You often hear reference to “The Emperor’s New Clothes” in an office environment when talking about a clueless senior executive. Hans Christian Andersen wrote his version of the short story in 1837 yet today it remains a strong analogy to many leaders who seem oblivious to what everyone else can plainly observe. The basis of the story is that two weavers dupe the Emperor into believing the clothes will only be invisible by those who are unfit for duty, hopelessly stupid, or incompetent. The modern-day twist in an office environment is usually applied to management who fails to see something that is obvious to everyone.

I ultimately blame CEOs for most what goes wrong in a company. I include holding myself accountable as I write this. Most CEOs are paid the bucks for a reason and they should be called into question when they fail to see what should be obvious. They are often the ones that create the culture that causes the company to flourish, end up bankrupt, or even worse to end up in criminal court. The serious problems at Volkswagen resulting from the, “Dieselgate” emissions software scandal are just one example.

Over the years, I’ve repeatedly come across companies run by individuals who seem to be completely unaware of the true status of their own industry and the dynamics within their organization (often including their own gross incompetence). A look at employee review sites (such as Glassdoor.com) and you see how common employees rank the CEO as incompetent. Most of those comments are posted by once dedicated, but now jaded, employees.

These CEOs believe that those who stroke their egos and tell them what they want to hear have the CEO’s best interest at heart when in fact it’s just the opposite. These same CEOs are often very myopic about their market, delusional about their true product status, or in some cases industry for that matter, and thus fail to notice any changes in their business landscape until it’s too late. All of this frequently happens unchecked without anyone calling the CEO into question, especially when they are a majority shareholder. So often these leaders are still praised for having survived longer than some of their competitors, only to eventually suffer the same fate, ultimately resulting in someone sweeping the floor of the empty space they once occupied.

The pile of companies that should have seen changes in their industry yet didn’t have the honest introspective culture, and thus structure in place to pivot, is substantial. In photographic film alone there was Kodak and Polaroid and the real irony is that Kodak invented the digital camera in 1975! Kodak’s management thought their pursuit of digital images would hurt their film business. Imagine the level of dysfunction necessary to not recognize their precarious position with film, and fail to recognize that other extremely innovative companies would make substantial advancements in digital imaging to rival and surpass their products.

In 2000, at a time when Kodak was now desperately trying to catch up, I was invited by a prolific writer/producer friend to attend an event in LA at the Samuel Goldwyn Theater. We were there to see a demonstration of a movie shot side by side with the latest Panasonic professional digital camera compared to traditional 35mm film, shown with a split image on screen; digital on the right, film on the left. At the end, the entire audience sat around for an open discussion. Digital looked better. At the time, digital equipment was still more expensive, especially the required mass storage, however film was not cheap either. As the audience discussed the differences, the future was clear to everyone in the room, even if some in the discussion didn't want to publicly admit it at the time. Those representing the film business were not openly agreeing that digital was better and somehow that message never got to the right people. That long ago experience recently got me thinking.

Social psychologists use a term, ‘Pluralistic Ignorance,’ to describe a phenomenon where an individual will have one opinion privately, but believe that the group around them has the opposite opinion and therefore that group must be the correct opinion. They then go along with what the group thinks publicly, believing because it is a group opinion, it must be correct while secretly holding their opposite opinion to themselves. This pluralistic ignorance often begins with an unfounded opinion held by the CEO who spreads the misinformation to a handful of sycophants who then carry that virus companywide. I can’t help but believe that someone within Kodak’s management likely held the right answer all along but may have believed they were the only one with their opinion at Kodak.

“It was way better to agree with the CEO and just keep their mouths shut, even if it meant the future demise of the company”

A little over a year ago I spoke to a group of customer-facing employees in a company that was heading for trouble about what they individually believed about their market and compared it to the beliefs held by the CEO. They were vastly different. I pressed the employees even further and asked why they were not sharing what they knew with the CEO and they replied, that they would be ostracized and potentially lose their jobs. It was way better to agree with the CEO and just keep their mouths shut, even if it meant the future demise of the company. Their thinking was that they would just ride it out until the company died, then find another job. They were not shareholders so the potential to go bankrupt wasn’t their problem. Remaining silent, knowing trouble is ahead, would give them greater longevity and a chance to find something else rather than speak up and risk termination.

When talking to the CEO about the issue without naming names, he simply disagreed with their prospective, branding them as lazy in what he saw as an attempt to reduce company performance criteria. He truly believed his employees were just not working hard enough. Time has since proven the employees who foresaw trouble were correct all along, but they are long gone, building careers elsewhere. It was safer to just admire the Emperor’s new clothes.

So often these leaders only covet the opinion of those who concur with their views while treating those others who disagree as outcasts or disloyal employees because they are willing to challenge the leadership point of view, even when danger is clearly ahead. This is a great recipe for disaster. It’s right about that time that the CEO gives me a call and so often they blame the employees for steering them wrong. The irony is these CEOs are partially correct, they were steered wrong, but they created that dynamic.

These environments created by the CEO are a challenge to correct, and often the awareness doesn’t happen until it’s too late. When the truth finally unfolds, the CEO often blames some other factor, not at all aware that they were the very individuals who created the culture that blocked the flow of accurate critical information in the first place. This type of CEO rarely accepts any responsibility for creating the misinformation dynamic that started the whole company to tumble. In their world, it's far easier to blame someone else.

In the case of Volkswagen, it's been in the press that someone in a senior leadership role demanded that the engineering team produce the target emissions numbers or else they would find someone who could get the job done. Someone made the decision to cut corners rather than tell the truth and lose their job. The CEO, probably unknowingly, created that dynamic, even when they didn't directly break the law. Someone close to the matter at Volkswagen said that the Chairman was devastated when he heard the news and probably has no idea he may have unintentionally set the dysfunction in motion, simply by demanding that the company achieve what some knew to be unreachable goals.

When building an organization, a high functioning team should have the willingness and ability to debate and be respected for it. When I acquired Open Interface (OINA) in 2004 one of the things I admired most about the engineering team was their willingness to debate a variety of technical issues, big and small. It was clear that if the emperor wasn’t wearing any clothes someone on that engineering team was going to say something, regardless of any consequences. This created an environment of healthy debates and debates were encouraged. Ultimately the engineering team got it right and it was a real testament to our CTO who ran such a straightforward, open team. When a company doesn’t debate any issue, to me it’s a sign of a fundamental problem and that the culture is ripe for pluralistic ignorance, which has likely already taken root, and thus the CEO has already failed to build a great organization.

For any manager or CEO reading this, I would caution you that a team where everyone concurs with everything you say should ring alarm bells. When hiring, look for those who understand the objectives yet have the personal strength of character to speak their mind. Invite debate, seek out opinions from others. Above all listen to what they have to say and give them credit for their foresight. It will pay off in dividends and make you far more competitive as a result. The goal is to always make the best decisions and that requires fostering a culture that allows open forum for debate.