attitude, belief, or emotion held by an individual about another individual or group that
is based on faulty or unsubstantiated data (Northouse, 2010). Prejudice is often held
against people or groups of people based on their race, gender, age, sexual preference, or
other characteristics. Like ethnocentrism, prejudice prevents the leader from understand-
ing and appreciating other people. Successful global leaders need to be able to recognize
and minimize their own ethnocentrism and prejudice toward others, as well as manage
others who may be ethnocentric or prejudiced.
Cultural Dimensions
Many studies have addressed the issue of identifying the different dimensions of culture.
One of the best-known studies is Hofstedes (1980, 2001). Hofstede identified five major
cultural dimensions: power distance, uncertainty avoidance, individualismcollectivism,
masculinityfemininity, and long-term/short-term orientation.
A more recent and comprehensive study by House and his colleagues (2004), known
as the GLOBE study, has identified nine cultural dimensions. The word GLOBE stands for
Global Leadership and Organizational Behavior Effectiveness. These are the cultural dimen-
sions identified by GLOBE researchers (Northouse, 2010; Yukl 2006):
Uncertainty avoidance refers to the degree to which a society depends on estab-

lished social norms, rituals, rules, and procedures to avoid uncertainty.
Power distance describes the extent to which members of society expect and are
comfortable with power and wealth being distributed unequally.
Institutional collectivism refers to the extent to which society encourages institu-
tional or societal collective action as opposed to individual action.
In-group collectivism refers to the extent to which individuals express pride, loyalty,
and cohesiveness toward their organizations or families.
Chapter 14: Culture and Leadership 415
Gender egalitarianism refers to the degree to which a society deemphasizes gender

differences and supports gender equality.
Assertiveness refers to the degree to which individuals in a society are assertive,
confrontational, and aggressive in their interaction with others.
Future orientation describes the extent to which individuals in a culture participate
in future-oriented behaviors such as planning, investing, and delaying gratification.
Performance orientation refers to the extent to which a society encourages and
rewards individuals for superior performance.
Humane orientation refers to the extent to which a society encourages and rewards
individuals for being fair, philanthropic, generous, and kind to others.
The GLOBE study grouped the 62 countries into 10 clusters that share language, geog-
raphy, religion, and historical connections. The regional clusters are as follows: Anglo,
Latin Europe, Nordic Europe, Germanic Europe, Eastern Europe, Latin America, Middle
East, Sub-Saharan Africa, Southern Asia, and Confucian Asia. The results of the study indi-
cate that although scores within a cluster were correlated, they were unrelated to the scores
in different clusters.
Leadership Behavior and Culture Clusters

The general purpose of the GLOBE study was to determine whether cultural differences
were related to different leadership views (Yukl, 2006). GLOBE researchers used the
implicit leadership theory (Lord & Maher, 1991), which states that people have implicit
beliefs about the attributes and characteristics that distinguish leaders from nonleaders
and effective leaders from ineffective ones. GLOBE researchers identified six global lead-
ership behaviors (Northouse, 2010):
Charismatic/value-based leadership is the ability to inspire, motivate, and expect

superior performance from followers based on strongly held core values. This
type of leadership would result in being visionary, inspirational, self-sacrificing,
trustworthy, and performance oriented.
Team-oriented leadership places emphasis on team building and having a com-
mon purpose among members of the team. This leadership type is collaborative,
integrative, diplomatic, compassionate, and administratively competent.
Participative leadership emphasizes the involvement of others in making and
implementing decisions. Participative leaders are democratic.
Humane-oriented leadership places emphasis on being supportive, considerate,
compassionate, generous, and sensitive to other people.
Autonomous leadership requires an independent and individualistic leadership
style, which includes being self-directed and unique.
Self-protective leadership refers to a leadership style that focuses on ensuring the
safety and security of the leader and the group. This type of leadership is self-
centered and interested in preserving the status of the group and the leader, even
if it causes conflict with others.
The GLOBE researchers used these six global leadership behaviors to determine what
leadership view each culture cluster held. Not surprisingly, it was found that different culture
clusters had different leadership profiles. However, it was also found that certain leadership
characteristics were valued across cultures, and some leadership attributes were found to be
universally undesirable.
The universally desirable characteristics of an outstanding leader are trustworthiness,
fairness, honesty, optimism, dynamism, dependability, intelligence, decisiveness, admin-
istrative skill, having foresight, planning ahead, being encouraging, building confidence,
being motivational, being effective at bargaining, being a winwin problem solver, having
communication skills, being informed, coordinating, being a team builder, and being
excellence oriented (House et al., 2004).
The attributes that were found to be universally viewed as obstacles to effective lead-
ership are were noncooperativeness, irritability, ruthlessness, as well as being a loner, aso-
cial, inexplicit, egocentric, and dictatorial (House et al., 2004).
The importance of considering culture in leadership is growing due to globalization
and our increased interdependence with people of other cultures. Being aware that cul-
tural differences affect the way people view the world and the way they act and commu-
nicate with others helps leaders be more effective. Leaders who understand culture and its
impact can adjust their leadership styles to be more effective with people of different cul-
tural backgrounds (Daft, 2005; Dubrin, 2007; Yukl, 2006).
y References
Adler, N. J., & Bartholomew, S. (1992). Managing globally competent people. Academy of Management
Executive, 6, 5265.
Daft, R. L. (2005). The leadership experience (3rd ed.). Mason, OH: Thomson, South-Western.
Dubrin, A. (2007). Leadership: Research findings, practice, and skills. New York: Houghton Mifflin.
Hofstede, G. (1980). Cultures consequences: International differences in work-related values. Beverly Hills,
CA: Sage.
Hofstede, G. (2001). Cultures consequences: Comparing values, behaviors, institutions, and organizations
across nations. Thousand Oaks, CA: Sage.
House, R. J., Hanges, P. J., Javidan, M., Dorfman, P. W., Gupta, V., & Associates. (2004). Leadership, cul-
ture, and organizations: The GLOBE study of 62 societies. Thousand Oaks, CA: Sage.
Lord, R., & Maher, K. J. (1991). Leadership and information processing: Linking perceptions and perfor-
mance. Boston: Unwin-Everyman.
Northouse, P. G. (2010). Leadership: Theory and practice (5th ed.). Thousand Oaks, CA: Sage.
Taylor, W. (1992). The logic of global business: An interview with ABBs Percy Barnevik. In W. Bennis
(Ed.), Leaders on leadership: Interviews with top executives (pp. 6789). Boston, MA: Harvard Business
Review.
Yukl, G. (2006). Leadership in organizations (6th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall.
y The Cases
Intel in China
The newly appointed division head must examine organizational or communication prob-
lems within a division of a billion-dollar semiconductor manufacturer. The manager made
a decision to which an employee responded emotionally, creating the potential for conflict
within the department. Cross-cultural issues come into play given that the manager,
Intel in China 417
although originally from China, was educated and gathered extensive experience in the West
and was thus considered an expatriate by his employees. The manager must also examine
the effect of organizational culture on an employees behavior.
Grupo Financiero Inverlat

A small team of Canadian managers from a large financial institution is faced with the
challenges of managing a recently acquired Mexican operation. Managers must cope with
a language barrier and cultural differences as they try to restructure the overstaffed Mexican
financial institution.
y The Reading
Global Fatalities: When International Executives Derail
Developing global executives is an expensive proposition that can produce a significant
returnprovided that the corporation uses the knowledge and expertise it gained from
earlier experiences effectively. These coauthors interviewed 101 individuals who suc-
ceeded in their international postings and concluded that poor management of three fac-
tors contributes to the failure of international executives: the individual, the cultural
context, and organizational mistakes. Based on their book, Developing Global Executives:
The Lessons of International Experience, the authors outline and discuss the steps an orga-
nization can take to ensure that executives posted abroad will be successful.
Intel in China
Prepared by Donna Everatt under the supervision of Kathleen Slaughter and Xiaojun Qian
In October 1999, Charles Tang, newly appointed previous supervisor. Despite what Tang consid-
manager of marketing programs of Intel China ered to be sound business logic supporting his
in Beijing, had just emerged from an emotionally decision, Lis resistance left Tang wonder-
charged meeting with Yong Li, an account man- ing whether there were extenuating factors
ager in Tangs division. The meeting, attended he needed to consider. Tang also wondered
by Lis direct supervisor, Qing Chen, was con- whether the blow-up with Li was an isolated
vened by Tang to discuss Lis feelings regard- incident, or whether it signalled deeper organi-
ing a decision Tang had made to discontinue zational or communication problems in his
a project that had been assigned to Li by his newly acquired division.
AUTHORS NOTE: The Richard Ivey School of Business gratefully acknowledges the generous support of The Richard and
Jean Ivey Fund in the development of this case as part of the Richard and Jean Ivey Fund Asian Case Series.
Copyright 1999, Ivey Management Services Version: (B) 2009-09-10

418 CHAPTER 14: CULTURE AND LEADERSHIP
y Intel their branding campaign, and was considered

one of the worlds top 10 brands. Indeed, in
In the mid-1960s, Intel introduced the worlds 1997, over half (56 per cent) of Intels revenue
first microprocessor, sparking a revolution in the was generated outside of the United States, with
technological industry. Intel was an unequivocal the Asia-Pacific region and Japan accounting
success storyits strategy of driving new tech- for almost a third of Intels revenue. In 1999,
nology, serving global markets, and increasing Intel considered China to be their single most
customer preference for the Intel brand, while important market.
delivering excellent financial results to our stock-
holders had served them well over the years. By
1996, driven by strong sales of the Pentium y Intel Peoples Republic
processor, Intel was on their seventh consecutive of China (PRC)
year of record earnings of both sales and rev-
enue, and had reached the US$20 billion in rev- Intel PRC Corporation established a representa-
enues milestone. 1997 was another year of record tive office in China as early as 1985; however, it
revenues (an increase of 20 per cent) and record was not until 1993 that Intel felt the time was
net income of almost US$7 billion, up 35 per right to more fully enter the Chinese market
cent over 1996. However, 1998 brought weaker with the establishment of two wholly owned
than anticipated demand for personal computer foreign enterprises. The first, Intel Architecture
(PC) products, which lead to lower first quarter Development Co., Ltd. (IADL) was responsible
revenue and earnings. Dr. Andy Grove, the for the sales, marketing and development of
founder and enigmatic leader of Intel referred to Intels products and services in China. IADLs
first quarter 1998 results as disappointing, and 250 employees were located in 13 offices
stated that the PC industry seems to have got- throughout China; however, the Shanghai office
ten ahead of itself, building more product than with 100 employees and the Beijing office with
customers wanted. First quarter 1998 revenue 80 were the largest. The second, Intel (China)
of US$6 billion fell seven per cent, net income Technology Co. Ltd., was the entity of Intels
and earnings per share declined 36 per cent from assembly and testing plant operations.
the first quarter of 1997. The company widely IADL employed more than 80 engineers
expected revenue for the second quarter of 1998 who worked with local and multinational soft-
to be flat, and year-to-date performance during ware vendors to develop innovative consumer
the year had reflected this expectation. and business applications to PC users in China.
Intels global mission was nothing short of IADLs charter was to accelerate technology
being the pre-eminent building block supplier adoption in the PRC by providing technical and
to the new computing industry worldwide. marketing support to local software developers.
Thus, a major part of Intels strategy was their Initiatives included a developer support pro-
commitment to creating microprocessors that gram, which included seminars, matchmaking
the software of the next millennium could tap events, training and conferences for Chinese
into. Concurrently, Intel followed a strategy of software engineers and a donation of more than
encouraging the developments of software engi- RMB$1.5 million of Pentium II processor-based
neers so they could push the envelope in software development systems to assist leading Chinese
design to ensure that users would receive the software developers in bringing advanced soft-
benefits of the most advanced hardware Intel was ware to local and international markets.
developing. To help strengthen the Pentium IADLs mandate was critical to Intels
brand name, Intel focused on emerging markets growth, as senior management was aware
with programs that stimulated demand for Intel that regardless of their research and develop-
products. Intel had succeeded tremendously in ment (R&D) expenditures, without software
Intel in China 419
applications that could take advantage of the Beijing that he saw, Tang had the advantage
latest hardware developments, the user would of being previously exposed to the reality of
not receive the advantage from that innova- life in Beijing, which could overwhelm many
tion. Thus, according to Tang, Intels role in expatriatesthe crowded streets, the pungent
China was to act as a matchmaker, bringing all aromas emanating from the street markets, traf-
pieces of technology together to help Chinas fic congestion, punishing heat, and air quality for
PC users to understand how computing could example. Tang commented that he had known
help them in a comprehensive way. Tang of other Chinese nationals who had returned to
explained that Intel looked at technology from the mainland, and despite the fact several
a total solution standpoint. months had elapsed, they still did not feel com-
fortable being in China and never really could
By the time we start developing a new adjust to life there after having lived in the
chip, were already looking at what United States or Europe. Though he initially felt
applications it will support and what like a tourist, after having spent just one week-
solution it provides to the user. Thus, end wandering through the street markets, alley-
by the time the chip is ready to go into ways and pathways through the heart of Beijing,
market, the platforms, the solutions he was convinced he had made the right deci-
are all ready so it is co-ordinated. This sion and had not looked back since.
way, were all moving forward and Tang was one of the first three employees
everybody wins. who were transferred to China from other Intel
sites in 1993 to more firmly establish Intels
By 1999, Intel had become involved in just operations in the mainland. Tang gained experi-
about every operation in the IT industry in ence in many areas, including a two-year stint in
China and were aggressively marketing Intel- Shanghai to help establish Intel Architecture
branded products throughout the country. Laboratory there. During his time there, Tang
Though still at its early stage of development, established Intels software developer support
Chinas computer market had been growing programan integral part of Intels China strat-
twice as fast as the world average, and was poised egy. The account managers (AMs) in Tangs
to become the second largest computer market department played a critical role in this support
in the world by the end of the century. With its effort. Their prime mandate was to forge and
large population and fast economic growth, nurture relationships with prestigious Chinese
Chinas potential was extremely attractive to software developers and vendors. By 1999, Tang
multinationals. As a global leader, Intel was well- reported directly to the president of Intel PRC
positioned to capitalize on this opportunity and and oversaw critical areas such as government
Charles Tang was one of the most important relations, as well as industry and community
players in advancing Intels presence in China. programs, which included donations to many of
the top universities in China to support research
and teaching activities, as well as donations of
y Charles Tang equipment, upgraded on an annual basis.
The scope of Tangs development projects
Tang had not returned to China since his depar- ranged from the grassroots community level
ture eight years prior and his home country had such as a program that would sponsor Chinese
changed dramatically during that time. Beijing high school students to attend a popular inter-
had undergone a rapid period of extensive national science and technology fair in the
growth and the ubiquity of shiny modern build- United States, to investigating strategic invest-
ings and presence of so many foreign firms was ment opportunities. Tang also played a leading
a shock to Tang. However, despite the changes in role on Intels corporate advisory board, a body
that was comprised of some of the most toward advancing the strategic goals of the
prominent Chinese influencers, both from the department and thus Intel in China. The same
IT industry and academia. The boards broad rationale was behind a reassignment of various
mandate was to spearhead industry programs departmental managers, and in the process,
by working with trade associations and indus- Tang reassigned the AMs under Qing Chen, a
try leaders to influence the development of Beijing native. Though she had worked for a
programs throughout the region to promote multinational before joining Intel, this was her
indigenous development of the industry by first managerial position.
transferring Intels acquired experience and Tangs attention was drawn to Lis project
expertise locally. upon reviewing Lis employee file. Though Tang
felt the basic concept behind the project to be
sound, he felt that it had expanded to such an
y Yong Li extent from that which was initially proposed
that it was not reasonable to expect that Li could
Yong Li was one of four AMs, each of whom realize the projects goals without it interfering
had individual projects in addition to their pri- with his primary duties of servicing his account
mary responsibility. According to Tang, an AMs base. The scope of the project had mushroomed
required skill set included the ability to interact in part due to the perspective of Lis previous
as an Intel ambassador with senior managers supervisor who, according to Tang, was a very
and owners of the software firms with whom ambitious person who approached everything
Intel was developing relationships. This involved on a grand scale with massive goals.
effectively communicating Intels IT strategy, Initially, the project assigned to Li was the
not from a technical viewpoint but rather from creation of a manual providing local software
a strategic perspective, while ensuring full cus- vendors with tips on running their enterprise,
tomer satisfaction on a daily basis. Another such as marketing various software products
critical strategic component of the AMs respon- or how to manage or set up distribution chan-
sibilities lay in their ability to consistently recog- nels, for example. However, Li approached the
nize the possibilities of advancing the mutual project with such unchecked zeal that it
interests of IADL and their clientsa key part of quickly transformed from a manual to a book
Intels strategy in China. An AMs ability to form, with a chapter dedicated to comprehen-
exceed his clients expectations was deter- sive business planning issues, beginning with
mined by his effectiveness in mobilizing Intels such basics as how to incorporate a business in
internal resources, which involved extremely China, sourcing venture capital, and the devel-
strong people skills and the ability to consis- opment of a comprehensive marketing plan
tently demonstrate a mature, professional and tailored for software products.
diplomatic manner. Tang described the project as a portable
MBA-type book, covering essentially every
y The Issue topic a software company would need to know
to do business in China. This was such an
When Tang took over Intels Beijing division, ambitious project, and Tang estimated it could
he was eager to familiarize himself with the take up to one year to complete, not including
operation of each department, and to aid him the two months of research Li had already con-
in this, he reviewed the files of all employees to ducted. Upon review of the file, Tang concluded
understand their roles. Using his best judg- that Li, a new and relatively young employee,
ment, Tang reassigned work as he deemed nec- without significant exposure to the business
essary, to ensure that each employee was world or the software industry, did not have the
working, both individually and within a team, background or expertise for this type of book.
Intel in China 421
Tang felt that the project would be better suited transaction. Its value in a Chinese business
to a writer who specialized in issues in the soft- context could not be underestimated.
ware industry. Given that there were many other Lis success, therefore, in the realm of his
projects that could be assigned to Li, which were primary duties was indisputable; however, he
of a more appropriate scope and focus, Tang also applied himself equally to conducting
instructed Chen to inform Li that work on the research for his project and took ownership of
project was to be halted immediately, and that it very seriously. Upon hearing that Tang had
Li should be assigned a new project. cancelled his project, he voiced his opinion
When Chen informed Li of Tangs decision immediately to Chen, saying that the two
to cancel the project, Li totally rejected her, and months of work he had conducted on his pro-
he was not willing to even listen to the rationale ject were wasted. Moreover, it was Lis strong
behind the decision. Chen turned to Tang for contention that Tang altered not only one of
assistance as she was at a loss as to how to recon- his projects, but the essence of his responsibil-
cile Tangs demand with Lis desire to continue ities in one broad stroke, without due consid-
with the project and his agitated state that it had eration, thereby undermining his efforts to
been cancelled. Tang decided that given Lis reac- date. Li continued:
tion, the best course of action was to bring them
all together, and he scheduled a meeting as soon This is typical of expat managers
as he could to resolve the issue. Tang was con- they come along and dont really care
scious of handling the situation in such a way about what the workers are doing.
that did not undermine Chens authority, as he They dont show respect and change
felt that the empowerment of direct supervisors the workplace according to their whim
was critical. On the other hand, Chen confessed without providing explanation, and
she was confounded by Lis reaction. without warning.
Li felt that Tang had caused him to lose

y Lis Perspective face. Causing another to lose face, could result
in irreparable damage to the interpersonal
During his brief history with Intel, Li had dedi- relations between those two parties.
cated himself to exceeding his clients service
expectations. Indeed, Tang readily acknowl-
edged that Li had excelled at developing rela- y Tangs Perspective
tionships with senior management in the
companies in his assigned account base. Tang Though he had heard through Chen that Li was
agreed that this was no small feat, as Tangs very upset, Tang was previously unaware of the
client base included some of Chinas most influ- extent to which Li felt he had lost face. Tang
ential software firms, and in some cases had was thus largely unsure of how his actions could
been so successful that he had created strong have affected Li at such an emotional level, and
guanxi with senior management at those firms. he took a few moments to consider his perspec-
Guanxi was the basis on which business in a tive of the situation. Tang acknowledged that Li
Chinese context thrived. Loosely translated as was successful in establishing strong relation-
relationships, guanxi was such an integral part ships with his clients. However, Li won various
of doing business in China, that it was essen- concessions for his clients through a demand-
tially impossible to do without it. Thus, when ing style toward his colleagues and a single-
guanxi was established, it was protected at great mindedness of purpose. Another talent that
cost, as it was widely considered to be the single Tang acknowledged Li brought to his AM posi-
most important factor in a successful business tion was his ability to think big. However, Lis
assertive manner was not commonly found in beyond his inexperience and apparent igno-
traditional Chinese workplaces, and some of his rance of Intel doctrine and considered poten-
colleagues, both within his department and tial underlying cross-cultural issues that might
throughout other departments which Li relied help to explain Lis behavior, while at the same
upon, were uncomfortable with Lis level of zeal. time increase his understanding of all his
Complicating the situation was Tangs assump- employees. Although Tang had grown up in
tion that Li had not been formally indoctri- China and pursued his undergraduate degree
nated to the Intel culture. in China, he had received a graduate degree
To demonstrate the Intel culture, Tang from study in the United States as well as
explained that Intels employees throughout almost a decade of Western experience. Thus,
the world were characterized by their energy he found himself in a precarious balance
and youth, and thrived in a dynamic and cre- between two cultures. This created a rather
ative environment. Tang further explained that unique situation for Tanginternally, he was
in order to sustain intense levels of innovation, perceived as a expatriate, yet because of his
a degree of dissension and constructive criti- precise fluency in Mandarin and obvious com-
cism was encouraged; however, policies that fort in Chinese culture, Tang felt he was per-
helped advance Intels 64,000 employees glob- ceived externally as a local Chinese.
ally in the same direction were required. Tang
explained a crucial part of Intels culture
which was in place to achieve this endthe y TangAn
disagree and commit philosophy. Expatriate or a Local?
If a consensus has been established When Tang first returned to China, when meet-
that a particular course of action or a ing with local government officials, he had a dif-
decision is appropriate, any individ- ficult time in persuading them that he was
ual employee would not only have to directly authorized to make decisions. First, at 33,
commit to that decision, but if he or he was significantly younger than most senior
she were responsible in any way in managers at multinationals in Beijing. Second,
implementing it, this concept would most often local Chinese did not hold positions
dictate that they act as if they were in of such power in multinationals.
100 per cent agreement with the deci- To establish his credibility externally,
sion. This means that once the course Tang used a clever and effective technique.
of action had been decided, it should When Tang first met with the officials, he
not be discernible who was for, and noticed that when he proffered his opinions
who was against the decision before it directly, many of the local officials did not
was made. This is a condition of have confidence that Tang was empowered
employment at Intel. It is the profes- to make decisions. After trying a more direct
sional code on which I was brought approach, when a decision was consequently
up on at Intel. required, Tang told the officials that I
should check with my boss but offered his
Given Lis reaction, Tang wondered whether decision in the interim. In subsequent meet-
he had communicated to Li, and potentially his ings, it became clear to the local officials that
other employees, the quintessential role that this Tangs boss decision correlated precisely
philosophy played in Intels culture. with Tangs personal decisions, time and
Tang reflected upon what other factors he time again. Thus, in time, he succeeded in
should consider in analysing Lis behavior establishing his credibility.
Intel in China 423
On other occasions, when he encoun- How people look at you and how they
tered a reticence among senior external feel about you has everything to do
managers or officials, he used another tech- with how you make them feel about
nique, equally effective. Tang would say, Ill you. If you want to be seen as differ-
see if I can set up a meeting with my boss to ent, and if you want them to see you
discuss this issue, but may I have some back- as different, they will. If you want to
ground information to impart to him on distance yourself from them you can.
which he can base his decision. This would However, if you want them to see you
allow Tang to obtain the required informa- as one of them, they will.
tion on which to base his decision, which he
would disclose at the following meeting. In Tang was cognizant of some basic tenets
these ways, Tang artfully managed his credi- on which the foundation of organizational
bility as a local Chinese with external stake- behavioral differences as generally found
holders. However, internally, Tang was perceived between Chinese and Western firms were
as an expatriate. based, and acknowledged that both his
Tang was aware that being perceived as an Western education and experience as well as
outsider could undermine his ability to per- his exposure to Eastern business cultures
suade his department that they were all part of affected his interpretation of the situation he
the same team. Complicating the issue was not was facing with Li. What challenged Tang also,
only Tangs expatriate status (one of few at the with regard to managing Li, was how much of
time), but as an expatriate, Tang received a supe- a departure Lis behavior was from what Tang
rior pay and benefit package than local (Chinese) considered to be a traditional Chinese busi-
employees. Tang saw where he had advanced in ness culture. Tang wondered whether he
relation to his employees as just going through should question some of his beliefs about
a different process to get to where we are, but Chinese communication patterns and organi-
now were all at the same placepart of the Intel zational behavior. Had things changed drasti-
team. According to Tang: cally since he had been away or was Lis
behavior out of the ordinary?
Work really doesnt have anything to do
whether youre an expatriate or local
Chineseit has to do with your ideas, y Organizational Differences
how you understand strategy, technol-
ogy and marketingthats work. As Differences in
long as you focus on that, and once Communication Patterns
your employees begin to focus on that,
Between the East and the West
perceived differences really become a
non-issue. Generally speaking, Chinese organizational
structures were more vertically layered than
Tang dealt with the potential for conflict Western firms, resulting in dense reporting
because of his rank or his experience in the lines and bureaucratic administrative mecha-
United States by largely ignoring it, but Tang did nisms. Moreover, Chinese organizations were
not view this as an abdication of his responsibil- most often led by a strong autocratic figure
ities. On the contrary, Tang believed that by who took an active role in daily operations as
working hard and proving himself trustworthy, well as the strategic direction of the firm.
his employees would come to see that were all Whereas in some Western firms the organiza-
working together. According to Tang: tional structure, supported by cultural influences,
encouraged a degree of dissension and dis- more comfortable approaching him than they
agreement to advance the firms organizational may have been with an expatriate manager
effectiveness and strategic direction, generally from North America or Europe.
speaking Chinese firms operated on a princi-
ple of unquestioning adherence to the direc-
tion as dictated by senior management. y The Decision
In contrast to Eastern management style,
in Tangs opinion, Western organizational In this context, Tang was confounded by Lis
and communication systems promoted a reactions. Why did he respond so emotion-
more open discussion between managers and ally, and what could he now do about it? Li
their employees. Tangs management experi- was otherwise a promising employee who
ence suggested to him that employees in the had forged valuable guanxi with his
West had a higher propensity to be more accounts. Tang did not want to risk losing
open and possessed a greater willingness to him. Moreover, on a personal level, Tang
listen to their bosses if they had established a cared about the welfare of his employees and,
proven track record of being reasonable and thus, it was upsetting to him that he may
open-minded. In contrast, Tang felt there have caused his employee some distress. Tang
seemed to be more suspicion among employ- considered whether in light of Lis emotional
ees toward their supervisors in an Asian busi- attachment to the project he should allow
ness context, as they managed with a much him to continue with it, as in the scheme of
more closed style. things it was a relatively short-term project.
Though Tang considered his management Or was there a way to modify the project,
style to be a mixture of Eastern and Western finding a compromise between his needs and
characteristics, he felt that many Western man- Lis desire to continue with the project? Tang
agement principles manifested themselves was eager to have his employees contribute in
more strongly. For example, he considered such a way that would advance the strategic
being open with his employees an integral part direction of his department, and felt strongly
of managing, and indeed had succeeded in that whatever decision he made should be
encouraging many of his employees to treat guided by that general principle. Tang knew
him as a confidant. On several occasions, he that perhaps the easiest means to achieve this
had been approached by members of his team end would be to coerce Li to follow the dis-
and had held closed-door, one-on-one discus- agree and commit philosophy at Intel and
sions regarding various aspects of their per- redirect Lis attention altogether to a more
sonal and professional lives. Tang was proud of appropriate project. However, he was con-
the role he was able to take in acting in this cerned about Lis reaction to this move, given
capacity for his employees. On a broader level, his emotional state.
Tang did his best to ensure that his employees Tang also considered the idea that perhaps
needs and concerns were addressed. For exam- this issue pointed to a larger one. Were the sys-
ple, Tang ensured that his employees salaries tems that facilitated vertical communication
were commensurate with their responsibilities, sufficient or should he consider implementing
and competitive as compared to other multina- a more effective, more formal internal com-
tionals for employees working in a similar munications strategy? But Tang did not have
capacity. Tang considered actions such as this time to consider this issue at the present
to be critical in establishing his employees trust momenthe glanced at his watch, jumped up
in him. It was actions such as this that rein- and hurriedly placed his laptop in his briefcase
forced Tangs belief that his employees were to rush to a meeting.
Grupo Financiero Inverlat 425
Grupo Financiero Inverlat

Prepared by Daniel D. Campbell under the supervision
of Kathleen Slaughter and Henry W. Lane
By October 1996, it had been four months since structure of the Mexican financial institutions
management at the Bank of Nova Scotia (BNS) remained constant despite substantial innova-
increased its stake in the Mexican bank, Grupo tions in technology and practice in the bank-
Financiero Inverlat (Inverlat), from 8.1 per cent, ing industry internationally.
to an equity and convertible debt package that Many Inverlat managers claimed that their
represented 54 per cent ownership of the bank. bank had generally deteriorated more than the
A team of Canadian managers had been sent to rest of the banking sector in Mexico. Managers
Mexico to assume management of the ailing believed that there was no overall strategy or
financial institution immediately after the deal leadership. Lacking a strong central manage-
was struck. Jim ODonnell, now Director ment structure, each of the banks geographic
General Adjunto (DGA)2 of the retail bank at regions began to function independently, result-
Inverlat, had been there from the beginning. ing in a system of control one manager des-
Jim was a member of the original group cribed as feudal. The eight regions developed
that performed the due diligence to analyze such a level of autonomy that managers com-
Inverlats finances before negotiations could monly referred to Inverlat not as a bank, but as
begin. Later, he and his wife Anne-Marie (also eight small banks. The fragmented structure
an executive with the bank) were the first made new product development almost impos-
Canadians to arrive in Mexico in May 1996. sible. When the central corporate offices devel-
Since then, 14 additional Canadian managers oped a new product, they had no guarantee that
had arrived, and restructured the four most it would be implemented in the regions and ulti-
senior levels within Inverlat. The pace of mately, the branches. The power struggle within
change had been overwhelming. Jim now won- the regions demanded such loyalty that employ-
dered how successful his early efforts had been ees often had to say: I cannot support you (in
and what could be done to facilitate the some initiative) because my boss told me not to.
remaining restructuring. In 1990, an amendment to the Mexican
constitution allowed majority private sector
ownership of Mexican commercial banks.
y A Brief Inverlat History Between 1990 and 1992, 18 banks were priva-
tized by the Mexican government, including
In 1982, in his last days as leader of the Inverlat. BNS, looking to expand its interests in
Mexican Republic, President Lopez Portillo Latin America, purchased eight per cent of the
announced the nationalization of Mexicos company in 1992 for Cdn$154 million.
banks. They would remain government insti- Under the structure of the newly privatized
tutions for the next eight to 10 years. Managers bank, there were three corporate cultures: that
characterized the years under government of the original bank; that of the Casa de Bolsa,
control as a period of stagnation in which the the banks brokerage house; and that of the new
Copyright 1997, Ivey Management Services Version: (A) 2002-10-23

2
Director General Adjunto is the Mexican equivalent of an Executive Vice President.
chair of the bank, an executive from Banamex, As the majority shareholder until the year
Mexicos largest financial institution. Many 2000, the Mexican government contracted BNS
senior Banamex executives were invited to join to manage the bank. A maximum of 20 BNS
Inverlat; some even came out of retirement to managers would be paid by the Mexican govern-
do so. The Banamex culture soon dominated ment to manage Inverlat on the governments
the organization, as senior management tried to behalf. If BNS wanted more Canadian managers
create a Little Banamex. Inverlat managers to work in the bank, BNS would have to pay for
without a history in Banamex said that the them. It was intended that the Canadian man-
strategy could never function because Inverlat agers would remain at Inverlat only until the
did not have the clients, technology, or financial Mexican managers developed the skills to man-
resources of Banamex. age the bank effectively on their own.
Inverlats leaders did recognize, however, With the exception of a handful of the most
that the years of stagnation under nationaliza- senior officers in the bank, employees at Inverlat
tion had created a bank that had failed to create had no direct means of receiving information
a new generation of bankers to reflect the chang- about the progression of the negotiations with
ing times. They realized that the bank required a BNS. Instead, they were forced to rely on often
rejuvenation, but the managers did not have the inaccurate reports from the Mexican media. As
knowledge or the capacity to effect the change. the negotiation progressed, support among
Nowhere was the lack of development more Inverlat employees for a deal with BNS was very
prominent, and ultimately more devastating, strong. Inverlat employees did not want to
than in the credit assessment function. The become government bureaucrats and viewed
banks pursued a growth strategy dependent on BNS as a savior that would bring money, tech-
increased lending but, unfamiliar with the chal- nology and expertise.
lenges of lending to the private sector, failed to
collateralize their loans properly or to ensure
that covenants were being maintained. In early y Employee Expectations
1995, following a severe devaluation of the
Mexican peso, Mexicos credit environment col- Soon after the deal was completed with BNS,
lapsed; so did the bank. The Mexican govern- however, the general euphoria was gradually
ment assumed responsibility for the bank, and replaced by the fear of actions the Canadians
BNS was forced to write down its original invest- were likely to take as they assumed their man-
ment by almost 95 per cent to Cdn$10 million. agement role. Senior managers were worried
that they would be replaced by someone
younger, who spoke English and had an MBA.
y Negotiations With BNS Rumors, supported by inaccurate reports in
local newspapers, ran rampant. One newspa-
Management at BNS chose to view the loss in value per reported that as many as 180 senior level
of their investment as a further buying opportu- managers would be imported to Inverlat from
nity and, in early 1996, they began negotiations BNS in Canada.
with the Mexican government. BNS contributed Anxiety mounted as speculation increased
Cdn$50 million for 16 per cent of new stock in the about the magnitude of downsizing that BNS
bank and Cdn$125 million in bonds convertible would implement as it restructured the bank in
on March 31, in the year 2000 for an additional 39 its turnaround. Although BNS had purchased
per cent of equity. If, in the year 2000, BNS decided banks in other Latin American countries, few
not to assume ownership of the bank, they could Inverlat employees, including the most senior
walk away without converting the debt and retain management, had any knowledge about the
a much smaller portion of ownership. strategies that BNS management had used.
Inverlat managers felt that their employees Canadian managers said they were trying
viewed BNS as a gringo corporation, and to guard against putting people into positions
expected them to take the same actions other simply because they were bilingual. A Canadian
U.S. companies had taken as they restructured manager, expressing his commitment to func-
companies they had purchased in Mexico. Most tion in Spanish, commented that:
believed that if any foreign bank purchased
Inverlat, most of the senior management team There are 16 Canadians down here
would be displaced and up to half of the bank and 10,000 Mexicans. Surely to God,
staff would be let go. Similarly, very few man- the 16 Canadians can learn Spanish
agers knew the details of the contract that lim- rather than trying to teach the 10,000
ited the number of managers that could come Mexicans English or having people
to the bank from Canada. feel that they are being left out of pro-
Very few of the Mexican employees had had motions or opportunities just because
any significant contact with Canadian man- they dont speak English. This is a
agers, but the majority expected behavior simi- Spanish-speaking country and the
lar to that of U.S. managers. Only a handful of customers speak Spanish.
senior level managers had been in contact dur-
ing the due diligence and the Canadians realized y Inverlat and BNS Cultures
that they required greater insight into the
Mexican culture if they were to manage effec- In Canada, BNS was considered the bank with
tively. As a result, the members of the senior the most stringent financial control systems of
team that were going to manage the Mexican the countrys largest banks. Stringent, not only
bank arrived in Mexico one month in advance in deciding not to spend money in non-essential
to study Spanish. The Canadian managers stud- areas, but also in maintaining a tough system
ied in an intensive program in Cuernavaca, a of policies and controls that ensured that man-
small city 80 kilometres southwest of Mexico agers held to their budgets.
City. During the three-week course, lectures Inverlat executives, on the other hand, were
were available on the Mexican culture. Mexican accustomed to almost complete autonomy with
managers were extremely impressed by this little or no control imposed on their spending.
attempt by the Canadians to gain a better Very little analysis was done to allocate resources
understanding of the situation they were enter- to a project, and adherence to budget was not
ing and thought the consideration was very monitored. Mexican managers believed that
respectful. One manager commented that: greater controls such as the ones used by BNS
should be implemented in Inverlat, but they
At the first meeting, the Canadians also felt that conflicts would arise.
apologized because it would be in An early example experienced in the bank
English, but promised that the next was a new policy implemented by BNS manage-
would be in Spanish. The fact is, some ment to control gifts received by managers from
are still in English, but the approach and clients. BNS managers imposed a limit of 500
the attempt were very important. pesos3 for the maximum value of a gift that
could be received by an executive. Gifts of larger
Four months later, the Canadian team value could be accepted, but were then raffled off
was still undergoing intense tutorial sessions to all employees of the bank at Christmas. Some
in Spanish on a daily basis with varying levels Mexican managers took offence at the imposi-
of success. tion of an arbitrary limit. They felt that it was an
3
In late 1996, one Mexican peso was valued at approximately US$0.0128.
indication that BNS did not trust their judg- The new management structure differed
ment. Managers thought that it would be better sharply from the existing structure of the bank.
if the bank communicated the need for the use The original eight geographic regions were
of good judgment when accepting gifts and then reduced to four. Managers were pleased to see
trusted their managers to act appropriately. that the head of each of these divisions was
Mexican and it was generally viewed as a pro-
motion for the managers.
y Mandate of BNS The second change was the nature in
Two months after the arrival of the Canadian which the Canadians were added to the man-
executive team, the new bank chairman, Bill agement structure. The senior Canadian man-
Sutton, gave an address to 175 senior executives agers became Directores Generales Adjuntos
within Inverlat. The purpose of the address was (DGAs) or senior vice presidents of several
threefold: to outline managements main objec- key areas, displacing Mexican managers. The
tives in the short term; to unveil the new orga- Mexican DGAs not directly replaced by
nizational structure of senior level managers; Canadians would now report to one or more of
and to reassure employees that no staff reduc- the Canadian DGAs, but this was not reflected
tions would be undertaken for the first year. in the organization chart (see Exhibit 1).
The primary objectives, later printed in Mexican DGAs retained their titles and for-
a special companywide bulletin, were the mally remained at the same level as their
following: Canadian counterparts.
Mexican managers later reported mixed
1. Identify all non-performing loans of feelings by employees about whether or not
the bank. they worked under a Canadian or Mexican
DGA. Many felt that a Mexican DGA and his
2. Develop an organization focussed on (there were no female DGAs working within
the client. the bank) employees were more vulnerable
3. Improve the productivity and effi- than a Canadian; however, senior managers
ciency of all operations and activities. also felt that they had an opportunity to
ascend to the DGA position when it was being
4. Improve the profitability of the 315 held by a Mexican. Many felt that Canadian
branches. managers would always hold the key positions
5. Develop a liability strategy. in the bank and that certain authority would
never be relinquished to a Mexican. This was
6. Improve the integrity of the financial not the message that BNS management
information. wanted to convey. One of Jim ODonnells first
comments to his employees was that he would
These objectives were generally well only be in Mexico until one of them felt confi-
received by the Mexican managers. Some criti- dent that they could fill his shoes.
cized them as being too intangible and difficult The last message was the new manage-
to measure. Most, however, believed that the ments commitment not to reduce staff levels.
general nature of the objectives was more prac- A policy of no hires, no fires was put in place.
tical, given the type of changes that were being Employees were able to breathe a sigh of relief.
made in the first year. They did agree that the Many had expected the Canadian manage-
goals would need to be adjusted as planning ment team to reduce staff by 3,000 to 5,000
became more focussed during the 1997 budget employees during the first several months after
planning process. their arrival.
Exhibit 1 Grupo Financiero Inverlat Organizational Chart (post-reorganization)
President
William Sutton
(From BNS)
Support Areas Business Areas
DGA DGA
DGA DGA DGA DGA DGA DGA
Finance and Retail Bank
Credit Group Human International Commercial Corporate Corporate
Operations Jim O Donnell
(From BNS) Resources Bank Bank Restructuring Bank
(From BNS) (From BNS)
DGA DGA DGA DGA DGA

Finance Operations Audit Material Systems
Resources
Geographic
Areas
Divisional Divisional Divisional Divisional

Director Director Director Director
North Center South Mexico City
y The Communication Canadian managers believed that the

original conduct of the Mexican managers
Challenge during meetings was due to a lack of disci-
Canadian and Mexican managers already expe- pline and that the new conduct would lead
rienced many of the difficulties that the two to higher productivity. The Canadians did
different languages could present. Many of the not recognize the negative impact that
most senior Mexican managers spoke English, could result from the elimination of the
but the remaining managers required transla- informal interactions that had occurred in
tors when speaking with the Canadians. Even the original style.
when managers reporting directly to them
spoke English, Canadians felt frustration at not Beyond Language
being able to speak directly to the next level
below. One manager commented that some- Despite the cross cultural training received in
times, I feel like a bloody dictator referring to Cuernavaca, some Canadians still felt they had
the need to communicate decisions to his a lot to learn about the cultural nuances that
department via his most senior officers. could create major pitfalls. Jim ODonnell
recalled a meeting at which he and several
Mexican managers were having difficulty with
Meetings
some material developed by another Mexican
Even when all managers at a meeting spoke not present at the meeting. Jim requested that
English, the risk of miscommunication was this manager join them to provide further
high. A Mexican manager recalled one of the explanation. Several minutes later, as this per-
early meetings in English attended by several son entered the room, Jim said jokingly, OK,
Mexicans. Each of the Mexican managers left heres the guy that screwed it all up. The man-
the meeting with little doubt about what had ager was noticeably upset. It was not until later,
been decided during the meeting. It was only after some explaining, that Jims comment was
later, when the Mexicans spoke of the proceed- understood to be a joke. Jim said it brought
ings in Spanish, that they realized they each home the fact that, in the Mexican culture, it
had a different interpretation about what had was unacceptable, even in jest, to be critical of
transpired. What they found even more alarm- someone in front of other people.
ing was that each manager had heard what he This was easier said than done. Often,
had wanted to hear, clearly demonstrating to what the Canadians considered a minor differ-
themselves the effect of their biases on their ence of opinion could appear as criticism that
perception of events. Mexican managers would prefer be made
This problem might have been exacer- behind closed doors when coming from a
bated by the way some of the Canadians chose more senior manager. One Mexican manager
to conduct meetings. Mexican managers were commented on the risks of disagreeing with an
accustomed to a flexible atmosphere in which employee when others were present:
they were free to leave the room or carry on
side-conversations as they saw fit. Canadian When someones boss is not in
managers became frustrated and changed the agreement, or critical of actions
meeting style to a more structured, controlled taken by an employee and says some-
atmosphere similar to what they used in thing during a meeting with other
Canada. The Mexican managers were told that employees present, other managers
breaks would be scheduled every two hours will use it as an opportunity to also
and that only then should they get up from the say bad things about the manager.
table or leave the room. Instead, when a disagreement arises
in an open meeting, the senior man- Other Messages:

ager should say see me later, and we Intended or Otherwise
will discuss it.
Due to the high level of anxiety, Mexican man-
On the contrary, the Canadian managers agers were very sensitive to messages they read
were trying to encourage an environment in into the actions taken by the Canadians. This
which all managers participated in meetings process began before the Canadians made any
and positive criticism was offered and significant changes.
accepted. As the Canadians began to plan the new
organizational structure, they conducted a series
of interviews with the senior Mexican managers.
Mexican Communication Style The Canadians decided who they would talk to
On verbal communication, one of the original based on areas where they believed they required
Inverlat managers commented: more information. Unfortunately, many man-
agers believed that if they were not spoken to,
In Mexico, interactions between then they were not considered of importance to
individuals are extremely polite. the Canadians and should fear for their posi-
Because Mexicans will make every tions. Even after the organizational structure was
effort not to offend the person they revealed and many Mexican managers found
are dealing with, they are careful to themselves in good positions, they still retained
sugar-coat almost everything they hard feelings, believing that they had not been
say. Requests are always accompa- considered important enough to provide input
nied by por favor, no matter how into the new structure.
insignificant the request. Similarly, at lower levels in the bank, because
of the lack of activity in the economy as a whole,
Mexicans often use the diminutive form. many employees were left with time on their
For example: Esperame means Wait for me. hands. Because many employees feared staff
Esperame un rato means Wait for me a moment. reductions at some point, they believed that those
A Mexican would more often say Esperame un with the most work or those being offered new
ratito. Ratito is the diminutive form meaning work were the ones that would retain their jobs.
a very short moment. It is not as direct.
This politeness is extended into other Communications
interactions. Every time a Mexican meets a as an Ongoing Process
coworker or subordinate, a greeting such as
Hello, how are you? is appropriate, even if it is When Jim held his first meeting with the nine
the fourth or fifth time that day that they have senior managers reporting to him, he began by
met. If you dont do this, the other person will saying that none of them would have their jobs in
think you are angry with him or her or that two months. Realizing the level of anxiety at that
you are poorly educated. point, he quickly added that he meant they
One Canadian manager explained that would all be shuffled around to other areas of the
some of the Mexican managers he dealt with retail bank. Jim explained that this would give
went to great lengths to avoid confrontation. them an opportunity to learn about other areas
He was frustrated when the Mexicans would of the bank and the interdependencies that
tell him what he wanted to hear. Often these needed to be considered when making decisions.
managers would consent to something that Jim stuck to his word, and within two
they could or would not do, simply to avoid a months, all but one of the managers had been
confrontation at the time. moved. Some, however, had experienced anxiety
about the method by which they were moved. parties that it could be certain they all had the
Typically, Jim would meet with an employee and same perception of what they were talking about.
tell him that in two or three days he would report Some of the Mexican managers found the
to a new area (generally, Mexican managers gave business case method overly cumbersome and
at least a months notice). When that day arrived, felt that many good ideas would be missed
Jim would talk to them for 30 to 45 minutes because of the disincentive created by the busi-
about their new responsibilities and goals, and ness case. One manager commented that It is
then he would send them on their way. a bit discouraging. Some people around here
For many of the Mexicans, this means of feel like you need to do a business case to go to
communication was too abrupt. Many won- the bathroom.
dered if they had been moved from their past Most agreed that a positive element of the
jobs because of poor performance. More business case was the need it created to talk
senior Mexican managers explained that often with other areas of the bank. To do a complete
these managers would come to them and ask analysis, it was often necessary to contact other
why Jim had decided to move them. Most of branches of the bank for information because
the Mexicans felt that more communication their business would be affected. This was the
was required about why things were happen- first time that efforts across functional areas of
ing the way they were. the bank would be coordinated. To reinforce
this notion, often Canadian managers required
that senior managers from several areas of the
Accountability bank grant their approval before a project in a
Early on, the Canadian managers identified an business case could move forward.
almost complete lack of accountability within
the bank. Senior managers had rarely made
Matrix Responsibility
decisions outside the anonymity of a commit-
tee, and when resources were committed to a Changes in the organizational structure further
project, it was equally rare for someone to complicated the implementation of a system of
check back to see what results were attained. As accountability. Senior management had recog-
a result, very little analysis was done before a nized a duplication of services across the different
new project was approved and undertaken. functional areas of the bank. For example, each
The first initiative taken by the Canadians product group had its own marketing and sys-
to improve the level of analysis, and later imple- tems departments. These functions were stripped
mentation, was the use of what they called the away and consolidated into central groups that
business case. The case represented a cost- would service all areas of the organization.
benefit analysis that would be approved and Similarly, product groups had been respon-
reviewed by senior managers. Initially, it was sible for the development and delivery of their
difficult to explain to the Mexican managers products. Performance was evaluated based on
how to provide the elements of analysis that the the sales levels each product group could attain.
Canadians required. The Mexicans were given a Under the initial restructuring, the product
framework, but they initially returned cases that groups would no longer be responsible for the
adhered too rigidly to the outline. Similarly, sale of their products, only for their design.
managers would submit business cases of Instead, the branches would become a delivery
140 pages for a $35,000 project. network that would be responsible for almost
Cases required multiple revisions to a point all contact with the client. As a result, managers
of frustration on both sides, but it was only in product groups, who were still responsible
when an analysis could be prepared that satisfied for ensuring the sales levels, felt that they were
the Canadians and was understood by both now being measured against criteria over which
they had no direct control. The Canadian man- employees were productive and fit into the new
agement team was finding it very difficult to organizational culture, and which employees
explain to the Mexicans that they now had to would not add significant value. The problem
influence instead of control. Product man- was, quality employees were not sure if they
agers were being given the role of coaches who would have a job in a year, and many managers
would help the branch delivery network to offer thought that employees would begin to look
their product most effectively. for secure positions in other organizations.
As adjustments were made to the structure, One Canadian manager commented that even
the Mexican managers perception of his status some employees who were performing well in
also had to be considered. In the management their current positions would ultimately lose
hierarchy, the Mexican managers relationships their jobs. Many thought action needed to be
were with the people in the various positions taken sooner than later. A senior Mexican man-
that they dealt with, not with the positions ager explained the situation:
themselves. When a person was moved, subor-
dinates felt loyalty to that individual. As a Take the worst-case scenario, blind
result, Mexican managers moving within an guessing. At least then you will be cor-
organization (or even to another organization) rect 50 per cent of the time and retain
often did so with a small entourage of employ- some good people. If you wait, people
ees who accompanied them. within the organization will begin to
look for other jobs and the market
y will choose who it wants. But as the
Staff Reductions market hires away your people, it will
As services within the bank were consolidated, be correct 90 per cent of the time, and
it was obvious that staff reductions would be you will be left with the rest.
required. Inverlat staff were comforted by
the banks commitment to retain all staff for Until that point, not many managers had
the first year, particularly when considering the been hired away from the bank. Many felt that
poor state of the economy and the banking this was due to the poor condition of the bank-
sector; but, even at lower levels of the organi- ing sector. As the economy improved, however,
zation, the need for reductions was apparent. many believed that the talented managers
Some managers complained that the restruc- would begin to leave the bank if job security
turing process was being slowed considerably could not be improved.
by the need to find places for personnel who Jim felt that something was needed to
were clearly no longer required. communicate a sense of security to the tal-
Motivations for retaining staffing levels were ented managers they could already identify,
twofold. First, BNS did not want to tarnish the but he was not certain how to proceed.
image of its foreign investment in Mexico with
massive reductions at the outset. When the y Conclusion
Spanish bank, Banco Bilbao Viscaya (BBV), pur-
chased Banca Cremi the previous year, they began Jim felt that the Canadian team had been rela-
the restructuring process with a staff reduction of tively successful in the early months. Many man-
over 2,000 employees. BNS executives thought agers referred to the period as the Honeymoon
that this action had not been well received by the Stage. It was generally felt that the situation
Mexican government or marketplace. would intensify as managers looked for results
The second reason BNS management felt from the restructured organization and as staff
compelled to wait for staff reductions was that reductions became a reality. Jim then wondered
they wanted adequate time to identify which how he could best prepare for the months ahead.
Much of the communication with employees to without laying out a plan. The negative rumors
date had been on an ad hoc basis. Jim did not would cause the bank to lose many of its most
feel they could take the risk of starting reductions valued Mexican managers.
Global Fatalities
When International Executives Derail
By Morgan W. McCall, Jr., and George P. Hollenbeck
Take a quick look at why global execu- global executives come and go. The 121 tales
tives fail and youll likely see personality they told are the basis for the conclusions we
flaws. However, the reasons for failure have developed about the underlying causes of
are deeper and more complex. international executive failures.
Three factors contribute to the failure of
Developing global executives is an expensive international executives:
proposition, especially when expatriate assign-
ments are involved. But the investment can 1. The individual
produce a significant returnprovided that
2. The cultural context
the corporation uses the knowledge and exper-
tise gained from the experience effectively. 3. Organizational mistakes
When things go wrong, the investment is lost,
and usually, so too is a person who was judged
to be quite talented. Can these losses be pre- y 1. The Individual
vented? Maybe, but the answer to that question
depends on what causes such derailments. If Executives contributed to their failure in two
the complexity and ambiguity of international ways. Some personal attributes and types of
work makes selection errors unavoidable, then behaviours just dont play in international settings.
the derailment of executives is just another However, more often, it wasnt simply a personal
cost of doing business. However, if derailments flaw that prevented an individual from succeeding.
occur because of something that can be cor- Rather, it was the complex interaction of a persons
rected or prevented, then a significant payoff is strengths or weaknesses with a change in the situ-
possible. ation. We will consider both causes.
To shed some light on the dynamics
underlying the derailment of global executives,
Fatal flaws
we interviewed 101 individuals who were suc-
cessful in their international postings. With an The successful executives we interviewed
average of nine years experience abroad, they described over 300 flaws in the behaviour and
were in a unique position to observe other management skills of the executives they had
AUTHORS NOTE: This article was adapted with permission of the Harvard Business School Press. Source: Developing Global
Executives: The Lessons of International Experience, by Morgan W. McCall, Jr., and George P. Hollenbeck. Copyright 2002 by
Harvard Business School Publishing Corporation.
Copyright 2002, Ivey Management Services
Global Fatalities 435
observed. A few of these flaws were factors careers seem to develop them later on. And for
regardless of the situation or context. still others, there is no apparent cause for the
Foremost among them was a failure to adapt flameout. Moreover, the international executives
to change. What needed to be adapted to varied in this derailed group were unusually talented to
considerablybosses, business strategy, leader- begin with. They were often described as having
ship philosophy, changes in markets and technol- multiple strengths, rarely found together, such as
ogy. For many of those ill-fated executives, their brilliant and interpersonally skilled, technically
inability or unwillingness to change was rooted skilled and shrewd about people, or people and
in a career spent in a silo, or in a single function, results oriented. How could such gifted and suc-
which gave them a narrow perspective and made cessful people derail?
them unable to see the big picture. Unwilling to The paradoxes can be resolved if derail-
appreciate another point of view, some execu- ment is considered as a dynamic process rather
tives either refused to accept change or would not than the inevitable result of some personality
put energy into their effort to change. flaw. Indeed, if one assumes that there are no
Another flaw or set of flaws in the clearly unqualified strengths and few universally fatal
lethal category resulted in bungled relationships flaws, the data begin to make sense. We identi-
with key peoplecustomers, partners, senior fied four patterns that describe the dynamics
management or peers. The bungling was espe- of many of the derailment scenarios.
cially toxic when it occurred in conjunction with
a decline in performance or some significant 1. Early strengths that led to success
mistake. In a global environment, quality rela- became weaknesses later on. Most often,
tionships are crucial in certain countries and this took the form of exceptional techni-
business situations (such as sensitive negotia- cal, functional or market expertise that
tions, joint ventures and cross-cultural alliances). resulted in early successes and promo-
Although a lack of people skills is annoying in tions, but later on blinded the executive
any environment, the consequences are particu- to the bigger picture or the need for dif-
larly severe in an international setting. ferent skills essential to a higher-level job.
Other flaws led some executives to hesitate
2. Long-standing flaws that became
when action was needed, to default on promises
salient when something changed in an
made to senior management, and, when things
executives situation. Some leaders, for
subsequently went wrong, not to ask for (or
example, had always been abrasive and
accept) outside help. Powerful and successful
arrogant, but because they got great busi-
executives in trouble may try to deal with mat-
ness results, they were never damaged by
ters on their own, viewing offers of assistance or
their flaws. Their sins were forgiven in
advice as interference from the outside. This can
light of their bottom-line performance.
be a fatal mistake, made all the more likely
When the results werent as good as
whenever, as an expatriate, the executive has lost
expected or when the situation changed
contact with the rest of the company.
so that relationships (and not single-
handed bravado) were critical to meeting
Complex Interaction the bottom line, the flaws suddenly
emerged and the executive derailed.
But just having flaws is too simplistic an expla-
nation for the derailments that were described to 3. An executives constant success. Some
us. As we have all observed, there are people who executives began to believe that they
have glaring flaws who dont derail, while some were as good as they seemed and, like
with overpowering strengths actually do. Still the Greek tragic heroes, their hubris led
others with no apparent flaws early in their to their demise.
4. Some executives appeared to be just The natural reluctance of people in organi-

unlucky, ending up in the wrong place zations to be candid with each other can be
at the wrong time or running afoul of magnified by cultural norms, as well as by the
the wrong person. What happened, at inability of outsiders to read the subtle cues.
least on the surface, was not the persons One executive, quite successful in a series of
fault. But while ill fortune appeared to functional assignments, was promoted to a gen-
cause these derailments, other factors eral managers job outside of his own country.
usually contributed to the fall. It was fre- He did well initially, probably because of his
quently suggested that the same events functional expertise, but when things started to
might not have derailed someone else go wrong, he did not realize it. When he realized
that there was something about the way it, he didnt have the ability or business knowl-
the executive handled the situation, or edge to diagnose the problem and figure out
about bridges burned in the past, that what was wrong. One cant help but wonder if
contributed to the outcome. In short, he could have drawn on the expertise of others
one of the other dynamicsnot bad had this happened in his home country.
luckmay have been the real culprit. Different economic, religious, government
and social systems in some countries have
While some flaws were uniformly prob- direct effects on how business is carried out.
lematic (e.g., failing to adapt to changed situa- Here, complexity again takes several forms,
tions or an appalling lack of people skills), including the potentially lethalor at least
and others emerged when an executives imme- convolutedweb of relationships and the
diate situation changed, the vast majority of presence of different business models and prac-
international derailments were anchored in the tices. As we interviewed executives, we saw how
cultural context itself. the web of relationships can grow more and
more complex: from subordinates from a dif-
ferent culture who dont speak the executives
y 2. The Cultural Context first language, to subordinates from multiple
cultures speaking multiple languages in one
It was rarely sufficient to say that an executives region, to subordinates from multiple cultures
traits or flaws caused him or her to derail speaking multiple languages and physically dis-
most of these executives were extraordinarily tal- persed around the globe. To thicken the mix,
ented individualsunless one could place that add a boss from a different country who speaks
trait or action in a larger context. For global exec- a different language or multiple bosses from
utives, that context was almost always cultural. different countries in a matrix structure, and so
Working abroad increases stress through its on, through suppliers, customers, partners,
isolation, family pressures, and the broader job shareholders, peers, consultants and others. As
responsibilities it often entails. International if that werent complicated enough, different
executives may find themselves dealing with countries may have different business models,
political issues, government corruption, bribery different definitions of ethical behaviour and
and a variety of contextual issues without the different business approaches and systems.
help that would be available in the home coun- All these complexities and others too numer-
try. Contributing to the stress, but demanding ous to recount, create a fertile context for derail-
in their own right, are the difficulties of under- ment. The more relationships an executive has to
standing and being understood in one or more cultivate, and the more varied they are, the greater
foreign languages, and the often subtle differences the chances that some of them will go wrong. The
in values, norms, beliefs, religions, economic sys- greater the differences in how business operates in
tems, and group and community identities. the countries involved, the greater the likelihood
Global Fatalities 437
that an executive will make erroneous assumptions responsibility, they may find themselves outside
or commit errors without even knowing that any- the mainstream, and they may feel that their
thing is amiss. The more diverse and culturally dif- organization does not take advantage of or
ferent the countries, the greater the likelihood that appreciate what they have learned. In such cir-
seemingly extraneous factorsor what would be cumstances, the skids are greased for derailment.
extraneous factors in the home countrywill
affect business results, the outcomes of deals and
negotiations, and other activities for which the y 3. Organizational Mistakes
executive is accountable. In other words, not only
are the executives actions more likely to be ineffec- Neither individual attributes and behaviour, nor
tive or even counterproductive, but more circum- the cultural context, were sufficient to explain all
stances will be beyond the executives control and of the derailments. The organizations for which
more likely to affect outcomes, regardless of the the derailed executives worked made numerous
executives actions. And for all the reasons we mistakes that contributed to, or in some cases
pointed out above, the executive may not get directly caused, their derailment. The fall of one
timely feedback or pick up the clues that anything executive provides an example: The company
is wrong in time to do anything about it. contributed [to the derailment] when they led
Although cultural and business differences him to believe they would back him up no mat-
create a complex and sometimes treacherous con- ter what. But they didnt. They backed him when
text for executive action, international assign- things went right, but they deserted him when
ments also come with particular seductions that things went wrong.
can lure executives onto the path to derailment. Absence of honest feedback was pervasive,
Being on their own, often far from direct supervi- as were mixed messages or unclear expecta-
sion and with tremendous authority over local tions from back home. Companies picked
operations, global executives can come to believe people who were obviously wrong for the
that they are all-powerful, even above the law. assignment, promoted people too fast (they
Feeding self-aggrandizement were the perks of were untested), or kept them out too long.
foreign duty, which might include servants, cars Frequently, expatriate executives did not have
and drivers, luxurious homes, impressive expense access to the kinds of technical or other sup-
accounts, invitations to galas and state affairs, and port that domestic executives could call upon.
other special treatment that, over time, some The complexity of the global context
executives began to view as entitlements. increases the odds that the organization will
Even if an executive completes an expatri- make various mistakes that contribute to
ate assignment successfully, he or she still faces derailments, most of which are avoidable: giv-
a final risk that may cause derailment ing little or no feedback, little monitoring,
repatriation. Though it is tempting to view com- tolerating existing flaws and lack of support.
ing home as an easy transition, it turns out to be Because organizations can influence these and
anything but. Executives may return to find that similar factors, we fault them for being lazy, or
they have lost their business networks and their worse, negligent. Although we dont absolve
friends, that their home country is not the executives from being responsible for their
same as it was when they left, andperhaps the actions, the organizations lapses increase the
unkindest cut of allthat no one cares. Their probability that flaws and inappropriate or
living conditions may actually be worse, with no ineffective behaviour will go unnoticed and
servants, drivers, luxurious homes, access to uncorrected until it is too late.
exciting events, or relationships with top busi- Some cases of global derailment resulted
ness and government leaders. They may come from poor selection decisions, usually made for
back to less important jobs and reduced technical or political reasons without considering
the potential consequences. Organizations can determine how many and what kinds of
chose people who obviously would not fit in the global executive jobs are required, and how many
environment, failed to prepare them properly and what kinds of executives are needed to fill
for the challenges ahead, and/or failed to com- them. Only the strategy can determine how many
municate their expectations or changes in truly global executives are needed (if any), how
expectations. In still other cases, organizations many foreign nationals are necessary, how the
made decisions that directly affected the execu- international jobs will be structured and posi-
tives operation without considering the situa- tioned, the extent and nature of alliances, how
tion on the ground. At times, an organization business will be done internationally, and so on.
made strategy or design changes without con- There are important differences in the
sulting, or even informing, the local executive. development of local nationals, host-country
Derailment risk is high for foreign nation- nationals and third-country nationals, and for
als coming to headquarters and for other exec- this reason lock-step or undifferentiated devel-
utives returning home. Organizations seem to opment programs are likely to be ineffective
botch their part in both events consistently, for many in the international pool.
contributing to an already difficult situation Further, global executive jobs, whatever
for the executive. the home country of the executive, are fraught
Finally, we were told of derailments in with dangers, not the least of which is the
which an executives career was exploited for increased probability of derailment associated
short-term gain. In these circumstances, the with poorly designed and poorly managed
organization, purposely or not, knew that the assignments. Much can be done to improve the
situation was not viablethe executive was ways these jobs are structured, the processes by
assigned an impossible job, or one that would which performance is monitored, and the
almost certainly create an aftermath so intoler- feedback processes associated with them.
able that the executive could not survive. To emphasize the strategic and structural
aspects of developing international executive
talent is not to say that individual development
Preventing Derailments
should be ignored. There is no question that
A single intervention or a smattering of human many of the essential skills needed in global
resource programs for international executives careers can be learned, and that very few indi-
will not prevent events as complex as those viduals are so naturally gifted that they need
leading to global derailments. Like global exec- no further development. While there are limits
utive development itself, preventing derailment to what an organization can do to make some-
requires an integrated approach that connects one grow, there is a lot they can do to help peo-
strategic intent with the systems and practices ple who want to grow. These include providing
that affect the selection, development and opportunities, early in a career, to work with
movement of global executives. people from other countries and to be part of
To begin with, solutions must address all activities that cross borders, to work under
three culprits in derailment: the executives competent bosses with international experi-
strengths and weaknesses, the global context in ence and perspective, and to live and work as
which the executives are placed, and the organiza- an expatriate. These kinds of experiences,
tional practices that surround the whole process. combined with effective assessment and feed-
All three depend on the fundamental strategic back, seem to be essential ingredients in devel-
issues facing a global business. Only the strategy oping global talent.
C CH HA A PP TT EE RR
15
5
Ethical Leadership
Ethical behavior is a key characteristic of the global leader of the future. Young
leaders place great value on ethics, think they are sorely lacking in current lead-
ers, and feel that ethical behavior will become the most important characteristic
of future leaders. This is not surprising in a time when shredding documents, cre-
ative accounting, and ruthless tactics come to light in the media on a fairly regu-
lar basis.
Goldsmith, Greenberg, Robertson, and Hu-Chan (2003, p. 217)
T
his chapter presents a guide to ethical decision making in situations that will confront
you as a leader and discusses several ethical perspectives that should help you make
ethical decisions. There is constant debate as to where a chapter on ethics should
appear in any book (e.g., textbooks, casebooks). In this book, we decided to place it last. We
do this for one very specific reason. We want ethics and its intersection with leadership to
be the last thing you read and consider as you finish your course on leadership. In our own
teaching and research, we are struck by the number of times that what seem to be innocu-
ous decisions can turn into very dicey ethical situations. In the first authors previous life as
an officer in the Canadian Navy, he was often presented with situations that required him
to think through several ethical dimensions before making a decision. Consequently, we
hope and expect that this chapter will be one you return to many times as you develop as a
leader in the organization you join after you finish your current degree.
Concern regarding leaders and their ethics has been central to everyday life
throughout our history. Unfortunately, it is also a very messy topic to research.
Consequently, research regarding leaders and their ethics is very sparse (Yukl, 2006).
Recent research (Ciulla, 1998; Phillips, 2006) has begun to delve into these issues.
Ciulla (1998) discusses how leadership theory and practices may lead to a more just
439
and caring society. Phillips (2006) defines CEO moral capital and presents a more formal
definition of moral capital.
CEO moral capital is the belief that the CEO justly balances the disparate interests of
individual and group stakeholders to achieve positive returns that benefit the firm, its
stakeholders, and the CEO.
Moral capital is the belief that an individual, organization, or cause justly balances the
disparate interests of stakeholders to achieve positive returns that benefit their col-
lective and individual purposes.
These definitions describe how CEOs and other individuals are viewed by their fol-
lowers, peers, and superiors and, as Phillips (2006) argues, are based on their perception
of the CEOs (or an individuals) character and behavior.
A Definition of Ethics
In the Western world, the definition of ethics dates back to Plato and Aristotle. Ethics
comes from ethos, a Greek word meaning character, conduct, and/or customs. It is about
what morals and values are found appropriate by members of society and individuals
themselves. Ethics helps us decide what is right and good or wrong and bad in any given
situation. With respect to leadership, ethics is about who leaders aretheir character and
what they do, their actions and behaviors.
Ethical Theories
As suggested above, ethical theories fall into two broad categories: those theories related
to leaders conduct, actions, and/or behavior and those related to leaders character. For
those theories related to conduct, there are two types: those that relate to leaders con-
duct and their consequences and those that relate to the rules or duty that prescribe
leaders conduct.
Those theories related to consequences are called teleological theories (telos being a
Greek word for purposes or ends). These theories emphasize whether a leaders actions,
behavior, and/or conduct have positive outcomes. This means that the outcomes related
to a persons behavior establish whether the behavior was ethical or unethical.
Those theories related to duty or rules are called deontological theories (deos being a
Greek word for duty). These theories focus on the actions that lead to consequences and
whether the actions are good or bad. Those theories related to character are described as
virtue-based approaches.
Teleological Approaches
There are three approaches to assessing outcomes and whether they are viewed as ethical.
First, ethical egoism describes the actions of a leader designed to obtain the greatest good
for the leader. Second, utilitarianism refers to the actions of leaders that obtain the great-
est good for the largest number of people. Third, altruism is a perspective that argues that
a leaders conduct is ethical if he or she demonstrates concern for others interests, even if
these interests are contrary to the leaders self-interests.
Chapter 15: Ethical Leadership 441
Deontological Approach
This approach is derived from deos, a Greek word meaning duty. It argues that whether or
not an action is ethical depends not only on its outcome but also on whether the action,
behavior, or conduct is itself inherently good. Examples of actions and behaviors that are
intrinsically good, irrespective of the outcomes, are telling the truth, keeping promises,
being fair, and respecting others (Northouse, 2010). This approach emphasizes the actions
of leaders and their ethical responsibility to do what is right.
Virtue-Based Approach
Virtue-based theories are related to leaders and who they are and are grounded in the
leaders heart and character. In addition, these virtues can be learned and retained through
experience and practice. This learning occurs in an individuals family and the various
communities with which an individual interacts throughout his or her lifetime. This per-
spective can be traced back to Plato and Aristotle. Aristotle believed that individuals could
be helped to become more virtuous and that more attention should be given to telling
individuals what to be as opposed to telling them what to do (Velasquez, 1992). Aristotle
suggested the following virtues as exemplars of an ethical person: generosity, courage, tem-
perance, sociability, self-control, honesty, fairness, modesty, and justice (Velasquez, 1992).
Velasquez (1992) argued that organizational managers should learn and retain virtues
such as perseverance, public-spiritedness, integrity, truthfulness, fidelity, benevolence,
and humility (Northouse, 2010).
The Centrality of Ethics to Leadership

Ethics is central to leadership because of the nature of the relationship between leaders and
followers. Leaders influence followersthis means they affect followers lives either nega-
tively or positively (Yukl, 2006). The nature of the influence depends on the leaders char-
acter and behavior (particularly the nature and outcome of behaviors). Leaders have more
powerinterpersonal and/or formal hierarchical powerand therefore have a greater
responsibility with respect to their impact on their followers. Leaders influence followers
in the pursuit and achievement of common goals. It is in these situations that leaders need
to respect their followers and treat them with dignityin other words, as individuals with
distinctive identities. Finally, leaders are instrumental in developing and establishing orga-
nizational values. Their own personal values determine what kind of ethical climate will
develop in their organizations.
Ethical Leadership: The Perspectives of Several Leadership Scholars

In this section, we review the perspectives of three prominent leadership scholars as these
perspectives relate to leadership and ethics. We focus on Heifetz (1994), Burns (1978),
and Greenleaf (1970, 1977).
Heifetz and Ethical Leadership

Heifetz (1994) emphasized conflict and the responsibility of leaders to assist followers in
dealing with conflict and effecting changes that come from conflict. He focused on the values of
followers, the values of the organizations in which they work, and the values of the communities
in which they live. For Heifetz (1994), the paramount responsibility of leaders is to create a
work atmosphere characterized by empathy, trust, and nurturance and to help followers to
change and grow when faced with difficult situations (Northouse, 2010; Yukl, 2006).
Burns and Ethical Leadership

Like Heifetz (1994), Burns (1978) argued that leadership (especially transformational
leadership, as described in Chapter 9) is about helping followers achieve higher ethical
standards when differing values conflictespecially when conflict is confronted during
difficult situations. He argued that the interaction of leaders and followers should raise
the ethical behavior and character of both. Leaders would do this by assisting followers to
emphasize values such as equality, justice, and liberty (Burns, 1978; Ciulla, 1998).
Greenleaf and Ethical Leadership

Greenleaf (1970, 1977) espoused servant leadership. This perspective comes closest to
altruism, described earlier. The underlying tenants of servant leadership are as follows:
Leaders need to be aware of followers concerns and needs, attend to followers needs and
concerns, empathize with followers, nurture and support followers, and look after follow-
ers. Servant leaders make others better by their presence. Through serving their followers,
servant leaders encourage followers to gain more knowledge, freedom, and autonomy and
to develop as servant leaders themselves. In addition, Greenleaf believed that servant lead-
ers have a broader responsibility to society to accept the have-nots and to set right
inequalities and social injustices (Graham, 1991; Northouse, 2010; Yukl, 2006).
All three perspectives emphasize the relationship between leaders and followers and
argue that this relationship is at the heart of ethical leadership. The ideas presented by
these three scholars are similar to and in agreement with Gilligans (1982) ethic of caring.
This has become a central principle in ethical leadership research and is considered of
paramount importance to organizations because it is of critical importance in develop-
ing collaboration and trust among leaders and followers (Brady, 1999).
Ethical Leadership Principles

In this section, we present five principles that are believed to lead to the development of
ethical leadership. These are respect for others, service to others, justice for others, honesty
toward others, and building community with others (Dubrin, 2007; Northouse, 2010).
Respect for Others

Ethical leaders treat others with dignity and respect. This means that we treat people as
ends in themselves rather than as means to our own ends. This form of respect recognizes
that followers have goals and ambitions and confirms followers as human beings who
have worth and value to the organization. In addition, it leads to empathy, active listen-
ing, and tolerance for conflicting viewpoints.
Service to Others
Ethical leaders serve others. They behave in an altruistic fashion as opposed to behaving in a
way that is based on ethical egoism. These leaders put followers firsttheir prime reason for
Chapter 15: Ethical Leadership 443
being is to support and nurture subordinates. Service to others is exemplified through behav-
iors such as mentoring, building teams, and empowering (Kanungo & Mendonca, 1996).
Justice for Others

Ethical leaders ensure that justice and fairness are central parts of their decision making.
This means treating all subordinates in very similar ways, except when there is a very clear
need for differential treatment and there is transparency about why this need exists. In
addition to being transparent, the logic for differential treatment should be morally sound
and reasonable.
Honesty Toward Others

Ethical leadership requires honesty. Dishonesty destroys trusta critical characteristic of
any leaderfollower relationship. On the other hand, honesty increases trust and builds
the leaderfollower relationship. Honesty means openness with others in that we express
our thinking and our reality as fully as we can. This means balancing openness with dis-
closing only what is appropriate in a given scenario. Dalla Costa (1998) says that honesty
for leaders means the following:
Do not promise what you cant deliver, do not misrepresent, do not hide behind
spin-doctored evasions, do not suppress obligations, do not evade accountabil-
ity, do not accept that the survival of the fittest pressures of business release any
of us from the responsibility to respect anothers dignity and humanity. (p. 164)
We would argue that leaders need to ensure that what they believe, what they think,
what they say, and what they do are internally consistent. This internal consistency, along
with openness, will build trust among followers toward the leader.
Building Community With Others

Ethical leaders build community with others. This is crucial because leadership is about
influencing others to achieve a communal goal. This means that leaders develop organi-
zational or team goals that are appropriate for the leader and his or her followers. These
goals need to excite as many people as possible, and ethical leaders achieve this by taking
into account the goals of everyone in the team or organization.
How Does Ethical Leadership Work?

We are hoping that this chapter will enable you to better understand yourself as you
develop your leadership skills, knowledge, and abilities. Use the thinking on ethical lead-
ership in this chapter as a guide in making your decisions. Remember that the relation-
ship between you and your followers is at the heart of ethical leadership and requires that
you show sensitivity to others needs, treat others in a just manner, and have a caring atti-
tude toward others. Being an ethical leader will be easier if you entrench the following
questions into your thinking (Northouse, 2010):
Is this the right and fair thing to do?

Is this what a good person would do?
Am I respectful to others?
Do I treat others generously?
Am I honest toward others?
Am I serving the community?
Ethical leaders must be concerned with more than running their businesses. They
must be concerned with their employees, their customers, their suppliers, their commu-
nities, their shareholders, and themselves. Leadership is influencing people to achieve
communal goals; ethical leadership is achieving those goals in a way that is fair and just
to your employees, your customers, your suppliers, your communities, your shareholders,
and yourselves (Daft, 2005; Phillips, 2006).
y References
Brady, F. N. (1999). A systematic approach to teaching ethics in business. Journal of Business Ethics, 19(3),
309319.
Burns, J. M. (1978). Leadership. New York: Harper & Row.
Ciulla, J. B. (1998). Ethics, the heart of leadership. Westport, CT: Greenwood.
Daft, R. L. (2005). The leadership experience (3rd ed.). Mason, OH: Thomson, South-Western.
Dalla Costa, J. (1998). The ethical imperative: Why moral leadership is good business. Reading, MA:
Addison-Wesley.
Dubrin, A. (2007). Leadership: Research findings, practice, and skills. New York: Houghton Mifflin.
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Yukl, G. (2006). Leadership in organizations (6th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall.
y The Cases
Lee and Li, Attorneys-at-Law, and the
Embezzlement of NT$3 Billion by Eddie Liu (A)
Dr. C. V. Chen received news that one of Lee and Lis senior assistants had found a loop-
hole in a power of attorney from one of the firms clients, SanDisk Corporation (SanDisk),
that had allowed him to illegally sell the clients shares in a Taiwanese company and to
sneak out of Taiwan with more than NT$3 billion. Unfortunately, Lee and Li had no insur-
ance to cover this embezzlement. Chen knew that the three senior partners needed to
Lee and Li, Attorneys-at-Law, and the Embezzlement of NT$3 Billion 445
develop a plan of action to save the law firm, take care of the lawyers and other employees,
maintain the reputation of the firm within Taiwan and abroad, do what was best for
SanDisk and Lee and Li, and keep the more than 12,000 clients from deserting the firm.
Pembina Pipeline Corporation

Pembina Pipeline Corporation transports light crude oil and natural gas liquids in
Western Canada. The president of the company is abruptly awakened one night by a
phone call from his operations manager. He is informed that one of Pembinas pipelines
has burst and is spilling thousands of barrels of crude oil into a nearby river. Emergency
crews have responded to the disaster, but more help is needed. The president has to decide
the best way to handle this situation with the media and plan a strategy for the company
in containing the spill.
y The Reading
Principled Leadership: Taking the Hard Right
What makes a leader the most principled is a certain solidity at the core, a solidity
founded on principles that are, essentially, points on a moral compass. Those principles
are visible in the actions of some leaders, while other leaders act according to convenience.
These authors lay down a blueprint that will allow a leader to be guided by principles.
Lee and Li, Attorneys-at-Law, and the

Embezzlement of NT$3 Billion by Eddie Liu (A)
Prepared by Yeong-Yuh Chiang and W. Glenn Rowe
Dr. C.V. Chen was shocked and speechless. Unfortunately, Lee and Li had no insurance
Paul Hsu, one of Lee and Lis most senior to cover this embezzlement.
partners, had just briefed him and Kwan-Tao Many questions raced through Chens
Li about the actions of Eddie Liu, one of the mind: What about the firm? How would this
firms senior assistants. Liu had found a action affect the more than 550 lawyers and
loophole in a power of attorney from one of employees? How would other clients react to
the firms clients that had allowed him to the news of this crime? Would this breach of
illegally sell the clients shares in a Taiwanese trust ruin the firms reputation in Taiwan and
company and to sneak out of Taiwan with abroad? Would the firm survive and remain
NT$3.09 billion (approximately US$92 million). financially stable? What should the firm do for
AUTHORS NOTE: This case has been written on the basis of public sources. Consequently, the interpretation and perspec-
tives presented in this case are not necessarily those of Lee and Li or any of its partners and employees.
Copyright 2008, College of Commerce National Chengchi University and Ivey Management Services Version: (A) 2009-01-16
446 CHAPTER 15: ETHICAL LEADERSHIP
the client whose shares had been used to per- each of its 28 practice areas. The firm was
petuate the fraud and theft by Liu? involved in the development of public policies
Chen knew that action had to be taken and in promoting the rule of law in Taiwan and
quickly. The questions whirled in his head as elsewhere, particularly in China. The firm had
he considered what he, Hsu and Kwan-Tao Li, advised Taiwans government on vital social and
the three most senior partners at Lee and Li, economic policies, and several firm members
needed to do today, tomorrow, next week and had helped draft new governmental legislation.
over the next several months. Lee and Li lawyers had been involved in judicial
October 13, 2003 would forever be seared reform and constitutional litigation work that
into Chens memory. were considered landmarks. Their work on pro
bono cases had won them a reputation for being
a leader in public interest work in Taiwan. In
y The Firm: Lee and Li, 1999, the firm established the Lee and Li
Attorneys-at-Law Foundation, a not-for-profit organization dedi-
cated to promoting education and rule of law.
The firm that later became Lee and Li had been Lee and Li had several thousand clients,
founded in Shanghai, China, in the mid-1940s. many of whom had been with the firm for
James Lee, one of the two founders, had com- decades. One-third of these clients were head-
menced practicing law with Allman and Kopps, quartered in Taiwan, and the rest were foreign
and, in 1948, the firm was named Allman, firms. Companies from the United States,
Kopps and Lee. Dr. C. N. Li, the other founding Europe and Japan had utilized Lee and Lis ser-
partner, had also practiced in Shanghai during vices. The firms client list included interna-
the 1940s. Both James Lee and C. N. Li were tionally well-known firms, such as General
specialists in international legal matters. Electric, Ford, 3M, Bank of America, City Bank,
In 1953, James Lee established his own law IBM, Sony, McDonalds and Siemens. Over the
office in Taipei, Taiwan, and, in 1965, he was years, Lee and Li had represented almost all of
joined by C. N. Li. James Lee died in 1970, and the Fortune 500 firms and the multinational
Li renamed the firm Lee and Li. After C. N. Li banks that were doing business in Taiwan.
died in 1973, Paul Hsu, Kwan-Tao Li (C. N. Lis Lee and Lis attorneys were globally con-
son) and C. V. Chen, together with other senior nected, and several were fluent in English or
partners, led the firm through extraordinary Japanese in addition to their native tongue,
growth to become one of the largest law firms in Chinese. They were graduates of top law
Asia and the largest in Taiwan. Considered by schools in countries such as Taiwan, the United
many to be the top law firm in that country,1 Lee States, and Japan (see Exhibit 1 for brief
and Li had offices in the cities of Taipei, rsums for Chen and Li). Lee and Lis attor-
Taichung, Hsinchu, Tainan and Kaohsiung. neys enjoyed long-standing relationships with
Lee and Lis core values encompassed three law firms in North America, Asia and Europe.
principles: caring for people, excellence in quality Collaboration on cross-border deals with
and client service. A core goal was doing well by other law firms was routine for Lee and Li
doing good. The firms motto we care, we serve, attorneys. To better serve clients operating in
we excel was prominently displayed at the the Greater China region, Lee and Li had
entrance to the firms head office in Taipei. The established strategic alliances with Lee and Li
partners and staff believed that adherence to Business Consultants (Shanghai) Ltd. and Lee
these principles had made the firm a leader in and LiLeaven IPR Agency Ltd. in Beijing.
1
Plugging the Loopholes, editorial, Taipei Times, October 18, 2003, p. 8; Jimmy Chuang, Fugitive Liu Wanted in Hong Kong,
Taipei Times, June 24, 2004, p. 1.
Exhibit 1 Brief Rsums for C. V. Chen and Kwan-Tao Li
C. V. Chen
Place of Birth: Yunan, China.

Nationality: Republic of China (on Taiwan).
Education
S.J.D., Harvard (1972); LL.M., Harvard (1970); LL.M., University of British Columbia (1969);
LL.B., National Taiwan University (1967).
Experience
Professional: Chairman and Managing Partner, Lee and Li Attorneys-at-Law, Taipei, Taiwan;
Adjunct Professor of Law, National Chengchi University Graduate School of Law, Taiwan,
(1972present); Lecture Professor of Law, Guanghua School of Management, Peking
University, China; Lecture Professor of Law, School of Law, Tsinghua University, China;
Chairman of Guanghua Law School Council, Zhejiang University, China; Lecturer, the
Training Institute for Judges and Prosecutors, the Ministry of Justice of the Republic of China.
Pro Bono: President, The Red Cross Society of the Republic of China (April 2000present);
Chairman, Taipei European School Foundation, Taiwan, the Republic of China (1994present);
Director, Lee and Li Foundation; Managing Director, Chinese (Taiwan) Society of International
Law (Jan. 2004present).
Honors
Honorary President, Harvard Club of Republic of China on Taiwan (1989present); Recipient
of the Order of Resplendent Banner with Special Cravat from the President of the Republic of
China in 1989 for contribution to the upgrading of legal education and establishment of
procurement system in the armed forces; Recipient of other medals and awards from the
government of the Republic of China on Taiwan.
Publications
Numerous articles on transnational legal problems
Kwan-Tao Li
Place of Birth: Shanghai, China.

Nationality: Republic of China (on Taiwan).
Education
MBA, Kellogg-HKUST; LL.M., New York University Law School, Graduate Division; LL.B.,
National Taiwan University.
Experience
Chief Counsellor, Lee and Li, Attorneys-at-law; Chairman, Lee and Li Foundation; Chairman,
Lee and Li Business Consultants (Shanghai), Ltd; Director, Far Eastern Medical Foundation;
(Continued)
Exhibit 1 (Continued)
Director, Yen Tjing Ling Medical Foundation; Director, Far Eastern Y.Z. Hsu Science and
Technology Memorial Foundation; Director, Asia Cement Corporation; Director, Far Eastern
Textile Ltd; Director, Tai Yuen Textile Co., Ltd.; Supervisor, Yulon Nissan Motor Co., Ltd.;
Associate Professor of Law, Chinese Culture University (19851998); Lecturer of Law, Soochow
University Law School (19691999); Lecturer of Law, Soochow University Graduate Law School
(19721985); Lecturer of Law, National Taiwan Institute of Technology (19751979); Lecturer
of Law, Fu Jen Catholic University (19691971); Director, Yuan Ze University (19871999).
Member
Member, State Bar of New York.
Languages
Mandarin, English, Cantonese, Shanghainese
Practice Area
Corporate; Entertainment; Fair Trade; Intellectual Property Rights; International Mergers and
Acquisitions; Labour; Maritime; Trademarks.
Coauthor
Coauthor of A Study on Economic Contract Law of Mainland China, published by Chinese
Culture University; Contributor to Trade and Investment in Taiwan: The Legal and Economic
Environment in the R.O.C., Published by University of Washington.
SOURCE: http://www.leeandli.com/web/e/default.htm, accessed June 8, 2008.
Lee and Li had achieved a stellar reputa- several awards for its work in managing intel-
tion and received many awards for its out- lectual property (see Exhibit 2 for a list of
standing work in the areas other than awards, honors and recognition for Lee and Li
intellectual property. The firm had received from 1998 to 2002).
Exhibit 2 Awards, Honors, and Recognition for Lee and Li
Managing Intellectual Property
1998 Voted No.1 Firm for Non-patent Work in Taiwan 1997
1999 Voted No.1 Firm for Trade Mark and Copyright Work in Taiwan 1998
2000 Voted No.1 Firm for Patent in Taiwan 1999
2000 Voted No.1 Firm for Trade Mark/Copyright in Taiwan 1999


International Financial Law Review
2001 Law Firm of the Year
2001 Pro Bono Award
2002 Regional Law Firm of the Year
2003 National Law Firm of the Year
Global Competition Review
2002 The GCR 100: A Survey of the Worlds Leading Competition Law Practices and Economists
SOURCE: http://www.leeandli.com/web/e/default.htm, accessed June 8, 2008.
From its beginnings, the firm had devel- y The Client:

oped the largest intellectual property practice
in Taiwan, and, in the 1970s, had been exten-
SanDisk Corporation
sively involved in foreign direct investment (NASDAQ: SNDK)
growth into Taiwan. The firm pioneered the
development of the banking and capital mar- SanDisk Corporation (SanDisk) was founded in
kets practice in the 1980s and had been pivotal 1988 by Dr. Eli Harari, a world-renowned
in the establishment of the technology and law authority on non-volatile memory technology.
practice in the 1990s. Lee and Li was struc- Based in Sunnyvale, California, the company
tured into four departments (corporate, bank- was the worlds largest supplier of flash memory
ing and capital markets, trademark and data storage card products. It designed, manu-
copyright, and patent and technology) with factured and marketed industry-standard,
Hsu, Chen and Li jointly managing the opera- solid-state data, digital imaging and audio stor-
tions. Although the associate partners and staff age products using its patented, high density
worked almost exclusively for one of the four flash memory and controller technology.2
departments, they would, as a rule, engage in SanDisk was the only company that had the
cross-fertilization with their colleagues in the rights to manufacture and sell every major
other departments. flash card format, including CF, SD, miniSD,
2
SanDisk . . . Its Taiwan Law Firm, Business Wire, November 15, 2003, p. 1.
SmartMedia, FlashDisk, MMC, MemoryStick the remaining 127.8 million shares under
Pro, xD-Picture cards and USB flash drives. The the control of Lee and Li. SanDisk had sold
company did not operate fabrication facilities, 35 million UMC shares during the month of
but used a multiple-sources strategy to fluctuate September for approximately US$30 mil-
its supply with changes in demand. SanDisk lion. The 127.8 million UMC shares con-
controlled a significant portion of its flash mem- trolled by Lee and Li were valued at US$83.3
ory wafer manufacturing through its joint ven- million, based on cost, and were worth
ture, FlashVision, and many other strategic US$106.6 million based on trading price on
arrangements with fabrication facility owners. the Taiwan Stock Exchange on September 30,
These strategic and contractual partners 2003.
included Toshiba, Samsung, Renasas Technology, At SanDisks previous fiscal year end on
United Microelectronic Inc. (UMC) and Tower December 29, 2002, it reported revenues
Semiconductor Ltd. Such a multiple-sources of US$541,273,000 with net income of
strategy enabled SanDisk to concentrate on US$36,240,000. Its diluted net income per share
product designs and development of its core was US$0.26. SanDisk had working capital of
competency. SanDisk received a majority of its US$584,450,000, total assets of US$973,579,000,
revenue from direct sales to retailers. long-term debt of US$150,000,000 and stock-
On September 30, 2003, SanDisk owned holders equity of US$627,720,000. The com-
147.8 million shares in UMC, one of its con- pany was doing well financially and was on an
tractual partners in Taiwan. Twenty million upward trajectory (see Exhibit 3 for the quar-
of these shares were held by SanDisk with terly financial data as of September 28, 2003).
Exhibit 3 SanDisk Corporation 2003 Supplementary Quarterly Data (in thousands, except per share data)
Quarters Ended
March 30 June 29 September 28
Revenues
Product $155,448 $214,044 $259,446
License and royalty $19,032 $20,582 $21,954
Total revenues $174,480 $234,626 $281,400
Gross profits $71,591 $88,772 $113,635
Operating income $34,686 $46,659 $66,803
Net income $24,925 $41,326 $14,770
Net income per share
Basic % $0.18 $0.30 $0.11
Diluted % $0.17 $0.26 $0.09
SOURCE: 2003, SanDisk Corporations Annual Report on Form 10-K, 20.

y The Senior Partners: y The Embezzlement:

Hsu, Chen, and Li NT$3 Billion3
Paul Hsu, C. V. Chen, and Kwan-Tao Li, In 2002, SanDisk authorized Lee and Li to file
together with other senior partners who had an investment application with the Taiwanese
retired before the turn of the century, had led government. This application was required to
the firm since the deaths of the founders, James allow the remittance of the return on invest-
Lee and C. N. Li. Kwan-Tao Li joined the firm ment (the dividend) and the principle in the
in August 1969. In addition, he started teaching case of divestment to SanDisk because of the
at Soochow University Law School and Fu Jen Taiwanese governments foreign exchange con-
Catholic University that same year. Li had grad- trol. This arrangement required that SanDisk
uated from New York University Law School give Lee and Li a power of attorney. The power
with his masters degree of law and had a of attorney should have empowered Lee and Li
masters of business administration from only to interact with the government on
Kellogg/Hong Kong University of Science and SanDisks behalf. However, it contained a
Technology. Hsu had joined the firm in clause that allowed Lee and Li to deal with the
September 1969, preceding Chen by about four brokerage house holding SanDisks shares in
years. Chen joined in 1973 after having received UMC. This clause meant that Lee and Lis rep-
his SJD (doctorate in law) from the Harvard resentative could talk to the brokerage house
Law School in 1972 and having taught at on behalf of SanDisk. For this clause to have
National Chengchi University Graduate School been included in the power of attorney was
of Law. Together, Hsu, Chen and Li had been very unusual. The inclusion of the clause
with Lee and Li for a combined 98 years. should have been noted by Lee and Li and
deleted. The power of attorney authorized Lee
and Li to make chops (signets) for SanDisk, and
y The Perpetrator: Eddie Liu any transaction involving SanDisk required
both these chops and those containing the
Liu had graduated from National Chunghsing name of Hsu, all of which were secured in a
University with his bachelors of law degree. vault at Lee and Li.
He joined Lee and Li in December 1989 as a In July 2002, Lee and Li, in its role repre-
legal assistant. Liu handled non-litigation cases senting SanDisk, opened a trading account
in the firms corporate and investing depart- in the investment firm KGI and a deposit
ment and was responsible for investing and account in Chang Hwa Bank. The proceeds
mergers and acquisitions. He performed well from the sale of any shares acquired by
and was considered a capable assistant. SanDisk in Taiwanese firms were to be used to
Although he was a law school graduate and a invest in mainland China and in Taiwan.
capable assistant, Liu had failed to pass the Because of the flawed clause in the power of
Taiwanese bar exam. On August 1, 2003, he attorney and because of his position in the
approached the management of the firm and firm, Liu gained unauthorized access to the
asked for a 12 months leave without pay to passbooks and chops for both accounts and
prepare for the bar exam. Management could transact business through both accounts
approved his request on October 1 because the without any actual permission and/or super-
41-year-old Liu was a trusted employee. vision. He was not legally authorized to make
3
Sheree Shiow-Ru Ma and Mei-Cyue Lee, Internal Control and Employees Fraudulent Behaviors, Accounting Research
Monthly, No. 218, January 1, 2004.
any transactions but he had access to the tools Therefore, the transaction was judged a legal
that allowed him to do so. transfer by the MLPC.
In July 2003, SanDisk deposited 183 million Around the end of September and begin-
UMC shares in the KGI account. Liu applied for ning of October, Liu handed over his files to
a leave of absence on August 1 to prepare for his his colleagues, ostensibly in preparation for his
bar examination and immediately moved into a leave without pay, and he intentionally with-
five-star hotel, having left his Peitou District held any files related to SanDisk. On October 1,
residence in Taipei. During August, he privately Lius leave without pay was approved; however,
opened several accounts for SanDisk at Asia he continued to go to the office until Thursday,
Securities, United World Chinese Commercial October 9. At 2:00 p.m. on October 9, Liu left
Bank (a branch in Taiwan and a branch in Hong Lee and Li and proceeded directly to the air-
Kong), Taipei Bank, Hwatai Bank, Shanghai port. He bought his ticket at the airline
Commercial and Savings Bank, and Chang Hwa counter using as his travel documents both his
Bank. All accounts were under the name of roommates passport and his Tai Bao Zheng (a
SanDisk Corporation except for the bank travel document required for people from
account in the Hong Kong branch of the United Taiwan to legally enter mainland China). He
World Chinese Commercial Bank, which was then flew to Hong Kong from where it was
opened in the name of SanDisk Investing much easier to transfer the diamonds and trav-
Corporation. elers checks to a bank in a city within main-
From August 2 to 9, Liu, having forged the land China, such as Shanghai.
authorization document required, had trans-
ferred 120.3 million UMC shares from the KGI
account to the Asia Securities account. He then y Lee and Lis Dilemma:
conspired with private investment consulting What to Do?
firms to bid up the price of the UMC stock.
From August 6 to 28, he sold the shares and Chen was informed of Lius embezzlement on
obtained NT$3.09 billion (US$92 million). Monday, October 13. October 10 had been a
During August and September, to eliminate any national holiday and October 11 and 12 was
trace of the NT$3.09 billion, he laundered the the weekend. Lius colleagues had reconciled
money by buying diamonds and travelers his files early on Monday and noticed the dis-
checks with the money he had remitted to the crepancy. This finding led to the discovery of
Hong Kong account. Lius malfeasance, which was reported to Paul
During September, the Money Laundering Hsu, who immediately briefed C.V. Chen and
Prevention Center (MLPC) of the Taiwanese Kwan-Tao Li. The embezzlement left all of the
government was informed of the huge amount partners in jeopardy because Lee and Li had no
of funds transfers but the information indicated insurance to cover the NT$3 billion. In Taiwan,
that it was a routine notification of a huge the partners in law firms shared unlimited lia-
amount transfer in excess of NT$1 million. bility, which meant that all of Lee and Lis
The transaction did not appear to be illegal for partners faced the possibility of losing all of
two reasons: First, the information MLPC their personal possessions as well as their pro-
received said that SanDisk Corporation had fessional livelihood and standing.
transferred earnings from the sale of UMCs Chen knew that, as the senior partners, the
stock to SanDisk Investing Corporation in three of them needed to develop a plan of
Hong Kong, not to another company or indi- action that would save Lee and Li; take care of
vidual; second, it appeared that Liu was fully the lawyers and other employees, as well as
authorized by both SanDisk and Lee and Li to their families; keep Lee and Lis reputation
sell the shares and transfer the earnings. within Taiwan and abroad intact; do what was
Pembina Pipeline Corporation 453
best for SanDisk and Lee and Li; and keep the quickly and decisively. Lius embezzlement
more than 12,000 clients from deserting the would become public knowledge within hours,
firm. Chen knew that he, Hsu and Li had to act or the next day at the latest.
Pembina Pipeline Corporation

Prepared by Ken Mark under the supervision of Alexandra Hurst
y Introduction up with something. Damn it, Thomas,

we dont even have media relations
Patrick Walsh, president of Pembina Pipeline people, much less a PR agency!
Corporation, was abruptly awakened by a tele-
phone call from Jim Thomas, his operations
manager. It was 4:30 a.m. on August 2, 2000, in y Pembina Pipeline
downtown Calgary, Alberta, and Thomas had Corporation
no time for pleasantries:
Involved in the transportation of light crude
Walsh, I just heard from one of our oil, condensate and natural gas liquids in west-
pipeline operators that our new ern Canada, Pembina Pipeline Corporation
Taylor-Prince George pipeline burst owned the Pembina Pipeline Income Fund
open this morning! Get up! Were (the Fund), a publicly traded Canadian income
leaking thousands of barrels of crude fund. This fund was established in 1997 to give
into a pristine salmon river. Our the investing public the opportunity to partic-
emergency response crews have ipate in a stable, well-managed pipeline trans-
started containment efforts but were portation entity that had provided high
going to need much more help. What quality, reliable service to the Canadian oil and
are we going to do next? gas industry since the mid-1950s. The Fund
was intended to provide unitholders with
A wave of panic shook Walsh awake. attractive long-term returns through its invest-
Grabbing his car keys and the cellular phone, ment in Pembina, which had a mandate to effi-
he scrambled into his Ford Explorer and began ciently operate its pipeline systems and actively
driving to Pembinas Calgary head office. seek expansion opportunities. The Fund paid
Negotiating corners with one hand on the cash distributions to unitholders on a monthly
steering wheel, Walsh kept Thomas on the line: basis. The trust units traded on the Toronto
Stock Exchange under the symbol PIF.UN.
I want to know all the details of the spill Pembinas pipeline systems served a large
now! Our first concern will be to con- geographic area with 7,500 kilometres of pipeline
tain the oil! Ill join you in a few min- and related pumping and storage facilities. The
utes at the office and wed better come systems were well positioned in the heart of
AUTHORS NOTE: This case was written with public sources and the permission of Pembina Pipeline Corporation. Some facts
have been altered.
Copyright 2001, Ivey Management Services Version: (A) 2001-07-06

western Canadas oil and natural gas production loss could be located and repaired. These tools
areas. There were four systems in total: had been incorporated into Pembinas moni-
toring program, and pipeline systems were
Peace Pipeline SystemCentral Northwest inspected on a rotating seven-to-eight-year-
Alberta cycle. Pembinas pipeline systems, with the
Pembina Pipeline SystemCentral exception of the recently purchased Federated
Southwest Alberta system, were last checked in 1998.
Bonnie Glen Pipeline SystemCentral
South Alberta
Wabasca Pipeline SystemNorthern Hydrostatic Testing
Alberta Government regulations required new pipelines
be filled with water and pressure tested to 125 per
Collectively, Pembinas pipeline systems cent of their licensed maximum operating
transported over 40 per cent of conventional pressure before the lines could be put into
light crude oil production in Western Canada. service. The hydrotest was designed to reveal
any structural weakness in the pipe or welds.
Although not a regulatory requirement, all of
y Operations the major pipelines in the Peace and Pembina
Pembinas pipeline systems were maintained System (built prior to 1970) had been hydrosta-
and operated by a dedicated group of field tically retested. The first two phases of hydrosta-
employees located in 10 field offices. Pembinas tic testing of the 16-inch mainline had been
corporate head office was located in Calgary, completed and confirmed the strength and
Alberta where technical and administrative staff quality of the pipe tested.
supported the pipeline operations. Through its
pipeline, Pembina transported light crude oil, Bacterial Monitoring and Treatment
condensate and natural gas liquids. Virtually
no heavy oil was transported on any of the Pembinas pipeline systems employed pro-
Pembina systems, nor was Pembina a natural grams of regular product sampling and testing
gas carrier. The company did not own the prod- for bacteria. Producers with excessive bacteria
uct it transported but, similar to a trucking were required to treat their tanks with a bio-
company, it took custody of the product from cide to kill the bacteria. Similarly, biocide was
when it entered the pipeline until it was deliv- periodically shipped through pipelines to con-
ered to the owners. trol and kill bacteria.
Pipelines and the materials used in
them were designed, built and tested to high
standards. When pipelines were properly Cathodic Protection
maintained failures due to pipe breakdown Cathodic protection systems were used on steel
were rare. Pembina had several maintenance pipelines to impress a small voltage on the pipe
programs in place to ensure line integrity. to help protect it from external corrosion. Every
These were: month, readings were taken on Pembinas
pipelines to ensure that these systems were
operating at effective levels. A complete cathodic
Internal Inspection Program
protection survey was done annually in compli-
Internal inspection tools were designed to ance with regulatory requirements and any
allow pipeline operators to measure the wall necessary repairs or adjustments to the systems
thickness along the pipe so that areas of metal were made. Evaluation of the survey results
Pembina Pipeline Corporation 455
provided important information on the condi- insurance covered loss of income arising from
tion of the pipeline coatings. specific property damage. The comprehensive
general liability coverage provided coverage in
actions by third parties. The latter coverage
y Expansion included Pembinas sudden and accidental pol-
lution coverage, which specifically insured
Pembina intended to continue to expand its against certain claims for damage from pipeline
service through new battery and facilities con- leaks or spills.
nections, tie-ins to third-party pipelines, and
expansion of Pembinas existing systems to ser-
vice new oil- and gas-producing areas. Ongoing y The Pipeline Break
exploration and development activity by the
producer community was expected to continue Thomas continued to feed more information
to fuel demand for pipeline service in the to Walsh:
regions served by Pembinas pipeline systems,
particularly on the Continental System operat- At about 1:20 this morning, the
ing in northwestern Oregon and northeastern pipeline break and subsequent spill of
Washington. crude oil occurred at mile post 102.5
The most significant increase in through- of the Federated Western Pipeline
puts on the Pembina System could potentially the same pipeline company that we
come from technology developments to bought 12 hours ago.4 The break
improve the recovery of crude oil in the oil released crude oil into the Pine River
fields. It was estimated that only 21 per cent of just upstream of Chetwynd, B.C.
initial crude oil in place was recoverable using Our emergency response field team
present technology. set up a control site half a mile down-
Pembinas management was actively review- stream from the spill. A second con-
ing potential acquisitions and believed that trol site was set further downstream at
Pembina was very well positioned to take advan- the creeks entry into the Pine as a
tage of any favorable opportunities to acquire or precautionary measure, and a third
otherwise expand Pembinas business. control site beyond the town of
Chetwynd is to be set up today.
y Incident Control When he heard that the spill had occurred
Mechanisms near a small town and could threaten its water
supply, Walsh knew that there was no stopping
While environmental incidents had never immediate media coverage. He let Thomas
occurred on Pembinas pipeline systems, continue uninterrupted.
Pembina maintained insurance to provide cov-
erage in relation to the ownership and opera- Weve set up vacuum facilities at each
tion of its pipeline assets. Property insurance control site which are being manned
coverage provided coverage on the property right now, removing oil from the river.
and equipment that was above-ground or that My guys are telling me that well lose as
facilitated river crossings, with recovery based much as 6,300 barrels.5 In the next hour,
upon replacement costs. Business interruption Im going to set up a mobile lab to
4
The deal to purchase Federated was completed on July 31, 2000see Exhibit 1.
5
This amount (6,300 barrels) was equivalent to one million cubic metres of oil.
Exhibit 1 The Purchase of Federated Western Pipelines
NEWS RELEASE
Attention Business Editors:
Pembina Pipeline Corporation Completes Purchase of Federated Pipe Lines Ltd.
Not for distribution to United States which will provide substantial value for
Newswire Services or dissemination in the Pembinas customers and Unitholders of the
United States. Fund. Incremental cash flow generated by the
acquired assets is expected to be sufficient to
CALGARY, July 31/CNW/Pembina service the acquisition debt as well as fund an
Pipeline Income Fund (TSE-PIF.UN) increase in the distribution payments to
announced today that its wholly owned sub- Unitholders of the Fund once the pipelines
sidiary Pembina Pipeline Corporation has have been successfully integrated.
successfully completed its purchase of 100% Pembinas purchase of the pipeline assets
of the shares of Federated Pipe Lines Ltd. from of the Western Facilities Fund for $40.3 mil-
Anderson Exploration Ltd.s subsidiary, Home lion is scheduled to close in late August 2000
Oil Company Limited, and Imperial Oil following approval by the Unitholders of
Limited. In a related transaction, Pembina Western.
closed the purchase of the Cynthia Pipeline The Pembina Pipeline Income Fund is a
from Imperial on the same date. Canadian income fund engaged, through its
Following the completion of this transac- wholly owned subsidiary Pembina Pipeline
tion, Pembinas combined pipeline network Corporation, in the transportation of crude oil,
comprises roughly 7,000 kilometres of pipeline condensate and natural gas liquids in Western
and related pumping and storage facilities and Canada. Trust Units of the Fund trade on the
in 1999 transported 548,400 barrels per day of Toronto Stock Exchange under the symbol
crude oil, condensate and natural gas liquids. PIF.UN.
The Federated acquisition entrenches Pembinas This news release contains forward-look-
position as Canadas leading feeder pipeline ing statements that involve risks and uncer-
transportation business. Total consideration tainties. Such information, although considered
paid by Pembina for the Federated shares was reasonable by Pembina at the time of prepa-
$340-million, including the assumption of ration, may prove to be incorrect and actual
Federated debt. A further $9-million was paid results may differ materially from those antic-
for the Cynthia pipeline. The transactions were ipated in the statements made. For this pur-
financed utilizing a new $420-million syndi- pose, any statements that are contained
cated credit facility arranged with a Canadian herein that are not statements of historical
chartered bank. fact may be deemed to be forward-looking
Pembina is working toward the timely and statements.
orderly integration of the Pembina and Such risks and uncertainties include, but are
Federated pipeline networks, and expects a not limited to risks associated with operations,
seamless transition during the consolidation such as loss of market, regulatory matters, envi-
process. The combination of these considerable ronmental risks, industry competition, and
pipeline operations is expected to produce ability to access sufficient capital from internal
significant synergies and operating efficiencies and external sources.
Principled Leadership 457
This news release shall not constitute an Securities Act of 1933, as amended, and such
offer to sell or the solicitation of an offer to securities may not be offered or sold in the
buy securities in any jurisdiction. No United States absent registration, or an
securities of Pembina Pipeline Income Fund applicable exemption from the registration
have been registered under the United States requirements of such Act.
SOURCE: www.pembina.com, December 29, 2000.
continuously test the water upstream We still do not know what caused the
from Chetwynd. Ill also contact district pipeline break, but I can tell you that
officials to inform residents along the we have between 70 to 80 people
Pine River of the situation and to put in already onsite, beginning clean-up
guidelines to restrict their water usage. activities. Theyre using oil booms to
stop the flow of oil and sponges to
y soak up what they can.
At Pembinas Head Office
Walsh parked his car and ran up two flights of A map of the area was laid out on the
stairs to the office. Thomas and the crew of table. Walsh could now clearly see the prox-
pipeline monitors were hovering over a com- imity of the town of Chetwynd to the spill.
puter screen detailing Pembinas network of He knew that the health of the town and
pipelines. Walsh knew that he would need help surrounding area would have to be his first
in dealing with the media. Even if he were able priority. First, Pembina had to contain the
to contact and retain a media relations firm, he oil spill.
realized that the initial press release would be It was 5 a.m., and daylight would break
his responsibility. Thomas exclaimed: within the next two hours.
Principled Leadership
Taking the Hard Right
By Gerard H. Seijts and Hon. David Kilgour
What makes a leader the most is a actions of some leaders, while other
certain solidity at the core, a solidity leaders act according to convenience.
founded on principles that are, essen- These authors lay down a blueprint
tially, points on a moral compass. that will allow a leader to be guided
Those principles are visible in the by principles.
Copyright 2007, Ivey Management Services

On August 30, 2004, former New York City not reflect the values of H-P. Hewlett-Packards
mayor Rudolph Giuliani delivered a riveting core values include we conduct our business
speech at the Republican National Convention. with uncompromising integrity and we have
They [the media] ridiculed Winston Churchill. trust and respect for individuals.
They belittled Ronald Reagan, Giuliani said. Leadership today is about winning the
But like President Bush, they were optimists, trust and respect of constituents, including cit-
and leaders must be optimists. Their vision was izens, shareholders, employees, and customers.
beyond the present and set on a future of real But should these constituents place their trust
peace and true freedom. Some call it stubborn- (and money) in a leaders hands? Constituents
ness. I call it principled leadership. take the time to evaluate the character, compe-
Unfortunately, in the recent (and not so tence and commitment of those that are (or
recent) past, we have seen too many leadership aspire to be) in leadership positions. And any-
failurestoo many examples of individuals in time there is a gap between what the leader
leadership positions who were unable to deal says and does the credibility of that leader will
with the great responsibility that they were suffer. Therefore, it is no surprise that individ-
given. More specifically, too many so-called uals get disillusioned when their leaders prove
leaders did not exercise principled leader- themselves to be only mere images of the val-
ship. For example: ues that they espouse. It is under such condi-
Harry Stonecipher came out of retirement tions that people believe that their leaders do
in 2003 to help restore Boeings reputation after not show principled leadership. As a result, the
an ethics scandal. Stonecipher helped write a dynamic currency of leadership depreciates,
new code of conduct that, he indicated, would compromising the leaders ability to lead. In
apply to all people in the Boeing organization. this article, we describe principled leadership
Yet Stonecipher violated that very code when and how it keeps leaders on the right course.
he began an affair with a female Boeing execu-
tive. The board asked him to resign.
WestJet Airlines admitted that its highest y What Is Principled
management levels were behind an elaborate Leadership?
scheme to steal commercially sensitive infor-
mation from arch-rival Air Canada. A court Alan Yuspah, senior Vice President, Ethics,
case resulted in which WestJet admitted to Compliance and Corporate Responsibility, the
wrongdoing and agreed to pay $5.5 million in Hospital Corporation of America Inc., identified
investigation and legal bills, plus a $10 million three essential elements of principled leadership.
donation to charity. On its web site, WestJet
identifies 9 legendary values, among them: 1. The articulation of certain principles or val-
we are honest, open, and keep our commit- ues. Leaders need to decide what their personal
ments, and we treat everyone with respect. or organizational values are and provide lead-
Did the actions of the senior leadership put a ership consistent with these espoused or inter-
dent in the values on which WestJet was built? nalized values. Does the leader live the values
Several members of Hewlett-Packards exec- in the business decisions that he or she has to
utive team employed a series of disturbing tac- make? Does the leader stick with his or her
tics (e.g., obtaining private phone record using stated values no matter how difficult the busi-
false pretenses) in an effort to trace those board ness challenges prove to be? Consider the chal-
leaks. This led to the resignation of Chairman lenge that Ed Clark, the President and CEO,
Patricia Dunn, and state and federal investiga- TD Bank Financial Group, recalled in a recent
tions. CEO Mark Hurd stated that the tactics do presentation to MBAs. To paraphrase him: We
are trying to be an inclusive workplace, and we Cope (President and COO, Bell Canada),
believe in diversity of all kinds: women, visible Michael McCain (President and CEO, Maple
minorities, gays, and so forth. We are support- Leaf Foods), and Lt.-Gen. (ret.) Romeo Dallaire
ive of the gay community; we sponsor the keep telling our MBA students. But, as London
Pride parade. However, I get letters from cus- explained, principled leaders do not ignore the
tomers, that state: If you want to defy Gods tough realities of business; they have mastered
will then I dont want to bank with you. Clark the art of business diplomacy. In his words,
and the TD Bank Financial Group remain They work together to enhance interpersonal
committed to their diversity initiatives. work relationships and are particularly valuable
in making tough decisions, resolving emotional
2. The principled leader is able to make tough conflicts, and negotiating sensitive issues.
decisions. Principled leaders make a conscien-
tious effort to get all the relevant information to The 16th President of the United States,
make an informed decision and to see that their Abraham Lincoln, can inspire all of us in our
decisions are consistent with their values and own careers. For example, in Team of Rivals: The
those of the organization. The leadership of Political Genius of Abraham Lincoln, author Doris
Flight Director Eugene Kranz during the Apollo Kearns Goodwin writes that Lincoln was able to
13 crisis is a compelling example. For years, he defeat more privileged and accomplished rivals
had championed a strong set of values: disci- for the Republican nomination in 1860 because
pline, morale or confidence, toughness, compe- his life experience had forged a character that
tence, commitment, and teamwork. Observers allowed him to put himself in the place of other
of the space program have said that it was these persons, to know what they were feeling and to
characteristics that formed the culture that understand their fears, motives and desires. This
would keep Kranzs team together both in good same character allowed him to bring his rivals
times and, in particular, in bad times. In busi- into his cabinet and marshal their talents to pre-
ness settings, good leaders must be principled serve the Union and win the war. Goodwin
but also pragmatictheir principles cannot wrote that Lincoln was plain and complex, shrewd
paralyze them from taking action. The princi- and transparent, tender and iron-willed. . . . His
pled person nearly always feels guilty that s/he success in dealing with the strong egos of the
cannot live up to his/her finest aspirations. men in his cabinet suggests that in the hands of
a truly great politician the qualities we generally
3. Principled leadership is reflected in how leaders associate with decencykindness, sensitivity,
deal with other people. Those individuals in compassion, honesty and empathycan also be
leadership positions should never forget that impressive political resources.
the how is as important as the what. For
example, humility and integrity should be part
of a principled leaders behavioral repertoire. y How to Get
Manuel London, a management scholar and Principled Leadership
practitioner, and Director of the Center of
Human Resource Management, at the State It is foolish to believe that there is a single most
University of New York, indicates that princi- important determinant of principled leader-
pled leaders always try to understand the vari- ship. There are actually four determinants, and
ous points of view and reach common ground they come in to play at the individual, group,
without hostility, and without working over, and organizational levels. We list examples in
around, or through other people. This is a key this particular order. We do not assume that
message that leaders such as Ed Clark, George our list is complete.
1. Upbringing and Life Experiences 2. Reflection

Retired Lieutenant-General Romeo Dallaire is The development of ones leadership skills
the former head of the United Nations requires actual leadership actions, followed by
Peacekeeping Force in Rwanda. He witnessed reflection or debriefing. As a principled leader, do
genocide. Dallaire shared the following anec- we take the time to pause and think about how
dote with a group of MBAs enrolled in a lead- we are doing in terms of the goals we have set for
ership course. A young lieutenant and his ourselves? Leaders are often under intense pres-
platoon enter a small village which had been sure to produce results. This is a plus when the
the scene of a massacre. The troops notice a leader has mastered important skills or perfor-
ditch with women and children, several who mance routines. But what about those behaviors
are hacked to pieces; others are bleeding to that require our continued attention because
death. There is no doubt that these people are the objective is to develop these behaviors?
going to die. It is hard for the soldiers to just Sometimes we need to be in a learning mode. For
stand by and be a witness to these people example, leaders can focus on several questions
dying. What should they do? The reader should or tests, including a hypothetical Globe and
know that, before the war, over 30 per cent of Mail headline. Would they like to see the action
Rwandans were infected with HIV or had they were contemplating on tomorrows front
AIDS. Soldiers do not run around with pro- page? Could they live with the headline? Could
tective gear, such as rubber gloves, and have they explain their actions to their 10-year old
scrapes, cuts, bruises, and wounds due to child? Seeking the advice of an executive coach
the nature of their business. What should the who can help develop skills is becoming increas-
young lieutenant order the soldiers to do? ingly common for business executives.
Should he order the troops not to help and to
march on because of the risk of contracting 3. Role Models
the devastating disease? Or should he order
the troops to console and help the women Gandhi considered modeling the moral exam-
and children? The Lieutenant figures that ple as the prime duty of a ruler, including the
people are dying and that the soldiers have a head of a family or the owner of a business.
moral or ethical duty to assist these people in Studies have shown that peoples behavior is
any possible way. Dallaire went to his 26 com- shaped, in part, by their observation of others.
manders and explained the dilemma. He For example, Albert Bandura, the David Starr
found out that 23 commanders would order Jordan Professor of Social Science in Psychology
the troops not to go in and help; three would at Stanford University, and famous for his work
assist, including the Canadians. The question on social learning, wrote:
then is, For what reasons do some troops get
in the ditch and assist the women and chil- Learning would be exceedingly labori-
dren, even with the risk involved, whereas ous, not to mention hazardous, if peo-
others do not? Dallaire believes that training ple had to rely solely on the effects of
has something to do with this. But perhaps their own actions to inform them what
more important, he articulated, it is the to do. Fortunately, most human behav-
upbringing and the fundamental beliefs or ior is learned through modeling: from
values that Canadians espouse. Two of these observing others one forms an idea of
beliefs are that human rights are important, how new behaviors are manifested and
and that every human is human . . . one per- perform; on later occasions this coded
son is not more human than the other. information serves as a guide for action.
Mentoring is consistent with Banduras For example, leaders can explain how a set of
social learning theory; it involves learning in a values guided the decision making process.
social situation whereby a person models the Consider the following actual event. Roy Vagelos,
behavior of a more experienced teacher or a former senior vice-president of research at
colleague. Seymour Schulich, a successful Merck, and CEO, decided to give away a drug that
Canadian businessman and philanthropist, prevented river blindness to all those who need it
recently observed that, I live the axiom that and who could not afford it. Former chairman of
100 years from now, it wont matter how Merck, George W. Merck, explained, We try
much money you had, how big a house you never to forget that medicine is for the people. It
lived in or what kind of car you drove. But if is not for the profits. . . . The profits follow, and if
you are important in the life of a young per- we have remembered that, they have never failed
son, you might make a difference. So I make to appear. The better we have remembered it, the
time for young people and try to act as a men- larger they have been. The message? Values or
tor. We know that without the modeling of guiding principles are important in making
leadership behaviors, standards of principled tough business decisions. Vagelos was later asked
leadership will be more difficult to achieve. whether he would have committed his company
This is because leaders help to set the tone of to the costly program even without the benefits
behavioral norms and organizational culture. of strengthening its reputation, bolstering its
recruiting, and the creation of shareholder value.
He explained that he had no choice as his whole
4. Code of Ethics life had been dedicated to helping people.
and Communication
Organizations should have a code of ethics or a y The Challenges of
set of guiding values. Leaders should assess Principled Leadership
decisions or actions against that code. This is
how the Johnson & Johnson organization was There can be challenges to living the values
so successful in dealing with the Tylenol crisis. and a leaders principled approach to decision
This is why organizations such as General making. For example, an activist group went
Electric, Maple Leaf Foods, and TD Bank after Ford Motor Co. and Walt Disney Co.
Financial Group are spending a lot of time on because it believed the two companies were
defining their core values and how to live destroying traditional American values by sup-
those values. The events at Boeing discussed porting gay and lesbian rights. In his 2002 book
earlier show that a code of ethics can be effec- Leadership, Giuliani recounts the events that
tive. But a willingness to act on the code is took place in October 1995, the year in which
required. One of the main purposes of a code the United Nations celebrated its 50th anniver-
of ethics is to provide guidelines that help peo- sary. The New York City Host Committee had
ple decide what actions to take from an ethical raised money to sponsor several events, includ-
or organizational culture point of view. The ing a concert at Lincoln Centers Avery Fisher
importance of values and a code of ethics must Hall. Who showed up? Yasser Arafat. Giuliani
be conveyed from the top of the organization had specifically excluded the Palestinian dele-
the CEO and his or her leadership team. The gation, as well as delegations from Cuba, Iraq,
leader should make values a salient aspect of Iran, Libya, North Korea, Somalia, and
the leadership agenda so that the significance Yugoslavia. Giuliani had special contempt for
of these values does in fact reach those individ- Arafat and so he had him thrown out. An inter-
uals in lower-level positions. national scandal was born. The New York Times
and the Clinton administration condemned 2. Stick to What Youre Good At

Giulianis action. But Giuliani was convinced
that he was on the right side; his core set of How many businesses in Canada and elsewhere
principles, and Arafats ongoing terrorist activi- have been harmed or ruined by a senior leader-
ties, drove his behavior. In his words, Some ship team that ventures into new activities or
Americans are unable to face up to the fact that markets without enough advance study of
there really are evil people. conditions or an inadequate understanding of
Sooner or later, therefore, leaders face the its own circle of competence? For example,
challenge of how to remain true to their princi- Southwest Airlines returns to shareholders over
ples, in particular, when other people put pres- three decades have outdone even those of
sure on them. Most leaders operate in a Warren Buffetts legendary Berkshire Hathaway.
fast-paced and complex world, where principles Southwest has no hotels, no travel businesses or
often collide. It is sometimes very difficult to do real estate speculations. Both management and
the right thing for both employees and share- employees know what the airline is good at and
holders, for customers and employees, for tax- stick to it: low-cost reliable air transportation.
payers and clients of the social welfare system. In an industry where profits rarely seem to last
We conclude this article with five prescriptions more than a year or two, Southwest continues to
that, we believe, will make people more recep- flourish. Contrast this approach with organiza-
tive to principled leadership. These are the tions such as K-Mart, ASDA, and Nortel that at
things that leaders can do to continue to walk some point struggled with strategic drift, unable
on water as opposed to swimming or sinking. to provide a clear direction in their activities.
The implications for personal leadership? It is
important to have a core set of convictions, or
1. Executives Should focus; without it, leaders yield to all kinds of
pressures, and little gets achieved. Senator and
Be Model Citizens
former Democratic nominee for U.S. President
John Edward Poole of Edmonton, who died John F. Kerry was seen as a mess of contradic-
recently at the age of ninety, is a hard-to-beat tions on various issues important to the
exemplar. On retiring as CEO of Poole American public. People perceived him as a flip-
Construction Ltd. (now PCL Construction Ltd.) in flopper; he lacked a clear focus. Bush won re-
1977, he and his brother George sold their major- election in part because Americans wanted clear
ity stake to the organizations employees rather and consistent leadership.
than accept the highest offer. (Today, the organiza-
tion remains 100 percent owned by employees.)
During the next three decades, he and his wife,
3. An Inclusive Corporate Culture
Barbara, gave tens of millions of dollars, often on a Nucor Corporation, the out-performer in the
sustained endowment basis, to a host of cultural, American steel industry for many years, and
educational, social and environmental institutions one of Americas most-admired organizations,
in their city. The couple also led fund-raising cam- is a good case study here. Its former CEO,
paigns for many good causes. Edmonton Journal F. Kenneth Iverson, is quoted in Jeremy J. Siegals
columnist, Paula Simons, noted in a tribute, [John excellent book The Future for Investors as
Poole] believed that every man owed a duty to his attributing most of the companys success to
fellow citizens. He understood that living in a city the consistency of our company and our abil-
isnt just about occupying spaceits about partic- ity to project its philosophies throughout the
ipating in the life of a community. Its about taking whole organization, enabled by our lack of layers
responsibility for the future. and bureaucracy. The philosophy of no
favourites among all members of the corpo- President John F. Kennedy. But Darby could not
rate team is demonstrated in myriad ways. return to his home because he had been threat-
Distinctions between executives and other ened. Darby was supposed to remain anony-
employees are even difficult to detect. For mous, but former Secretary of Defense Donald
example, there is no executive dining room at Rumsfeld identified him without warning on
Nucors head office. All employees of the com- national television, a gesture that some say was
pany are listed alphabetically in the annual more about payback than an attempt to honor
report, with no distinctions for titles. There are the whistleblower. There are scores of whistle-
no company vehicles or aircraft and no assigned blowers or information patriots that have paid a
parking places. All employees receive the same steep price for their courage to speak up.
amount of vacation time and insurance cover- Responsible CEOs should ensure that people
age. Ideas wont get buried in bureaucracy; the like Watkins and Darby are regarded as role
freedom to try out ideas gives Nucor a distinct models for all employees.
advantage over other companies: a creative, get- CEOs should appreciate the eyes and ears of
it-done workforce. Every employee is a member their employees. Transparency is important;
of the same winning team. some even consider it an outright competitive
weapon. Former U.S. Supreme Court Justice
Louis Brandeis once said, Sunlight is the best
4. Have Sound disinfectant. The quote refers to the benefits of
Whistleblower Protection or openness and transparency. Some well-known
Processes for Information Flow organizations have made it their objective to
operate in an atmosphere of avowed openness.
Sherron Watkins, the ex-Enron executive who Their leadership opines that individuals who feel
first confronted former CEO Kenneth Lay a discomfort under the bright light of scrutiny
about her suspicions of accounting impropri- may have something to hide. Those in leadership
eties, became a national hero when her positions cannot solve problems if they dont
memos to Lay were leaked to the American know about them. Leaders are well-advised to
media. She had attempted, without success, to create routes for their employees to express their
protest Enrons accounting practices to other views, so that maximum, not minimum, infor-
executives as early as 1996, but got nowhere. mation is used in their decision making.
The then-CFO of Enron, Andrew Fastow,
wanted her fired, but senior management
could find no reasonable cause. 5. Boards of Directors Should
Every organization should have policies in Encourage CEOs to Speak Out
place to protect the Sherron Watkinses of the
Responsibly on Public Issues
world and to ensure that valid concerns are acted
upon with deliberate speed. Information patri- How many of our business leaders have had the
ots, as Canadian whistleblowers now often pre- courage to speak out from a responsible per-
fer to be called, are still usually forced to give up spective against income trusts? Or take climate
their careers in the offices where they encoun- change, the very inconvenient and doubtless
tered and confronted wrongdoing. Consider, for most important issue facing humanity today.
example, the fate of Joseph Darby, the U.S. Army Recently, the Intergovernmental Panel on
Specialist who turned in the pictures of prisoner Climate Change, drawing on the work of thou-
abuse at Abu Ghraib. He was a hero to some; sands of scientists around the world, reported
Caroline Kennedy and Senator Ted Kennedy that all of us on the planet have only a decade
gave him a Profile In Courage award in honor of to reverse surging greenhouse gas emissions or
risk severe climate change that would render and action on them. Authenticity was about
numerous regions of the world uninhabitable. knowing what you believed, being who you
A cover story in a recent Economist, The were, and standing up for both. Fiorina
Greening of America, indicated that corporate explains that leaders can always choose to
America is now among the loudest voices call- become something more. We suggest they can
ing for emission controls and other measures (and should) choose to work on their princi-
designed to reduce the output of carbon diox- pled leadership, as it appears there is consider-
ide and greenhouse gasses. For example, the able room for improvement. A recent poll of
CEO of Duke Energy, James Rogers, said about 1,000 Canadians found that 93 per cent of
reductions, It must be mandatory, so that respondents rated firefighters as trustworthy.
there is no doubt about our actions. . . . The In contrast, CEOs were considered trustworthy
science of global warming is clear. We know by just 21 per cent of the adult Canadians who
enough to act now. We must act now. Not were polled by Ipsos Reid; this number is vir-
enough business voices appear yet have joined tually unchanged since 2002. Only union lead-
the parade on the issue in our own country. ers (19 per cent), local politicians (12 per cent),
And for CEOs and the senior leadership team national politicians and car salespeople
to do so effectively, they need the support of (both at 7 per cent) ranked below CEOs in the
their board of directors; organizations should whom do we trust survey. When asked what
speak with one voice. criteria they considered in rating the trustwor-
In her 2006 memoir titled Tough Choices, thiness of people, the respondents indicated
former Hewlett-Packard CEO Carly Fiorina they used factors such as integrity, reliability,
writes about success and the importance of and commitment to promises in their ratings.
character. Character was everything, and char- These factors, of course, characterize the prin-
acter was defined as candour, integrity, and cipled leader. But we also note that principled
authenticity. Candour was about speaking the people sometimes cross the barrier between
truth, and about speaking up and speaking out. being right and being righteous. The first is
Integrity was about preserving your principles admirable the second just alienates people.
About the Editors
W. Glenn Rowe served in the Canadian Navy for 22 years. While still in the navy, he com-
pleted his master of business administration degree at Memorial University of Newfoundland
part-time (19831986) and taught on a part-time basis for 2 years (19861988) in Memorials
Faculty of Business Administration. In 1990, he retired from the navy and became a full-
time lecturer in the Faculty of Business Administration at Memorial. In 1992, he began
studying leadership within the context of strategic management at Texas A&M University,
where he completed his PhD in 1996. He rejoined the Faculty of Business Administration
at Memorial in September 1995, where he taught strategic management and strategic
leadership. Professor Rowe joined the Richard Ivey School of Business as a faculty mem-
ber on July 1, 2001. He served as the faculty adviser for the PhD program in general
management/strategy from January 2002 to July 2009 and teaches strategy and strategic
leadership to undergraduate business students, MBAs, EMBAs, and doctoral students. On
July 1, 2009, he became the director of Iveys Executive MBA Program. He serves as a
reviewer for several academic journals and is active in the community. He has facilitated
strategic-thinking sessions for several organizations such as the Alliance for the Control
of Tobacco (Newfoundland and Labrador), the Newfoundland and Labrador Medical
Association, Fishery Products International, Gros Morne National Park, and Sir Wilfred
Grenfell College. He is the coauthor of a strategic management textbook and its associ-
ated casebook, both of which are in their third edition. His research is published in jour-
nals such as the Strategic Management Journal, the Journal of Management, and the
Leadership Quarterly.
Laura Guerrero worked in retail management for 10 years in Canada, the United States,
and Mexico. She has an undergraduate degree in economics from the University of Texas
at El Paso. Later, she completed a masters of business administration with a concentration
on management and organizational studies at Simon Fraser University in British
Columbia, Canada. In 2009, she completed a PhD in organizational behavior at the
Richard Ivey School of Business at The University of Western Ontario. In addition to her
interest in gender and culture as they relate to leadership, her research has focused on
careers of expatriates and immigrants. In September 2009, she joined the Faculty of
Business Administration at the University of Texas at El Paso as an assistant professor of
management.
465
Supporting researchers
for more than 40 years
Research methods have always been at the core of SAGEs publishing
program. Founder Sara Miller McCune published SAGEs first methods book,
Public Policy Evaluation, in 1970. Soon after, she launched the Quantitative
Applications in the Social Sciences seriesaffectionately known as the little
green books.
Always at the forefront of developing and supporting new approaches in

methods, SAGE published early groundbreaking texts and journals in the fields
of qualitative methods and evaluation.
Today, more than 40 years and two million little green books later, SAGE
continues to push the boundaries with a growing list of more than 1,200
research methods books, journals, and reference works across the social,
behavioral, and health sciences. Its imprintsPine Forge Press, home of
innovative textbooks in sociology, and Corwin, publisher of PreK12 resources
for teachers and administratorsbroaden SAGEs range of offerings in methods.
SAGE further extended its impact in 2008 when it acquired CQ Press and its
best-selling and highly respected political science research methods list.
From qualitative, quantitative, and mixed methods to evaluation, SAGE is

the essential resource for academics and practitioners looking for the latest
methods by leading scholars.
For more information, visit www.sagepub.com.


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FOR INSTRUCTOR REVIEW ONLY. NOT FOR DISTRIBUTION, SALE, OR REPRINTING.

Copyright 2011 by Sage Publications, Inc.

The University of Texas at El Paso

Culture, Diversity, Ethnocentrism, and Prejudice

Uncertainty avoidance refers to the degree to which a society depends on estab-

Gender egalitarianism refers to the degree to which a society deemphasizes gender

Leadership Behavior and Culture Clusters

Charismatic/value-based leadership is the ability to inspire, motivate, and expect

Grupo Financiero Inverlat

Copyright 1999, Ivey Management Services Version: (B) 2009-09-10

y Intel their branding campaign, and was considered

Li felt that Tang had caused him to lose

Grupo Financiero Inverlat

Copyright 1997, Ivey Management Services Version: (A) 2002-10-23

Support Areas Business Areas

DGA DGA DGA DGA DGA

Divisional Divisional Divisional Divisional

y The Communication Canadian managers believed that the

in an open meeting, the senior man- Other Messages:

4. Some executives appeared to be just The natural reluctance of people in organi-

The Centrality of Ethics to Leadership

Ethical Leadership: The Perspectives of Several Leadership Scholars

Heifetz and Ethical Leadership

Burns and Ethical Leadership

Greenleaf and Ethical Leadership

Ethical Leadership Principles

Respect for Others

Justice for Others

Honesty Toward Others

Building Community With Others

How Does Ethical Leadership Work?

Is this the right and fair thing to do?

Pembina Pipeline Corporation

Lee and Li, Attorneys-at-Law, and the

Exhibit 1 Brief Rsums for C. V. Chen and Kwan-Tao Li

Place of Birth: Yunan, China.

Place of Birth: Shanghai, China.

SOURCE: http://www.leeandli.com/web/e/default.htm, accessed June 8, 2008.

Exhibit 2 Awards, Honors, and Recognition for Lee and Li

Managing Intellectual Property

1998 Voted No.1 Firm for Non-patent Work in Taiwan 1997

2000 Voted No.1 Firm for Patent in Taiwan 1999

2000 Voted No.1 Firm for Trade Mark/Copyright in Taiwan 1999

2001 Voted No.1 Firm for Patent in Taiwan 2000

SOURCE: http://www.leeandli.com/web/e/default.htm, accessed June 8, 2008.

From its beginnings, the firm had devel- y The Client:

SOURCE: 2003, SanDisk Corporations Annual Report on Form 10-K, 20.

y The Senior Partners: y The Embezzlement:

Pembina Pipeline Corporation

y Introduction up with something. Damn it, Thomas,

Copyright 2001, Ivey Management Services Version: (A) 2001-07-06

Exhibit 1 The Purchase of Federated Western Pipelines

SOURCE: www.pembina.com, December 29, 2000.

Copyright 2007, Ivey Management Services

1. Upbringing and Life Experiences 2. Reflection

and the Clinton administration condemned 2. Stick to What Youre Good At

About the Editors

Always at the forefront of developing and supporting new approaches in

From qualitative, quantitative, and mixed methods to evaluation, SAGE is

For more information, visit www.sagepub.com.

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