Questions for Fred Kiel

You have noted that there is no widely-accepted definition of the term ‘character’. How do you define it?

I define character in two ways. First, there is the private version, which is the character you think you have, based on what’s in your heart and what your intentions are. The second version is the public version, which is how other people observe you and your behaviour. Abraham Lincoln once said that ‘character is like a tree, and reputation is like its shadow’. It would be wonderful if people judged us based on our intentions, but in fact, people judge us based on our behaviour, which, over time, adds up to our character.

Think about someone you view as a person of strong character. It’s almost certainly because of the way they behave: they tell the truth, they keep their promises, they own up to their mistakes, they show forgiveness and curiosity when other people make mistakes; and they treat people as people, not as objects. When you see someone behaving this way consistently, you admire them and you label them as having strong character.

You have identified four universal principles of ‘leadership character’. Please describe them.

My colleagues and I did an extensive literature review on this subject, and we discovered, from the field of Cultural Anthropology, that there are certain human universal practices and beliefs that are shared by all cultures around the world. We selected four of those traits as being particularly indicative of character: integrity, responsibility, forgiveness and compassion.

If you think about it, every parent around the globe teaches their children about integrity: they teach them to tell the truth and to keep their promises. They also teach them to be responsible for their actions, and they teach them forgiveness and compassion. These traits are universally-admired, and together, they define ‘leadership character’. We then figured out a way to put some metrics around this and ‘measure’ the character of individual leaders.

Tell us about your findings on the connection between leadership character and business results.

We enrolled over 100 CEOs in our study, and ended up with complete data sets for 84 of them. As a result, we were able to draw connections between leadership character and return on assets over the previous two years. We named this measure the Return on Character, or RoC.

What we found is that neither age nor tenure impact the bottom line. But a leader’s character does, and we measure that based on behaviour. We studied the extremes — the top-end ‘strong character’ leaders — and compared them to ‘weak character’ leaders. We called the top group Virtuoso Leaders, and the bottom group Self-Focused Leaders, for obvious reasons. We were astounded to discover that Virtuoso CEOs brought in nearly five times greater return on assets. In addition, they enjoyed a 26 per cent higher level of workforce engagement, and their corporate risk profile was much lower.

Describe the observable differences between a Virtuoso and a Self-Focused leader.

The key difference lies in how they treat people. We ended up with over 8,500 random employee ratings on these 84 CEOs, and the Virtuosos were described as demonstrating all four of the universal principles in their day-to-day behaviour. The Self-Focused CEOs were found to exhibit those characteristics half the time or less, and they were rated as ‘telling the truth’ only about half of the time.

Provide an example of a Virtuoso leader, and explain why they deserve the title.

At the top of my list is the recently-retired CEO and founder of Costco Wholesale, Jim Sinegal. Jim’s employees described him as embodying the four principles and infusing the resulting value system throughout the organization. If you think about it, everyone who visits a Costco store comes out with a smile on their face, and that’s because employees are very focused on service; they treat their ‘members’ like guests, rather than annoying customers — and that’s all because of the culture Jim established.

When the company was founded in the mid-1980s, Jim made three promises. First, he promised Costco members that he would never stock anything but quality merchandise, and he would never mark it up by more than 15 per cent. Somehow, Costco buyers have found ways to get great deals, and they have stuck to that promise. For example, once they got an amazing deal on 40 or 50 grand pianos, and after the 15 per cent markup, customers were able to buy one for about $8,000 — instead of the usual $40,000.

The second promise Jim made was to his employees: that they would be treated with respect and paid a living wage. The average warehouse worker earns almost double what they pay at Sam’s Club, their closest competitor. They also close early on holidays and Sundays, so that their employees can enjoy their family lives. As a result, Costco enjoys a remarkable retention rate that is amongst the best in the retail industry. It also has a very low ‘shrink rate’ — the term used for spoiled, lost or damaged goods. Most shrink in the retail world is due to of employee theft; but Costco hardly has any of that, and they have built a culture where employees will report it if they observe it.

The third promise Jim made was to investors: that he would do his best to deliver a good return; however, that would not be the focus of the business. The focus would always be on customers and employees. For the smart investors who saw the wisdom of this approach, a USD$1,000 investment in Costco when it went public in 1985 is worth $60,000 today. That’s an annualized compound return of 16.5 per cent.

Is it possible to judge one’s own character?

People are actually very limited in their capacity to accurately judge their own character. All 84 of the CEOs in our study rated themselves as being people of very strong character, when in fact, only about 30 per cent of them were accurate. Overall, Virtuoso CEOs rated themselves a little lower than their employees rated them — indicating a certain level of humility and self-awareness. But the Self-Focused CEOs rated themselves 30 points higher than their employees rated them, and higher than the Virtuosos rated themselves.

This tends to be true of people in general, and it means that about 70 per cent of us overestimate the strength of our character as perceived by others. We all tend to live in our own version of reality, and I suspect that as much as 70 per cent of us don’t have an accurate view of the strength of our own character.

Talk a bit about the traditional Economic model of human behaviour versus the newer Integrated Model, and how they relate to leadership.

Classic economic theory assumes that all people are totally rational and self-interested. The problem is, this is an inaccurate view of human nature — and all sorts of bad results come from assuming that people are 100 per cent selfish. Neuroscientists, geneticists and psychologists have come up with a much more complete view of human nature. This view agrees that we are all born with a certain degree of self-concern, but it also says that we are born to connect, to cooperate and to be in relationships with other people.

We all have this dual nature of being both very self-concerned and very ‘other-concerned’, and Virtuoso leaders are able to keep those in balance. It’s not that they sacrifice themselves totally, but they are also focused on other people and contributing to the common good. These ‘integrated beings’ are curious about the world and open to learning. This ‘updated’ view of human nature is much more complete, and it should be embraced widely.

Millennials represent 60 per cent of the global population and are on the cusp of supplying leaders to every corner of the globe. What is your message to them in terms of building character? 

I think very highly of Millennials. All of the in-depth studies of them show that they’re not going to follow the path of Baby Boomers or Gen X. As the first generation of ‘digital natives’, they’re much more connected: the average Millennial has 250 friends on Facebook, and many of those are global. So, there’s this new generation of people who see themselves as part of a global community, rather than being focused on one particular culture. As a result, they will be much more focused on the common good.

They are also known to be very mistrusting of big institutions — and rightly so. They’re motivated to make those institutions change, and as they get into leadership roles, I believe they will. Of course, there are going to be some bad actors, as well as outstandingly good actors; but as a generation, they are more highly-educated and optimistic about the future than previous generations. I’m putting all of my hope for the future on them, and I will do whatever I can to empower them and educate them about the importance of character — and how to hold other people accountable to their standards.

Can character be learned?

It can, because as we discovered, the way you treat other people is a matter of habit, and habits can be changed. Before you engage with others, you don’t consciously think about how to act: you just engage in a way that feels natural to you, and that is based on the habits you’ve learned for interacting with people.

We all know someone who doesn’t treat other people well. But once you become aware of your own habits and how others really see you, you can make changes. Neuroscience is making great headway in understanding how to help people change their habits. My colleagues and I are incorporating these findings into our work, and we’re looking into using gaming as a way of taking people through simulations that provide tools for strengthening their good habits — and weakening bad ones.