Source: Dominique A. Pineiro/Wikimedia Commons Yesterday, the Wall Street Journal reported that the CEO of WWE, Vince McMahon, is under investigation by the company's board after a secret $3 million payout to a former employee was brought to light. It is alleged that McMahon doubled the employee’s salary after beginning an affair with her and passing her like "a toy" to WWE’s Head of Talent Relations, John Laurinaitis.
Sadly, this type of story is all too common, coming on the heels of reports that SpaceX and Tesla CEO Elon Musk paid $250,000 to settle a sexual harassment claim from a flight attendant. But it begs the question of how effective this strategy of CEOs trying to use financial means to cover for bad behaviour and keep corporate scandals at bay really is. While there is a place for restitutive financial compensation, it is quite clear that CEOs cannot rely exclusively on their economic power to force through their agenda on unsympathetic parties.
Companies today face an onslaught of those who may have legal, moral, or presumed claims, as well as the ability and incentive to influence a firm’s behaviour, direction, processes, or outcomes. In the two scandals noted above, it was friends of the alleged victims that led the charge. Until now, the main prescriptive advice coming from management theory has been that when dealing with claimants, power trumps all. But it is not that simple.
Being Conspicuous Doesn’t Always Help to Get Things Done
There is a marketing cliche suggesting there is no such thing as bad publicity. Indeed, it was Elon Musk himself that suggested the media should use “Elongate” as the scandal’s moniker, a playful response to rather serious allegations. But this type of thinking has led executives who want to get their agenda prioritized to focus on the wrong goals. Publicity is not the critical variable that allows entrepreneurs like Musk to get things done. It’s not being conspicuous or top of mind that matters. It is being prioritized. And in the current business environment, toxic figures are less likely to have their projects and pitches prioritized.
Source: Engin Akyurt/Pexels Displays of Power, Instead of Heart, Make Things Worse
If the target you hope to influence is motivated by moral considerations, displaying economic power does little good. Research shows that using financial incentives or threats to obtain the desired behaviour has an alienating effect. A unique characteristic of being in a morally-motivated state of mind is that you rely exclusively on calculating the correspondence between the relevant issue and an internal system of values.
You will only choose to continue to support a company if doing so reflects well on your personal values. As such, after a scandal, you would expect to see corporate executives take morally persuasive actions. For a morally motivated decision-maker, behaviour is guided by principles rather than material rewards or punishments. In other words, if the public has a negative moral view of you, you must play to moral motivations, not economic ones.
The main practical insight of our research is the warning that using economic power to try and win people over can often have the opposite effect as it alienates the target of influence. Firms must accurately identify their targets' motivations and respond like with like. Trying to solve the problem with money will only alienate those folks further. If companies want to harness the value of loyal employees, they need to engage in behaviours that speak to the inclinations of their staff. It’s not just that money is not effective in contending with scandals. It can be alienating to those offering the commitment of their hearts.
THE BASICSThere is a pressing need for a critical paradigm shift in thinking about what matters most for firms seeking to have their agenda prioritized. While we work toward a day when CEO misbehaviour is no longer tolerated, until that time, corporate decision-makers need to be more mindful of the steps they take in response to scandals and whether these subsequent actions exacerbate the damage being done to critical relationships rather than help repair them.