Saying no to the boss

May 11, 2011: 11:37 AM ET

It's all too easy for companies to fall into a yes-man culture, but managers that encourage loyal opposition are best suited to avoid corporate disaster.

By Katherine Reynolds Lewis, contributor

FORTUNE -- Imagine going to your boss with news of a delayed project or cost overrun, and hearing "thank you" in response.

That's the rule at Menlo Innovations, a software company based in Ann Arbor, Mich., which trains project managers to smile and thank employees even when they're bearing bad news.

"My job is to say, 'Thank you for letting me know,' not 'I need you to work an extra 10 hours tonight,'" says Lisa Ho, 26, a Menlo project manager. "Sometimes it's hard to do because we have this deadline we're trying to meet. But I respect them for telling me and as long as we're very transparent… I can call the client."

In corporate America, many employees are afraid to report bad news because they're essentially saying no to the boss -- telling her that a business goal hasn't been met. But companies that foster a fear-free culture enjoy better decision-making, more ethical behavior and the ability to truly harness the collective brainpower of the workforce, according to Menlo CEO Rich Sheridan and other business leaders.

Encouraging employees to say no to the boss ensures that smart new ideas bubble to the top levels of an organization, Sheridan says. He sets such a high priority on healthy dissent that he's baked it into the corporate culture through training, procedures, regular communications to employees and a willingness to take risks based on staff suggestions.

It's all too easy to fall into a yes-man culture, especially when workers feel insecure about their jobs. To create an environment of open communication, leaders must reward and publicize new ideas, encourage dissent from staff and even challenge employees when everyone seems too agreeable.

"The company and the CEO and the chairman have to set the right tone," says Peter Handal, president of Dale Carnegie Training. "The worst, fatal flaw in the leadership of companies is the 'not invented here' mentality: 'If it's not my idea, I don't want to hear it.'"

Employees will work harder and more efficiently because they feel listened to and invested in the venture, he says. "It really does help the morale and the spirit and the dedication of the people in the company because they feel like they're part of it; they've given their input," Handal says.

Mending a frayed company culture

Jay Grinney faced an especially tough challenge when he took over as CEO of HealthSouth, a Birmingham-based health care company, in the wake of a massive fraud scandal that led to criminal and civil lawsuits.

"One of the things that was important to me was to create a culture that would be in stark contrast to the culture that was here before I arrived," Grinney says. "That culture was characterized by fear, intimidation, favoritism, a very ego-centric CEO."

On his first day, he called a company-wide employee meeting and presented his vision for the business and a plan to establish openness, honesty, mutual respect and integrity with patients, fellow HealthSouth employees and regulators. He began to hold quarterly town hall meetings that end with a question and answer session for employees. If no challenging questions emerge, top managers will ask about issues they know are raising concerns.

"I don't think there's any single formula for proving your intent," he says. "It has to be demonstrated in every single thing that I do and has to be reflected in the people I surround myself with."

At Grand Circle Corp., employees are graded on their open communication, one of the travel and cruise company's six key values. During a monthly meeting in Boston, executives answer staff questions for a half hour, and the people who ask outstanding questions are recognized in the company's newsletter.

"They're viewed as the champions or the role models," explains Grand Circle CEO Alan Lewis. "The reason you want your associates to raise hot issues is that's where you'll learn about bottlenecks…. You'll see where you have organizational issues."

Recently, Grand Circle overhauled its Amazon River itinerary based on feedback from employees that had vacationed with a competitor. The company eliminated a brand new, $12 million travel reservation system after associates complained that the custom-built software simply didn't work.

"I believe 95% of corporate America doesn't try to listen to their associates, doesn't know how to get to the brainpower of their organization," Lewis says. "You have to be able to handle a lot of criticism."

Of course, it's important to encourage constructive criticism rather than a culture of complaint. In fact, Dale Carnegie trains people to offer feedback in a friendly way.

"In order to disagree agreeably, both sides need to handle things with respect and the proper interpersonal approach," Handal says. He recommends opening the conversation with a friendly approach and something positive, rather than beginning with the negative.

Leaders can create a safe space for critical feedback during one-on-one interactions and meetings. Remember your kindergarten rules: no yelling or abuse, and stick to the principles of respect, and the basics of human dignity, says Ron Ashkenas, a senior partner at Schaffer Consulting, based in Stamford, Conn., and author of Simply Effective.

When possible, build these values into managers' performance assessments and don't be afraid to make public firings when people hit their numbers but fail to meet cultural expectations, Ashkenas says. (See: Is it better to hire for cultural fit over experience?)

You want to avoid the stagnation and time clock-punching that can result from a culture where the boss is always right. "It's draining and de-energizing when people are in an environment when they just have to salute and not be themselves," he says.

Moreover, employees on the front lines often have better information about customer needs and concerns, and sales staff members do a better job selling when they feel like they are supported.

When you are being 'yessed to death'

Looking for a warning sign that you're a boss with a yes-man problem?

"If you're saying things that nobody disagrees with, people are afraid to disagree. Nobody is right all the time," Handal says. "I've seen companies get into very serious trouble by having a very closed mind at the top."

Be conscious of your facial expressions, tone of voice and body language if you're a leader trying to encourage communication. Use an open stance rather than crossing your arms in front of your chest, Handal advises.

Body language can work both ways. In late 2008 during the financial crisis, HealthSouth's Grinney was meeting with his acting chief financial officer about earnings guidance the company planned to give Wall Street. The acting CFO didn't disagree with Grinney's somewhat aggressive position, but something seemed off about his body language and facial expression.

"I could just tell he wasn't entirely comfortable. I said, 'You're not comfortable with this position, are you?'" Grinney recalls. In the end, HealthSouth ended up going with more conservative guidance than Grinney initially proposed, due to the CFO's concerns, which was the right call.

Employees work harder when they know they have their manager's backing. But the big payoff is in keeping the most talented executives, who would be the first to leave a stifling environment -- only to be replaced by people who are just in it for a paycheck, he says.

Ultimately, you need people to say no to the boss sometimes, because nobody has all the answers. "One of the pitfalls of being the CEO is you can start believing your own press," Grinney says. "The business world is full of examples of hubris taking over."

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