Ken Freeman Discusses How To Speak Up with Integrity as a Leader in the Business World

Cindy Moehring: 00:00:00

Hi, everyone. I'm Cindy Moehring, the founder and Executive Chair of the business integrity Leadership Initiative at the Walton College of Business, and this is the business integrity school podcast. Here we talk about applying ethics, integrity and courageous leadership in business and most importantly, in your life today. I've had nearly 30 years of real world experience as a senior executive. So if you're looking for practical tips from a business pro who's been there, then this is the podcast for you. Welcome. Let's get started.

Cindy Moehring: 00:00:32

Hi, everybody, and welcome back to another episode of the business integrity School. Today we have with us Ken Freeman. Ken is the dean emeritus and a professor of practice at the Boston University Questrom School of Business. Hey, Ken. Hi, good afternoon. Good afternoon. It's a real pleasure to have you here today. Prior to becoming Dean Emeritus, Ken was actually the dean of the Questrom School of Business for about eight years. And that followed a very, very long career in the corporate world. He started at Corning, where he progressed this set of finance function and actually ended up leading several businesses there. He also after that, joined KKR, and served as a managing director and a partner there also as a senior advisor, in addition to being the dean emeritus, he's also on the board of laureate education, a Director of Production resource group, and also MC Burning Glass, in addition to a number of others. And here's a very interesting factoid, a global business leadership study that was conducted by INSEAD, and actually published in 2010, and 2013, in the Harvard Business Review, named Ken one of the 100 best performing CEOs in the world. So it's a real treat to have Ken with us here today. Ken, my goodness, fabulous career, it's kind of spanned a number of different segments of, of society, what are some common leadership threads, that as you think back on your career that have kind of run through all of it and what have been some big highlights for you?

Ken Freeman: 00:02:08

You know, if I think back about it, for me, it starts with pursuit of personal adventure, professional adventure, I've always enjoyed taking on new situations, new challenges, new opportunities to learn, and to grow. Throughout my entire career. There's something about continuous learning that really motivates me as a leader. So I've engaged either LED or advised or been part of at least 25, different turnarounds during my career, and there's something about turnarounds that really puts energy into what one has to do, because you're really looking at major challenging situations. In addition, the willingness to take risks, I think, would permeate my career, I've been willing to go often where other people didn't want to go, where it wasn't necessarily the most popular place for somebody to go inside their own company. But there was tremendous opportunity to go to those places make a difference make an impact. As I've gone through my career, I've also really learned the importance of and the value of values driven culture, a purpose driven culture, and the value of the human element of people. And the fact that really human capital in the end, is, in my opinion, more important than financial capital, essentially, it's the input, that really is the key input, leading to great financial results. And so often in companies and enterprises, the human capital element gets very little discussion, a very little focus. But as a leader, if we're going to really make it work, we have to put in particularly strong focus in that area. I've learned also that building trust and being really striving to be very humble, which really requires us to listen and to learn because the best ideas aren't from our own minds, but from others. And putting them together is really how you can really create tremendous value. And I think finally, there's a phrase that we used at KKR, actually, that arrogance kills. And if anybody has the idea that one can be the best in the world or thinks they're the best in the world. That's where arrogance strikes. it happens to people. it happens to companies. it happens to countries, and whenever that happens, typically bad things happen. And often I have the chance to go in and work on a turnaround in those instances.

Cindy Moehring: 00:04:16

Yeah, that is incredible advice. I really, really like the point about and I think all good CEOs focus on that human capital, that can get, you know, overlooked, that define the CEOs, in my opinion, and the humility point, those two are really, really, really critical, I think.

Ken Freeman: 00:04:33

Wow. Yeah. And Cindy, as part of that, I think, you know, as a CEO, or as a leader of any organization, communication is so darn important. And one of the lessons that I learned along the way was, you know, we often think we've said it once everybody's heard it and bought in -- oh contraire. It takes the average person at least six ways to hear it before we digest it. So we have to communicate and communicate until we're bored until we're tired, but then we have to redouble our efforts, because that consistency and that clarity of purpose is so darn important for the organization.

Cindy Moehring: 00:05:05

Yes, I have heard that same thing six or seven times, and I've lived it obviously, as a as a corporate executive and leader. And it is so important. I'm really glad that you focused on that point, too, because it's true. I mean, in leaders will miss that Right? They'll say it once and then move on, and then wonder why nobody's following this strategy or why nobody picked it up. And, you know, that's, you've got to repeat it and repeat it in different ways with different messaging, and with examples that help to bring it to life. So let's dive into some of those questions, some of those defining moments, if you will, in your career, and one of them that I remember you sharing with me had to do with when you were in the finance function, and you were moving up through the ranks about to be named Corporate Controller. And what you had happened is that you became, I think, aware of the fact that there were some questions about frequently recording recording restructuring charges or something to that effect. And you weren't sure that that was quite right. You felt the need to raise it, but yet you are literally on the cusp of being promoted. So tell us about that situation. What did you decide to do? And why did you decide to do that?

Ken Freeman: 00:06:20

Well, gosh, Cindy, you know, I was probably about 34 years old, at the time, I had been working at the company for about 10 years. And so as I'm being promoted, I'm considering all that was going on in the financial and the bookkeeping area, if you will, in the accounting function. And it turned out that the company had gotten into the habit of frequently recording what are called restructuring reserves, which would be below the line items. And what that would mean is, it would be a way to take costs and keep them out of the operating p&l, if you will. So if an investor wanted to look at how the company was performing, they'd see sales and operating profits. And then they'd see something below the line called restructuring charges, and it became a catch all for lots of costs and charges. And it became up to the point where I felt that there were moments where maybe the company was not necessarily recording to the investing world, the operations results in a way that could be really understood. outside auditors, were questioning the company about this frequently in the conversations, we're getting more and more difficult. Now, because often when when records, the restructuring reserve, they do it maybe once every four or five years at most in those days. And we were in the habit of doing it more than once a year, I knew that I needed to do something, I felt it was really important to do something. And and I decided the best way to go after it was before I became the Corporate Controller, I decided to go talk to the CEO to the Chief Executive Officer. I went to his office, I met with him. And I said, Gee, you know, I number one, I think it's really important to change behavior in the control function that does all the record keeping to be consistent with the stated values of the company that the CEO has been very supportive of throughout the many years, but integrity, that I plan to articulate a new vision for the controllers that do the accounting, as soon as I became the controller, and then I was going to call it integrity is the bottom line, not profits, not cash flow, not revenues, not stock, price, integrity, integrity is the bottom line. And thirdly, I asked for his support. So I didn't go in to to ask him if I could do this. I went to ask him for his support of me doing this. I wasn't certain how he might react. But I did know that he was a very values driven person in a company where he or family members had been CEO for most of the company's history. So they had roots in that company. Yeah, yeah. So without hesitation, he said, Ken I think this is a great thought, I think this is really, really important, consistent what we want to do as a company, and he said, Ken not only what I'd like you to roll out integrity is the bottom line to your 200 controllers all over the company. I want you after you've rolled it out to the controllers to come to the corporate management group, which is the top 200 leaders of the company, and the same remarks, this is really an important message. And I believe in it. So you know, this gave me a chance to give voice to my values, striving to do the right thing to make a difference. And, and I wasn't quite sure how things might turn out because operating executives were pressing me saying, Ken, if you don't have the courage to do these restructuring reserves, maybe you don't belong in this company. Oh, and quite frankly, I felt if I can't change this, I don't want to work for this company. So that led me to do what I did under that circumstance.

Cindy Moehring: 00:09:54

I think many people on that situation might have thought okay, well either a This place isn't for me, so I'm just going to leave Even never say anything at all about why or be caved to the pressure and simply do it. But what you pointed out and what you thought about is there's actually a third way, a better way. Right? Was was to come up with a strategy where you could stay at the company and get the CEO the very top of the company's full support, which then without having to sort of lay the issue on the table about what people had sent to you force the company to lead in a different direction, right from the very top. So that if the, you're the controller, so you're going to be watching the books, right? And the operating executives essentially, know kind of the new rules of the road, right? I mean, what a way to really support the values. And I would imagine that those operating executives, whatever, whatever happened with them, after you sort of sent out the new message,

Ken Freeman: 00:10:48

they certainly heard the message not only from me, but from the CEO, you know, and I also felt Cindy that it was my obligation to the company to raise this issue. So it wasn't strictly a matter of me saying this isn't consistent with my values, which definitely was not. But it was also one out of loyalty to the company saying, I think this is something we've got to do if this company is going to be able to sustain itself. And when you can drive the business case, right next to to the values aspect, which is so critical. I think it made it easier for me, if I thought it was contrary to the company's DNA, if you will, it might have been more difficult. I hoped that I would have a willing ear in the CEO, I thought I would. But I didn't know until I pursued the issue went home that night, I remember relieved with the reception I got and, and really feeling further validated that we were going to do the right thing in this company, which was so important to me and for the enterprise itself.

Cindy Moehring: 00:11:49

Yeah, in your purpose in that situation was actually larger than yourself. Yes, you voiced your values, but your purpose was protecting the company, and particularly a company's reputation, right. And so, you know, when you view what you're doing is something that's larger than yourself. Sometimes that also helps to reframe the issue and give you you know, can I think though, many people will think defining moments like what you and I just talked about happen maybe once in your career, you know, if at all, which is another issue, which Mary Gentile brings up in her book giving voice to values, which is the book that we're exploring this semester. And it's that concept of like, normalization, recognizing that these aren't just like defining moments, crucible moments that only happened like once in your career in the ground shakes beneath your feet. Sometimes they're smaller incidents, but but moments like that happened frequently.

Ken Freeman: 00:12:40

Well, sure, you know, and this idea of giving our voice to values, you know, with practice speaking up, it also helps reinforce our values and makes it that much easier for us to take appropriate position, I think.

Cindy Moehring: 00:12:53

So another one you shared happened. Now this case, I think it was after you were the controller, if I'm not mistaken. And it was an overseas situation. And what came to your attention had to do with I think some business managers and you're receiving receiving bribes from distributors. What did you do? What was the outcome? How did that one work out?

Ken Freeman: 00:13:16

This predated the Foreign Corrupt Practices Act. Okay. So we discovered as we were doing the accounting, that there was an issue in Korea, and that, in our consumer products business, the sales manager for Korea, had accepted bribes from distributors to gain the right to provide our products to retail. And it turned out, we uncovered about $2 million worth of US of bribes that had been provided to this individual over a period of few years. With that information on hand, I went to the CEO and said, look, we've got a situation here. The sales manager in Korea has taken it appears to be about $2 million in bribes. And my recommendation is that we need to have a conversation with that person and that he should, if it's verified, that person should be should be terminated. The CEO said I want to sleep on and I want to think about I said fine, fine, your the CEO sleep as long as you want, but we need an answer here. And he slept on it. And he also chose to speak to the head of our international businesses so that the country manager sales men have reported to the Head of International for our company. So after speaking to that person, the international person said, look, the Korean sales manager is our best person in all of Asia Pacific. You can't fire him. He delivers X million dollars of profit for the company every year. It would be a huge loss to the company if we fire him. So the CEO came back to me the next day or so and said, Ken, I've thought about it. This person is really important to the company. I've listened to both sides. I think we should retain him. The sales manager with a stern warning. I said while I'm disappointed I respect your decision, I'm disappointed. Fast forward, we continue to do our as always our investigation of payments and what have you throughout the company. And about a year later, we discovered that the amount of bribes that were taken by this individual weren't $2 million, but we had evidence of $20 million. So I went back to the CEO and said, Look, we had a conversation about this about a year ago, and you decided he should stay with a company, I now we have evidence that it's much more money that has been taken, I really believe it's time overdue for us to terminate this individual. And as you might expect, at that point, the person was terminated. The puzzle of this, for me personally, was $2 million. Why wasn't that enough? Why did it take $20 million? If there's a breach of the values, when you smell a rat, there's a rat. And you've got to do the right thing. And so there was a lesson in this. And I think it was a lesson actually, for the company in this as well, that if we see behavior that's not consistent with the values of the enterprise, you you warn you verify if there's been money taken from the company, you take action, then you don't wait to have perhaps more problematic circumstances arise later.

Cindy Moehring: 00:16:19

So I imagine that one changed the course of the way the company dealt with future issues,

Ken Freeman: 00:16:27

Oh, yes. Oh, yeah, it had a dramatic impact. You know, it's, in these kinds of situations, it's hard to to draw a line between how much publicity you give something or how little word gets around an organization. So you don't put out an All Points Bulletin. Clearly, it shook the leader of the international operation dramatically, it shook, the CEO. And I think in the end, it reinforced for the company, that the values mean something, and we have to strive to live them every single day.

Cindy Moehring: 00:17:02

Yeah, you know, and I hear you that was long before, as you said, the Foreign Corrupt Practices Act was in place. And so that increases the risk exposure for many companies today. The other point that you made, which I think whether there's a you know, a law like that involved or not, that a lot of companies struggle with, is how do you marry up? what somebody does with how they do it? Right? And measuring the what with the how, and giving as much weight to the how, as they do to the what, right, so okay, you may be the highest performer, but how are you getting those results, right? And making that matter, particularly when it comes to promotional opportunities, when it comes to opportunities for advancement or other or other projects that somebody may get to your point word gets around. And so if somebody is getting good results, but getting it in the wrong way, then suddenly that starts to send a message that oh, that's how you get ahead. Right? So reframing it the way that you all were able to to say, okay, the HOW DOES matter as much as the what may take in the company a little while to get the message, as you indicated, but you stuck in there and you kept digging,

Ken Freeman: 00:18:17

Oh Cindy I could have said, Okay, forget about it. Clearly, the senior leadership doesn't care. But I found over the years if at first you don't succeed, you try try again. Right. And you do, ethically, always through. But that's really important. And to your point about the how and the what are the behaviors and the results, is I think back on my career in so many turnarounds. The issue generally started with bad behaviors. The how, the how had to be fixed to how had to be adjusted, it was less of an issue of business strategy, or the product or service provided it was typically ended up being cultural and behavioral issues that drove companies into being companies that I'd have a chance to deal with.

Cindy Moehring: 00:18:59

Yeah, It's the human capital, it's back to what you mentioned at the beginning, and the importance of that human capital, and the behaviors. And that's one of the things that I think is interesting about leadership. And having integrity is kind of the cornerstone of leadership is being able to then shape those behaviors and the way you know, they need to be shaped to make the turnaround successful. You have to put almost an overemphasis on that. Alright, let's explore one more dimension of this issue of speaking up. I think another kind of misnomer is, oh, well, it's just positional. It's only going to happen to me when I'm either really Junior because I'm getting all this pressure from you know, folks above me. But once I get to a certain level, then I won't have to deal with it anymore. It happens very normally and every level you are in this situation, your strategies for dealing with it have to be different because you're at a different level in the organization, but you have shared to now one when you are about to be promoted. So fairly Junior, now your controller so now you're in a situation when you have to deal with a different level of issue, and then you shared another When were actually you were being assigned to be a CEO of a subsidiary, I think it was of a company that had a number of issues, high turnover, back to the human capital being important. There's something going on there because I had a whole lot of turnover going on. And the subsidiary was dealing with some real heavy fines, I think from the government for some, some fraudulent payments and billing practices, actually. And so you got to come in, here's probably a turnaround they're asking you to come in. Now you're the CEO. And yet, lo and behold, you've got another one of these opportunities where you've got to speak up. Tell us about that situation.

Ken Freeman: 00:20:38

Sure. You know, this was an interesting one I was I was sent to be the CEO of the largest subsidiary of the parent company, for a one year assignment. There was some thought at corporate headquarters, that there was some indigestion at this business, but the business had some indigestion. Ken go check it out. Let's see what's going on. You'll be back in a year. So I went in, and during my early days as the CEO of the subsidiary, number one, I had the opportunity to Boston to meet with the Office of the Inspector General and left over $100 million dollars poorer in terms of alleged Medicare, billing, fraud and abuse. I also discovered that of our 13,000 employees, we had about 45%, voluntary attrition, and this was a healthcare services business. So it's important to have a stable and qualified workplace workforce to engage with a physician customers. And third, we discovered that the subsidiary which had historically performed very strongly, was hemorrhaging cash, and actually had swung to unprofitable status. But it had not been determined yet. Until I got there. And we had the parent company had to announce to shareholders a pre announcement for a quarterly earnings, that the company overall company was going to miss their earnings. So this indigestion turned out to be more like a critical illness, as opposed to indigestion. Yeah, so the business is in trouble. I, after getting back from from Boston and paying large fine are agreeing to pay a large fine, I attended a meeting on improving the billing systems of our company. And very timely right here, we're just paying a fine for billing fraud. And the meeting had about 30 people in it mainly senior leaders and other billing people from the company. And they I sat through the first 55 minutes or so. And we're getting close to the end of the meeting. They're about to wrap up. And there hadn't been one comment about how we're going to make sure the billing system complies with Medicare, Medicare regulation.

Ken Freeman: 00:22:33

So I raised the question, I say, hey, look, before we adjourn here, you may not know that I've recently had an unpleasant experience for us as a company. And I just be interested Well, what are we doing with the billing system to ensure we comply with the law moving forward? At that moment, my number two in the subsidiary the chief operating officer of the subsidiaries said, Ken, you have not been in this business more than a month you don't know this business? I do. I've been here a long time. And what I can tell you is no one expects us to comply with a Medicare regulations, there's over 50,000 pages of regulations, it would be ridiculous for anybody to expect us to comply with the regulations. That was interesting to hear in front of my company. And so I said, I'm not familiar with this business that much by myself. But I said, I know when it smells like a rat, right? And so I went back to my office, and I called the CEO of the parent company, my boss. And I said, Hey, look, we know there's indigestion. We also know it's it's critical care now, right? We have a problem here. And I just came through a very troubling meeting, the COO just said, what he said, I've decided we need to remove him, we need to remove him from the company as soon as possible. Because if that's what he's saying, that's what the rest of your organization is doing. That's right. There was a long pause on the other side of the other line. And the CEO said, Ken, I'm sorry, you can't fire him. And I said, well, well, why not? It's pretty clear here. Again, consistent with the values of the company, everything else we do. And he said, Well, he's my neighbor at the lake in the summer, actually. And I said, instantly back, I said, Well, you know, I think what we have here is you have got a choice. It's either he goes, or I go. And then I said, you may not want to decide right now. If you want to sleep on it, that's okay. But, you know, you really, it's up to you. It's either him or me if he stays, I am not going to stay here. There's no way we're gonna fix this business if we have that kind of behavior in this company. So I went home and had a delightful dinner with my family and informed my wife that maybe I'll be doing something differently soon. The next day, the CEO called me in the morning early and said, Look, I've thought about it. You're absolutely right. He goes and you stay. And it always a special moment. Right. Very, very special. Moment. And in those kinds of situations, there was no hesitancy in saying, play me or trade me. Wherever me there was just none. And I think one of the things we forget about is, in today's world, we can Google a lot of things. But we can't google our values, the values have to come from our heart. And so often, I think companies get caught in the using their analytical minds and forgetting their hearts. And we have to put our hearts to work, I think if we're going to really give voice to values and speak up in these kinds of situations.

Cindy Moehring: 00:25:36

That is a very poignant story. And it also, I think, puts a very different perspective on positionally how you can address an issue, right? Because at that point, he was your number two, I mean, there really was no other choice. I mean, if he stayed, and he said that in a room of 30 people, right, you were right. I mean, if if he didn't go, you knew the behaviors weren't going to change. And that was going to be conflicting, not only with your own values, but conflicting with a company's values, and certainly wouldn't have been the intent. But isn't it funny how little personal connections can can be like, you know, what causes you to pause for a minute, but he's my neighbor at the lake. So

Ken Freeman: 00:26:19

if I had threatened him in that case, and he I don't know, he might have right, you know, might have reacted in a different way. It was really, it was his call in the end. I'm glad he made the choice he did.

Cindy Moehring: 00:26:31

Well Ken, this has been a great conversation. I like to end on one last fun kind of question. So do you have anything, let's say a recommendation in terms of a book or a podcast, or maybe a documentary or a movie that sheds some additional light on this issue of speaking up and being able to courageously voice your values.

Ken Freeman: 00:26:53

There are three books that I have loved over the years that I imagine you've read more than once yourself. The first is a relatively recent publication called Bad Blood. Theranos, Elizabeth Holmes and the blood testing startup. It's a tremendous read. These are great storytellers telling the story and there's so many lessons in that book, bad blood. Yes. In addition, going back many years, there's a book that was written by Kurt Eichenwald, called conspiracy of fools. That was the Enron story. Again, it's written like a story like a novella. Except it's true. And again, the fact that it's such an easy read and a page turner, like bad blood is, I think it helps bring to life of the challenges and what needs to be done in those circumstances. And the final book I'd mentioned, relates to Arthur Andersen, the old accounting firm, and it's called a final accounting, written by Barbara Lee Toffler. Those three books I have found over the years to be entertaining, and inspirational, as opposed to reading like a textbook, if you will.

Cindy Moehring: 00:28:02

Ken this has been fabulous. I really appreciate you spending some time with us today, and sharing your own stories about voicing values at different points in your career.

Ken Freeman: 00:28:13

My pleasure. Thank you so very much, Cindy.