Our faculty panel explores how to reduce wrongdoing by corporations; and Professor Sue Ashford discusses her recent research into the effectiveness of leaders engaging in self-reflection.
In this episode, professors from the Ross School of Business at the University of Michigan tackle the question, “Is a crackdown coming on corporate crime?” They discuss how widespread corporate crime is, what the Department of Justice is doing to prosecute offenders, and the effectiveness of various remedies. Then, Professor Sue Ashford discusses her recent research into the value of self-reflection for people who are functioning as leaders but don’t necessarily have a formal leadership role.
Contents of this episode:
Corporate crime discussion: 01:00-33:02
Self-reflection interview: 33:05-45:40
More information about some of the topics discussed on today’s episode:
Research paper: “Out of Sight, Out of Mind? The Role of the Government-Appointed Corporate Monitor”
Research paper: “The Power of Reflection for Would-Be Leaders”
Book by Sue Ashford: The Power of Flexing
And to learn more about other work being done by Michigan Ross faculty, visit our website.
Have thoughts about topics we should cover or just want to get in touch? Send us an email at baspodcast@umich.edu.
---
Business and Society is brought to you by the Ross School of Business at the University of Michigan.
Copyright 2023 - University of Michigan
Bob Needham: Hello and welcome to Business and Society with Michigan Ross. My name is Bob Needham, and we're coming to you from the Ross School of Business at the University of Michigan. On this podcast, we consider some of the ways the business world interacts with our broader society for better and sometimes for worse. Today our panel of Michigan Ross professors will talk about what's ahead in the fight against corporate crime, and we'll hear about some useful research on self-reflection for leaders. It's a gorgeous winter day in Ann Arbor, and we're glad you're here. Before we get started I'd like to encourage our listeners to subscribe, rate, and review the podcast. It helps other people find us and we'd love to hear what you think of the show. You can also reach out via email if you have a question or just wanna say hi. Send us a note at baspodcast@umich.edu. We got a great note recently from Mara Sands, a Michigan Ross MBA alum who suggested that we start offering transcripts of our episodes. That's an excellent idea, and we've now started to do that. So you can find the transcript in the episode notes for the show on the website for each individual episode. Thank you, Mara, for that idea.
0:01:16.7 BN: On today's episode, we're discussing the question: s a crackdown coming on corporate crime? And we're joined by three Michigan Ross professors who will provide some answers. Lindsey Gallo, David Hess and Will Thomas, I'll ask them to introduce themselves. Lindsey.
0:01:30.4 Lindsey Gallo: Hi, I'm Lindsey Gallo. I'm the Coopers and Lybrand Norman E. Auerbach Assistant Professor of Accounting. I have a couple of strands of research. I look at the intersection of accounting and the macro economy, and then my second strand of research looks at various aspects of corporate governance.
0:01:48.6 David Hess.: Hi, I'm David Hess. I'm a professor in the business law group here at the Ross School of Business. I conduct research in corporate compliance and ethics programs, business and human rights and non-financial disclosure by corporations.
0:02:03.5 Will Thomas: And I'm Will Thomas. I'm an assistant professor also in the business law group and most of my work centers on white collar and corporate crime, so I'm particularly excited to jump into this today.
0:02:12.3 BN: Great. Thank you all for being here. First of all, understanding that corporate crime can cover a lot of different illegal acts. Is there any reliable way to know how widespread these acts are? Or put more simply, how big of a problem do we think corporate crime is?
0:02:28.6 DH: Well, I think you stated that in your question that it is a very large problem and to the extent of if you start to think about securities fraud, consumers fraud, healthcare fraud, corruption, money laundering, tax evasion, insider trading, it's just a large number of different potential violations that fall under this umbrella of corporate crime. So if you take that all into account we can see how large of a problem this really is.
0:02:53.5 WT: Yeah, I think... I think it's incredibly hard to get a baseline here in part because how we draw the lines around what counts as corporate crime is gonna determine how big this sphere of behavior is. If what we're talking about is just the sort of the enforcement rates we see right now, well, we see somewhere around a hundred or so corporate convictions every year plus another 40-50 civil settlements adjacent to those. That's just a pretty small number. On the other hand, if you look at this more broadly and say, Well, corporate crime includes essentially anything that could be brought against a corporation, that's really the world of white collar crime. And those numbers go up by several multiples. We're looking at something more like 60,000-70,000 prosecutions per year. So really wide span that could fall in here.
0:03:39.7 BN: Is there any reason to think that a lot of it is going undetected?
0:03:44.5 WT: I'll take the cynical position. I think that there's good reason to think that probably a meaningful portion is going undetected. So again, that's hard to figure out if you don't know the underlying baseline, but here's maybe some indirect evidence of it. So one thing I note is federal prosecutors bring charges in about one out of every 20 corporate cases that are referred to them. That's a really low conversion rate. So on average, prosecutors bring cases in about 70% of the cases that are referred to them. So compared to the rest of the area of criminal law, corporate cases are converted at a very low interval. The other thing I'd look at, there's a 2019 paper that tried to answer the question by reviewing confidential internal records from several large publicly traded companies and found, on average these companies were finding evidence that substantiated about 130 separate instance of corporate misconduct every year. That's just quite a bit of behavior.
0:04:41.2 LG: Yeah, I think it's tricky too because things are done that might not rise to the level of a crime, but could result in something like a restatement, which has negative impacts on shareholders. So you have corporate crime, which includes types of corporate misconduct that maybe aren't crimes but are still things that, for example, a better compliance program would meaningfully reduce the incidence of.
0:05:10.7 BN: Okay. Right, thank you. So we've heard statements, in recent months from high ranking Department of Justice officials saying that the federal government is going to increase its enforcement efforts on corporate crime. In general, What do we make of these statements? Is a real crackdown coming or has it already begun?
0:05:29.7 DH: Well, I think there's some evidence that we are at least in the starting process. I know the numbers of prosecutions in the year end review for 2021 were up. The Department of Justice fraud section hired I think three dozen new enforcement attorneys. In fall of 2021, the Department of Justice started a new corporate crime advisory group. And coming out of that in the last three or four months has been a lot of new policy initiatives that have been very, very widely publicized to try to get corporations attention. So we might be on the start, hopefully, something that should increase in the near future.
0:06:05.4 LG: Yeah, you have the Deputy Attorney General Lisa Monaco comes out with her memo in the fall, which does make it seem like they're making some significant changes to how they decide whether to pursue a company. The the trickiest thing I think about corporate crime, is figuring out a way to deter misconduct. Keeping in mind that it's hard to penalize a company without having collateral damage that affects innocent parties like shareholders. So you want to disincentivise misconduct, but if the fines are too heavy, for example, then do people lose their jobs who are not at fault to begin with?
0:06:45.9 LG: And so it's a difficult thing for the DOJ to figure out how do we crack down on crime, what does that look like? How do we incentivize companies to make these changes when some companies view these fines already as a cost of doing business and they're willing to take on the thread of these fines in order to operate in the places they're operating or operating in the industries in which they're operating. So I think what the Monaco memo does is really lay out some things like standards for disclosure and and cooperation that hopefully make it harder for bad actors to avoid prosecution, which is something that corporations seem to be pretty good at doing. So they get caught, they are investigated, but they avoid prosecution often because there would be so much collateral damage. And so I think what this memo hopefully does is weed out the companies that are trying to do the right thing from the ones that are not.
0:07:44.6 WT: I think, Lindsey exactly right too, that just because the government is spending a lot more time thinking about and advertising and focusing on its efforts on corporate enforcement, that doesn't all have to be cracked down in the sense of we're just gonna go after more corporations. So just last week we had another high level official make an announcement that slightly revised some of these DOJ policies. And I think those revisions were primarily aimed towards what Lindsey's flagging, finding ways to really incentivize firms to come forward on their own and really making that a meaningful business decision on their behalf. Is that a crackdown? I mean it doesn't sort of evince the way we think about that, but I think it's absolutely a case of the government putting more time and attention to enforcing broader business concerns.
0:08:29.2 BN: Right. Okay. And Lindsey, kind of following up on your point, the DOJ has said it will focus on encouraging compensation incentives like executive clawbacks and also corporate governance reforms. How effective are those sorts of remedies likely to be?
0:08:45.5 LG: The clawback provisions are interesting from an accounting perspective. I can speak to this, we already had from Sarbanes-Oxley, rules around companies needing to claw back when there are material misstatements related to fraud for example. And these material were statements which we call the big R restatements, those are frequently, already in companies governance structures. But what the Dodd-Frank act did and now the SEC is actually planning to enforce is clawbacks on what we call little R restatements. And these are three to four times more common than big R restatements. So would have kind of sweeping effects. Lots of companies have what we call these little R restatements.
0:09:31.5 LG: And what we know from the literature is that when companies do this voluntarily, their accounting quality does seem to improve, but now you're gonna need to compensate managers for this risk they're taking because little R restatements can happen for a really no fault of the manager. They misunderstood an accounting policy, and now they're taking on this risk of having their compensation clawed back. So you're gonna have to probably increase their compensation as a result. I do think perhaps it would be effective in, maybe deterring fraud, except that this was already the law provision. And if you're clawing back based on little R restatements, which is not something really managers could control, it's hard for me to envision that this could change behavior very much.
0:10:21.2 WT: Well, yeah, I'm curious too, 'cause I think a lot of this comes down to how these clawbacks get enforced, right? So I know early on, there was a lot of push to have bylaws that allowed for clawbacks at your business, which didn't mean you had them in the actual context. It didn't mean you enforced them in the context you had. So I'm curious if you have a sense, Are these gonna be more mandatory? Are people gonna have to set aside some of their compensations so that it's easy to claw back?
0:10:44.9 LG: So it's interesting, I actually looked this up before I came down and over the period 2004-2019, there were close to 7,000 restatements and only 15 of them we could actually tie back to a clawback. So this is not something, even if companies could do it, they were doing it and it wasn't common for the SEC to really pursue clawbacks either, even though Sarbanes-Oxley, gave them the ability to to do that. So it remains to be seen whether they will be enforced. 'Cause like you said, they've been around and the question is, Are we going to see more enforcement of these clawback provisions now that the DOJ seems to be making them a priority and as well as the SEC? So I noticed that the DOJ is saying that part of deciding how to punish a company is looking at their compensation structure. Are they pursuing things like clawbacks? So I would expect that in an effort to avoid prosecution, you'll see companies pursuing these clawbacks once they know that they're under investigation.
0:11:46.3 DH: Yeah, exactly. To the extent that the Department of Justice shows that it's not just that you have a policy that allows you to do a clawback, but have you been actually using it in practice. That's the only way we're gonna give you credit. If you come to us and say, we've identified a problem and look, we've initiated this clawback, well have you done it in the past. Right? They're gonna look at these sort of factors to determine if you have an effective compliance program in place. I think so that might change behaviors going forward to the extent the Department of Justice does signal that we are going to be looking for that, not just is it on paper, but is it being used in practice. The other thing I guess to mention about beyond just clawbacks, the extent that the Department of Justice is looking at, if your compensation program is aligned with your compliance program, I think is very important too, right?
0:12:33.6 DH: The Wells Fargo is just the most recent example of a long, long line of cases where the compensation policy encouraged widespread wrongful behavior by line level employees, by managers. There's a phrase you often hear, what is it that, "Culture eats strategy for breakfast, so compensation eats compliance for breakfast." If your compliance program is going one direction and your compensation program is going the other direction, it's just not gonna work. You're gonna face problems. So the Department of Justice is showing that it's planning to look deeper into organizations and what you are actually doing in practice versus just what you could in theory do based on your policies. And they've been signaling this these last three or four months with all these various statements, I believe.
0:13:21.7 WT: Yeah, I mean, I do say both on this topic, but just in general, the federal government is a... It's a big ship and turns slowly, and that's particularly true in corporate crime. So the average lifespan of a corporate crime case is about three years, which just reflects how difficult and complex these cases can be. So if you think about trying to shift some of your enforcement priorities, the way you're thinking about these really big questions about culture and compensation and you tack onto that a prosecution pipeline that's about eight times longer than normal, I think it just takes a while to see these changes sort of coming into existence.
0:13:57.5 BN: Lindsey, you recently published a paper looking at a relatively new phenomenon, government appointed corporate monitors and whether they succeed at reducing corporate law breaking, what did you find?
0:14:09.3 LG: So in this paper we were looking for whether there's evidence on the effectiveness of these monitors, which are often used in the case of deferred and non-prosecution agreements. These are pre prosecution agreements that allow companies to avoid prosecution and they have to agree to a myriad of organizational changes. And some of these come with these independent monitors, which are appointed by the DOJ and they're there to basically make sure that the compliance changes go into effect that there's some change at the organization that prevent recidivism. And so we look in the universe of deferred and non-prosecution agreements, whether firms that are assigned to monitor end up with reduced violations in the future. And these are not just criminal violations, we look at regulatory violations as well. And we find that while the monitor is on site, these corporations are violating less, but as soon as the monitor leaves they're back to violating just as much as our control sample.
0:15:10.8 LG: And interestingly, we use a measure of ethics and compliance culture because this is really where the DOJ supposes the changes need to occur. We need to change the culture of compliance at the firm. And we find that while the monitor is onsite, our measures of the compliance culture improve. But again, once the monitor leaves, it goes back to sort of their baseline levels. So this suggests that if you have a monitor on site, of course you're behaving better, but they don't seem to make lasting change at the corporation, which really is I think what the goal of the monitor would be. So they're costly in many ways and just, you know, I think the question remains of how do we use these monitors more effectively if we continue to use them.
0:15:52.7 WT: I'm gonna get a copy of this paper from you right after this, but I'm gonna ask you questions about it anyway. How long are the monitors there? Is it short? Is it a couple years?
0:16:01.9 LG: Yeah, typically the length of probation, which I think are average in our sample is about three years. And they're reporting on a regular basis, some quarterly, but there's not a lot of transparency around these reporting requirements. So we don't have the ability to observe the actual reports that the monitors are making. So we know they're doing it, because we have the text of the deferred or non-prosecution agreement, but we don't know exactly what they're reporting on. But presumably they are reporting that the company's doing the right thing because there are cases in which the monitorships extended, which is probably because the company's not actually making the changes they're supposed to make.
0:16:42.3 WT: But was that result surprising just in looking at... I mean, three to three plus years feels like a long time.
0:16:46.2 LG: It does feel like a long time. I think it tells you that corporate culture's very hard to change and even having this person on site, it doesn't appear to make it easy to change the culture. One person... The DOJ coming in with their monitor and their team is not really changing the culture. Probably, often there is some change in personnel, but not always. And so the culture is the people, the culture is so ingrained in an organization. So I think the DOJ is gonna have to think very carefully about what the monitor needs to do to actually make effective changes. And it turns out to be more than just changing the written compliance program or the controls that are in place.
0:17:27.6 DH: So if I read your paper correctly, there were two situations where the monitor was effective.
0:17:33.6 LG: Yes.
0:17:34.8 DH: Monitor that had prior experience. And then as we're talking about the tenure, the length of tenure. Is that correct?
0:17:39.1 LG: Yeah, the length of tenure. That's right.
0:17:40.2 DH: So 15 years ago, I did research on corporate monitors, and I've also done work with the American Bar Association. And in both those projects, one of our key factors for successful monitorship was the selection process. You have to have the right monitor for the right job, a lot of times a corporation to the extent that they're involved and [0:18:00.9] ____ selected the monitor selected for credibility. Hey, Department of Justice, we have this former prosecutor, he or she is gonna be really tough on us. So you can trust that they'll get things done, but that person may not have the right skills, may not have the right experience in that industry, may not have experience being a monitor before. And all those things are very, very important for ensuring that the monitorship works correctly. And then just as you mentioned too, on the longer tenure, the implication might be the Department of Justice should not... They negotiate with companies during these settle agreements and that perhaps the length of the monitorship, maybe you should stick with a three year standard term. You always have the option to end the monitorship early if the company has convinced the organization they met the requirements.
0:18:50.4 DH: But as Lindsey said, it takes a long time to get a compliance function correct, and clearly it had problems before, it takes a long time to change social norms, to change the culture, to ensure once the monitor leaves, does the company just reduce the amount of resources they're giving to the compliance function? And things start to fall apart again. So it takes a really long time for that to be sticky, so I think those two things from the positive spin, is making sure you have the right monitor for the right job is very, very important, and the length of time they need to do their job is very important. So I think that's an excellent research, and I think that's... Very, very important insights coming out of that.
0:19:31.1 LG: Yeah, and I will mention that the Monaco memo does touch on the transparency around appointing the monitor, so there does seem to be some push on the part of the DOJ to improve this process of appointing monitors, because I agree, when we went into this paper one thing they were wondering was, most of these monitors are lawyers, they're not necessarily well-versed in business and in operating a business, and so how much can they really add. So we didn't know what we were gonna find. And so I think as David mentioned, our evidence on repeat monitors and tenure does tell us that experience is really important in this setting.
0:20:06.3 BN: David, you've done a lot of research into these compliance issues, how much consideration should the DOJ give to the quality of a company's compliance program when they're making charging decisions, and how else can they encourage adoption of effective compliance programs?
0:20:24.0 DH: Well, as we've mentioned, the quality of the compliance program comes into play when the Department of Justice is trying to decide what should we do with this corporation? Should we give them a declination, which means we're not gonna charge you at all? Should we enter deferred prosecution agreement? Should we seek a guilty plea? And Ken Polite, just a couple weeks ago, I believe in a speech mentioned sort of reinforced the idea that three factors that we are looking at in making this determination was did the company voluntarily self-disclose? He added the word immediately. So we don't want corporations to be playing games. Should we disclose? Not. Do we think the government will find out about it or the New York Times will find out about it? We want you to disclose immediately. Did you have an effective compliance program in place at the time of the wrongdoing?
0:21:12.8 DH: And then third, we are seeking extraordinary cooperation. So not just cooperation, but extraordinary cooperation, turning over information to us and doing a full investigation and giving us access to those. So that key factor of do you have an effective compliance program in place? We want to make sure that we, meaning the Department of Justice, can evaluate that appropriately. 'Cause if you the company are able to get by with just a, what's called a paper program or cosmetic compliance, then our whole process of incentivizing companies to rigorously adopt and enforce compliance program starts to fall apart. Companies can get credit for not doing the right thing. So the Department of Justice in the last few years has done a lot to tell companies not here's what you have to do, but here are the factors that you need to prove to us you have thought about and done. Such as, Do you have a well-designed compliance program?
0:22:09.3 DH: Is it risk-based? What factors went into that decision making? Are you actually applying this in good faith? Remember we talked about clawbacks, Have you actually been using clawbacks in the past or is it just on paper? And then related to that, How have you tested it in practice? Is it really working or not? So they're placing a lot of burden on the company, to demonstrate to us the Department of Justice that you have done all of these things. And it's important to remember that you don't have to have a perfect compliance program. Identifying a problem is part of an effective compliance program. But you still then need to then disclose it if it's not just a policy violation, but a criminal violation, disclose it to the Department of Justice and cooperate to the investigation to determine was this just a limited problem or was it something more widespread?
0:22:58.5 DH: And then of course, once you've identified the a problem, you also need to document what you've done in response. Have you meaningfully implemented new changes to try to improve the program? So all of those factors will come into play. The Department of Justice, again, in these its more recent policies have really emphasized that we are going to look at your past history of civil violations and criminal violations that relate to this. So again if you've discovered a problem, that doesn't mean you don't have an effective program, but you need to disclose and then you need to figure out what was the root cause and what have you done to fix it. So Department of Justice has made a lot of efforts to try to put the burden on companies and give them some guidance on here's what you need to do to prove to us that you in fact do have a compliance program. But it's not easy as any compliance officer will tell you, especially to the extent we take into account the corporation's ethical corporate culture, which... There's been lots and lots of work trying to figure out how we can measure that and what can be done there. But hopefully with this extra incentive, corporations will do a better job in disclosing on what they're doing and then we can all learn from those experiences.
0:24:09.2 WT: I do think the broader moves by DOJ in this area can... And we should think about them in part as trying to bring some harmony to the international context in which these cases are brought, as well as, I'll say this as a lapse, attorney from private practice who used to be on the defense side, as well as a way to minimize some of the tools that lawyers tend to bring to help these investigations. So oftentimes a company will hire an external counsel to help them oversee an investigation to find out if they did something wrong. US law brings a lot of protections for the attorney-client relationship. That gets extremely complicated when the company is dealing both with the Department of Justice and the SEC and the Serious Fraud Office over in the UK. And sometimes these different privileges can be played against each other and it's a source of frustration for prosecutors and enforcers in different domains. And so I do think a little bit of what DOJ is doing here is further incentivizing the company not to hide behind those kinds of valid, inappropriate but ultimately frustrating legal defenses and instead just sort of come out with the information in a way that is consistent with everybody who's overseeing their behavior.
0:25:14.8 BN: Okay, great. Our discussion so far has focused on the Federal level, but some of the biggest criminal cases in the past few years, such as PG&E's convictions for the wildfires out west, Johnson and Johnson's opioid settlements and the Trump Organization case are coming from State Attorneys General. Will, what is the significance of that shift?
0:25:40.5 WT: I think there's two things that are driving this trend towards more state enforcement. So one I would just say is a change in technology. It's made it significantly easier for state attorneys general to coordinate and bring lawsuits together. The traditional story was that corporate crime is gonna be handled by the Federal government because states didn't have the manpower or the resources to bring these kinds of cases. And then recently we've been seeing a lot of interstate cooperation and the states that have the sort of the deep benches on the litigation side are pairing with other states who can put in capital and resources. And together you're finding I think, a really successful model for enforcement. As you mentioned, the opioid settlements so far, I think state attorneys general have recovered north of 50 billion across manufacturers, different suppliers.
0:26:30.8 WT: The other trend that I would just remark on is, frankly, it's a trend I think we've seen in the past, which is state actors stepping into something of a vacuum created by the federal government. I do think that there was a pullback in corporate enforcement during the Trump administration and that is about the same time that you see bigger state cases being brought, whether it's PG&E, whether it's the Trump organization in New York. If you look back to the early 2000s maybe the late '90s, you saw something similar with Eliot Spitzer who made his name then before he made his name again, going after some major firms and financial institutions when the federal government wasn't, and I think that's a little bit of what we're seeing today.
0:27:05.2 BN: Speaking of the Trump organization, it's hard to talk about corporate crime without thinking about the various investigations into that company. Is all this just smoke, or is there some real fire there? What's the ultimate outcome of those cases likely to be?
0:27:19.6 WT: Well, sitting where we are today. Earlier this month this is January 2023, a New York state court sentenced the Trump organization to a fine of 1.6 million dollars, which followed the conviction last year of 17 fraud charges. Now, that case is gonna be up on appeal, so that might change in the future, but at least for the moment you have both a conviction and a sentence that follows from it. I would say, I think this case shows both the strength and the weakness of having states bringing enforcement. And candidly 1.6 million dollar fine is almost comically low given this organization, but that was the maximum penalty allowed under New York law. You mentioned PG&E with a similar problem there. PG&E pleaded guilty to 84 counts of manslaughter and paid the statutory maximum of 3.5 million dollars. There just seems a big gap between the sentence that state laws are designed to impose and the severity of the misconduct that they're trying to bring in here.
0:28:21.1 LG: Yeah, I think it comes back to just, it's a cost of doing business. And whether from the corporation's perspective, it's optimal to have zero corporate misconduct because that would be very costly to make your compliance program sort of so strong that you have zero corporate misconduct that when you look at the penalties that they actually pay, I think it's not surprising that you have some amount of corporate misconduct that is occurring. I think this is, again, a difficult problem to solve because you don't wanna levy these fines that cripple an organization, particularly a public company, but as Will, pointed out these fines are, as he put it comically low in the grand scheme of things for these organizations.
0:29:04.4 DH: And I think that's where a lot of people have wondered about, Should there be greater enforcement against the individuals involved? If fining the corporation does not provide a sufficient deterrence, if we're able to get criminal convictions against individuals, will that move the needle in a significant way? But there are all sorts of challenges under the criminal law to criminally charge the individuals to demonstrate that they've met all the elements of the crime, but that is obviously something that people have been talking about for a long, long time.
0:29:40.7 WT: Well, it's interesting 'cause you might think that the clawback provisions are trying to split the baby here. They're trying to put some of the cost on to the individual actors without necessarily going through the criminal process and procedure, as Lindsey has spelled out. That's gonna have a lot of similar challenges. You can't really avoid this challenge between individual and the corporate, and even they want to.
0:30:01.0 DH: And going back to your earlier question on, Do we have a good sense of how much corporate crime is out there? I think Donald Trump's defense of his behavior was, "Hey, everybody's doing this," which is probably true, and that demonstrates that, well, we only were able to catch one out of many. We just don't have the resources to be able to devote to all these different investigations. The fact that he was obviously a high profile organization with all major news sources investigating him allowed the attorney generals to bring those charges, but other organizations are not under that spotlight, and we obviously don't have the resources to do so either.
0:30:41.9 WT: Well, Lindsey you mentioned the challenge of coming up with a good fine is you want the fine to have some bite, but you don't wanna put the organization out of business. In this case, I actually think the state in New York is...
0:30:53.9 LG: Wanting to...
0:30:54.6 WT: I know the state of New York. They've said they're trying to put this organization out of business, and so there's an irony here because I think that the conviction is really bad news for the Trump organization, but the reason it's bad news ironically, is because it makes the civil case being brought by the attorney general that much stronger. And the civil case is actually where New York State has a lot of really powerful remedies, including a remedy that requires a company to dissolve and wind up its business. So the conviction assuming that it stands is harmful, but I think it's harmful in an indirect way to the entity.
0:31:28.8 BN: Any final thoughts on anything we've discussed today or anything we've left out?
0:31:33.1 LG: I think one thing that's kind of interesting, and when David was talking, it occurred to me the role of the chief compliance officer at organizations and the way it's growing and evolving, who is the chief compliance officer. As faculty here at Ross, what are we doing to prepare our students for perhaps these roles some day, which are seem to be becoming more and more significant within an organization, so that's really had me thinking about how important that that person is becoming.
0:32:03.9 DH: Yeah, just to follow up on that, there really is a movement towards the professionalization of a chief compliance officer to make sure they have the right skills and tools to be able to do their job, as well as they are respected as a profession. A lot of times, the general counsel sort of has more legitimacy within the organization, than does the chief compliance officer, so the chief compliance officer's concerns get pushed to the side, but to the extent that we can increase their status, and part of that would be the professionalization of this role, widely recognized and ensuring and the Department of Justice looks at this, does the chief compliance officer have the independence they need to do their job appropriately, such as perhaps reporting directly to the board instead of through the CEO. These are all very, very important factors that have been discussed quite often, and we'll continue to have these discussions going forward.
0:32:58.3 BN: Well, thank you all for a very enlightening discussion.
0:33:00.9 WT: Thanks for having us here.
0:33:01.5 LG: Yeah. Thank you.
0:33:02.2 DH: Thank you.
0:33:05.2 BN: In today's interview segment we'll talk with professor Sue Ashford about research she has done on the value of self-reflection for leaders. Sue, thank you for being here. Could you tell us a little about yourself?
0:33:18.8 Sue Ashford: It's my pleasure to be with you. And I am a professor in the Management and Organizations group. I've been studying leadership for a long time now, and had a book come out in the fall of 2021, and it's called "The Power of Flexing: How to Use Small Daily Experiments to Create Big Life-Changing Growth". It really talks about reflection along with other practices that people can engage in in order to prompt their own growth and in particular their growth as leaders, so it's a delight to talk about some of the material in that.
0:33:57.9 BN: Great. In this latest research, what exactly do you mean when you talk about individual work reflection? What does that look like when people do it in practice?
0:34:08.0 SA: It really is about taking a bit of time, it's about pausing occasionally to think about what you're doing, how you're impacting others around you, how you show up at work, what goals you're pursuing, what method you're using, and so forth. We once titled it "The Power of the Pause", but some editor didn't like that, so that went out, but it really is about that. It's about pausing to think about what you're doing while you're doing it, or in the process of your work.
0:34:42.7 BN: And what led you to study the role of such reflection in effective team leadership?
0:34:48.7 SA: Well, it's part of a general model I have on how people grow, that came out of my work on leadership development, and the set of ideas are centered around the ability we all have to influence our own work and our potential to grow. And it came out of my work with leaders on leadership development, to develop as a leader, you can't wait around for an organization to invest in you, you actually can take charge of that yourself. And it has to do with how you go through your experiences and what you get out of your experiences. One of the primary thoughts around learning from experience is that if you don't reflect, you actually don't learn anything from that experience, some people argue you haven't even had an experience, you've you just had a happening that goes through your system relatively undigested. So reflection is really one of several practices you can use to learn more from your experience and grow as a leader. I think you can use it to grow generally, but it really came out of my work helping leaders develop.
0:36:00.8 BN: Right, okay. And what was your hypothesis going into these studies?
0:36:05.7 SA: What we wanted to show is something that gets invoked often in the leadership literature, which is leaders need to pause and reflect, and intuitively that makes sense, that if you do that, you'll be a better leader because basically, there's a lot that's going on, it's rather chaotic often in leadership and pausing and reflecting gives you a chance to be more effective, but there's no data on that. No one had actually shown that, no one had actually even looked at it empirically. So we wanted to provide data on that, and we wanted to spend some time really trying to conceptualize what are they supposed to reflect on, and the whole thing is designed to just give better advice to the emerging leaders that I work with in some of my Exec. Ed work and leaders in general on how they could become more effective.
0:37:01.1 BN: Okay, the paper talks about four distinct dimensions of reflection. How did you develop those?
0:37:09.4 SA: Yeah, there was some work showing that when groups stop and reflect on their goals and their methods they perform better than groups that never take that pause. And we were interested in individuals within groups trying to lead, so the first two dimensions came from that group work, stopping to reflect on what goals am I pursuing within this group and what methods am I using to engage those goals effectively, but because we're interested in individuals and their impact within the group, we added a couple of different new dimensions, one was your self, reflecting on how you show up, how your moods are impacting what's happening, how you impact others, which is super important for anyone wanting to lead.
0:38:06.7 SA: And then the second was on relationships. What kind of relationships are you developing with other people? What's the quality of those? Are you enhancing those relationships over time or detracting from them over time? Which also is really important for leaders and leadership, so by putting those four together, two that are more task-oriented, and two that are self and social-oriented, we felt like we were really capturing the full range of what people need to do when they reflect. What they could reflect on that could help them.
0:38:44.5 BN: And then in the studies, you looked at the effect of this self-reflection on peer-rated leadership behaviors and also on leadership effectiveness, so what were some of the key findings that you came up with?
0:39:00.7 SA: Yeah, we were looking at leadership when you haven't been given the role of leader. You're not a formally appointed supervisor, you're in a group, a task needs to get done, someone needs to step up and lead and do it well, because we thought that was the more complicated case where reflection should really show up as important because it's not clear who's supposed to lead, how much leadership any one person is supposed to offer the group, when you're supposed to step back and let others offer their leadership and so forth. So we were really interested in that setting, and what we found was that when people reported that they reflected more often on these four things, they tended to engage in more leadership of three different types and were rated as more effective in doing that.
0:39:57.3 SA: So the types we looked at were Task leadership, offering contributions towards getting the task done well. The other one was Social-oriented leadership, helping the group feel more like a group, people feel valued, expressing empathy. And then Change-oriented leadership sort of saying, we're going at this this way, but we really should go at it that way, something that took the group in a more effective direction. And we found that when you reflected you did more of those things. We also found that this happened because you developed a better understanding of what the team needed.
0:40:38.8 SA: There's a theory out there called functional leadership theory, which is the idea that leaders need to offer the group that which is not happening anyway. So a leader of a highly experienced group doesn't really need to offer a lot of direction because people are pretty self-directed, but needs to offer maybe encouragement and recognition because that's not happening naturally in the group. So we found that if you reflected and just reported doing that as part of your experience in the group, you tended to have a better sense of team needs as rated by others and you were rated as a more effective leader and you offered more leadership to the group. So it had a pretty strong payoff for leaders interested in offering their leadership when it was a little ambiguous, just how much leadership and what leadership you were supposed to offer.
0:41:41.9 BN: Wow, that's great. So how can individuals, whether they may have a formal management role or not, as in the people that you looked at, how can individuals make use of these results?
0:41:54.5 SA: Well, the finding from this and from my book more generally, is that building reflection into your life is not just a nice to have. It doesn't just have payoffs for you for your mental health, though those have been shown by prior research, but it actually impacts your ability to grow and your ability to have impact on others in this case through your leadership. So the takeaway for individuals is when you're in a fast-paced, somewhat chaotic situation, like a team trying to achieve a project under a strict deadline, find ways and times to pause individually to think about what you're doing, how you're doing it, and so forth. It might be when you're walking to the team meeting for the day, it might be when you're walking back to your car, it might be during your commute, it might be during an airplane ride to the client for the project and so forth. During my book, I interviewed many people about how they built reflection into their life. One guy said, "I reflect mostly in the shower in the morning." He said, "I just have to be careful not to tell people I was thinking about you in the shower," but other people reflected, like I said, on their commute, on plane rides occasionally, some people did it every day as a practice, but it doesn't even have to be that. It's just finding ways to pause, step back, get a little distance and think about what you're doing and the impact you're having.
0:43:37.3 BN: How can organizations make use of these results? Are there ways that organizations can encourage this type of thing or facilitate it among their people?
0:43:46.4 SA: Yeah, I think there's a couple of different ways that would make sense in this setting that we looked at. Teams doing a project. One is they could encourage that team level reflection that's been shown by past research to be effective for team performance and encourage groups to stop and reflect. They could do it by simply saying, "I'd like an email capturing your reflection." They could encourage it by just asking people to do that occasionally, but then not forgetting that individual reflection about each individual's contribution to the group is also important, so that could be encouraged by a manager meeting with her direct report saying, "What are your reflections on project X? Are you thinking about the goals and the methods being used? How are you showing up? What do you think you're showing up that's helping, maybe hurting," that kind of thing. So by the questions they asked, by the processes they put in place, little micro-processes, not big, huge things, they can encourage people to take a bit of time to step back and reflect.
0:44:58.3 BN: So is there a single biggest takeaway from this research?
0:45:02.1 SA: I'd say the biggest takeaway from this research and the findings are really clear, is that if you want to show up as a leader in a team, it's not only just engage in a lot of action-oriented pro-activity, but also remember to step back, pause, reflect. It'll help you demonstrate more leadership in the group and importantly be seen as more effective in that leadership, so it has a really important payoff.
0:45:32.9 BN: Yeah. Well, thanks very much for your time, I really appreciate it. That wraps up our sixth episode of Business and Society with Michigan Ross. If you'd like to know more about the subjects we discussed today, look for the links in the episode notes. And for more news about our faculties' work, check out the new section of our website, michiganross.umich.edu. Thanks for listening, and we hope you'll come back next time when we'll talk about everyone's favorite subject, taxes. Business and Society is brought to you by the Ross School of Business at the University of Michigan. Thanks again to our guests today, Lindsey Gallo, David Hess, Will Thomas and Sue Ashford. Our audio engineer and editor is Jonah Brockman. Executive producer and today's host is me, Bob Needham. Until next time, this is Business and Society.