The Top Trait Every CEO Must Have

You can’t run a successful company without it. I can’t do my job turning companies around without it. And once it’s lost, it can be almost impossible to get it back.

I’m talking about credibility. Every CEO must have that – with his employees, his board, his customers, his investors and his employees. And he must guard and protect it as a valuable asset.

As Warren Buffett said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

I urge every CEO I work with and every company’s senior management to maintain a high level of credibility. The consequences if they don’t can be catastrophic.

I once replaced a very smart man, who was CEO of a company that manufactured electronics parts. Despite the fact he had a PhD, he wasn’t too smart when it came to running his business. Upon reviewing his numbers one day he found some cost accounting discrepancies and realized he was selling his primary widget under cost. Instead of having a $1 million profit as anticipated, the company actually had a $2 million loss.

Rather than admit his mistakes, he just adjusted his prices. His customers weren’t thrilled with the unexpected and unexplained 50 percent price increase he put on that widget and fled. Faced with more losses, the bank soon noticed he wasn’t able to repay his loans and gave him the boot as well. We were brought in late in the process, and were able to sell the company and repay the lender and creditor. But the business lost $8 million in equity.

Had the CEO come clean about the mistake, been honest with his bank and his customers, he could have avoided the losses his ego cost him. He wasn’t. And he didn’t. His credibility was shot.

Through no action of my own, I almost suffered the same fate at a company I has hired to assess prior to becoming the director of reorganization. The president of that company didn’t like the fact I was doing an assessment of the company and wanted me to keep out of his business. So he decided to destroy my credibility.

How did he do that? The chairman of the board gave me specific people to speak with about certain issues. So the president told senior staff members I had already made up my mind about how I would restructure each of their divisions. That was untrue, of course, as I always speak openly with people and listen to their thoughts before making any decisions. But in their minds I was just wasting their time.

Thankfully, with the help of another senior staff member, I was able to salvage that situation.

An article in Forbes, “The Three Qualities a CEO Must Have to Success” addresses the issue of credibility and how critical it is to success.

“CEOs who lose credibility can never regain it. When you communicate, do people believe that you are telling them the objective truth? If they do, then you have credibility. To maintain credibility, you have to tell the truth 100 percent of the time. Telling the truth 90 percent of the time is not much better than telling the truth 10 percent of the time. It only takes a few instances of delivering non-credible statements to totally lose your credibility. Once you lose your credibility, you cannot lead successfully.”

My book, How Not to Hire a Guy Like Me: Lessons Learned from CEO’s Mistakes, is now available as an ebook.

Fraud and the Family Business

Collard spring rolls. Delicious fried chicken and crispy waffles. An internationally famous singer’s name. Sounds like you’ve got all the ingredients for a successful business.

And for a long time, Gladys Knight’s Chicken & Waffles, opened in 1997, was just that. The restaurant chain had high ratings on Yelp, long lines of hungry diners and celebrities holding court in its booths. Sadly, things behind the scenes are not always as rosy.

Gladys Knight’s involvement was limited to letting her son, Shanga Hankerson, use her name. He ran the restaurant chain, which generated $8 million in sales at three locations. But he wasn’t running it too well apparently – he made national news in June when he was arrested for theft, and state revenue agents filed civil racketeering charges against him. Shanga allegedly owed $1 million in unpaid taxes and had been siphoning money from the restaurants to pay for unsavory activities. He wasn’t paying the employees and the restaurant was failing health inspections.

Shanga is out on bail and while two of the three locations have reopened, the chain made headlines again this week as it was disclosed Gladys is suing her son to remove her name from the restaurants and to stop using her recipes and memorabilia.

In addition to the financial losses the restaurant chain suffered, the Empress of Soul took another more immeasurable hit. To her reputation. Gladys has her name on seven Grammy awards, a star on the Hollywood Walk of Fame and in the Rock and Roll Hall of Fame. One place she doesn’t want to see her name is on a business mired in scandal.

Fraud can happen in any type of business and the types of fraud are similar to those in non-family businesses. According to an article in Strategic Finance magazine, “Shattered Trust: Fraud in the Family,” common fraud schemes include stealing office supplies, providing business secrets to a competitor, diverting customers to a competing entity, paying ghost employees and as happened in this case, stealing business funds.

Fraud always involves a betrayal of trust. But in a family business, that betrayal cuts much deeper. Many business owners and CEOS are happy to employ family members because there is an assumption they can trust them beyond anyone else.

An article in Forbes listed myths of family fraud. The one that caught my eye is one I have seen over and over in my career. “Our people wouldn’t commit fraud.”

Everyone wants to hire trustworthy people and continue to trust them to do the right thing. That’s one of the reasons they like to hire family members. You should be able to trust them above anyone else, right?

The bottom line is not always. Not even your own spouse/sibling/child. Here is another story to illustrate that fact.

A physician husband set up a practice with his wife in Connecticut. The business thrived and they enjoyed a nice lifestyle. One day the wife was running some errands and the husband saw an envelope on her desk from a bank he wasn’t aware of. It contained a bank statement for an account with $200,000 in his wife’s name. He learned she was planning on divorcing him, so had been stealing the money from the practice for the new life she was planning.

Other motivations for family members stealing may be addiction problems, feeling entitled or feeling underpaid and underappreciated. Whatever the motivation, the answer is the same as it is for every company. Institute strong fraud prevention policies and enforce them for everyone, family included.

For tips for setting up fraud prevention policies, please see “My Number One Tip for Fraud Prevention” and “13 Fraud Prevention Tips.”

As for Gladys Knight, it’s too late for her. She won’t be singing “You’re the Best Thing That Ever Happened to Me” to her son any time soon.