VW was bad enough. Now, value destroying behaviour at Boots the chemist hits the headlines. It’s accused of “ripping off the NHS” and putting pressure on staff to collude with this.
The questions this accusation raises apply to any other company that wants to be around in the longer term:
- Transparency: What does this mean for your company in the internet age?
- Unethical CEOs: Can an unethical CEO in your company last?
- Reputation: What value should your company place on its reputation?
- Compliance staff: Do they deter unethical behaviour in the company or just tick boxes?
- Trust: How would your company revive lost trust in society?
There are no secrets in an Internet age. Yet companies continue to behave as if bad actions can stay hidden.
Paying staff below the legal wage levels stayed “secret” at Sports Direct for less than a year. Boots staff pressured to extract money from the NHS in an unethical way become public within a year.
It did not take a compliance team to draw attention to this behaviour in Boots. Nor did staff raise their heads over the parapet. There was no rush to warn the company risked damaging its reputation.
Instead, social media and the ordinary media dragged the unpleasant facts into the daylight. Company denials soon fell apart. Scores, if not hundreds of staff, then felt confident to confirm the situation.
Yet the wider lesson remains unchanged. From the history of the last decade, it’s clear—if you act in an unethical way it won’t stay secret for long. You might have thought well-paid senior executives would by now have grasped this reality. Not so. At Boots the CEO carried on regardless. Once the facts emerged his exit was inevitable.
If you think ethics and doing the right thing is costly, just look at the cost of being unethical. The lesson is simlpe:
You cannot hide unethical behaviour for long, so don’t bother to try. Keep doing what’s right and you are less likely to go wrong.
Three out of four US employees complain their boss is the worst and most stressful part of their job. True or not, bosses make a real difference to whether staff and the wider world see the company as ethical.
Volkswagen’s CEO Martin Winterkorn was a tough perfectionist. He even carried a gauge while walking around to measure gaps between car doors. In September 2015 he took full responsibility for the “misconduct” and resigned. With rather less courage he also claimed to be “unaware of any wrongdoing” on his part. This was despite allegations he’d been aware of the issue since 2014.
At Turing Pharmaceuticals Martin Shkreli, the founder and former chief executive did not last long. He pushed a minor drug price into the stratosphere. He was gone withing weeks.
Some CEOs also suffer from “willful blindness”. They don’t want to hear or see what’s going on under their watch. Margaret Heffernan is a best best-selling author of Willful Blindness,. She offers three truths all CEOs should consider:
- Almost everywhere,employees think their bosses don’t want to hear bad news or information. They tend to reject anything that challenges strongly held beliefs.
- Business leaders must understand they don’t know what they need to know. They rely on employees to tell them what’s going on in the business.
- Every organization has basic orthodoxies. Some stay hidden and there is a reluctance to discuss these.
Her more specific advice to CEOs is to:
“Slow down and change how you communicate.”
“It is comforting to know that ethics matter, and that in due time the character of unethical executives is revealed to the marketplace,”
A.Puckett, University of Texas associate professor of finance,
The third largest annual challenge facing society is dissatisfaction with leaders. This included company leaders failing to see reputation as a strategic issue. Accountancy body CIMA too highlighted this in a 2007 earlier perceptive report. It cited four reasons:
- Accountability, Calculating, Probability, and Character
Remedial action on reputation usually means rebuilding the culture from the ground up. Often it’s a new CEO who must try to steer the company in the right direction.
For example, after taking charge a year ago, Standard Charter’s CEO delivered an angry address to its 1500 top managers. He complained of inappropriate dealings with colleagues and excessive expenses. He argued: risk management and other controls were not as rigorous as they needed to be. He even likened them to a cultural “cancer.”
Yet the new CEO remained as
“…convinced as I hoped I would be, that the ethical culture of the bank is very strong.”
Restoring a past strong reputation at Standard Charter or Boots means holding everyone accountable. Real, meaningful and permanent change demands hard work. This will involve shareholders, customers, partners, and employees.
Some possible answers come from a 2012 IBE report on the recovery of trust. The authors studied ethical breaches that occurred at six companies. These were Mattel, Toyota, BAE Systems, The BBC and Severn Trent. What emerged was the need to treat each incident in an individual way. A simple list of “do’s and don’ts” does not work well.
When a company like Boots goes off the rails it’s easy to say heads should roll. But which heads? It took a combination of people at VW to distort the past strong ethical position.
Most big companies taking an ethical wrong turning have compliance staff. Often there are whole teams of them. Boots has a Director of Regulatory and Quality Policy at Walgreens Boots Alliance. So where was she when the order came to screw the NHS? Perhaps outside the power loop—that is, excluded from the top structure.
A call to the company’s press office produced a bemused press officer who wasn’t even sure if the company had a CCO. A promise to call back never came.
Yet no amount of codes or compliance staff can create an ethical company. They can make sure certain rules prevail. But that’s about as far as it goes. Doing what’s right remains an ethical judgement.
To be ethical is to be trustworthy. Both share a common source: the central importance of values such as :
- Actions match words;
- Delivering on promises;
- Trying one’s best
- Showing genuine concern for others and fairness.
To be ethical stems from what it takes for people to see you as trustworthy.
To rebuild trust don’t focus on the vagueness of ethics or fancy definitions. Instead, give close attention to
“What will it take to re-build trust with our stakeholders?”
Boots for example, has a well presented Code of Conduct and Business Ethics. In it, the then chairman stated something of the obvious:
“Trust is one of our core business values and is a principal foundation for the ongoing success of Alliance Boots – trust of our customers, employees, partners and the communities we serve. This trust is earned and built upon through our consistent commitment to uncompromising high standards of integrity, service and partnership as the cornerstones of all aspects of our business activity.”
That is exactly what you’d expect in a company code of ethics. But at Boots that trust has been undermined. Tackling the trust deficit now requires targeted interventions. These must aim to control distrust, and show trustworthiness anew. The first need is to make sure there’s no reoccurrence of the failure. Possible actions include:
- New compliance procedures
- Revised incentives
- An overhaul of deviant cultural norms
- Removal of guilty or complicit parties.
These are rock bottom requirements. They don’t add up to repairing trust. This demands a further approach: showing the organisation can put things right.
This might mean issuing apologies, paying penance, offering more transparency, and making new investments in promoting ethical practice. The ritual bowing of top executives at both Toshiba and Olympus for example was at least a start on the long road back to respectability. One can hardly imagine Mr. Mike Ashley of Sports Direct doing the same. But he did at least admit to the Parliamentary Committee the company had become too big for him to manage.
Various reports have appeared on how to re-build this precious commodity of trust. For example, a PWC report suggested a four stage route map.
A series of case studies of organisations that lost their trust led the Institute of Business ethics to also suggest a rebuilding route:
All five approaches above can help solve the puzzle of what to do about an ethical disaster.
Transparency can seldom be avoided these days when it comes to ethical misbehaviour. CEOs who fail to take ethics seriously tend to fall by the wayside, often in a spectacular fashion.
Reputation for companies continues to be a precious commodity. Once damaged it can be arduous to rebuild.
Compliance staff must learn to pursue values and support the culture and not a tick box approach.
Finally, Trust has a firm link with ethical behaviour. Formal procedures to support ethical performance can help regain the trust of stakeholders. These include route maps for repairing trust. They provide practical ways companies can begin recovering from an ethical transgression.
Crandell, How Ethical CEOs Lead Unethical Companies, CustomerThink Advisor, Nov 26, 2015
Why reputational risk keeps grabbing the limelight, www.ethical–leadership, April 7, 2015
G. Dietz, N Gillespie, The Recovery of Trust IBE 2012
M. Arnold, Stan Charter acts on Conduct Cancer, FT June 14 2016
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