We have a victim–the killing of VW’s corporate reputation–and some obvious, and perhaps not so obvious suspects.
There’s even a sub-plot to keep us busy. Why did no one speak up about the killing? What stopped them coming forward and betraying the perpetrators?
In an Agatha Christie type novel the killer is usually someone you least suspect. Such as the gardener, the butler or even the chauffeur.The likely suspects in VW include a few invisible middle managers, a clutch of ingenious engineers or possibly a few carefully directed software programmers.
As to who really “dunnit”, that is, who was truly accountable, we’re still awaiting the final denouement.
VW naturally claims only a few minor engineers committed the crime. Like in the usual detective novel this seems like misdirection, taking us off entirely on the wrong track.
It seem barely credible. Could this prolonged corporate murder extended over several years really come down to just half a dozen killers?
Michael Horn, CEO of VW in the US admitted doubts too in the recent congressional hearing:
“It is very hard to believe personally, I struggle as well”
Michael Horn before the US House energy and commerce committee 9th October 2015
Meanwhile recent raids at VW’s base in Germany were aimed at finding the equivalent of the murder weapon, a smoking gun, or at least written evidence to identify VW staff involved in manipulating emissions tests.
There is a long tradition of leaders trying to distance themselves from unethical activities of their company that have been uncovered, to their severe embarrassment.
“I do not take direct responsibility for the direct actions of people in Switzerland” claimed manager Chris Mears about the tax evasion at the HSBC Swiss arm in the mid-2000s. In simple terms he was saying “Don’t blame me!”
Yet he was in charge of HSBC’s banking division. His denial of responsibility for the illegal activity under his watch has gone down as yet another memorable example of how executives try to avoid being accountable for what they are supposed to manage.
Mears even boldly complained about the illegal activity in his Swiss branch::
“None of this was flagged up, to me sitting in London, that we had an issue,”
Presumably he expected to be formally notified that something was wrong with a neat e-mail saying
“Just thought you’d like to know that over here in Zurich we’re engaged in a tax swindle.”
Denials such as Mears’ and doubts such as Horn’s lie at the heart of much of the public anger over big business and particularly financial services. Just how do those in charge manage to escape being accountable?
Who’s the killer?
Blaming the wrong suspect has a history, stretching back millennia.
The top 10 scapegoats, click here
More recently, we might ask: who “done in ” Libor– the manipulation of inter-bank lending rates? Who can we blame for the Forex fiddle—the foreign exchange rate rip offs?
And, which individuals should we pick as accountable for the PPI miss-selling scandal now costing the banking industry around £26 billion ($40 billion) in compensation payments and admin fees?
In the US at least, this difficulty of finding “who dunnit” is now becoming dead in the water. Just recently the U.S. Department of Justice for example, announced its intention to hold company executives—and presumably also bankers–directly responsible for white-collar crimes.
Sally Quillian Yates, deputy attorney general, has written a memo to every U.S. attorney, as well as senior management at the Justice Department, outlining the intention to prosecute executives for corporate wrongdoings
“One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing,”
Analysis by legal experts suggest this memo has important “who dunnit” implications, and sets something of a new direction in the pursuit of accountability.
“Who dunnit” confusion
The difference between being accountable and being responsible has always proved a useful way of trying to dodge being nailed for what happens under your watch.
As a manager or a leader, if you’re in charge of some activity you’re both responsible and accountable—even when someone else does does the dirty deed.
Sitting smugly on top of an elaborate corporate hierarchy as Mr Mears did, does not mean you can avoid being answerable for what goes on below. The new US DOJ approach recognises this is simply not a viable excuse for unethical or even illegal practices.
Continued confusion between being responsible and accountable has prompted various attempts to bring the differences into sharper focus.
RACI which stands for Responsible, Accountable, Consulted and Involved is a useful, if rather elaborate, way of clarifying who has what responsibilities.
RACI, ensures only one person can be responsible for a final outcome. Others can still be accountable for tasks and pieces of the work being done.
If you’re accountable within RACI, it’s important to respect that someone else has responsibility for what you’re doing. That means they care about what you do, how it’s done and what the finished product will look like.
RACI can be helpful in teams for sorting out who does what. It’s rather less helpful though when it involves the uncertainties over who will be held to account in major areas of distributed power, such as Mr Mears in HSBC.
Another approach that helps clarify accountability is what consultant Torbin Rick calls the S-I-M-P-L-E approach, an easy to use six stage process:
Source: A simple approach to high performance organisation, Torbin Rick,
reproduced with permission
Both RACI and SIMPLE have wide application. Neither though work entirely smoothly when looking at the behaviour and roles of senior managers and leaders–when “who dunnit” becomes an all consuming search for accountability .
Consequently there remains a level of denial or confusion when it comes to finding named individuals answerable for say, the worst excesses of the financial crisis of 2008 and problems since then.
In its 2011 final report, the US Financial Crisis Inquiry Commission on the 2008 financial crisis, mentioned variations of “fraud” no fewer than 157 times. It described what caused the situation as “systemic breakdown”.
More recently in July this year, Mark Carney, Governor of the Bank of England at the Mayor’s annual banquet also listed a litany of clues including
conflicts of interest, collusion, illiquidity, poorly understood and ignored standards without teeth, failed internal controls, skewed incentives, a focus on short term rewards, no personal accountability, and a culture of impunity
For example, the US Department of Justice has never assumed all the top executives involved in the various events leading up to the financial crisis were innocent.
Yet until recently it has studiously avoided criminally prosecuting them, making various excuses that, on closer inspection, seem unconvincing
Bringing back accountability
Now the US Justice Department is introducing a sharper set of teeth in pursuit of holding to executives, leaders and bankers to account.
Not to be outdone, in early July 2015 the UK Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) similarly published their final conclusions on a new banking accountability regime.
“Today we have given clarity on rules that will embed personal accountability into the culture of The City. New conduct rules will add further momentum to improving standards across the industry.”
The new conduct rules are high-level– a sort of “who dunnit” guides for holding named individuals to account—make them answerable for what goes on under their watch.
For this to work there must be proper documentation, including an actual responsibilities map. This will identify specific senior managers and their areas of responsibility, with statements of responsibility for each senior manager. In effect, it’s a version of RACI for the City.
For top executives in the C suite, and bankers in the halls of finance the most sensible step right now is to
Make sure you’re fully ensured against being personally held liable for the sins of others.
This seldom works in “who dunnit” stories and won’t in corporations either.
Shortly after this post was published, the Treasury has announced the new regime proposed for making leaders and managers accountable (Senior Managers Regime) has been amended.
Previously it was down to the managers to prove they had taken all reasonable precautions to avoid breaches–a sort of “you’re guilty until you prove you’re innocent.”
Now the scheme has been altered. It is up to the regulator to prove its case, as is normal under UK law.
The SMR’s extension to all parts of the financial services industry and not just banks, brings around 60,000 companies into the new regime. .
C. Binham, Accountability rule dropped, FT, 15th October 2015[/symple_toggle]