The Whole Truth And Nothing But
Most bosses want to hear only good news. That's bad news, since it pushes people to fudge and equivocate. Want to stay ahead? Insist on the cold, hard facts.
By Jeffrey Pfeffer

(Business 2.0) – Gary Loveman, the 44-year-old CEO of Harrah's, is praised regularly as the wizard who turned an aging casino operation into the corporate jewel of Las Vegas. (See "Welcome to Harrah's," April 2002.) Among other moves, the former Harvard Business School professor turned the first nationwide loyalty-card program in the gaming industry into a growth engine, locked in record numbers of return customers through precision-target marketing, and created a customer service culture that slashed worker turnover by 45 percent. Result: Harrah's earnings growth since 1999 has far exceeded that of its big rivals—Caesars, Mandalay Resort Group, and MGM Mirage.

But having spent time with Loveman during his recent visit to my class, I'm convinced that Harrah's success relies on something much more difficult to imitate than frequent-gambler cards. Loveman has built a culture inside the company where only facts and evidence drive decision-making—where telling the truth and admitting mistakes is a prerequisite for every manager.

Big deal, you say? The truth is, most CEOs don't know what actually goes on inside their organizations, making effective managing nearly impossible. One problem is that subordinates, naturally, want to deliver only good news to the boss. Another is that many executives are actively complicit in their own deception: They want to hear good news, even if sometimes it's not the truth. If your underlings tell you that things are on track, you can relax and take all the credit. But if they tell you they've run into serious problems and don't know how to fix them, as a leader you face not only the hard work of helping them solve those problems but also the grim prospect of delivering bad news to your own bosses—the board and the stock market.

Put simply, people are motivated to believe that things are great—so much so that they'll give off signals that they don't want the truth. (When Ken Lay heard from Sherron Watkins about problems in Enron's accounting, he scarcely treated her like a hero. Yet Andy Fastow was rewarded handsomely for massaging the numbers.)

As Loveman explained, building a culture in which telling the truth is accepted and expected is obviously better for the business—you can address problems before they become too severe and can make decisions based on data, not fantasy.

The first step in applying truth serum to a company is finding ways to drive fear out of the organization. One element of Intel's success is its culture of "constructive confrontation," in which managers are encouraged to disagree and to offer alternative data and viewpoints to ensure better final decisions. Another way senior leaders can let employees know they don't have to be afraid of telling the truth is to openly admit their mistakes. Loveman almost delights in telling how he was complicit in bringing an avant-garde show to the Rio that bombed, and how many apologies he made to employees for raising health-insurance premiums nearly 50 percent, a change that fell heavily on the lowest-paid workers. The message? Everyone makes mistakes, so admit to them, learn from them, and move on.

Second, CEOs must create a corporate climate in which managers feel free to ask for help. At Harrah's, Loveman tells his managers that it's no sin to admit to difficulties and call in reinforcements. But he makes it just as clear that trying to bluff your way out of trouble is an easy way to get fired.

Third, it's useful to create processes that guarantee a culture of "no surprises." At one company where I'm a board member, people constantly ask the CEO what might go wrong, what the problems are, and what keeps him up at night. It's not done to be negative or critical but to ensure that there's planning in place for every scenario—good, bad, and downright ugly.

Building a culture in which people are rewarded for identifying problems—and even better, for suggesting solutions—isn't easy, as it goes against the natural human tendencies to like those who agree with us and to prefer happy talk, even if it isn't true. But many more companies need to learn how.