The ousting of Hewlett – Packard (= HP) Chairman and CEO Mark Hurd earlier on this month has been widely discussed in the business sections of newspapers and magazines all over the world. For those unfamiliar with the story, let me quickly recap the main points.

There was a claim of sexual harassment against Hurd by a female former contractor to HP. Although Hurd was cleared on the initial allegation, the investigation by outside legal counsel and HP’s General Counsel’s Office revealed something else: Hurd had submitted incorrect expense reports that the Board believed showed a lapse in integrity. As a result, the Board fired Hurd or to use a softer language, as stated in the press release of HP, “Chairman, CEO and President Mark Hurd has decided with the Board of Directors to resign his positions effectively immediately.”

The ongoing debate now in newspapers and business magazines is centered around the question whether the Board should have fired Hurd or not, considering his outstanding track record at HP where he had improved during his 5 years tenure every metric Wall Street uses to judge companies and had been named as one of the top CEO’s in the world.

Yesterday, Eric Rosenkranz, a chairman of several companies and an advisor to chief executives and chairmen condemned in his management column in “The Nation” (one of Thailand’s leading newspapers) the sacking of Hurd. He argues that this decision did not serve shareholders and the company. He states that the stock had lost US-$ 9 billion in market capitalization the day Hurd’s firing was announced. Rosenkranz suggests HP should have taken only the chairmanship away from Hurd and let him carry on as CEO “to the benefit of the company”.

I have to say that I totally disagree with this suggestion.

The New York Times in its edition of August 13, 2010 goes even to the extent stating the following: “The world is full of imperfect people; if everyone who ever fudged an expense report or flirted with an outside contractor were fired, there wouldn’t be many people left in the American work force.”

Although I have never worked in the U.S., I cannot imagine that this statement does justice to the American workforce.

Whenever and wherever I hire a new sales manager, one potential knock-out question that I am asking the candidate is: “What do you do, if you discover that one of your sales representatives has carried out fraudulent activities?” If the candidate answers something like “I will talk to him seriously”, “I will warn him” or “I will give him a second chance”, I will not consider the person for the position. By the way, out of my experience, unfortunately about 8 out of 10 candidates answer like this, making the whole recruitment process more prolonged.

Of course, you can argue that every person, also the fraudulent sales representative, deserves a second chance. That is true, but the point is that he has to get the second chance not in our, but in another company. Overthere, he can either correct his behaviour or he has to find a company that tolerates fraudulent practices.

For me, there is no doubt that Mark Hurd had to go. An act of dishonesty cannot be hidden, and it will instantly undermine the authority of a leader. For a leader, honesty and integrity are absolutely essential to survival. They are the most important leadership traits and are key ingredients in developing trust.

In a survey on “Characteristics of Effective Leadership” conducted by the “Corporate Leadership Council” with more than 8,000 leaders, “honesty and integrity” came out clearly as the No. 1 characteristic (61% mentionings).

I have been put to test several times during my career. Already during my first week abroad in 1984, I faced a serious challenge. I had just moved to Dubai, United Arab Emirates, as Area Manager for the Gulf States. One of the first things I had to do was to buy a company car. After selecting one and after a price had been agreed upon, the car dealership sales manager in the showroom asked me which amount I would like to appear on the invoice. After I didn’t understand initially what he meant, he explained to me that it was common practice to show a significantly higher price on the invoice so that the buyer can take advantage of his company and can keep the difference between the official selling price and the over-invoiced amount for himself.

Of course, I rejected his “generous” offer and bought the car at the official price only. As a young man of 27 years at that time and in my very first job abroad, this was totally new to me, and it was a valuable first lesson abroad.

In my next country abroad, Nigeria, which regularly is among the “leading” countries in the Global Corruption Index, I encountered and acted upon a lot of fraudulent practices. Overthere, I, as the managing director, even had to sack the No. 2 guy in our company, the plant manager, for committing fraud in the manufacturing process and forging the batch output figures. This was sending a strong message and clearly indicated that nobody is above the law and the company’s rules and regulations, even, if it is, like in this case, the highest ranked local executive.

By the way, throughout my career, technically, I have never fired people, but rather asked them to resign. This helped to avoid potentially long court cases with sometimes uncertain outcome (due to the fact that occasionally foreign companies are at disadvantage at local labour courts). It also reduces the loss of face on the side of the fraudulent employee.

The last incident that I want to share with you happened in Thailand. We had discovered that a Senior Business Unit Manager had channelled goods through a third part company rather than having sold the merchandise directly to the enduser. The person shared some of the margin that the third party company made when selling the goods to the enduser.

When I told my boss abroad about the incident, he didn’t want to sack the person due to the excellent performance of this person in the past. Furthermore, he saw the sales and profit of that business unit that this manager was heading in great danger, since she was the one who had built up that business in Thailand and had made it one of the biggest success stories in the Asian region.

At that time, I decided, against the advice of my boss, to ask the senior business unit manager to resign. After all, honesty and integrity are an uncompromisable part of leadership!

At that time, I decided, against the advice of my boss, to ask the senior business unit manager to resign. After all, honesty and integrity are an uncompromisable part of leadership! So, the importance of the person to the business success cannot be taken into consideration during the decision-making process (as also observed in Mark Hurd’s and HP’s case). Fortunately, we were able to deliver a good business performance despite the departure of the business unit head. Nevertheless, it takes a principle-centered leadership approach and guts to take such decisions.

Hard decisions related to principles and values are the only way to institutionalize big, idealistic values like honesty and integrity in an organization. You have to be willing to depart from anyone in your company, irrespectively of the hierarchical position, for not living up to the values of honesty and integrity, even for small breeches of these values.

Honesty and integrity are two essential business pillars. These characteristics are the hallmark of strong leaders. Nevertheless, in Gallup’s annual Honesty and Ethics of Professions poll, business executives are ranked only in the lower midfield. During the last poll in November 2009 in the U.S., business executives ranked only No. 15 among 22 professions.

Only 12% of the Americans surveyed thought that business executives have very high or high honesty and ethical standards while 38% ranked these standards even very low or low in business executives. The list of professions was topped by nurses (83% very high or high; 2% very low or  low), pharmacists (66% very high or high; 5% very low or low) and medical doctors (65% very high or high; 7% very low or low).

Considering that honesty and integrity are viewed as the top leadership traits, the above results for business executives must be considered as a complete disappointment.

In a 2003 survey among white collar workers (long before all the corporate blow-ups and the financial crisis) by Right Management Consultants Company, honesty (24%), integrity/morals/ethics (16%) and caring/compassion (7%) were ranked as the top 3 leadership traits. This shows that employees are looking for strengths of character in their leaders.

The above stated are fundamental leadership principles which you typically learn from your parents, relatives, friends and in elementary school, but hardly in MBA-classes. This is something that companies have to consider when selecting their leaders. They need leaders that demonstrate honest and ethical behaviour.

Stephen Covey, the American leadership guru, carried out an in-deptht study of many authors of success literature over the past 200 years. He went through thousands of articles and essays from popular psychology, personal development and self-help. He noticed a pattern in the content. The literature in the first 150 years focused on what Covey calls “character ethic” attitudes such as integrity, humility, courage, patience and the Golden Rule.

However, the success literature published after World War II, saw a distinct shift. It had moved away from the “character ethic” to what Covey calls the “personality ethic” where success was more based on personality, technique, appearance and having a positive attitude. Covey states: “We have become so focused on building ourselves up we have forgotten the foundation that holds it up is that of character and integrity. Many are focused on reaping the goods without the need to sow the fields.”

Covey believes being principle-centered lies at the heart of leadership. “The principles I teach – integrity, honesty, trust, compassion, accountability – are found throughout the world, including many religions and philosophies. If you deal with principles honestly, they apply everywhere and in every situation.”, Covey states.

I have nothing to add to that.