For best-in-class ethics and compliance programs, tone-at-the top isn’t just a mantra; it’s a way of life.
During a keynote address at NAVEX Global’s Ethics and Compliance Virtual Conference, Howard Putnam, former CEO of Southwest Airlines and Braniff International Airways, spoke candidly about harnessing the business value of an ethical culture. “People, ethics, and integrity are the three greatest assets you have,” Putnam said.
That people-centric philosophy began in 1971, when Herb Kelleher and Rollin King first founded the company. Their leadership style, Putnam said, has always been this: “Number one is our employees and their families. If we take care of the employees and their families, they’ll take care of the customers. And if we take care of the customers, they’ll take care of the shareholders. It’s very simple. Just turn the equation upside down.”
It would appear that putting its employees first is what has propelled Southwest to reach new highs, achieving record traffic, record revenues, record profits, and a record year-end stock price in 2015. “It was our 43rd consecutive year of profitability, an unprecedented achievement in the domestic airline industry,” stated Southwest’s One Report.
Southwest’s message is loud and clear: A strong culture starts with its people.
Long before joining Southwest in 1978 as the company’s second-ever chief executive officer, Putnam, himself, came from humble beginnings. “I started my aviation career on a farm in Southwest Iowa. My dad got the urge to learn how to fly, so he sold enough cows and pigs to get $600 to buy a Piper Cub.”
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Recalling that surreal day, Putnam said: “I’m standing there thinking as a little kid, ‘That’s kind of strange, we don’t have any electricity. We don’t have any plumbing. We don’t have any hot water, but we have an airplane. That’s where my passion began.” The entire foundation of his business career, however, began with his parents, who taught him the value of “ethics, accountability, and responsibility,” Putnam said, adding that his two older sisters also were like mentors to him.
“Number one is our employees and their families. If we take care of the employees and their families, they’ll take care of the customers. And if we take care of the customers, they’ll take care of the shareholders. It’s very simple. Just turn the equation upside down.”
Howard Putnam, Former CEO, Southwest Airlines and Braniff International Airways
From that foundation, Putnam rose through the ranks in the aviation industry. The tools and professional expertise that many ethics and compliance officers have today, however, didn’t exist at that time, he said.
Nor did Southwest have an ethics and compliance officer. There was an internal auditor and a CFO. “We had a very open culture, and we fostered that.” Having that open culture helped build trust, he said.
“People often ask me what leadership style I have,” Putnam said. Taking what he has learned throughout his career in the airline industry, he offered this advice to other senior management:
Lay out the vision. Lay out the flight plan. Make it clear for everyone to see.
Don’t have any secrets. Communicate and foster an open culture.
Make the goals that you set for your team realistic. “That’s where a lot of companies get into trouble,” he said.
Challenge your team to take ownership and be part of the flight plan. Let them take a few risks, within reason. Once in a while, mistakes need to be made for innovation to be achieved.
Be honest and candid and embrace suggestions. If possible, try to involve stakeholders, customers, and investors.
Fostering ethics
Fostering an ethical corporate culture starts with having the right people. “Hire attitudes,” Putnam advised. “Develop skills.”
Look for employees who share the following characteristics:
Positive, cheerful, optimistic attitudes;
Great decision-making skills;
Great communication skills;
Great team spirit; and
A love for customers.
“We seldom ever had an ethical dilemma or an ethical problem,” Putnam said.
Recognizing and rewarding employees—and having fun in the process—also goes a long way toward fostering a strong ethical culture. On one particular occasion, for example, Southwest ran a contest for its employees, in which the city that boarded the most passengers over the course of the 60-day contest won a steak dinner, while the losing team had to eat beans and serve the winning team. “The employees loved that,” he said.
Having a sense of humor also goes a long way. Take it from Gary Kelly, the current CEO of Southwest Airlines. For the last 16 consecutive years, Kelly has dressed up for Halloween, with employees and customers getting to choose what sort of elaborate costume he wears each year.
SOUTHWEST AIRLINES ONE REPORT
Below is Southwest Airlines One Report.
Performance
The year 2015 was a gratifying, successful, and record-setting year. After five years of intense work on five strategic initiatives, 2015 was the first full year to demonstrate results, and the results were superb: record traffic, record revenues, record profits, and a record year-end stock price (LUV). Southwest boosted its available seat miles (capacity) 43 percent since 2010, driven by the acquisition of AirTran in 2011. All combined, since 2010, shareholder value has increased more than three-fold; dividends per share have increased more than 16 fold; and $4.3 billion has been returned to shareholders in dividends and share repurchases. Southwest has transformed, as the results so clearly demonstrate. Our results were further enhanced by dramatically lower jet fuel costs, driven by a collapse in oil prices. It was our 43rd consecutive year of profitability, an unprecedented achievement in the domestic airline industry.
People
We're proudly people-centric and believe in putting our employees first. Because when employees are as valued as ours are, they deliver hospitable service that translates into delighted, loyal customers. It also means that we strive to improve the lives of people in the communities where we fly and to work with suppliers that share our focus on sustainability. We provided approximately $945 million toward Employee retirement through 401(k) matching contributions and through ProfitSharing related to 2015 results. In 2015 we donated more than $19 million in corporate monetary, in-kind, and ticket donations.
Planet
Every day, more than 3,900 Southwest flights offer a unique perspective on our planet. Seeing the Earth from 30,000 feet is a constant reminder of both the fragility and interconnectedness of the place we all call home. This viewpoint reinforces our ongoing commitment to conservation, the responsible use of resources, and mitigation of our environmental impacts.
Source: Southwest Airlines One Report.
This year, Kelly was George Washington, last year it was Snow White. In other years, it was the Mad Hatter, Gene Simmons from KISS, Jack Sparrow, Dorothy from the Wizard of Oz, and Frankenstein, to name a few. Referring to some of his own moments at Southwest, Putnam said, “When the CEO makes an ass out of himself once in a while, [employees] get a kick out of that.”
Turbulent times
After three successful years with Southwest, having tripled the airline in size and profitability, Putnam decided to make the risky move in September 1981 to lead and revitalize ailing Braniff International Airways.
Braniff is an example of a company that soared too high, too fast, and essentially was in the middle of a nosedive when Putnam came on board. At that time, unbeknownst to Putnam, the company had spent $175 million paying off payables in the previous three weeks before he joined the company, leaving Putnam with just 10 days to clean up the rest of the company’s financial mess.
“In those situations, you don’t have time for committees. You don’t have time for consultants,” Putnam said. “We had to work really quickly to gain the trust of the employees.”
The company’s debts were sky high. The first day on the job, Putnam said he received a phone call from Bill Marriott, chairman of Marriott Hotels, saying that “Braniff owed $70 million for food and liquor, and if we didn’t pay up in 24 hours, he was going to cut it off.” Luckily, Putnam said he was able to smooth that situation over.
In addition to its financial troubles, Braniff’s corporate culture was also was out of control. An hour after the phone call with Marriott, the FBI showed up and said they were there to arrest the director of petroleum purchases, who was taking bribes under the table, Putnam said.
But that wasn’t the company’s only ethical dilemma. Putnam had also been approached by the head of security who had reported a theft ring at Dallas-Fort Worth Airport involving baggage handlers who were stealing from people’s luggage. Ultimately, a tip from a baggage handler led to the arrest of 22 people that Christmas Eve.
“The point is that when the leadership has gone awry and you lose sense of the cost, and you lose a sense of control, and you lose sense of the vision and the flight plan, the people are going to take advantage of it,” Putnam said. “We were able to turn around the morale.”
Ultimately, however, Braniff couldn’t escape its turbulent times. “After seven months, we had to file for bankruptcy,” Putnam said.
The broader lessons learned from Putnam’s experience at Braniff, however, apply to everybody. “Turbulence is inevitable, but misery is optional,” he said. You have to figure out. ‘How can I do something constructive and make the turbulence work for me instead of against me?’ ”
Sometimes you have to clear the clouds before reaching the blue skies ahead.
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