Volkswagen adds its name to the long list of enterprises â including Enron, UBS and BP â that have failed to spread
Impact@Work
Vol. 16
How Prepared Are You to Handle an Ethical Crisis in Your Company?
Volkswagen adds its name to the long list of enterprises — including Enron, UBS and BP — that have failed to spread their core values throughout the organization. These kinds of companies have a clear stance regarding their ethical and social responsibilities, with departments exclusively dedicated to monitoring compliance with their responsibilities. Millions are earmarked with the sole intention of defining, monitoring and publicly reporting their efforts in the realm of corporate social responsibility. Efforts that, in many cases, have been publicly recognized via inclusion in a variety of lists and rankings of socially responsible companies. Then, one day, someone makes a bad decision (or several) and that’s when the problems start. So, why does this happen? A Question of Principles Amongst the reasons which explain — but my no means justify — this type of behavior are: • Excessive pressure to achieve certain results or meet increasingly demanding requirements. • The simple-minded belief that the irregularities will go undiscovered. • Miscalculating the costs of noncompliance versus the benefits of strictly adhering to the established protocols. • The existence of a poorly designed incentive system (aimed at one thing, but in fact encouraging another). Good management will account for everything that impacts the daily life of the organization. This also includes the company’s ethical behavior and the integrity of the people who represent it.
IESE’s leadership and general management programs focus on this aspect. The reason for this is to address the balance of the temptation to delegate these issues to departments, or roles specifically designed for this purpose (e.g., CSR Department, Chief Compliance Officer) rather than making ethics a core element of management, so that it is embodied by every action of every member of the organization. Perception vs. Reality Action can only be taken on what is visible and measurable in the “corporate reputation showcase” (awards, rankings, indices, etc.). So the means (socially responsible actions, initiatives to protect the environment, lengthy reports on sustainability, etc.) ultimately get confused with the end — which is of course to act in accordance with a code of ethics that is applied across the board. And not just confined to certain actions carried out by certain departments. One clear example of this perversion is the growing phenomenon known as greenwashing. It is a misrepresentation based on that same confusion between perception and reality, intertwined with the projection of a purported environmental sustainability that is either exaggerated or nonexistent. Core Steps in an Ethical Crisis In his recent blog post, Antonio Argandoña shared five tips from the president of the Council of Ethical Organizations, an expert in business ethics, on how to respond to an ethical crisis: 1. Recognize it as an ethical crisis Executives tend to overestimate the protection offered by the company’s reputation and its legal defenses. They often have the misconception that the organization will not be held accountable for what someone did contrary to its policies and guidelines. Avoiding the issue only aggravates the situation and creates a bigger scandal. Early acknowledgement of the mistake sends the message that inappropriate behavior is not part of the company culture and tends to make it less newsworthy. 2. Investigate quickly, objectively and thoroughly. From the off-set, you need to know exactly what happened, who did what and who knew about it. It is not okay to start an internal investigation adhering to the usual slow protocol. It must be quick, thorough and credible. It should probably be an independent investigation, as there may be people inside the organization who are directly implicated in the crisis, or covering it up. And the truth will have to be told in detail, airing out the dirty laundry, without omitting anything. 3. Consider the impact on your employees. Tell everyone the whole story right away, in clear terms. If not, they will conclude that the whole organization is rotten, and rumors will gain momentum. By not clearly communicating the facts, employees end up learning about the crisis from the media. Or, even worse, believing everything they hear, whether it is true or not. You must try to maintain everyone’s trust within the company: that is what will help get you out of this situation. The same goes for customers, suppliers and the local community. 4. Cooperate with the authorities. When an organization does something viewed as unethical, the public wants someone to do something about it. And that someone is likely to be the government. So, get ready to discover everything about the crisis and share it all with the authorities—even the most sensitive material
and material assumed to be protected by professional secrecy. If you don’t, you will be accused of not cooperating or even hiding evidence. 5. Find the root cause. It is not enough to know what happened; you need to know why it happened. Finding and eradicating the causes — the unethical practices that up until now you considered normal, acceptable or inevitable — is the only way to keep the problem from recurring in the future.
More information on Business Ethics: » Business Ethics and CSR Area at the IESE Insight Knowledge Portal » “Why is it hard to be ethical in business?” by Antonio Argandoña » “When Playing Green Backfires: Volkswagen and the Front Line of the Greenwashing Debate” by Pascual Berrone et al.
