McGraw-Hill/Irwin STRATEGIC MANAGEMENT Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor11 Strategic Leadership: Creating a Learning Organization and an Ethical Organization

Chapter 11 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor After studying this chapter, you should have a good understanding of: The three key activities in which all successful leaders must be continually engaged The importance of recognizing the interdependence of the three key leadership activities, and the salience of power in overcoming resistance to change. The value of creating and maintaining a “learning organization” in today’s global marketplace The five central elements of a “learning organization” The leader’s role in establishing an ethical organization The benefits of developing an ethical organization The high-financial and non-financial costs associated with ethical crises Learning Objectives TRANSPARENCY-97 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 11 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor Exhibit 11.1 Three Interdependent Activities of Leadership TRANSPARENCY-98 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 11 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor A Leader’s Bases of Power Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Exhibit 11.2 TRANSPARENCY-99

Chapter 11 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor The Five Components of Emotional Intelligence at Work Exhibit 11.3 TRANSPARENCY-100 DefinitionHallmarks Self-management skills: Self-awareness The ability to recognize and understand your moods, emotions, and drives, as well as their effect on others. Self-confidence Realistic self-assessment Self-deprecating sense of humor Self-regulation The ability to control or redirect disruptive impulses and moods. The propensity to suspend judgment—to think before acting. Trustworthiness and integrity Comfort with ambiguity Openness to change Motivation A passion to work for reasons that go beyond money or status. A propensity to pursue goals with energy and persistence. Strong drive to achieve Optimism, even in the face of failure Organizational commitment Managing relationships: Empathy The ability to understand the emotional makeup of other people. Skill in treating people according to their emotional reactions. Expertise in building and retaining talent Cross-cultural sensitivity Services to clients and customers Social Skills Proficiency in managing relationships and building networks. An ability to find common ground and build rapport. Effectiveness in leading change Persuasiveness Expertise in building and leading teams Source: Adapted from D. Goleman, “What Makes a Leader,” Harvard Business Review, October–November 1998, p. 95 (with permission).

Chapter 11 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor Unethical and Illegal Behavior by Top-Level Corporate Executives Exhibit 11.4 TRANSPARENCY-101 Name/CompanySummary Bernard J. Ebbers, CEO WorldCom, Inc. Ebbers built WorldCom, Inc. by acquiring companies during the 1990s boom. Now he’s under scrutiny by the Justice Department, who wonder whether he had any inkling of the massive accounting fraud that WorldCom undertook to boost its results. The Securities and Exchange Commission estimates the magnitude of the deceit at over $9 billion. Investigators may also be looking at a $408 million loan that WorldCom made to Ebbers. WorldCom became the largest bankruptcy in history—losing $140 billion in market value, along with 170,000 layoffs. John J. Rigas, CEO Adelphia Patriarch of a Coudersport, Pennsylvania, family cable empire, Rigas and his two sons have been charged with looting the nation’s fifth largest cable company. They face a maximum of 20 years in prison, if convicted. Adelphia is now operating in bankruptcy, and its stock, trading at pennies a share, has lost $4.4 billion in value. He was taken in handcuffs from his Manhattan residence in July Kenneth Lay, CEO Jeffrey Skilling, President Andrew Fastow, CFO Enron These men led Enron as it fell into the first megascandal —resulting in a loss in investor wealth of $67 billion. Once the nations seventh-largest company —a “new economy” archetype —Enron allegedly cooked its books in order to pump up profits and hide billions of dollars in debt. In October 2002, Fastow was charged with 78 counts of fraud, money laundering, and conspiracy. Skilling, who combatively appeared before a congressional panel, now keeps a low profile. And Lay remains enigmatic, viewed wither as a genial but cunning conspirator or as breathtakingly out of touch. Richard M. Scrushy, CEO Healthsouth Corp. In mid-March 2003, the Securities and Exchange Commission (SEC) filed a lawsuit that accused Scrushy of engaging in a $1.4 billion accounting fraud. The SEC alleges that since 1999, at the insistence of Scrushy, the firm overstated its earnings by at least $1.4 billion in order to meet or exceed Wall Street expectations. Days after the suit was made public, Scrushy and CFO William T. Owens were placed on leave for certifying the company’s financials to the SEC in August. Owens later pleaded guilty to federal securities fraud and conspiracy charges and was fired. On March 31, the Healthsouth board declared the employment agreement with Richard Scrushy “null and void” and fired him as chairman and Chief executive officer. Source: M. Lavelle, “Rogue of the Year,” Time, December 30, 2003, pp ; “The Best (and Worst) Managers of the Year,” BusinessWeek, January 13, 2003, pp ; and

Chapter 11 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor Approaches or Strategies for Ethics Management CharacteristicsCompliance-Based ApproachIntegrity-Based Approach EthosConformity with externally imposed standards Self-governance according to chosen standards ObjectivePrevent criminal misconductEnable responsible conduct LeadershipLawyer-drivenManagement-driven with aid of lawyers, HR, and others MethodsEducation, reduced discretion, auditing and controls, penalties Education, leadership, accountability, organizational systems and decision processes, auditing and controls, penalties Behavioral assumptions Autonomous beings guided by material self-interest Social beings guided by materials self-interest, values, ideas, peers Exhibit 11.5 TRANSPARENCY-102 Source: L. S. Paine, “Managing for Organizational Integrity,” Harvard Business Review 72, no. 2 (1994), p. 113 (with permission)

Chapter 11 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor Johnson & Johnson’s Credo We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers’ orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit. We are responsible to our employees, the men and women who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe. We must be mindful of ways to help our employees fulfill their family responsibilities. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development and advancement for those qualified. We must provide competent management, and their actions must be just and ethical. We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens—support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources. Our final responsibility is to our stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programs developed and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realize a fair return. Exhibit 11.6 Source: Company records. TRANSPARENCY-103 Johnson & Johnson’s Credo