Did VW Really Complete Its Culture Change Project?
Volkswagen, which equipped 11 million of its diesel vehicles with “defeat devices” designed to fool environmental regulators into thinking the cars complied with pollution regulations, has completed a three year “monitorship” designed to change the company’s ethical culture. But did it do enough to actually change the culture? Not nearly enough, in my opinion.
The government appointed lawyer Larry Thompson as the quasi-independent monitor. Thompson, who had been the U.S. Deputy Attorney General in the George W. Bush administration, had written one of the federal “prosecution memos” which authorizing federal attorneys to go easy on companies if they had a good corporate ethics and compliance program in place when a violation occurred – and then defined what constituted a good ethics program. The presumption was that if a company had a good program, the misconduct was likely due to one or a few “bad apples” and not a bad corporate culture.
Volkswagen clearly flunked this first test, and its fines, penalties, and forced compensation to vehicle buyers now totals over $37 Billion. But in its settlement with the U.S. government, its monitor (Thompson) was to certify that the company had now put in a good ethics program adequate to create an ethical culture resistant to misconduct.
In my view, the settlement was well-intentioned but totally inadequate to head off future misconduct. It emphasized long-favored measures such as a more accessible whistleblowing mechanism, stronger auditing protocols and accountability, more transparency, and greater tolerance of errors so employees would not hide their mistakes.
Marc Epstein, my long-time coauthor, and I have reluctantly concluded that this typical array of measures adopted by companies is simply not enough to head off misconduct. We ourselves have advised dozens of companies on how to implement just these measures, but have now concluded we did not do enough. In our new book, Rotten: Why Corporate Misconduct Continues and What to Do About It, we identify several key steps which have been left out of corporate ethics programs over the past 20 years.
They include:
The adoption of a corporate purpose which genuinely commits the company to serve society, not just shareholder wealth and management compensation.
A strategic process that justifies key decisions and initiatives in terms of the new corporate purpose.
A dramatically new “tone at the top” from the CEO and other top executives.
The demand that middle managers translate the new purpose into the work of their own divisions and teams.
Giving the company’s ethics and compliance chief the chance to weigh in on strategic issues rather than just compliance matters.
Regular auditing of all company compensation programs and incentive systems for their effect on real employee behavior.
Creation of a new scanning unit in the company to identify company ethical impacts and emerging ethics risks.
Relevant articles:
Volkswagen Tries to Change Workplace Culture That Fueled Emissions Scandal