Years ago a court judge in New Zealand was convicted of expenses fraud, the judge’s defense was that he hadn’t understood what the forms required. The public reaction was disbelief; either he just thought he could get away with it or he was too stupid to be a judge.
Since that early example I’ve looked at company scandals and the explanations given with a suspicious eye. In every case there are signs of how the company culture has effectively colluded around the scandal – it’s never just one person, it’s people turning a blind eye, it’s fear of whistleblowing, it’s the company culture, it’s the CEO.
Following the Enron scandal I heard a story, possibly apocryphal, of a manager who joined the company. Shortly after joining he heard that the ambitious revenue targets had been sent out across the company, requiring a jump of 25% in sales from one quarter to the next. At the end of the next quarter, to his amazement, those sales targets had been met across the company. He smelt something rotten and decided to update his CV and move on, he was not surprised when the Enron scandal broke. At the time it was the biggest corporate bankruptcy the world had seen. The Sarbanes-Oxley Act was passed to prevent scandals of this scale ever happening again (it didn’t).
In the Bernie Madoff Ponzi scheme his family members were involved in the company, including his brother who was appointed as Chief Compliance Officer. There are rules in many companies about potential conflict of interest when partners or family members work together.
More recently Wells Fargo came under fire for the cross-selling scandal where staff opened credit card accounts for non-exisiting clients in order to meet targets. In companies employees focus on what gets rewarded; and when enough pressure is applied from their bosses and their colleagues some will break rules to meet those targets. The company directors’ failure to halt the scheme was called “gutless” by Elizabeth Warren – the company maintains that the employees – all 5,600 of them (so far) acted alone. Either the bosses knew or they should have know, but so far none have taken responsibility.
John Oliver’s piece on the US police system exposes the myth of the “one bad apple” and looks at some of the systemic issues behind the fatal police shootings in the US. The failures of process and policy erode the public trust in the police, reducing their ability to their job.
The points John Oliver makes could equally apply to businesses.
Your leader must lead, her actions must demonstrate her high ethical standards and she should speak clearly and frequently about the company’s ethics.
- Monitor/Collect data
We can now analyse data and patterns of performance, look at patterns and changing patterns. At a financial institute I worked at we were required to take a break of at least two weeks. HR sold it as being good for employees but my security colleagues gave another explanation, the two week break was long enough to highlight any odd activities.
- Avoid conflict of interests
Keep review processes independent, external if possible. Don’t hire siblings or partners into the same field. Declare any outside interests that might raise a red flag – I wrote some columns for a (former) supplier. I had to declare this and I donated the income to charity to remove any potential conflict. Independent reviews make a difference
- Transparent Processes
The more open you are, the more public you can be about your processes, the less opportunity there is for fraud or scandal. A very simple example; some universities are using blockchain to certify their qualifications, as that becomes a public record there is no chance to create a fake degree.
Be careful what you reward, that will direct the employee’s focus and in extreme cases leads to unethical behaviour to reach stretch targets.
- Whistleblower procedure
Even with all the best practices in place something could go wrong. Create a robust, independent whistleblower procedure. Whistleblowers are generally punished for coming forward, be the exception.
Building a scandal resistant company culture is not easy; not doing so is expensive, even fatal.