A CEO's apology for an offensive remark
By Leslie Gaines-Ross

Leadership second quarter 2008 45 A Wall Street whack for P&G’s new CEO From The Game Changer by A.G. Lafley and Ram Charan. Copyright 2008 by the authors. Published by Crown Business (www.crownpublishing.com). I t came on June 6, 2000, a few minutes before a busi- ness meeting in California. On the line was John Pepper, former chairman and CEO of P&G. John got right to the point: “Are you prepared to ac- cept the CEO job at P&G?” I was stunned. Just the afternoon before, I had been speaking with chairman and CEO Durk Jager about our plans for the final month of the fiscal year. “ W h a t ’ s h a p p e n e d t o Durk?” I asked. “He resigned.” “Why? What happened?” “I don’t have time to go into that now. I just need to k n ow w h e t h er yo u’re pre- pared to do the CEO job for P&G.” “Of course I am.” “ T hen ge t on a plane as soon as you can and come di- rectly to my office when you arrive back in Cincinnati.” “OK.” I turned to my colleagues and told them something had come up. I had to leave. On the plane, I considered this sudden and totally surprising turn of events. I tried to put first things first: What would I need to do in the next 24, 48, 72 hours? And what would I need to do in the first week, first month? Job one was to determine the state of P&G’s business. At 6 a.m. on June 7, I began digging into the numbers — business by business, region by region, customer by customer. Unfor- tunately, we were in worse shape than I suspected. We were 23 days from year-end and there was no way we were going to make the month, the April-June quarter, or the 1999-2000 fiscal year. After briefing the board on Thursday, June 8, we issued another profit warning. P&G’s stock opened more than $3 lower in the morning I was announced as CEO. By the end of the week P&G’s stock price was down more than $7 from Monday’s close. It was not exactly an early confidence booster for me. A.G. Lafley is chairman and CEO of Procter & Gamble Co. Ram Charan is a consultant to boards and senior management. A CEO’s apology for an offensive remark From Corporate Reputation by Leslie Gaines-Ross. Copyright 2008 by John Wiley & Sons Inc. Published by John Wiley & Sons (www.wiley.com). H enry Paulson Jr., former chairman and CEO of Goldman Sachs Group, demonstrated how a prop- erly issued and frank apology from the top can help repair a personal and company reputation. During a question-and-answer session at a Salomon Smith Barney conference in January 2003, Paulson seemed to imply that between 80 and 85 percent of Goldman Sachs’ employ- ees were irrelevant to the company’s success. “I don’t want Ed Note: Excerpts printed with permision of the publishers. All rights reserved. Book it: Best bets for board reading From a roundup of new books, leadership insights on sudden succession, human capital oversight, being a trusted adviser, greatness in the making, and how to apologize for a tactless remark. Leadership 46 directors & boards The most astute man in the room From Valley Boy by Tom Perkins. Copyright 2007 by the au- thor. Published by Gotham Books, an imprint of Penguin Group (USA) Inc. (www.penguin.com). A t Harvard, I got the first inkling that my instincts were tuned for business. I took the famous course of professor Georges Doriot, universally called “The General” because he had been Quartermaster Gen- eral in the U.S. Army during World War II. He was the star on the B-school faculty, even though he disdained the school’s pioneering case method of teaching in favor of pure lecture. His subject was called manufacturing, but really he tried to imbue a way of thinking, both about business and about life. His allure was enhanced by the fact that, in addition to his po- sition at Harvard, he was chairman of American Research and Development — the first really full-time venture capital com- pany. It had financed Digital Equipment Corp., whose newly introduced minicomputer was revolutionizing the industry. He was also on DEC’s board. The General opened his first lecture to a packed room of some 80 students by teaching us how to read a newspaper. He said it shouldn’t require more than four minutes. He held aloft a copy of the New York Times and challenged the class with a question, asked in his wonderful French accent: “Gentlemen, which of you can tell me the most important section — the one I read first?” A few of the daring risked answers: “The headlines?” “Non.” “The business section?” “Non!” “The stock market tables?” “Non! Non!” The room was silent, then filled with guffaws and titters when I raised my hand and said, “The obituaries!” The General commanded s i l e n c e , a n d t h e n h e a n- nounced that I was the most astute man in the room, that great things could be expect- ed from me. He then made t h e p o i n t t h a t o b i t u a r i e s were the only true news, and the only thing that the pa- pers rarely lied about. When I graduated he asked me to be his assistant for a year. It was considered an enormous honor to be the annual pick, but my eyes were aimed on California, and I turned him down. Some years later he asked me to come back to Boston to run American Research and Development, but by then my roots were too deep in the Val- ley, and again I said no. Tom Perkins co-founded the leading venture capital firm Kleiner Perkins Caufield & Byers in 1972 (www.kpcb.com). to sound heartless,” the CEO said, “but in almost every one of our businesses, there are 15-20 percent of the people who really add 80 percent of the value. I think we can cut a fair amount and not get into muscle and still be very well-po- sitioned for the upturn.” Paulson’s comments drew an immedi- ate and overwhelmingly negative reac- tion. Rather than wallow in explanations as to what he actually intended to say, or suggest that the comment was taken out of context, Paulson took the heat. He did not waiver. In a voicemail message afterwards to all 20,000 Goldman Sachs Group em- ployees, Paulson acknowledged that his remarks were “insen- sitive” and “glib.” He apologized. He articulated exactly what made his comments offensive and contradictory to the finan- cial services firm’s team-oriented mindset: “… the 80-20 rule is totally at odds with the way I think about the people here.” In his voicemail, he commented that he intended to apologize in person at a series of upcoming town hall meetings, but real- ized that he should not wait. He reaffirmed the importance of teamwork over individual glory and acknowledged that he was embarrassed by his choice of words. Paulson’s apology was not a sign of weakness, but an act of strength. Within Paulson’s apology are several lessons: • First, take responsibility. Paulson acknowledged the distastefulness of his remarks, took full respon- sibility for having made them, and expressed re- gret. • Second, act quickly. Paulson issued his voice- mail apology to employees a few days after making his ill-conceived remarks. • Third, communicate sincerity. Paulson ac- complished this by selecting the correct channels to express his apology. Voicemail and town hall meetings allowed his genuineness to resonate with employees. An e-mail could have easily been misinterpreted and, without the sound of his voice, undoubtedly have carried far less emotional weight. Leslie Gaines-Ross is chief reputation strategist for Weber Shandwick, a global public relations firm, and has done landmark research in the areas of CEO and corporate reputation (www. reputationrx.com).

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