A Board Member’s Guide To The Difference Between New Clothes and No Clothes

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For directors concerned that a 'naked emperor' may lead their organization, there are four primary warning signs to consider—though they will only be perceptible to those interested in and capable of being good leaders themselves.

“The Emperor’s New Clothes” is a timeless children’s tale about what can happen when an arrogant leader hears only what he wants to hear and insists on being surrounded by people who will not challenge him. As the story’s plot unfolds, it becomes a dark comedy of humiliation, failure and weakness centered around one person who has no awareness that he is the source of many problems — not only for himself but also for the many people who blindly follow him.

While “The Emperor’s New Clothes” is fictional, real-life stories with similar themes are playing out in companies and boardrooms around the world. Their protagonists are the employees, shareholders, and other stakeholders who need more from their executive leadership team; and their antagonists are, ironically, the executives themselves. These are executives who cannot or do not appreciate their own egocentric behavior and who are leading their companies to unhappy endings. Most of these executives will never know — because they do not want to know — that they are a constraint within their own organizations. Employees are often silent for fear of retaliation, and other stakeholders have little access to or influence over company management. Thus, corporate directors, particularly independent directors, are in a unique position to play the role of hero in these stories. They are the stakeholders best positioned to spot problematic executives and to make organizational changes when necessary. Fortunately, for attentive directors, there are clear warning signs to watch for in determining whether there may be a problem in the companies for which they are responsible.

“The Emperor’s New Clothes”

As told by Hans Christian Andersen, the tale is about a vain, selfish emperor who is fooled by two swindlers who claim to be weavers. Knowing the emperor’s obsession with fine clothes, they convince him to pay a large sum of money to weave “the most magnificent fabrics imaginable” and create clothing that would be “invisible to anyone who was unfit for his office, or who was unusually stupid.”

The emperor sends his ministers and noblemen to inspect the weaving process, and they see nothing but empty looms. Nevertheless, they are afraid to admit the truth, so they offer praise for the imaginary clothing. The emperor, too, proclaims excitement and even awards the swindlers the title of “Sir Weaver,” though he, too, sees nothing when he inspects the looms.

Eventually, the emperor allows the swindlers to dress him in the imaginary clothing for a procession in front of his subjects. The emperor walks naked in front of everyone, with the noblemen pretending to carry a train that does not exist. In turn, the entire crowd cheers about the clothing, though everyone sees their emperor naked.

Finally, a child says, “but he hasn’t got anything on.” Only then does the crowd acknowledge the truth of the situation, repeating the child’s words. As for the emperor, he hears the crowd’s recognition, but he refuses to accept it. “So he walked more proudly than ever, as his noblemen held high the train that wasn’t there at all.”

The Difference Between New Clothes and No Clothes

For directors concerned that a “naked emperor” may lead their organization, there are four primary warning signs to consider. They are enumerated below, though note that, like the imaginary clothing in the story, they may be “invisible to anyone … unfit for [their] office.” In other words, in a cruel irony consistent with the story, these key indicators may only be perceptible to those leaders who are interested in and capable of being good leaders. They may be unhelpful to those who already are consumed by their own arrogance and vanity. Therefore, it frequently will fall on corporate directors to be mindful of these indicators and, if necessary, to act accordingly.

1. Culture of Authoritarianism

An authoritarian culture is usually the byproduct of an executive or group of executives who behave more like bosses than leaders. It is a culture that reflects absolute control by one or more select persons and in which dissent is met with hostility, questions are met with disdain, plans change at the whim of those in control, and the principal stakeholders are the selfish executives themselves.

Common phrases in an authoritarian culture are: “they/you don’t get it;” “I question your loyalty;” “just trust me;” “you should be happy/feel grateful;” and “this is my company.” Common pronouns are “I,” “me,” “my,” and “mine.”

Like the emperor in the story, authoritarian executives hear what they want to hear and see what they want to see. They do not have awareness around how they are perceived by others, largely because they are surrounded by people who enable them to be unaccountable to anyone. They receive flattery as fact and feel entitled to their positions and everything that comes with them.

2. Lack of Regular, Multidimensional Communication

A related but different warning sign is a lack of effective communication across the organization. If the lead executives appear to do all the talking, then it usually means others are uncomfortable talking or do not care about talking. It can also mean that others are indeed talking but that they are doing so primarily in the form of gossip behind closed doors.

Such circumstances can look like those in “The Emperor’s New Clothes,” in which the emperor made his preposterous decisions and everyone went along with them without any debate or discussion. Remember that it took a child to speak up – likely because the child had no idea that speaking up was controversial.

3. “Cult of Personality”

Many organizations are led by people who have, in some respects, become the alter egos of their own companies – or at least they think they have. They see themselves as critical to everything happening in the organization and to all its progress. Usually, their employees have been fed a steady diet of this doctrine, so they either believe the same thing or are too afraid to say they do not. The most common variant is the founder-led company that has been wholly dominated by that founder – who is seen as infallible, omniscient, and worthy of being blindly followed.

Executives who generate such a “cult of personality” are not necessarily vain or selfish. They may just be highly charismatic and visionary. Yet, such executives are also more likely to become naked emperors, even if their intentions are good. In these cases, people may not fear or dread the leaders of the company, but they may be reluctant to challenge them if only out of respect or admiration.

4. Lack of Progress and Change

Ultimately, perhaps the most obvious sign that an organization may be suffering under one or more naked emperors is that it fails to progress and embrace change as necessary. Of course, many things can happen to halt the progress of an organization; but nothing is more impactful in doing so than an executive who is incapable of self-assessment and self-improvement. Such executives become a constraint within their own organizations, largely because they become a constraint on their own personal growth.

Responding to the Warning Signs

Unlike the fictional empire of “The Emperor’s New Clothes,” well-functioning companies can be structured with oversight by a board of directors that can see the difference between new clothes and no clothes. These directors must proactively ensure that their executives avoid being authoritarian or allowing their organizations to become authoritarian. They must ensure a culture where dissent is met with understanding and questions are welcomed. No one can have absolute power, and everyone must be encouraged to receive feedback and coaching – especially the lead executives.

Directors should also facilitate and require open communication to understand the organization not only from the perspective of top-level management but also from the perspective of all levels of the company. In turn, they should insist on executives who are prepared to promote robust, regular communication as a core value of the organization. Only by encouraging and acknowledging a wide array of reasonable perspectives and promoting an open culture conducive to the sharing of ideas can an executive avoid a figurative fate like that experienced by the emperor and his subjects.

Ultimately, however, the best safeguard is simply to remember that there are no emperors in this country. Distributing leadership among several individuals and ensuring that everyone understands that the organization transcends any one person is the best way to ensure that a leader’s clothes are real and not imaginary.

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