The CEO Who Died in Prison – Consequences of No Core Values

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The CEO Who Died In Prison: A Case for Core Values

Last week I worked with a company that annually measures application of its core values.  This year, they improved in six of seven categories.  It’s been a pleasure helping the company create their values and measure progress.  But I’ve got a story that illustrates the consequences of not doing this work.  It’s about the CEO who died in prison.

In 2001, my family and I left the San Francisco Bay Area to take a new role in San Diego as a Director in Human Resources for Peregrine Systems, a prominent software provider at the time.  After about a month with the company, I felt something was not right.  This feeling began when I first met CEO Steve Gardner.  You see, Peregrine had just announced the acquisition of a San Francisco Bay Area company, Remedy Corporation.  I knew Remedy quite well, since my friend and groomsman in my wedding, George de Urioste, was the Chief Financial Officer who had taken Remedy through their initial public offering (IPO) a few years earlier.  Remedy had a reputation for having a strong, engaging corporate culture that employees liked, and George was a big part of helping Remedy create their culture and their initial success.

“Twice a year, Remedy surveyed its employees to rate how the Company was performing against its tenets (core values). The leadership assembled “all hands” and discussed the results and ideas for improvement. It was remarkable transparency; employees felt like they all owned the culture and each had a responsibility for maintaining and living it.”

– George de Urioste, Former Remedy CFO

 

Peregrine CEO Gardner and our Human Resources team went up to Remedy to do our “due diligence” acquisition work, and Gardner spoke at a company “All Hands”.  Gardner was asked, “Steve, could you tell us about the Peregrine culture?”  Now Gardner was an articulate speaker, but he was hesitant, and could not articulate a single Peregrine value.  I could actually hear a collective gasp in the room, as people looked at each other as if to say, “We are in trouble!”

 

What took place over the next eighteen months confirmed the fears of the Remedy employees.  For a while, things went through with the normal challenges of an acquisition, and for the most part, shareholders, customers, and employees all saw the long-term prospects to be good.  Remedy, of course, added greatly to the Peregrine portfolio.  But one morning, in May of 2002, we all came into work to see an email from the chairman of the board, telling us that our CEO Steve Gardner and the CFO were no longer with the company. We soon discovered that our executives were running an “Enron-like” operation by illegally reporting quarterly revenue that never happened.  It ruined the company, and as a Director of Human Resources, I had the difficult of job of training managers to terminate employees.  On one painful day, over 75% of the employees of Peregrine were terminated, which included most of my HR colleagues.  I know all companies have challenges, but here was Peregrine a company that I and so many of my colleagues trusted.  We all had mortgages and kids in great local schools in the community, many of us who relocated.  We placed our trust in these leaders, only to have their lives disrupted because of their arrogance and dishonesty.

 

CEO Steve Gardner went to prison.  He died while serving his sentence, in 2013.  This story impacted a chapter of my life with an eighteen month roller coaster ride.  The experience vividly illustrated the following lessons of leadership.

 

  • Arrogance is the mother of all leadership derailment.  Tim Irwin writes in his book, “Derailment,” that leaders become arrogant and stop listening to the advice of those around them.  This arrogance leads to mistakes and their eventual demise.

 

  • If you don’t intentionally create a company culture, the company culture will still create itself.  And, without core values that drive proper behavior, a culture will cause very intelligent people to walk off a cliff.

 

Over the years since those days at Peregrine, I’ve been called to design and facilitate two to three day off sites with executive teams. In most cases, I am asked to support a new CEO in establishing strategic direction, create core values and a mission, and build a cohesive leadership team.  Often, some of these leaders are skeptical, wondering why we are spending time and money on the “warm and fuzzy stuff”.  But the leaders who are most enlightened understand that the culture and people issues often place a company at great risk of failure if they are not addressed.  For example, Peregrine had good products, a great customer base, and willing employees.

 

What can you do as leaders to significantly increase your chances of long-term success?

  • Create core values. That’s the basics. More importantly, create systems to measure and hold people accountable for demonstrating these core values in their daily work.
  • Recognize that building and maintaining a cohesive leadership team makes a huge difference in success.  Take time to build trust and ensure alignment around key goals, roles, and values.
  • Recognize it is easy to become arrogant. Recognize that arrogance leads to lack of communication, because you are no longer listening. Build in regular and ongoing systems to receive candid feedback.  The higher you are in the organization, the less truth you actually hear. You have to make it safe for people to tell you the truth.
  • Check your own “Integrity Compass”.  If you have not defined your own personal values or principles, you are just as much at risk as the leaders at Peregrine.  In a high pressure business environment with investors, shareholders, customers, and employees breathing down your neck, you are subject to many temptations.  Gardner was not the only one at Peregrine to serve prison time.  They all followed the leader to their demise.
  • Find someone who will speak the truth and place a mirror in front of you on a regular basis. This might be a mentor, colleague or a professional coach.  Leaders often benefit from someone outside of the company with whom they can be vulnerable and have someone to help them gain insights to these complex issues.  One of the greatest compliments I have ever received was from an executive who thanked me for giving hard feedback to him that no one had the courage to do so.   A coach is a bit more removed from the “system,” and can often bring an objective perspective.

My friend George continues to inspire me to do the work that I do.  I saw how his leadership inspired not only a great culture, but financial success, as the company grew 100% per year for four consecutive years.

“Whenever there was an impasse seemingly impossible to conquer, whether for a lack of resources, or a formidable competitor, employees would remind themselves of the tenet, ‘Do the impossible with small teams’. Then an informal team would form; the creativity and passion of the team manifested the human spirit to heights greater than what any one individual could achieve on their own. And when the impossible was solved, employees had the feeling of “walking off the field after a game, having won a major championship.” The value of twice yearly feedback was to constantly “re-sharpen the sword” and get better and better at applying this tenet.”

– George de Urioste

When I ask groups, “What is the opposite of arrogance?”  I always get the same answer:  humility.  Remaining humble and vulnerable is not a sign of weakness, but a strength.  You won’t hear this from the arrogant and boastful executives with fragile egos who are in it for themselves.

And that’s the heart of being a servant leader.

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