tag:theconversation.com,2011:/ca/topics/corporate-scandals-17064/articlesCorporate scandals – The Conversation2023-04-24T16:14:03Ztag:theconversation.com,2011:article/2029182023-04-24T16:14:03Z2023-04-24T16:14:03ZHow to repair a damaged reputation<figure><img src="https://images.theconversation.com/files/522126/original/file-20230420-1035-nz53nk.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5607%2C3699&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/upset-businessman-laptop-174612419">Lolostock/Shutterstock</a></span></figcaption></figure><p>A reputation can be damaged by a single mistake, or after months or even years of bad behaviour. Organisations may turn a blind eye to such behaviour by employees or business leaders, and sometimes it is tacitly enabled by a toxic culture that prioritises an end game – profits or “winning” – over people or planet.</p>
<p>In either case, research can tell us about the drivers of reputational loss, as well as how to rebuild a reputation, and ways to avoid damaging it in the first place. But while reputations can be protected, my research shows this shouldn’t happen at all costs – there is a dark side to reputation management that can, and should, be avoided.</p>
<p>Working with my PhD student, Navdeep Arora, I <a href="https://journals.sagepub.com/doi/10.1177/10564926211007204">interviewed inmates in a US federal prison</a> who had been indicted for white collar crimes, as well as prison officers. This presented a unique lens for understanding what causes people who are not inherently bad to make poor decisions. </p>
<p>While this is an extreme case, it offers valuable lessons for all of us. As I discuss in <a href="https://global.oup.com/academic/product/reputations-at-stake-9780192886521?cc=gb&lang=en&#:%7E:text=Reputations%20at%20Stake%20provides%20evidence,it%20can%20attract%20and%20retain.">my recent book Reputations at Stake</a> there are three main reasons why these inmates acted unethically. </p>
<p>Gordon Gecko from Oliver Stone’s Wall Street may believe that everything boils down to <a href="https://www.youtube.com/watch?v=VVxYOQS6ggk">money and greed</a>, but my research indicates that’s not often the case. While there was a small element of ego, hubris and greed among these inmates, other factors were at play. For example, fear of failure, compensating for perceived deficiencies and feeling overwhelmed by the expectations of others. </p>
<p>An organisation can also play a role in someone’s bad behaviour that leads to reputational damage. This is especially true when weak governance and undesirable cultural norms within organisations go unchallenged. For example, harsh quarterly financial targets or perverse incentives to generate value can create toxic environments. </p>
<p>Beyond the organisation, excessive regulatory expectations can have negative effects as well. For the participants in our study, rules that were perceived to be unwieldy sometimes perversely triggered the opposite behaviours to those intended. For example, one inmate said that he and his colleagues sought a practical work around in response to the mounting regulatory expectations which they saw as unmanageable.</p>
<p>Blaming bad behaviour and reputational damage solely on individuals is typically more convenient for organisations. It can also be an attractive way for media to report on an event – <a href="https://www.bbc.co.uk/news/business-65313822">sensational stories</a> of <a href="https://news.sky.com/story/dominic-raab-bullying-report-into-deputy-prime-minister-handed-to-number-10-12855631">people self-destructing</a> sell well.</p>
<p>But the reality is that individual, organisational and societal factors all contribute to professional misconduct and reputation loss.</p>
<h2>Rebuilding reputations</h2>
<p>There are many ways that the reputations of people and organisations can suffer in the eyes of those around them – whether that’s co-workers, family and friends or shareholders, employees and customers. </p>
<p>For a person, this could include being reprimanded at work, being made redundant, or acting inappropriately. For organisations, it could be treating staff poorly, incentivising perverse behaviours or breaching codes of conduct. P&O’s sacking of 800 of its crew members via video message is <a href="https://news.sky.com/story/p-o-ferries-sackings-replacing-workers-with-1-80-an-hour-agency-staff-illegal-says-tuc-head-frances-ogrady-12572552">a great example</a> of the actions of leaders being at odds with the expectations of other corporate groups including employees, customers, shareholders and the public.</p>
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Read more:
<a href="https://theconversation.com/pando-ferries-how-some-companies-can-afford-to-break-the-law-180054">P&O Ferries: how some companies can afford to break the law</a>
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<p>An important part of recovery is when damaged individuals or organisations reconnect with these other, related parties. </p>
<p>Research into reputation distinguishes between character reputation and capability reputation. Both focus on past ethical conduct and performance. But given that both can also be shattered, particularly during severe reputation loss events, it’s more valuable to think about “contribution”. </p>
<p>This is when other groups or people believe the individual or organisation can provide future value. Frank Lampard’s <a href="https://www.football365.com/news/chelsea-praised-major-lampard-decision-agbonlahor-no-chance-stays">recent return</a> as interim manager of Chelsea Football club, despite his sacking two years earlier, shows the possibility of <a href="https://hbr.org/2007/01/firing-back-how-great-leaders-rebound-after-career-disasters">this kind of bounce back</a>.</p>
<p>Without making such a reconnection, it is difficult to anchor a recovery. And so the starting point of reputation recovery is identity recovery in the eyes of interested parties, whether that’s customers, employees, management or the general public.</p>
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<img alt="Person types on a laptop, superimposed images of smiley faces, stars and checkboxes." src="https://images.theconversation.com/files/522132/original/file-20230420-20-8u9msz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/522132/original/file-20230420-20-8u9msz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/522132/original/file-20230420-20-8u9msz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/522132/original/file-20230420-20-8u9msz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/522132/original/file-20230420-20-8u9msz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/522132/original/file-20230420-20-8u9msz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/522132/original/file-20230420-20-8u9msz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Reputation management.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/businesswoman-pressing-smiley-on-keyboard-laptop-1116947918">13_Phunkod/Shutterstock</a></span>
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<h2>Avoiding reputation loss</h2>
<p>And what about protecting reputation from damage in the first place? It’s important to avoid thinking that reputation always requires proactive management – it should not be safeguarded at all costs. </p>
<p>One way of thinking about reputation management is on a spectrum: on one end is passivity where you do not care about reputation. Social media, mass media and other coverage is inconvenient noise that can be ignored. </p>
<p>The risk with passivity is you become disconnected with how you think about yourself or your organisation and how others think. Over time that gulf can become a problem if you forget about the feelings of others. Another risk is that other people can take control of your narrative, which can reach a point of no return when whatever you say or do will not persuade people to think differently about who you are. </p>
<p>At the other end of the spectrum is the dark side of reputation management. This is an obsessiveness that can see individuals and organisations become consumed by what others think and contribute to bad judgment. </p>
<p>Think of the incredible hype and media attention surrounding the disastrous <a href="https://www.bbc.co.uk/news/newsbeat-46904445">Fyre festival</a> or the supposedly revolutionary Theranos blood testing device <a href="https://www.businessinsider.com/theranos-founder-ceo-elizabeth-holmes-life-story-bio-2018-4?r=US&IR=T">that never worked</a>. Both these businesses failed catastrophically and their founders were convicted of fraud.</p>
<p>The key to reputation management therefore, is to be sufficiently proactive without becoming obsessively self-centred in how you present yourself and your organisation to others. While reputation deserves our attention, it should not be the sole focus of our attention or safeguarded at all costs. Reputation is not only about our organisation, ourselves or our narrow set of stakeholders, but our wider responsibility to groups, societies and our planet.</p><img src="https://counter.theconversation.com/content/202918/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Will Harvey does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A reputation is worth safeguarding but not at all costs.Will Harvey, Professor of Leadership and Education Director at the University of Bristol Business School, University of BristolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1773142022-05-26T12:26:58Z2022-05-26T12:26:58ZHow ‘gate’ became the syllable of scandal<figure><img src="https://images.theconversation.com/files/464833/original/file-20220523-18-ecjk98.jpg?ixlib=rb-1.1.0&rect=2239%2C0%2C4615%2C3113&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A view of the Watergate complex in Washington, D.C.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/view-of-the-watergate-complex-from-the-balcony-at-rise-news-photo/489740234?adppopup=true">John McDonnell/The Washington Post via Getty Images</a></span></figcaption></figure><p>On June 17, 1972, Washington, D.C., police arrested five men for breaking into the headquarters of the Democratic National Committee. Although the administration’s press secretary, Ron Ziegler, dismissed the crime as a “<a href="https://www.nytimes.com/2003/02/11/us/ron-ziegler-press-secretary-to-nixon-is-dead-at-63.html">third-rate burglary</a>,” its scope would grow to consume Richard Nixon’s presidency and then <a href="https://theconversation.com/how-richard-nixons-obsession-with-daniel-ellsberg-and-the-pentagon-papers-sowed-the-seeds-for-the-presidents-downfall-159113">bring it to an end 26 months later</a>.</p>
<p>As with other infamous episodes, such as the <a href="https://www.nytimes.com/1924/08/07/archives/davis-sees-in-oil-big-campaign-issue-says-in-answer-to-butler.html?searchResultPosition=10">Teapot Dome</a> scandal or the <a href="https://www.nytimes.com/1969/07/20/archives/woman-passenger-killed-kennedy-escapes-in-crash-senator-tells-the.html?searchResultPosition=9">Chappaquiddick</a> tragedy, the event would come to be known by the place where it occurred. </p>
<p>But unlike those two precedents, the Watergate Office Building would be immortalized as the catchall term for political scandal.</p>
<p>“Watergate,” in this context, is an example of <a href="https://www.oed.com/public/gatesuffix/the-gate">metonymy</a>. A part – the site of the break-in – comes to stand for the larger whole: the illegal acts committed by Nixon’s administration, as well as the subsequent investigation into them.</p>
<p>Metonymy is a common way in which English is fortified with new vocabulary – think of “the Pentagon” as a stand-in for the U.S. military, or “Hollywood” as a way to refer to the motion picture industry.</p>
<p>What’s unusual about Watergate is that one syllable <a href="https://www.google.com/books/edition/Concise_Encyclopedia_of_Semantics/3_1snsgmqU8C?hl=en&gbpv=1&dq=concise+encyclopedia+of+semantics+%22splinters+become+morphemes%22&pg=PA630&printsec=frontcover">splintered off</a> to become the universally recognized designator for political malfeasance. When boozy government-sponsored parties that broke COVID-19 lockdown rules came to light in the U.K., the scandal quickly became known as “<a href="https://apnews.com/article/boris-johnson-london-government-and-politics-3661df0855d575186e958ec0d10a8537">partygate</a>.” But the syllable has also migrated beyond politics, becoming a tag for wrongdoing of virtually any kind.</p>
<p><a href="https://www.jstor.org/stable/455924?seq=1#metadata_info_tab_contents">Other splinters</a> have also been pressed into service to create new words. For example, “-athon,” from “marathon,” can emphasize an event’s long duration – telethon, dance-a-thon, and hackathon. Similarly, “-aholic,” from “alcoholic,” denotes an addiction: shopaholic, workaholic, sexaholic.</p>
<p>But in terms of sheer productivity, “-gate” has no peer. Wikipedia’s list of -gates has <a href="https://en.wikipedia.org/wiki/List_of_%22-gate%22_scandals_and_controversies">over 260 entries</a>. </p>
<p>During its remarkable career, it has often been wielded as a linguistic cudgel, and few other four-letter strings have such power to stigmatize and to demonize.</p>
<h2>The early years</h2>
<p>A year after the Watergate break-in, the humor magazine National Lampoon referenced “<a href="https://www.cjr.org/analysis/gate_keepers.php">Volgagate</a>” – a fictitious Russian scandal – in its August 1973 issue. This seems to have been the first use of -gate as a generic label for a political scandal.</p>
<p>A month later, Newsweek characterized a scheme to peddle cheap Bordeaux as “<a href="https://www.merriam-webster.com/words-at-play/gate-suffix-scandal-word-history">Winegate</a>.” Its extension to viniculture suggested that -gate might have a life outside of politics.</p>
<p>But the real popularizer of -gate was William Safire, Nixon’s former speechwriter. As a conservative political columnist with The New York Times for over 30 years, Safire created or promoted many such terms. These included <a href="https://www.nytimes.com/1980/07/21/archives/essay-none-dare-call-it-billygate.html?searchResultPosition=1">Billygate</a>, <a href="https://www.nytimes.com/1977/08/11/archives/lancegate.html?searchResultPosition=1">Lancegate</a> and <a href="https://www.nytimes.com/1983/10/06/opinion/essay-briefingate-phase-ii.html?searchResultPosition=1">Briefingate</a> to describe scandals that emerged during Jimmy Carter’s presidency. He also popularized <a href="https://www.jstor.org/stable/pdf/42578225.pdf">Travelgate</a> and <a href="https://www.nytimes.com/1994/03/03/opinion/essay-whitewater-cover-up.html?searchResultPosition=1">Whitewatergate</a> during the Clinton years.</p>
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<img alt="Man in suit talks on phone." src="https://images.theconversation.com/files/465155/original/file-20220524-25-olohkh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/465155/original/file-20220524-25-olohkh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=421&fit=crop&dpr=1 600w, https://images.theconversation.com/files/465155/original/file-20220524-25-olohkh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=421&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/465155/original/file-20220524-25-olohkh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=421&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/465155/original/file-20220524-25-olohkh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=528&fit=crop&dpr=1 754w, https://images.theconversation.com/files/465155/original/file-20220524-25-olohkh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=528&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/465155/original/file-20220524-25-olohkh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=528&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">After Nixon resigned, his former speechwriter, William Safire, deployed ‘gate’ as a suffix to describe various scandals that engulfed the Democratic Party.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/this-is-a-photograph-of-william-safire-president-nixons-news-photo/515395986?adppopup=true">Bettmann/Getty Images</a></span>
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<p>These episodes didn’t rise to the seriousness of Watergate, of course. But by making them into -gates, Safire was implying that Democrats could be <a href="https://www.theatlantic.com/politics/archive/2014/01/-gate-or-ghazi-toward-unified-theory-scandal-naming/357053/">just as corrupt</a> as Republicans.</p>
<p>Apart from Safire’s inventions, few episodes from the 1970s to the 1990s were referred to as -gates. Only about 10% of the terms on Wikipedia’s list date from the 20th century. Even major political scandals of the period only occasionally received this epithet.</p>
<p>Consider the Reagan administration’s <a href="https://www.history.com/topics/1980s/iran-contra-affair">scheme</a> to use Iranian arm sales to fund the Nicaraguan Contras. All the attributes for a Watergate-style comparison were present: illegal activity, conspiracy and an attempted cover-up.</p>
<p>Despite this, The New York Times referred to the episode as “<a href="https://www.nytimes.com/1986/12/12/opinion/in-the-nation-two-different-gates.html?searchResultPosition=1">Reagangate</a>” just twice, “<a href="https://www.nytimes.com/1987/01/04/magazine/on-language.html?searchResultPosition=4">Contragate</a>” only 11 times and “<a href="https://www.nytimes.com/1987/08/09/opinion/how-irangate-differs-from-watergate.html?searchResultPosition=1">Irangate</a>” about 100 times. In contrast, the paper used the phrase “<a href="https://www.nytimes.com/1987/01/11/opinion/the-ifancontra-uproar-a-travesty.html?searchResultPosition=30">Iran-Contra</a>” nearly <a href="https://www.nytimes.com/search?query=%22iran-contra%22">6,000 times</a> in its coverage.</p>
<h2>Opening the ‘flood-gates’</h2>
<p>In the new millennium, however, -gate became totally unmoored from politics. </p>
<p>It has been employed to describe kerfuffles in <a href="https://www.theatlantic.com/entertainment/archive/2014/11/watergate-gamergate-and-the-evolution-of-language/382276/">almost every field</a> of human endeavor – sports (<a href="https://www.nytimes.com/article/astros-cheating.html">Astrogate</a>), journalism (<a href="https://www.salon.com/2015/10/17/rathergate_and_the_dark_magic_of_2004_when_the_gop_learned_how_to_subvert_truth_and_alter_political_reality/">Rathergate</a>), technology (<a href="https://www.cultofmac.com/492086/today-apple-history-antennagate-consumer-reports/">Antennagate</a>) and entertainment (<a href="https://www.nytimes.com/2019/03/29/opinion/janet-jackson.html?searchResultPosition=11">Nipplegate</a>).</p>
<p>Already in 2022, hashtags referring to a number of events – such as <a href="https://twitter.com/search?q=slapgate&src=typed_query&f=top">#slapgate</a> and <a href="https://twitter.com/search?q=%23lettergate&src=typed_query">#lettergate</a> – have trended on Twitter. </p>
<p>For those who value precision in language, this as a problem – because if everything is a scandal, then nothing is.</p>
<p>Consider “<a href="https://www.theguardian.com/world/2015/apr/22/new-zealand-prime-minister-john-key-apologises-for-pulling-waitresss-hair">Ponytailgate</a>.” In 2015, New Zealand’s prime minister, over a period of several months, repeatedly tugged on the ponytail of a young café waitress. He persisted despite repeated requests from both the waitress and the prime minister’s wife that he stop. Such behavior is boorish at best. </p>
<p>But does it belong in the same category as events involving corruption, a conspiracy, or a cover-up?</p>
<h2>A pleasing sounding suffix</h2>
<p>It may be that -gate is used because nothing better has come along. Replacement terms have enjoyed only limited popularity.</p>
<p>The splinter “<a href="https://www.theatlantic.com/politics/archive/2014/01/how-to-name-a-scandal-what-is-a-nbsp-gate-and-what-is-a-ghazi/283104/">-ghazi</a>” arose in reference to the 2012 attack on the U.S. diplomatic post in Benghazi, Libya. It was occasionally deployed against the Obama administration. For example, when President Obama wore a <a href="https://www.mrporter.com/en-ch/journal/fashion/president-obama-tan-suit-summer-style-one-memorable-look-1342176">tan suit</a> to a press conference, “<a href="https://www.theatlantic.com/politics/archive/2014/08/no-one-heard-anything-obama-just-said-because-his-tan-suit-was-so-loud/379321/">Beigeghazi</a>” was born. But -ghazi probably failed as a suffix for scandal because it was too much of a mouthful.</p>
<p>This can be seen in the 2014 debate over what to call former New Jersey Gov. Chris Christie’s <a href="https://www.nytimes.com/2016/11/04/nyregion/george-washington-bridge-scandal-what-you-need-to-know.html">lane closure scandal</a>. Should it be “Bridgeghazi” or “Bridgegate” – or even “<a href="http://www.slate.com/articles/news_and_politics/low_concept/2014/01/bridgegate_or_bridgeghazi_chris_christie_s_bridge_scandal_needs_a_name.html">Bridgeaquiddick</a>”? </p>
<p><a href="https://www.nytimes.com/2020/01/14/us/supreme-court-bridgegate.html">Bridgegate</a> won out – undoubtedly because it was shorter and simpler. Resonance also seems to apply for other scandals: “<a href="https://www.nytimes.com/2016/03/04/sports/deflategate-appeal-tom-brady-roger-goodell.html?searchResultPosition=47">Deflategate</a>” simply sounds better than “<a href="https://augustafreepress.com/ballghazi-deflategate/">Ballghazi</a>” as a name for the New England Patriots football scandal.</p>
<h2>One size fits all?</h2>
<p>Not content with its domination of English, -gate has also wormed its way <a href="https://www.asc.ohio-state.edu/joseph.1/publications/1992gate.pdf">into other languages</a>, such as German, Serbo-Croatian, Greek and <a href="https://www.jstor.org/stable/pdf/455461.pdf">Hungarian</a>.</p>
<p>But like most successful trends, the widespread use of -gate has engendered <a href="https://www.washingtonpost.com/lifestyle/style/we-cant-have-a-scandal-without-the--gate/2012/06/10/gJQAfUBNTV_story.html">significant backlash</a>. As with Ponytailgate, many of these coinages fail to differentiate the mundane from the momentous. This invites accusations of <a href="https://www.thenewsminute.com/article/should-journalists-stop-using-gate-reference-every-scandal-21357">journalistic laziness</a>, in which events are merely lumped together rather than analyzed.</p>
<p>In addition, overuse has transformed -gate constructions from the somewhat clever coinages of Safire’s day into the <a href="https://www.chicagotribune.com/news/ct-xpm-2012-05-29-ct-talk-gate-words-manker-0529-20120529-story.html">tired clichés</a> of today. It can also be difficult to tell when a -gate construction <a href="https://mitpress.mit.edu/books/irony-and-sarcasm">is intended ironically</a>, which makes interpretation difficult. </p>
<p>Finally, sometimes shorthand is just too short. “Reagangate” may have failed as a label for Iran-Contra because it wasn’t specific enough. The term could have referred to any of <a href="https://apnews.com/article/9255cf25155fca5abdd58d94388d3e60">several different episodes</a> during Reagan’s eight-year administration.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/465154/original/file-20220524-16-d3848s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Football player signs ball in end zone." src="https://images.theconversation.com/files/465154/original/file-20220524-16-d3848s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/465154/original/file-20220524-16-d3848s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=885&fit=crop&dpr=1 600w, https://images.theconversation.com/files/465154/original/file-20220524-16-d3848s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=885&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/465154/original/file-20220524-16-d3848s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=885&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/465154/original/file-20220524-16-d3848s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1112&fit=crop&dpr=1 754w, https://images.theconversation.com/files/465154/original/file-20220524-16-d3848s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1112&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/465154/original/file-20220524-16-d3848s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1112&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Terrell Owens, during an October 2002 Monday Night Football game, took a Sharpie out of his sock to sign a football after scoring a touchdown.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/san-francisco-49ers-wide-receiver-terrell-owens-signs-a-news-photo/83697304?adppopup=true">Tami Tomsic/Getty Images</a></span>
</figcaption>
</figure>
<p>At the other extreme, the same -gate has been applied to very different controversies. “Sharpiegate” referred to Terrell Owens’ <a href="https://www.sfgate.com/sports/article/The-pen-is-mightier-than-49ers-as-long-as-it-s-2762064.php">signing of a football</a> in 2002. But it was also trotted out for President Donald Trump’s <a href="https://www.theguardian.com/us-news/2019/sep/05/trump-hurricane-dorian-alabama-map-sharpiegate">edit of a map</a> of Hurricane Dorian’s path in 2019. And in 2020, it became associated with <a href="https://www.reuters.com/article/us-usa-election-arizona-sharpie/sharpiegate-allegations-fuel-unproven-claims-of-voter-fraud-in-arizona-idUSKBN27K2QO">allegations of ballot fixing</a> in Arizona.</p>
<p>But even half a century later, -gate is still finding gainful employment in politics. It was used, for example, to tag several Trump scandals, <a href="https://foreignpolicy.com/2019/09/25/why-ukrainegate-is-nothing-like-russiagate-trump/">from Russiagate to Ukrainegate</a>. And President Joe Biden has had to contend with <a href="https://lavocedinewyork.com/en/news/2021/08/22/is-this-a-kabulgate-government-accountability-and-a-story-that-wont-add-up/">Kabulgate</a> and <a href="https://twitter.com/search?q=%23formulagate&src=typed_query&f=top">#formulagate</a>.</p>
<p>No president has resigned since Nixon, arguably in the face of <a href="https://www.politico.com/magazine/story/2018/02/01/46-political-scandals-that-were-worse-than-watergate-216923/">worse scandals</a> than Watergate. </p>
<p>As with the wear and tear on an overused suffix, one has to wonder: Have voters become numb to political scandal, too?</p><img src="https://counter.theconversation.com/content/177314/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Roger J. Kreuz does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Many of the coinages fail to differentiate the mundane from the momentous. Has the suffix’s overuse rendered it essentially meaningless?Roger J. Kreuz, Associate Dean and Professor of Psychology, University of MemphisLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1762702022-03-10T11:14:01Z2022-03-10T11:14:01ZWhy big firms are rarely toppled by corporate scandals – new research<figure><img src="https://images.theconversation.com/files/450729/original/file-20220308-23-ibsoam.jpg?ixlib=rb-1.1.0&rect=53%2C29%2C3940%2C2634&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/modern-corporate-buildings-skyscrapers-city-london-1599442681">Shutterstock/Donatas Dabravolskas</a></span></figcaption></figure><p>Everyone makes mistakes. And that includes the world’s biggest companies, which are reliably prone to gaffes, errors of judgment and wrongdoing. </p>
<p>Some of these moments could even be labelled as corporate scandals – the kind of incident which shoves firms into the spotlight and places their activities under detailed public scrutiny. </p>
<p>But do these events do lasting damage? Does an oil spill, fraudulent activity or other unethical behaviour really affect highly valued reputations, sales and market value?</p>
<p>Our research suggests not. In fact, <a href="https://onlinelibrary.wiley.com/doi/10.1111/1467-8551.12365">our analysis</a> of the effects of a wide variety of business scandals shows that only rarely is the effect as severe as we might imagine. </p>
<p>Instead, it seems the public has a strong tendency to forget and move on. And even initial unplanned (and at the time unwanted) attention can lead to greater brand awareness, proving the old adage that any publicity is good publicity.</p>
<p>Take the recent <a href="https://news.sky.com/story/joe-rogan-and-spotify-who-is-the-us-podcaster-and-what-is-the-covid-misinformation-row-all-about-12529388">furore over Spotify</a>. In early 2022, the world’s largest music streaming service was accused by science and health professionals of offering a platform for misinformation about COVID.</p>
<p>So what happened next? At first, there was a dip in the stock market price <a href="https://www.businessinsider.com/spotifys-shares-dropped-by-12-after-neil-young-pulls-music-2022-1?r=US&IR=T">of about 12% </a> when artists including Neil Young, Joni Mitchell and Graham Nash announced they were withdrawing their music from the service. This financial hiccup was followed by an immediate <a href="https://theweek.com/coronavirus/1009616/spotify-stock-rebounds-after-joe-rogan-apology">stock price rebound </a> that is likely to climb beyond pre-scandal levels. Spotify went on to <a href="https://www.independent.co.uk/news/world/americas/spotify-joe-rogan-podcast-covid-label-misinformation-b2003821.html">add disclaimers</a> to its COVID-related content and removed some content. </p>
<p>So in the long term, this will probably turn out to be nothing more than a slight bump in the road for Spotify. As a business, it provides a hugely popular service and boasts 172 million premium subscribers around the world, 28 million of whom joined in 2020. How many of them will cancel their subscriptions and forgo access to their carefully curated playlists because Young and Mitchell have decided to walk?</p>
<p>And while it is true that the company’s business model relies on musicians and other content providers, the reality is that most artists cannot afford to not be on the platform. Giving Spotify the benefit of the doubt, it’s entirely possible it made an honest mistake and underestimated how sensitive some people have become to discussions about the pandemic. Customers will probably make peace with this. </p>
<p>Likewise, Netflix will doubtlessly survive recent controversies over some of its content, such as the British comedian <a href="https://www.theguardian.com/culture/2022/feb/04/jimmy-carr-condemned-for-joke-about-gypsies-in-netflix-special">Jimmy Carr’s comments</a> about the Holocaust. With so many subscribers around the world attracted by the service’s wide range of content, Netflix is another example of an industry giant that can shrug things off. </p>
<p>And remember <a href="https://www.cbsnews.com/news/facebook-stock-price-recovers-all-134-billion-lost-in-after-cambridge-analytica-datascandal/">Facebook’s market collapse</a> after it was linked to the personal data of millions of users being collected by the political consulting firm Cambridge Analytica? Don’t feel bad if you don’t, it lasted about seven seconds (OK, maybe seven days). The company then recovered <a href="https://www.cbsnews.com/news/facebook-stock-price-recovers-all-134-billion-lost-in-after-cambridge-analytica-datascandal/">all of the US$134 billion</a> (£102 billion) it had previously lost in market value.</p>
<h2>Law and disorder</h2>
<p>So what makes some scandals stick? In our research, we found that only certain scandals tend to have significant negative effects on corporate reputations and performance. One apparently vital element is a company being found liable in a court of law. The legal process gives weight and depth to a scandal that might otherwise have quickly disappeared.</p>
<p>The <a href="https://www.bbc.co.uk/news/business-34324772">Volkswagen emissions scandal</a> for example, started in 2015. Seven years later, the company is still negotiating settlements in class action lawsuits brought against it for cheating on emissions tests. </p>
<figure class="align-center ">
<img alt="The Royal Courts of Justice in London." src="https://images.theconversation.com/files/450756/original/file-20220308-27-19gyrvm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/450756/original/file-20220308-27-19gyrvm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=407&fit=crop&dpr=1 600w, https://images.theconversation.com/files/450756/original/file-20220308-27-19gyrvm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=407&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/450756/original/file-20220308-27-19gyrvm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=407&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/450756/original/file-20220308-27-19gyrvm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=512&fit=crop&dpr=1 754w, https://images.theconversation.com/files/450756/original/file-20220308-27-19gyrvm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=512&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/450756/original/file-20220308-27-19gyrvm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=512&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">It’s the court that counts.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/royal-courts-justice-london-136279025">Shutterstock/chrisdorney</a></span>
</figcaption>
</figure>
<p>The company’s share price dropped 30% immediately <a href="https://money.cnn.com/2015/09/24/investing/volkswagen-vw-emissions-scandal-stock/">after the scandal</a> (it has improved since the move towards electric vehicles) and Volkswagen’s reputation is still tarnished by the event, as it continues to attract significant regulatory scrutiny, affecting its <a href="https://www.morningstar.co.uk/uk/news/216954/stock-of-the-week-volkswagen.aspx">status among investors</a>. </p>
<p>Similarly, years after being found responsible for the <a href="https://www.epa.gov/enforcement/deepwater-horizon-bp-gulf-mexico-oil-spill">Deepwater Horizon disaster</a> in the Gulf of Mexico in 2010, BP is still paying the price of its negligence, as it continues to be embroiled in <a href="https://www.reuters.com/legal/transactional/5th-circuit-revives-bps-fight-over-deepwater-cleanup-workers-claims-2022-01-20/">many lawsuits</a>. And following regulatory intervention, German financial services provider Wirecard is not even around anymore to tell the story of how €1.9 billion (£1.6 billion) <a href="https://www.cnbc.com/2020/06/29/enron-of-germany-wirecard-scandal-casts-a-shadow-on-governance.html">disappeared from its balance sheet</a>. </p>
<p>Yet without corporate culpability determined by the court of law, very few accusations stick, even in the face of media scrutiny. Without clear evidence of harm caused to a group of people, there is very little in the way of measurable negative impact, or demand for compensation for the damage caused. </p>
<p>As consumers, we often like to signal moral superiority and enjoy some of the drama provided by the corporate discomfort of a juicy scandal. But our research found that people’s response to a company is driven by more mundane considerations. These are price, convenience, loyalty, ease of use and habit – and there aren’t many scandals considered quite scandalous enough to make us change any of those.</p><img src="https://counter.theconversation.com/content/176270/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Irina Surdu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The mud rarely sticks.Irina Surdu, Associate Professor of International Business Strategy, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1657882021-08-24T12:17:03Z2021-08-24T12:17:03ZCorporate directors don’t see stopping wayward CEOs as their job – contrary to popular belief<figure><img src="https://images.theconversation.com/files/417478/original/file-20210823-16-16kt99b.jpg?ixlib=rb-1.1.0&rect=49%2C74%2C8194%2C5413&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The realities of a boardroom are different than what many people assume. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/conference-table-in-meeting-room-royalty-free-image/1278042768">xu wu/Moment via Getty Images</a></span></figcaption></figure><p>In December 2001, Enron Corp. <a href="https://www.investopedia.com/updates/enron-scandal-summary/">collapsed into bankruptcy</a> – at the time the biggest U.S. publicly traded company to ever do so – following years of fraudulent accounting. Two decades later, Theranos CEO Elizabeth Holmes <a href="https://www.businessinsider.com/the-history-of-silicon-valley-unicorn-theranos-and-ceo-elizabeth-holmes-2018-5">faces criminal charges</a> that she defrauded investors as she built her blood-testing startup. </p>
<p>In both cases, the companies’ respective boards of directors <a href="https://www.govinfo.gov/content/pkg/CPRT-107SPRT80393/pdf/CPRT-107SPRT80393.pdf">have been blamed</a> for <a href="https://www.forbes.com/sites/groupthink/2016/04/27/the-theranos-crisis-where-was-the-board/?sh=6b0e8272c58e">allowing misdeeds</a> to happen – or not doing more to prevent them. </p>
<p>That’s because boards are <a href="https://www.weil.com/%7E/media/files/pdfs/150154_pcag_board_requirements_chart_2015_v21.pdf">broadly seen by regulators</a>, <a href="https://theconversation.com/corporate-boards-are-supposed-to-oversee-companies-but-often-turn-a-blind-eye-118162">governance experts</a>, lawmakers, newspaper reporters and the public as the main body meant to hold senior executives accountable. Legally, their role as overseers is baked into the <a href="https://www.investopedia.com/terms/s/sarbanesoxleyact.asp">Sarbanes-Oxley Act</a>, which is the most recent major legislation targeted at boards, and written into the <a href="https://www.nyse.com/publicdocs/nyse/listing/NYSE_Corporate_Governance_Guide.pdf">guidelines of major stock markets like the New York Stock Exchange</a>. </p>
<p>It may come as a surprise, then, that board members view their role very differently. </p>
<h2>Inside the boardroom</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/417496/original/file-20210824-15-1l46aar.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Two men – one carrying a bag, another a portfolio – are walking and appear to be talking toward another man who is standing and looking at them with folded hands." src="https://images.theconversation.com/files/417496/original/file-20210824-15-1l46aar.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/417496/original/file-20210824-15-1l46aar.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=569&fit=crop&dpr=1 600w, https://images.theconversation.com/files/417496/original/file-20210824-15-1l46aar.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=569&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/417496/original/file-20210824-15-1l46aar.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=569&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/417496/original/file-20210824-15-1l46aar.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=715&fit=crop&dpr=1 754w, https://images.theconversation.com/files/417496/original/file-20210824-15-1l46aar.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=715&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/417496/original/file-20210824-15-1l46aar.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=715&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Former Enron CEO Jeffrey Skilling, right, and founder Kenneth Lay, center, became household names after the company collapsed in 2001.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/ENRONLAYSKILLING/5857231a49e3da11af9f0014c2589dfb/photo?Query=enron&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=97&currentItemNo=85">AP Photo/David J. Phillip</a></span>
</figcaption>
</figure>
<p>I <a href="https://mays.tamu.edu/directory/sboivie/">have been studying executives</a> and corporate governance for nearly 20 years. I have always been fascinated by boards of directors and wanted to better understand what they actually do, as well as whether they approach their jobs the same way external observers believe they should.</p>
<p>But <a href="https://doi.org/10.5465/19416520.2016.1120957">most research on boards</a> has relied on assumptions about what directors believe. And those assumptions have been shaped by <a href="https://www.doi.org/10.1257/jel.48.1.58">agency theory</a>.</p>
<p>Agency theory stresses that there is always a risk of managers being self-interested and using a company’s resources to enrich themselves. Because of this risk, scholars have long assumed that directors need to exercise careful oversight and control over their decisions. </p>
<p>The problem is, scholars weren’t asking directors what they actually believe their role is. </p>
<p>In a <a href="https://doi.org/10.1002/smj.3320">new study</a> with fellow management professors <a href="https://mays.tamu.edu/directory/mwithers/">Mike Withers</a>, <a href="https://www.terry.uga.edu/directory/management/scott-d-graffin.html">Scott Graffin</a> and <a href="https://wpcarey.asu.edu/people/profile/825483">Kevin Corley</a>, I conducted extensive interviews with 48 corporate directors – some of whom were also executives at other companies. For the study, we also interviewed two executives who have never served as directors. </p>
<p>The directors we interviewed sit on the boards of more than 140 different companies – both large and small – in pretty much every industry. Some of them were veterans with nearly 30 years of corporate director experience behind them, while others were relative newbies serving on their very first board. </p>
<p>The interviews resulted in more than 1,000 transcribed pages, which we coded and analyzed, in the most extensive data collection effort involving corporate boards in <a href="https://www.jstor.org/stable/4164980">over 30 years</a>. </p>
<h2>Supporting CEOs</h2>
<p>Our overarching finding was that directors generally said they viewed their jobs as primarily supporting managers, not monitoring them. In fact, we were surprised by just how uniform this sentiment was among directors, regardless of demographics like gender or time spent on a board. </p>
<p>In practice, this means they rarely seek to vote down management decisions. Rather, directors seek to become partners with executives and provide input and improve decision-making. Many directors said that the best way to protect shareholder value or help their company thrive was by collaborating with the chief executive officer. </p>
<p>“To be a board of directors, in my mind, you’ve (got) to understand where management is coming from,” one of our interviewees said. “But your job is to ask a lot of questions and focus what they are telling you and not to step into the role of management.”</p>
<p>When we asked about monitoring the work of CEOs and other executives, most of the directors said it wasn’t possible to do this effectively – even if they wanted to. Our interviewees said this is because of the simple fact that CEOs know a lot more about their company than the directors do. </p>
<figure class="align-center ">
<img alt="Elizabeth Holmes gestures as she speaks at a conference." src="https://images.theconversation.com/files/417499/original/file-20210824-19-1yc9sjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/417499/original/file-20210824-19-1yc9sjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=395&fit=crop&dpr=1 600w, https://images.theconversation.com/files/417499/original/file-20210824-19-1yc9sjs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=395&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/417499/original/file-20210824-19-1yc9sjs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=395&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/417499/original/file-20210824-19-1yc9sjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=497&fit=crop&dpr=1 754w, https://images.theconversation.com/files/417499/original/file-20210824-19-1yc9sjs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=497&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/417499/original/file-20210824-19-1yc9sjs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=497&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Some critics blamed the Theranos board for not conducting sufficient oversight over Elizabeth Holmes, the founder who faces criminal charges of fraud and conspiracy.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/Theranos-Holmes/9ad9c1f9928344709708cb6145b15c04/photo?Query=theranos&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=42&currentItemNo=1">AP Photo/Jeff Chiu</a></span>
</figcaption>
</figure>
<p>When we pushed directors on this point, they confessed that they do not even want to monitor the CEO. We interpreted their view as basically: Either trust the chief executive officer and give him or her your total support, or fire the CEO and hire someone you can trust. </p>
<p>“You don’t go back to … the CEO, and say, ‘You know what, that strategy is wrong. We’d like you to do this strategy.’ That’s not what you’re paying him for,” one director told us. “You’re paying him to make the decisions. And if he is consistently making wrong decisions, you find somebody else to make the decisions.”</p>
<p>Our other main finding was that directors tend to see their jobs as a form of service, even though they get paid as well. That is, they said they feel like they are giving back by serving on corporate boards.</p>
<p>“It’s a way to engage and serve, and learn about different industries and businesses,” one director said. “It’s rewarding to be able to take things that you’ve learned over many years and apply them.” </p>
<p>Our interviews suggest that this feeling of service makes them unwilling to tolerate conflict or tension in the boardroom.</p>
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<h2>Realistic expectations</h2>
<p>When a <a href="https://www.globalbankingandfinance.com/is-the-board-to-blame/">company runs aground</a> or <a href="https://qz.com/1015378/dont-just-blame-travis-kalanick-blame-ubers-complicit-board/">faces scandal</a>, <a href="https://www.businessinsider.com/directors-and-blame-where-does-the-fault-lie-2012-6">investors</a>, workers, <a href="https://hbr.org/2016/05/boards-arent-the-right-way-to-monitor-companies">local politicians</a> and <a href="https://www.latimes.com/business/story/2020-01-03/boeing-board-bad-management">others</a> with a stake in its operation often look for <a href="https://www.linkedin.com/pulse/failure-company-always-boards-fault-anbu-ganapathi-muppidathi/">someone to blame</a>. That someone is <a href="https://fortune.com/2017/04/14/wells-fargo-fake-accounts-2/">usually the company’s board of directors</a>. </p>
<p>But our study shows investors and regulators need to reconcile their expectations of directors with the realities of the boardroom. A board’s ability to monitor for fraud, corruption or other problems is limited at best, especially given the information gap between managers and boards. And since directors say they see their role as helping CEOs increase profits, it seems unlikely to expect them to clash with executives over how they go about it. </p>
<p>If investors or others believe companies need oversight, they’ll probably need to do it themselves.</p><img src="https://counter.theconversation.com/content/165788/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Boivie does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A new study involving extensive interviews with dozens of directors shows that they see their roles as more about supporting executives, not challenging them.Steven Boivie, Professor of Management, Texas A&M UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1067322018-11-13T14:52:58Z2018-11-13T14:52:58ZBook on Steinhoff’s demise shows danger of ‘big men’ business leaders<figure><img src="https://images.theconversation.com/files/245272/original/file-20181113-194513-10hvmnj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Steinhoff CEO Markus Jooste was an excessively dominant, forceful and feared boss. </span> <span class="attribution"><span class="source">shutterstock</span></span></figcaption></figure><p>The <a href="https://www.sowetanlive.co.za/business/2017-12-07-steinhoff-share-price-continues-to-fall/">collapse</a> of Steinhoff International, the multi-billion dollar global business group, has been rightly described as the biggest corporate scandal in South African history. </p>
<p>The company’s history, and its subsequent evolution and demise, are skillfully told in a <a href="https://www.amazon.com/Steinhoff-inside-biggest-corporate-crash-ebook/dp/B07FT9KPG7">new book</a> <em>Steinhoff: Inside SA’s Biggest Corporate Crash</em>, by former journalist James-Brent Styan. It is the story of a bold vision and ambition, entrepreneurial grit and guile, continuous innovation, relentless risk-taking, corporate hubris, and friendship betrayals.</p>
<p>The extraordinary way in which Steinhoff grew from being a modest firm with a footprint only in Germany and South Africa to becoming a multinational behemoth straddling sectors such as furniture manufacturing, retail, logistics, consumer finance, building material, wood and vehicles with a global presence, is impressive.</p>
<p>In its pursuit of growth, Steinhoff employed a two-pronged strategy. The first focused on creating a low-cost manufacturing base. This enabled the business to supply products at cheap prices to its target market of lower-to-middle income groups. </p>
<p>The second pillar consisted of an aggressive acquisition of companies. A great deal of the acquisitions took place in European countries such as Germany, Poland and France but also extended to Australia, New Zealand, Britain and the US.</p>
<p>The acquisitions were costly and the conglomerate paid above the market value for the shares. The rapid spate of takeovers saw the group expand to 12 000 stores across the world, employing 130 000 people. Ultimately, Steinhoff became a fully vertically integrated enterprise – it was involved in all the value chain links from sourcing raw materials, to manufacturing and finally to distribution and sale of products.</p>
<h2>Shaky foundations</h2>
<p>At the pinnacle of its success, the international business giant became the darling of investors, asset managers, analysts and financial journalists. They all feted its expansion into new ventures and countries. But, as it later turned out, its success was built on shaky foundations epitomised by unfettered greed as well as dodgy and unethical practices, including alleged accounting irregularities, tax evasion and lax corporate standards.</p>
<p>The day before the Steinhoff group’s precipitous crash, the corporation was worth R193bn. On the following day, its market value was decimated by a staggering R117bn. Among the victims of the financial carnage were financial South African services giants Coronation Fund, Foord Asset Management, Sanlam, Investec, Liberty, Old Mutual, Allan Gray, Discovery and the Nedgroup. </p>
<p>The biggest losers were key investor and Pepkor chairman Christo Wiese (R37bn) and the Public Investment Corporation (R14bn), which manages the Government Employees Pension Fund. Overnight, millions of South Africans had lost billions of rands in pension funds.</p>
<p>The book encompasses a diverse range of themes and proffers a number important business lessons. Some bear mentioning.</p>
<h2>Lessons</h2>
<p>The case of Markus Jooste, then Steinhoff CEO, shows that the cult of personality and “Big Man” syndrome is as ubiquitous in the corporate world as it is in politics. He comes across as an excessively dominant, forceful and feared boss. He brooks no dissent and only those subordinates who obsequiously defer to him benefit from his extensive patronage. To the detriment of the business, his leadership style fostered an institutional culture of uncritical subservience and self-censorship. </p>
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<p>A recurring question in the book is: Despite occasional red flags how could the analysts, investors, asset managers, directors and the Johannesburg Securities Exchange have been oblivious to the wrongdoing at Steinhoff? </p>
<p>Part of the problem was the dominant view that the company could never go wrong. As long as the share price kept rising, and the good news kept flowing, there was nothing to worry about. There were, of course, some skeptical and dissenting voices, but they were too few to upend the prevailing consensus. </p>
<p>The crucial lesson here is that the share price is not the only indicator of corporate performance; fundamental governance issues are equally, if not more, important.</p>
<p>As Steinhoff’s global expansion accelerated, its business model and structure became more complicated. Some market analysts have argued that the firm’s increasingly complex structure, coupled with the group’s continual acquisitions, made it nearly impossible to analyse its books and to do year-on-year comparisons.</p>
<p>Even so, there was a belief that as long as strong, charismatic and venerated business personalities such as Jooste and Wiese, Steinhoff’s chairman at the time, were at the helm the business was in safe hands. This trust in Jooste and Wiese, as well as in management and directors, proved to be misplaced. As Warren Buffett has wisely <a href="https://www.gurufocus.com/news/127046/rule-number-one-dont-invest-in-something-you-dont-understand-">counselled</a>, never invest in something you don’t trust.</p>
<p>The Steinhoff board of directors, long viewed as one of the strongest and most dependable, has come under fierce criticism for failing to exercise its fiduciary duty. Describing the board, one fund manager stated that it was
“ineffective, not independent and was overwhelmed by Jooste’s strong personality”. </p>
<p>Criticism has also been directed at Deloitte, the firm that audited the company’s statements for 20 years, for disregarding the irregularities and the danger signs preceding the crash. It is this milieu that prompted an analyst to describe what happened at Steinhoff in the book as follows:</p>
<blockquote>
<p>It’s a buddy-buddy system, a bunch of people who know each other and have worked together for years. It strips them of their capacity to question things that don’t make sense. </p>
</blockquote>
<h2>Up there with the worst</h2>
<p>Styan must be commended for producing a cogently written and thoroughly researched book. In terms of its drama and catastrophic impact, the Steinhoff scandal is up there with the likes of Enron, Worldcom, Tyco, Freddie Mac, Bernie Madoff and other world infamous episodes of business malfeasance. As such, the book provides valuable insights and lessons that are universally applicable and comparable. It must be made compulsory reading in corporate boardrooms and business schools.</p><img src="https://counter.theconversation.com/content/106732/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mills Soko does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Steinhoff was the darling of investors, asset managers, analysts and financial journalists. But its success was built on shaky foundations.Mills Soko, Professor: International Business & Strategy, Wits Business School, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/941292018-04-08T10:11:47Z2018-04-08T10:11:47ZSteinhoff’s board behaved badly. Why it needs to be held to account<figure><img src="https://images.theconversation.com/files/213551/original/file-20180406-125177-pijet0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Shutterstock</span> </figcaption></figure><p>It’s becoming clearer by the day that the rot that caused the <a href="https://theconversation.com/did-steinhoffs-board-structure-contribute-to-the-scandal-89704">corporate scandal</a> at furniture retailing giant Steinhoff International goes much deeper than one man – the CEO Markus Jooste – who has come to represent the crisis. </p>
<p>The company is accused of overstating its earnings among other accounting irregularities in a case describe as an <a href="https://www.businesslive.co.za/bd/companies/retail-and-consumer/2017-12-18-how-investors-bought-into-the-steinhoff-success-story-despite-the-red-flags/">Enron type</a> company failure. </p>
<p>The accounting scandal, which caused a more than €10 billion collapse in Steinhoff’s share price, has focused blame on Jooste while executives around him have <a href="http://www.steinhoffinternational.com/downloads/2018/latest-results/Steinhoff%20trading%20update%20Q1%202018.pdf">dodged responsibility</a>. Surely Jooste could not change accounting entries without help?</p>
<p>The behaviour of the Steinhoff board, since the scandal exploded in December last year, confirms my early suspicions. The rot runs deeper. This is clear from the appalling manner in which the board has managed the unfolding crisis. It’s been four months since Steinhoff was enveloped by the accounting scandal. And there’s no resolution in sight, let alone a proper diagnosis. </p>
<p>The board has called an annual general meeting but the shareholders will not receive financial statements before the meeting. Naturally it is a legal obligation to call an annual general meeting, but similarly the publication of financial statements is also a legal obligation. </p>
<p>It’s really hard to imagine that a serving board of any company can claim that it had no insight in its financial affairs and trusted only in the judgement of the CEO. This makes the board redundant. Such a lack of insight must also be a breach of company law, as the legislation clearly states that the board is responsible for the financial statements.</p>
<p>And to add insult to injury the AGM’s agenda included a proposal for some directors to be paid an <a href="https://www.moneyweb.co.za/moneyweb-opinion/steinhoffs-proposed-extra-payments-to-directors-are-obscene/">additional amount</a>, ostensibly for extra effort in managing the crisis, that is to clean up their mess. Public pressure forced the company to <a href="https://businesstech.co.za/news/business/235893/steinhoff-shelves-plan-to-pay-director-bonuses/">withdraw</a> this strange remuneration proposal. Simply suggesting such a payment in the first place shows that the board members in question lack the required insight and intelligence to act at this level and to appreciate the depth of the crisis at hand.</p>
<h2>South Africa’s biggest corporate failure</h2>
<p><a href="http://www.steinhoffinternational.com/downloads/2018/library/2016/1/Annual%20report%202016_1.pdf">Steinhoff</a> grew out of South Africa to have a sizeable representation across sub-Saharan Africa, western Europe, Australasia and the US. At its peak it had amassed market valuation of about €20 billion with <a href="http://www.steinhoffinternational.com/downloads/2018/library/2016/1/Annual%20report%202016_1.pdf">revenue</a> of about €10 billion. About half of that market value was <a href="https://theconversation.com/steinhoff-scandal-points-to-major-gaps-in-stopping-unethical-corporate-behaviour-88905">wiped out</a> when the scandal of accounting irregularities surfaced in December last year and subsequently much more has been wiped out. This makes Steinhoff the biggest corporate failure in South Africa’s history.</p>
<p>When the scandal broke, Jooste <a href="https://www.moneyweb.co.za/news/companies-and-deals/steinhoff-ceo-markus-jooste-quits/">fell on his sword</a>. And so did a couple of <a href="https://www.businesslive.co.za/bd/companies/retail-and-consumer/2018-01-18-jayendra-naidoo-is-latest-steinhoff-director-to-resign/">other board members</a>. Jooste has taken some <a href="https://probonomatters.co.za/2017/12/the-steinhoff-saga-markus-joostes-weak-mea-culpa-2/">personal responsibility</a> in a vague letter of apology to Steinhoff employees. </p>
<p>He’s since <a href="https://www.fin24.com/Companies/Retail/mps-resolves-to-subpoena-markus-jooste-20180328">gone to ground</a>, even rejecting a call to appear before a parliamentary enquiry into the debacle in South Africa. The remaining members of the board have <a href="http://www.steinhoffinternational.com/downloads/2018/latest-results/Steinhoff%20trading%20update%20Q1%202018.pdf">pleaded innocence</a>. </p>
<p>But they should be held to account and not let off the hook.</p>
<h2>Poor board behaviour</h2>
<p>When the scandal came to light the board resolved to suspend the release of financial statements for the 12 months ended September 2017. The <a href="http://www.steinhoffinternational.com/downloads/2018/latest-results/Steinhoff%20trading%20update%20Q1%202018.pdf">reasons</a> given may have been reasonable. They included the fact that accounting firm PwC had been appointed to conduct <a href="http://www.steinhoffinternational.com/downloads/2018/latest-results/Steinhoff%20trading%20update%20Q1%202018.pdf">a forensic investigation</a> following allegations of accounting irregularities. And it was almost a certainty that previous financial results, from 2016 going back, were going to be <a href="http://www.steinhoffinternational.com/downloads/2018/latest-results/Steinhoff%20trading%20update%20Q1%202018.pdf">restated</a>.</p>
<p>And so the group announced that it could not release the 2017 financial statement in expected time. <a href="https://www.jse.co.za/content/JSERulesPoliciesandRegulationItems/JSE%20Listings%20Requirements.pdf">Regulation</a> demands that financial statement of listed companies be released within three months of the financial year end.</p>
<p>The Steinhoff board recently announced scheduling of the next <a href="http://www.steinhoffinternational.com/downloads/2018/AGM%20Notice%202018.pdf">annual general meeting</a> for shareholders on the 20th of April 2018. But there’s no mention that financial statements will be tabled at the meeting. This must be read with section 30 of the South African <a href="https://www.gov.za/sites/default/files/32121_421_0.pdf">Companies Act</a> which stipulates that financial statements must be presented to the first shareholders meeting after the statements have been approved by the board.</p>
<p>This raises the question: Is there any sense in hosting an annual general meeting without financial statements for the shareholders to consider, despite legal stipulations for a meeting of shareholders to be called? </p>
<h2>Insult to injury</h2>
<p>Granted, the odd remuneration proposal has been <a href="https://businesstech.co.za/news/business/235893/steinhoff-shelves-plan-to-pay-director-bonuses/">withdrawn</a>. But its still a worthwhile exercise to zoom in on it.</p>
<p>It was a proposal to extend to some members of the board a further once-off payment to cover additional work undertaken during the period since the accounting irregularities were identified in December 2017. The fact that anybody at Steinhoff considered this a sound proposal shows that the board and executive management of the company have lost touch with the reality of shareholder anger and of the duties of board members.</p>
<p>According to this proposal board member, Steve Booysen and Heather Sonn were to be paid an additional €200,000 and Johan van Zyl be paid an additional €100,000. </p>
<p>The notice stated that the unfolding scandal made it necessary for the board members in question to do extra work, thus deserving extra payment. This is ludicrous. These board members were in the first instance responsible for the crisis. It therefore boggles the mind that these directors had any expectation to be paid extra for dealing with the crisis that they are to be blamed for in the first instance.</p>
<p>At the same time Steinhoff announced that an Independent Committee comprising some of its board members, inter alia, … focused on establishing a sound governance structure. This was a board function before the collapse, but was clearly seriously lacking before the crisis. </p>
<p>It’s clear that these board members of Steinhoff live in a different reality where shame does not exist.</p>
<p>In my mind the election and remuneration of board members can be dealt with simply and elegantly: remaining board members who served during the period of value destruction should quietly “disappear”. And they should also do the honourable thing and repay board fees that they clearly did not deserve, given that they didn’t discharge their responsibilities.</p><img src="https://counter.theconversation.com/content/94129/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jannie Rossouw is has a C research rating fro the NRF. He owns shares in Steinhoff. </span></em></p>All Steinhoff directors should be held accountable for the international corporate scandal.Jannie Rossouw, Head of School of Economic & Business Sciences, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/897042018-01-28T09:51:56Z2018-01-28T09:51:56ZDid Steinhoff’s board structure contribute to the scandal?<figure><img src="https://images.theconversation.com/files/203258/original/file-20180124-107963-1a2kwcp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Steinhoff's former CEO, Markus Jooste, is partly blamed for the corporate scandal that threatens to collapse the company.</span> <span class="attribution"><span class="source">Financial Mail/Jeremy Glyn </span></span></figcaption></figure><p>The global retail group Steinhoff is reeling under allegations of accounting fraud. Since the allegations surfaced last year the CEO of the multi-billion dollar business, Markus Jooste, has <a href="https://www.iol.co.za/business-report/steinhoff-shares-nosedive-after-ceo-markus-jooste-resigns-12286137">fallen on his sword</a> and the company’s stock has been <a href="https://www.sowetanlive.co.za/business/2017-12-07-steinhoff-share-price-continues-to-fall/">hammered</a>, at one point losing about 90% in market value in a few days.</p>
<p>Observers are calling for <a href="https://theconversation.com/steinhoff-scandal-points-to-major-gaps-in-stopping-unethical-corporate-behaviour-88905">harsh punishment</a>, including jail, for the culprits.</p>
<p>Early reports suggest that Steinhoff was involved in massive <a href="https://www.timeslive.co.za/sunday-times/business/2017-12-14-steinhoff-accounting-woes-go-back-to-2016-as-scandal-grows/">accounting fraud</a>, including the overstatement of the company’s financial position. </p>
<p>The company is listed on both the Johannesburg Stock Exchange in South Africa as well as the Frankfurt Stock Exchange in Germany. With a primary listing in Frankfurt and an <a href="http://www.steinhoffinternational.com/corporate-information.php">Amsterdam</a> corporate address, Steinhoff follows the Dutch corporate governance code. </p>
<p>Consistent with this code, Steinhoff has a <a href="http://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1001&context=fisch_2016">two-tier board structure</a>. This <a href="http://www.steinhoffinternational.com/leadership.php">is made up of</a> a management board (comprised of four top executives) and a supervisory board (comprised of 9 non-executive directors).</p>
<p>The point of the two-tier board structure is to ensure that the supervisory board is independent from the executives who sit on the management board. The management board accounts to the supervisory board, which accounts to the shareholders or to the company.</p>
<p>The two-tier board structure is favoured in western Europe. The US and UK prefer the <a href="http://www.steinhoffinternational.com/leadership.php">one-tier</a> – or unitary board – structure, as does South Africa for historical reasons.</p>
<p>It appears that Steinhoff’s decision to opt for the two-tier board structure may have contributed to its undoing. Natural holes in the structure, the biggest one being the fact that the management board doesn’t always keep the supervisory board in the loop, combined with Steinhoff’s corporate culture which was anchored by a <a href="https://www.moneyweb.co.za/in-depth/investigations/we-have-always-been-wary-of-markus-jooste-36one-founder-cy-jacobs/">dominant personality</a>, appear to have created accountability holes. </p>
<h2>Two-tier versus one-tier structure</h2>
<p>There are pros and cons to both systems.</p>
<p>One of the good things about the one-tier board system is that executive directors and non-executives directors sit together on a single board. Traditionally there would be two or three executive directors (the CEO, chief financial officer and the chief operating officer) sitting alongside a majority of non-executive directors. </p>
<p>This means that there’s a seamless flow of information between executives and non-executives. The executives can be asked questions with the entire board present. This closes any information asymmetry. In addition, it can also facilitate quicker decisions. </p>
<p>On the downside, the unitary board structure has been criticised for its propensity to compromise the independence of the non-executive directors. This dilutes their oversight role. </p>
<p>For its part the two-tier system seems to have more checks and balances built into it given that the management board is subject to oversight by the supervisory board, and the supervisory board has to answer to shareholders.</p>
<p>But the two-tier structure is often <a href="http://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1001&context=fisch_2016">criticised</a> for information asymmetry between the management board and the supervisory board. In other words management knows a great deal more about the business than the supervisory board. This can lead to operational challenges developing without the board noticing until it’s too late. </p>
<p>Steinhoff’s board structure followed the two-tier system. In 2016 its management board comprised three members, Jooste (CEO), <a href="http://www.huffingtonpost.co.za/2018/01/05/steinhoff-cfo-ben-la-grange-steps-down_a_23324706/">Ben La Grange</a> (Chief Financial Officer) and <a href="https://www.fin24.com/Companies/Retail/steinhoff-shares-rally-as-beleaguered-retailer-names-acting-ceo-20171219">Danie van der Merwe</a> (Chief Operating Officer and now acting CEO). As is normal under the two-tier system, none of the three members of the management board sat on the supervisory board. </p>
<p>Some analysis of the <a href="https://www.theguardian.com/business/2016/jun/22/volkswagen-handling-emissions-scandal-shambles-investors-agm-german-carmaker">Volkswagen emissions scandal</a> apportioned blame to the two-tier system combined with a <a href="https://www.nytimes.com/2015/09/25/business/international/problems-at-volkswagen-start-in-the-boardroom.html">corporate culture</a> that was anchored by dominant personalities.</p>
<p>A similar case can be made for the Steinhoff saga.</p>
<h2>Flaws in the Steinhoff structure</h2>
<p>Did the two-tier structure give the CEO too much leeway to take decisions that in the end led to the near collapse of the company? </p>
<p>This may indeed have been the case. Take, for example, the fact that some believe the company <a href="https://www.iol.co.za/business-report/opinion/opinion-steinhoff-shock-the-warning-signs-were-all-there-12314186">grew too quickly</a>.</p>
<p>The danger of companies expanding too rapidly was highlighted decades ago by <a href="https://books.google.co.za/books/about/Corporate_planning.html?id=FRMPAQAAMAAJ&redir_esc=y">author and corporate strategy guru </a> John Argenti who came up with <a href="https://accountingandplanning.files.wordpress.com/2014/12/qualitative-models-of-corporate-failure.pdf">a model</a> that considered factors leading to corporate failure. Two of the higher scored factors were expanding too fast (referred to as overtrading) and high levels of loan borrowing.</p>
<p>Steinhoff seems to have suffered from both. And yet the supervisory board appears to have failed to raise the red flag when it comes to large transactions. An example of it failing to fulfil its oversight role was when it decided to not make public Steinhoff’s <a href="https://www.reuters.com/article/us-steinhoffintlaccounting-disclosure/steinhoff-didnt-tell-investors-about-nearly-1-billion-in-deals-idUSKBN1D81BZ">USD$1 billion</a> transaction with a related company. Even if the supervisory board didn’t legally have to make this public knowledge, ethically it should have made the disclosure.</p>
<p>The functioning of the audit and risk committee didn’t help the situation either.</p>
<h2>Audit and risk committee</h2>
<p>Steinhoff had three standing committees of the supervisory board – audit and risk, human resources and remuneration and the nominations committee. The committee structure had two weaknesses. </p>
<p>The first was that too few of its non-executives actually served on the committees – only 5 of the 11 supervisory board members. And given that the then chairman Wiese and Claas Daun only sat on one, it begs the question how only three members of the supervisory board could have been expected to carry the real responsibility of the standing committees.</p>
<p>The second flaw was that audit and risk were wrapped up in one committee. This is the norm under a two-tier governance structure. </p>
<p>South Africa’s corporate governance structures might have helped to address both these problems. </p>
<p><a href="http://www.iodsa.co.za/?page=KingIV">King IV </a> stipulates that the risk governance committee should be made up of a mixture of non-executives and executives (the majority being non-executives). And the governance guidelines warn against audit and risk being under one committee. Its advice is that a company should only combine them if it’s able to devote enough time to dealing with risk related issues. </p>
<p>For a company of Steinhoff’s complexity, it seems inconceivable that the audit and risk committee could have devoted the necessary time to undertake its responsibility.</p>
<h2>Conclusion</h2>
<p>The Steinhoff case highlights weaknesses in the governance structure the company had chosen to operate under. That said, the rules have worked perfectly well for thousands of other companies. The lesson therefore is be alert to the warning signs such as dominant directors who don’t heed the rules. They can pose a grave risk to any company.</p><img src="https://counter.theconversation.com/content/89704/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Owen Skae does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Gaps in the two tier board structure which is favoured in Europe may be partly responsible for the Steinhoff corporate scandal.Owen Skae, Associate Professor and Director of Rhodes Business School, Rhodes UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/889052017-12-17T10:19:21Z2017-12-17T10:19:21ZSteinhoff scandal points to major gaps in stopping unethical corporate behaviour<figure><img src="https://images.theconversation.com/files/199413/original/file-20171215-17848-1jrt0o0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>A corporate scandal unfolding around one of the largest businesses coming out of South Africa, <a href="https://www.iol.co.za/business-report/steinhoff-shares-nosedive-after-ceo-markus-jooste-resigns-12286137">Steinhoff</a>, has become a major cause for concern. It threatens to wipe out hundreds of billions of rand invested on behalf of many people – rich as well as ordinary South Africans. Sibonelo Radebe asked Jannie Rossouw to interrogate the saga.</em></p>
<p><strong>What do you read from these allegations of corporate corruption?</strong></p>
<p>The Steinhoff scandal is disturbing because it points to a serious gap in the checks and balances in the investment management space. A scandal of this magnitude should not have occurred if the systems with their multiple layers were working.</p>
<p>It’s still early days but it seems as if a multiple of highly paid professional layers failed investors. This includes auditors, asset managers and non executive directors who in their different roles should ensure that the company’s accounts are as close to the truth as possible.</p>
<p>Steinhoff share price <a href="https://www.timeslive.co.za/sunday-times/business/2017-12-08-no-way-back-for-steinhoff-as-share-price-plunge-nears-90/">collapsed</a> by more than 90%, wiping off nearly €10 billion in shareholder value in about three days following the resignation of the company’s CEO, Markus Jooste, after news that German prosecutors were investigating the company for alleged massive <a href="https://www.fin24.com/Companies/Retail/german-prosecutors-still-probing-steinhoff-for-possible-accounts-fraud-20171207">accounting fraud</a>. Steinhoff is listed on both the Johannesburg Stock Exchange and Frankfurt Stock Exchange.</p>
<p>Steinhoff shares were the darling of most fund and asset managers in South Africa and across the globe. We must ask questions why these entities, which draw enormous fees, <a href="https://www.fin24.com/Opinion/magda-wierzycka-asks-hard-questions-about-steinhoff-and-asset-managers-20171207">failed to pick up</a> the alleged irregularities when it seems like they should have done so if they were doing their jobs properly.</p>
<p><strong>How big is the damage caused by this scandal?</strong></p>
<p>It’s still early days but some people are already tagging this scandal as the <a href="https://www.timeslive.co.za/sunday-times/business/2017-12-08-no-way-back-for-steinhoff-as-share-price-plunge-nears-90/">biggest corporate failure</a> in the history of the Johannesburg Stock Exchange. With more than 40 retailing brands in over 30 countries, Steinhoff was positioned as one of the largest companies by market capitalisation on the exchange. Its market value of close to R300 billion as recorded earlier this year placed it in the <a href="https://businesstech.co.za/news/business/164635/the-biggest-companies-in-south-africa-by-market-cap/">top 10</a>, flanked by other South African corporate giants like media giant Naspers, luxury products specialist Richemont, resources giant Anglo American, petrochemicals firm Sasol as well as two big banks Standard Bank and Firstrand.</p>
<p>If Steinhoff’s stock doesn’t recover the capital losses of share investors who bought at inflated prices will be massive. </p>
<p>Steinhoff started off as a South African based company but built itself into a global retail business with significant interests in western Europe. As a result it attracted <a href="https://www.moneyweb.co.za/news/economy/collateral-damage-who-owns-steinhoff/">prominent</a> investors. In South Africa, these include the Public Investment Corporation which invests on behalf of the Government Employees Pension Fund among other public entities. The Public Investment Corporation is reported to hold <a href="https://www.moneyweb.co.za/in-depth/investigations/pic-reacts-to-steinhoff-implosion/">10%</a> of Steinhoff’s total shares which means its losses reached more than R10 billion after the share price collapsed.</p>
<p>It is therefore of the utmost importance and in the interest of all involved – particularly direct and indirect investors – that the Steinhoff matter be brought to a swift closure. Swift closure should be followed by legal action against and punishment of all those implicated. </p>
<p><strong>How wide spread is such behaviour?</strong></p>
<p>Each time a major scandal surfaces, regulatory gaps are identified and new measures are put in place to plug the apparent holes. But the scandals keep coming.</p>
<p>South Africa has had its fair share of corporate scandals with the most recent being a list of companies linked to the Gupta family inspired<a href="https://www.fin24.com/Opinion/the-gupta-master-plan-meticulously-executed-state-capture-20170830"> state capture</a>. Big names like <a href="https://www.biznews.com/sa-investing/2017/12/06/naspers-links-gupta-corruption/">Naspers</a>, KPMG, McKinsey and SAP have been caught in the extensive web of corruption allegedly driven by the Guptas who have close ties to the country’s president. </p>
<p>Some <a href="https://www.facebook.com/search/top/?q=tim%20cohen%20steinhoff">commentators</a> have linked the Steinhoff saga to the broader ethical challenges facing South Africa. The integrity of some people in key positions of authority in both the public and private sectors is being questioned. This includes the country’s President Jacob Zuma who stands accused of <a href="https://www.news24.com/SouthAfrica/News/zuma-breached-oath-of-office-de-vos-20160405">violating</a> the oath of office. </p>
<p><strong>What must be done?</strong></p>
<p>Despite the best efforts, it’s impossible to regulate for integrity and ethical behaviour. The one effective way that behaviour can be changed is through legal process and by means of tough punishment.</p>
<p>At this point in time we are still unsure of the degree of corporate rot in Steinhoff. Numerous <a href="https://mg.co.za/article/2017-12-07-steinhoff-the-largest-corporate-failure-on-the-jse">allegations</a> have been made, but the world now waits for the company’s delayed audit report to see the full extent of possible corporate fraud. Steinhoff must act swiftly in informing shareholders and other stakeholders about the true financial health of the company.</p>
<p>The Board of directors of Steinhoff is responsible for the financial health and the financial reporting of the company. The problems at the company resulting in the serious decline in the share price, raise the question whether the Board members should continue to hold office. Under the watch of the current Board a massive destruction in shareholder value took place. </p>
<p>No Board replacing the current one can do worse, as there is simply hardly any shareholder value left to destroy. Will the current Board do the honourable thing and step aside?</p>
<p>If fraud is proven, I want to see Steinhoff executives serve jail terms. They have caused immeasurable harm to many people. This is the only way in which unethical and fraudulent behaviour can be out-rooted and integrity restored.</p>
<p>From a proper investigation of the affairs of Steinhoff, possible regulatory gaps should also be identified and eradicated. Nevertheless, no structure of regulation and supervision can replace the single most important requirement for successful business conduct: Ethical behaviour. In South Africa we need ethical behaviour at all levels, namely the government, businesses and civil society.</p>
<p>The board of directors of Steinhoff is responsible for the financial health and the financial reporting of the company. The problems at the company resulting in the serious decline in the share price, raise the question whether the board members should continue to hold office. Under the watch of the current Board a massive destruction in shareholder value took place.
No board replacing the current one can do worse, as there is simply hardly any shareholder value left to destroy. Will the current board do the honourable thing and step aside?</p><img src="https://counter.theconversation.com/content/88905/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jannie Rossouw has a NRF research rating and receives financial assistance for research from the NRF. He owns shares in Steinhoff. </span></em></p>A suit of highly paid professional services seem to have failed investors in the unfolding Steinhoff corporate scandal.Jannie Rossouw, Head of School of Economic & Business Sciences, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/797522017-06-20T05:22:23Z2017-06-20T05:22:23ZHow the corporate veil is motivating misbehaviour and obscuring who should take the blame<p>Company structures with layers on layers are commonplace in the corporate world, just like those of Plutus Payroll Australia, <a href="http://www.smh.com.au/business/the-economy/ato-to-work-with-plutus-payroll-employers-clients-at-centre-of-alleged-tax-fraud-20170529-gwfhmr.html">currently under investigation</a>. But in some cases these structures aim to muddy responsibility. </p>
<p>Companies are abstractions, artificial, they are legal individuals but not humans. The corporate veil – the way these companies are set up, the gatekeeper of corporate artificiality, has historically been a benefit for directors and a sometime burden for outsiders. </p>
<p>The investigation of Plutus Payroll raises questions about the ease with which the relatively simple scheme operated, and the seeming confidence of those involved that they would avoid detection. </p>
<p>In Plutus Payroll’s case the holding or parent company SYNAP Equity was separated from the tier 1 subsidiary Plutus, which in turn controlled and was separated from the various other tier 2 companies, which were also separated from each other. All of this structure was hidden thanks to its corporate veil. It was the tier 2 companies that actually paid the wages and submitted a proportion only of the tax deducted from salaries to the Australian Tax Office (ATO).</p>
<p>Companies have many advantages, lower tax rates, perpetual succession, and separate legal entity status. In return the law expects those who run them not to abuse these privileges. </p>
<p>The existence of directors who ignore the seriousness of their position or responsibilities, only goes to advertise that the message is not getting through.
Without the benefit of corporate structures, would the directors of any of the companies involved have been confident, or perhaps careless enough, to undertake the scheme? To an observer the arrangement seemed destined to be found out. </p>
<p>This may be a case of the corporate veil, traditionally at the will of humans, beginning to turn the tables and in turn influence behaviour. This is even to an extent that the individuals involved in these schemes, are lulled into a false sense of security. This fabricated confidence then drives unethical behaviour.</p>
<p>Another recent example of the numbing power of the veil can be seen in the <a href="http://www.westlaw.com.au/maf/wlau/app/search/exec">Queensland Supreme Court’s decision</a> regarding the conduct of officers of MFS Investment Management (MFSIM).</p>
<p>MFSIM was responsible for managing the investment fund Premium Income Fund which held millions of dollars of investors’ funds, many self-managed super funds. The use of subsidiaries and unlisted management investment schemes may have provided the sense of security <a href="http://www.afr.com/business/legal/asic-chase-mfs-directors-for-record-615m-fines-20170526-gwe103">that led the directors</a> to misappropriate funds by falsifying and backdating company documents. Directors and other officers received substantial penalties (disqualifications, fines and liability for compensation).</p>
<p>Has the veil has once again been too attractive an ally in the undertaking of unethical conduct? In concluding <a href="http://archive.sclqld.org.au/qjudgment/2016/QSC16-109.pdf">his judgement in the Supreme Court of Queensland</a> Justice James Douglas lamented that:</p>
<blockquote>
<p>This remains a sorry tale of the misuse of other people’s money by those who should have known better.</p>
</blockquote>
<p>In an environment where the government needs to counter corporate risk aversion to improve productivity, the corporate veil is not going anywhere. But the veil must not hide the clarity of obligation.</p>
<p>There is a connection between the effect of the corporate veil and the idea of a corporate culture. The failings of companies are often attributed to a poor corporate culture. </p>
<p>However the normalising of the idea may have contributed to the lack of responsibility shouldered by those within company management. Poor culture within a company often simply means a failure of ethical standards by one or all of company management. Yet the focus on “culture” may act as a diversion from individual conduct and the failure to act ethically.</p>
<p>There was a <a href="http://www.abc.net.au/news/2017-05-24/labor-proposes-phoenixing-crackdown/8552788">recent proposal by Labor</a> to issue directors with a Director Identification Number on the basis that at present very little detail is required of directors when companies are registered. This was also recommended in <a href="http://www.pc.gov.au/inquiries/completed/business#report">2015 by a Productivity Commission report</a>. This highlights the need to reinforce the responsibilities that arise for individuals when they take on corporate directorships. </p>
<p>This latest move is aimed at curbing the incidence of fake directors, the use of companies to escape obligations, and primarily at phoenixing. Phoenixing is when directors strip insolvent companies, avoiding employee obligations and cease to trade but then form new companies to take their place. This relies on the separate legal entity status and the effect of the corporate veil between the old and new companies to avoid the responsibilities of the previous, insolvent, company. </p>
<p>You can’t blame the artificial entity that is the company for all poor corporate behaviour, just as you can’t blame the car for drivers’ poor driving. Corporate decisions are human decisions.</p>
<p>However it may be possible that the corporate veil, traditionally friend of directors and foe of outsiders, may have turned double agent. It may be working against those directors too careless to monitor their responsibilities, or too unethical to care, by instilling a false sense of security. This then acts to disconnect them from their company’s inappropriate, and perhaps criminal, conduct. Ultimately, whenever ethics are abandoned, everyone loses.</p><img src="https://counter.theconversation.com/content/79752/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Quilter does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The corporate veil, traditionally friend of directors and foe of outsiders, may have turned double agent.Michael Quilter, Associate Professor - Department of Accounting and Corporate Governance, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/789342017-06-14T20:08:59Z2017-06-14T20:08:59ZCPA in crisis: why more associations will have to disclose CEO pay<p>The wave of public discontent that’s changed how corporate Australia reports and discloses executive pay, is now moving to other types of organisations. The most recent example is professional accounting body Certified Practising Accountants of Australia (CPA), which has been subject to <a href="http://www.afr.com/business/accounting/calls-for-cpa-australias-alex-malley-to-stand-down-20170601-gwhyxl">heated member debate</a> about the remuneration of its CEO and management team. </p>
<p>CPA Australia <a href="http://www.afr.com/business/accounting/cpas-alex-malleys-pay-revealed-as-179m-chairman-stands-down-20170531-gwh0cf">ultimately disclosed</a> the individual remuneration of its executive and board after extended lobbying by members.</p>
<p>Public disclosure of executive remuneration has not always been a feature of the Australian corporate landscape. Events over time have amplified public concerns about executive pay, cementing reporting and disclosure into law. Ultimately this may lead to a trend of voluntary disclosure among professional organisations. </p>
<p>Poor pay practice is associated with large unexpected corporate collapses and is a red flag for ineffective corporate governance. At the same time, the gap between executive salaries and the average Australian wage has widened. The <a href="http://www.pc.gov.au/inquiries/completed/executive-remuneration">Productivity Commission reports</a>that the average remuneration of ASX100 company executives grew from 17 times average earnings in 1993 to 42 times in 2009. </p>
<p>In the past, member organisations like CPA Australia have only had to prove their value to members through their services but now members are calling for the disclosure of executive remuneration as a way to enhance corporate transparency and accountability. This is in the same way that public disclosures have allowed listed companies’ shareholders to better monitor the performance of their executive team.</p>
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<p>Until 1998, disclosure of the remuneration paid to individual company executives was not required from Australian listed companies. Instead, a banded disclosure showing the number of executives in each relevant salary band was required.</p>
<p>The push to disclose executive pay started in 1998, when the <a href="https://www.legislation.gov.au/Details/C2004C00969">Company Law Review Act (1998)</a> introduced the requirement for listed companies to disclose the details of the nature and amount of the salaries of each director and the five officers of the firm receiving the highest salary. </p>
<p>Listed corporations responded slowly to this requirement. One problem was the confusion over whether the term used in the legislation - “emoluments” - covered equity-based remuneration like options. To assist companies in interpreting the new requirements, in November 1998 the Australian Securities and Investment Commission (ASIC) issued a <a href="http://asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/rg-68-new-financial-reporting-and-procedural-requirements/">Practice Note</a>with the intent of clarifying some of the accounting-related requirements introduced by legislation. </p>
<p>Generally, corporate disclosures about executive remuneration were of pretty <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1467-629X.2006.00197.x/full">low quality</a> after the legislation was introduced, especially disclosures about the value of equity-based remuneration. However, the unexpected collapse of telecommunications company One.Tel and insurance company HIH Insurance in 2001, amid concerns that poor remuneration practice was <a href="http://www.unswlawjournal.unsw.edu.au/sites/default/files/23_hill_and_yablon.pdf">partly to blame</a>, brought the issue of executive pay clearly into public focus.</p>
<p>In June 2003, ASIC issued a <a href="http://asic.gov.au/about-asic/media-centre/find-a-media-release/2003-releases/03-202-valuing-options-for-directors-and-executives/">media release</a> to provide unequivocal guidance about remuneration disclosures. ASIC’s chief accountant, Greg Pound, stated:</p>
<blockquote>
<p>ASIC expects all listed companies to comply with their legal obligations, and will consider action against directors if full remuneration, including option values, is not disclosed.</p>
</blockquote>
<p>Around the same time, the Australian accounting regulator, the Australian Accounting Standards Board (AASB), began to draft an accounting standard on remuneration disclosures. This was ultimately released in <a href="http://www.aasb.gov.au/Archive/pre-2005-AASB-standards.aspx">January 2004</a>. In addition to clarifying many definitional issues, the standard set out explicit and detailed remuneration reporting and disclosure guidelines, including rules for the valuation and disclosure of equity-based compensation. </p>
<p>Also in 2004, the <a href="https://www.legislation.gov.au/Details/C2004A01334">Corporate Law Economic Reform Program Act</a>introduced expanded remuneration disclosures as well as a non-binding shareholder vote on remuneration.</p>
<p>The need for all these regulations became even clearer as poorly designed remuneration played a role in the 2008 global financial crisis. The remuneration practices of overseas financial institutions was <a href="http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2009/025.htm&pageID=003&min=wms&Year=&DocType=0">heavily criticised</a>for encouraging excessive risk taking in the lead up to the crisis. </p>
<p>Concerns over executive remuneration ultimately led to a Productivity Commission inquiry into executive pay in Australia. Published in <a href="http://www.pc.gov.au/inquiries/completed/executive-remuneration">2009</a>, the commission’s report recommends (among other things) the implementation of the current “two-strikes rule” for shareholder voting on remuneration. The two-strikes rule was introduced as law in 2011.</p>
<p>This historical path to the current rules on remuneration demonstrates that regulating in this area is fraught with difficulties. </p>
<h2>What this means for professional bodies</h2>
<p>Organisations like CPA Australia are not required to prepare a detailed remuneration report or to disclose the remuneration of individual directors or executives. Likewise the individual pay of key executives of government supported organisations such as Australia Post or the Australian universities is not a compulsory disclosure.</p>
<p>Along with CPA Australia, the professional accounting body Chartered Accountants Australia New Zealand (CAANZ) disclosed CEO Lee White’s 2017 remuneration in response to inquiries from the <a href="http://www.afr.com/business/accounting/accounting-body-boss-reveals-600000-salary-20170314-guxmk7">Australian Financial Review</a>. Similarly, the Tax Institute revealed the remuneration of its <a href="http://www.afr.com/business/accounting/accounting-body-boss-reveals-600000-salary-20170314-guxmk7">CEO Noel Rowland</a>. However, a third Australian accounting body, the Institute of Public Accountants (IPA), has not disclosed individual executive remuneration. </p>
<p>When it comes to how these professional bodies usually report remuneration, a total remuneration figure for the executive team or providing a banded remuneration disclosure (which shows the number of individuals within each relevant salary band above a specified minimum salary) is usually common practice. For example, the Australian Institute of Company Directors (AICD) revealed the collective remuneration of its 12 person executive team but not <a href="http://aicd.companydirectors.com.au/about/annual-reports">individual pay</a>. Australian universities generally provide a banded remuneration disclosure but also reveal individual vice chancellor pay levels in response to media inquiries. </p>
<p>There is murkiness around the clear disclosure of executive pay outside of the public company sector. Individual remuneration is generally not disclosed to members or to the public but can be revealed at the discretion of the organisation concerned if inquiries are made. </p>
<p>It’s clear from the scenario unfolding around CPA Australia that members expect disclosure of individual executive and director pay as part of the transparency and accountability owed to them by their professional body. There’s also an argument for a similar duty to disclose to stakeholders for government owned or funded organisations. </p>
<p>Further regulation may not be needed to extend remuneration reporting requirements outside of the corporate sector. However, this may be the start of a trend in voluntary remuneration disclosure, as an act of accountability to stakeholders. After all, sunlight is said to be the best disinfectant.</p><img src="https://counter.theconversation.com/content/78934/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>In the past, Julie Walker has received research funding from Chartered Accountants Australia New Zealand (CAANZ). She is currently chair of the CAANZ Education Board, a role which carries zero remuneration.</span></em></p>The amplified public concerns about executive pay that led to the cementing of reporting and disclosure into law, may start trend of voluntary disclosure among professional bodies.Julie Walker, Associate Professor in Accounting, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/728162017-02-10T12:41:37Z2017-02-10T12:41:37ZBrand Beckham will weather the email storm<figure><img src="https://images.theconversation.com/files/156360/original/image-20170210-23331-2qxzjm.png?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">No such thing as bad publicity?</span> <span class="attribution"><span class="source">The Sun</span></span></figcaption></figure><p>If nothing else, the <a href="http://uk.businessinsider.com/what-is-the-david-beckham-email-scandal-about-2017-2?r=US&IR=T">David Beckham email scandal</a> has provided some welcome respite from the apparently perpetual news agenda of Trump and Brexit. </p>
<p>It seems that the previously pristine and relatively scandal-free (at least in the past decade) sporting icon may not be as golden as his carefully cultivated image might suggest. In a series of stories last week <a href="https://www.thesun.co.uk/news/2794119/beckileaks-david-beckham-email-scandal/">The Sun</a> and the Daily Mail, along with several other European media outlets including France’s L’Equipe and Germany’s Der Spiegel, published details of Beckham’s hacked personal emails.</p>
<p>The Beckham that emerges from the emails is not the recognisably magnanimous and self-deprecating figure we have come to lately recognise. He appears to be petty and small minded – labelling the Honours Committee which apparently refused to grant him a knighthood “unappreciative cunts”. The Welsh opera singer Katherine Jenkins is singled out for her unsuitability for the OBE she received in 2014. She’s not worthy of it, Beckham is reported to have written.</p>
<p>Beckham’s advisers <a href="http://www.dailymail.co.uk/news/article-4190152/Hackers-release-tranche-Beckham-s-personal-emails.html">have said</a> that <em>some</em> of the text of the emails were “doctored” to include extra swearwords. And to be <a href="https://www.theguardian.com/football/2017/feb/06/hacked-david-beckham-emails-renders-injunction-worthless">fair to Beckham</a>, they add that his communications were heat of the moment and correspondence between two close friends – and on this point there but for the grace of God go all of us. Who hasn’t, at one point or another, raged to a friend about the injustices of the world and its inability to see how special we are?</p>
<p>But Beckham is an international superstar in an age when privacy is increasingly irrelevant and the big question now is whether or not “Brand Beckham” can survive the negative publicity.</p>
<h2>Advertising dream</h2>
<p>This is a man, don’t forget, who for the past 20 years or so has become an advertiser’s dream. His name has been successfully linked with, amongst many others, Vodafone, Marks and Spencers, H&M, Breitling and Samsung. As <a href="http://www.jomec.co.uk/blog/advertising-and-sport/">I’ve written before</a>, Beckham sells products because he can be many things to many people. He appeals to men and women. </p>
<p>To men he represents tenacity, skill, patriotism and success. Women appreciate his undoubted good looks, his loyalty and his willingness to embrace his feminine side. Castrol used him in adverts across the Asia-Pacific region <a href="http://v-scheiner.brunel.ac.uk/handle/2438/3588">after research found that</a> more than 80% of consumers in Thailand, Vietnam and China said a link with the footballer would be a reason to buy its engine oil.</p>
<h2>Shoot for goal</h2>
<p>But it’s crisis management time for Beckham – and one thing he should not do – if <a href="http://www.businessinsider.com/celebrity-marketing-crisis-guide-2009-12?IR=T#is-no-comment-ever-a-good-strategy-2">the public-relations industry</a> is to be believed – is to stay silent. Keeping quiet allows the narrative to develop independently. Intervention in the story would at least direct the focus of attention towards the contrition which must be demonstrated. This is, after all, has been the tried-and-tested strategy in any celebrity scandal of the television age.</p>
<p>But that alone is not enough – Beckham needs the backing of the charities he has worked for and to be fair, UNICEF, for whom he has campaigned since 2005, was not slow in coming out to <a href="https://www.unicef.org.uk/press-releases/statement-unicef-relating-david-beckham-7-david-beckham-fund-unicef/">offer its support.</a></p>
<figure>
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</figure>
<p>It’s my guess that any damage that “Brand Beckham” has suffered is temporary. His reaction to the abuse and vitriol he suffered after his sending off in France 1998 suggests a man of strength and resolve more than capable of weathering this storm.</p>
<p>He is also a figure whose renown is global: who cares in Asia if he has issues with his tax returns or a predilection for badmouthing elites and contemporary celebrities? In the United States that sort of thing is positively welcomed and in some cases can even lead to high office.</p>
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<p>This is all part of a story which will not end at this point. Elis Cashmore, <a href="http://library.la84.org/SportsLibrary/ISS/ISS2601/ISS2601h.pdf">who wrote a book about Beckham in 2002</a>, highlighted the mythic qualities of the footballer’s life. Here was a man with a life of fairy-tale prince. Born into a modest background, this boy of exceptional skills overcomes adversity and exceptional setbacks to win the heart of a princess and the love and respect of the nation.</p>
<p>In this sense, the stolen emails and the surrounding fuss becomes just another chapter in the tale.</p><img src="https://counter.theconversation.com/content/72816/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Jewell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>He’s one of Britain’s biggest brands – it’ll take more than a few grumpy messages to spoil that.John Jewell, Director of Undergraduate Studies, School of Journalism, Media and Cultural Studies, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/698672016-12-08T07:25:52Z2016-12-08T07:25:52ZThe bright side of Dieselgate and other corporate scandals<figure><img src="https://images.theconversation.com/files/148934/original/image-20161206-25727-hm9jnw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Volkswagen HQ in Wolfsburg, Germany, where it all began.</span> <span class="attribution"><a class="source" href="https://upload.wikimedia.org/wikipedia/commons/7/71/Wolfsburg_VW-Werk.jpg">Andreas Praefcke/Wikimedia</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>2015 was supposed to be a year of honours and glory for Volkswagen: it was about to <a href="http://money.cnn.com/2015/07/28/investing/volkswagen-toyota-biggest-carmaker/">steal the crown</a> from Japanese rival Toyota and dominate the global automobile market. Then came September, and the revelation that one of the most admired companies in the world had <a href="http://www.nytimes.com/2015/09/19/business/volkswagen-is-ordered-to-recall-nearly-500000-vehicles-over-emissions-software.html">falsified</a> engine emissions tests. </p>
<p>In a matter of days, dishonour fell on the corporation and its top management, accused of breaking the trust of its customers and the public. </p>
<p>Volkswagen fell hard. Within a few days, a quarter of the company’s market value <a href="http://money.cnn.com/2015/09/24/investing/volkswagen-vw-emissions-scandal-stock/">evaporated</a>. Public outrage forced CEO Martin Winterkorn to <a href="http://www.nytimes.com/2015/09/24/business/international/volkswagen-chief-martin-winterkorn-resigns-amid-emissions-scandal.html">resign</a>, and the firm <a href="https://www.ft.com/content/35575f80-4a75-11e6-b387-64ab0a67014c">lost ground</a> in all major markets, retreating from leading positions it had patiently built over decades. Adding insult to injury, legal bills and liabilities started piling up as <a href="http://www.nytimes.com/2015/09/25/business/dealbook/thepotential-criminal-consequences-for-volkswagen.html">prosecutors</a> across the globe investigated the company.</p>
<p>A year after the scandal, nobody knows how long it will take for Volkswagen to fully recover. The healing process, <a href="http://amr.aom.org/content/33/3/730.short">research</a> tells us, involves a combination of explanation, contrition, and rehabilitative change. The hubristic “<em>Das auto</em>” tagline is already history. Major management and strategic <a href="https://www.ft.com/content/fa44e6c2-2ef1-11e6-a18d-a96ab29e3c95">changes</a> are under way. No doubt the turnaround will require considerable expense and time.</p>
<h2>The explosive nature of scandals</h2>
<p>Scandals are intriguing social phenomena. They involve misconduct – real or alleged – that runs counter to established moral norms. The transgression is often known before scandal emerges. In Victorian London, everyone knew Oscar Wilde was gay, but mostly ignored that fact until <a href="http://www.cambridge.org/fr/academic/subjects/sociology/sociology-general-interest/scandal-moral-disturbances-society-politics-and-art?format=HB&isbn=9780521895897">he was sent to jail for it</a>. </p>
<p>Likewise, early evidence of Volkswagen’s misconduct was published in a 2014 scientific study but remained otherwise <a href="http://www.citylab.com/crime/2015/09/the-study-that-brought-down-volkswagen/407149/">under the radar</a>.</p>
<p>Publicity is what turns transgression into scandal. Acting as a detonator, it forces third parties (who might have otherwise turned a blind eye) to denounce the perpetrators. Once the story is out there, bystanders have no other option than to condemn the publicised transgression. Scandals then start diffusing. In the age of social media and instant global news, they spread like wildfire.</p>
<p>Former associates of the perpetrator and actors categorised as being similar quickly suffer from a <a href="http://asq.sagepub.com/content/54/2/195.short">suspicion of culpability</a> – “If Volkswagen does it, others probably are too, right?” </p>
<p>At this point, being guilty or innocent does not really matter. The taken-for-granted assumption that corporations act in a morally acceptable manner vanishes; entire sectors become subject to public scrutiny. </p>
<p>The practices of Ford, BMW, Renault-Nissan, and others, are <a href="http://www.independent.co.uk/news/business/news/volkswagen-emissions-scandal-more-carmakers-implicated-as-tests-reveal-pollution-levels-of-popular-a6674386.html">questioned</a>. Eventually, misbehaviour casts a cloud over a whole <a href="http://amj.aom.org/content/58/1/169.short">industry</a>.</p>
<h2>Corporate scandals as regulatory devices</h2>
<p>Corporate scandals are not always bad news. When they weaken one or more central players, they open market opportunities to competitors. In the aftermath of the Enron scandal, for instance, the “big four” audit firms ended up <a href="http://amj.aom.org/content/51/3/495.short">capturing</a> most of Arthur Andersen’s former clients. In November 2015, Fiat-Chrysler and Volvo both recorded all-time high <a href="http://www.automobilemag.com/news/november-2015-auto-sales-records-everywhere/">sales</a> in the US.</p>
<p>Scandals may also have a greater virtue: they call attention to moral issues and durably affect how consumers and stakeholders evaluate organisations. In an ongoing research project with a researcher at Columbia University, we find <a href="https://www.researchgate.net/project/The-Consequences-of-Scandals-on-Organizational-Competition">evidence</a> that the organisations best positioned to benefit from scandal are those which provide a close substitute to the perpetrator’s product and are known for enforcing stricter norms. In other words, scandals provide the most virtuous firms with a competitive edge.</p>
<p>In all, corporate scandals contribute positively to the long-term evolution of industries. Scandals shed light on organisational practices that used to be formally condemned yet commonly ignored, such as cooking the books (such as <a href="http://www.worldfinance.com/special-reports/the-parmalat-scandal">Parmalat</a>) or struggling with research (such as <a href="http://www.wsj.com/articles/theranos-has-struggled-with-blood-tests-1444881901?mod=djemalertNEWS">Theranos</a>).</p>
<p>By exposing misconduct to the public eye, scandals generate moralising discourses and bring the question of organisational norm enforcement to the forefront of the political debate. </p>
<p>They also force governments and regulators to redefine and enforce stricter rules. While the clamour of the 2001 infamous Enron bankruptcy has long faded away, the Sarbanes-Oxley accounting rules, implemented in the wake of the scandal to tighten financial disclosures and limit conflicts of interest, <a href="http://www.forbes.com/sites/hbsworkingknowledge/2014/03/10/the-costs-and-benefits-of-sarbanes-oxley/#1221974f2776">guide and constrain</a> the accounting practices of millions of corporations today.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/148937/original/image-20161206-25768-n3qhg1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/148937/original/image-20161206-25768-n3qhg1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=519&fit=crop&dpr=1 600w, https://images.theconversation.com/files/148937/original/image-20161206-25768-n3qhg1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=519&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/148937/original/image-20161206-25768-n3qhg1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=519&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/148937/original/image-20161206-25768-n3qhg1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=652&fit=crop&dpr=1 754w, https://images.theconversation.com/files/148937/original/image-20161206-25768-n3qhg1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=652&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/148937/original/image-20161206-25768-n3qhg1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=652&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Theranos, which claims to get accurate test results from small amounts of blood, also had a tough year.</span>
<span class="attribution"><a class="source" href="https://c2.staticflickr.com/6/5480/12113343003_9962d13513_b.jpg">Steve Jurvetson/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>New rules of the game</h2>
<p>A year has passed since Dieselgate, and the global automobile industry is already different: playing with regulatory tests is clearly no longer an option. Not only has the cost of cheating tests has <a href="http://www.nytimes.com/2016/04/23/business/international/volkswagen-loss-emissions-scandal.html">become exorbitant</a> but the probability of being caught is now almost certain, with regulators in all countries tightly scrutinising emission test results. </p>
<p>The result is much more than symbolic: actual engine emission reductions are in order across the industry. Faced with the true cost of meeting emission targets, automakers such as <a href="http://www.reuters.com/article/us-renault-diesel-exclusive-idUSKCN11C1MF">Renault</a> and <a href="http://uk.reuters.com/article/uk-autoshow-paris-toyota-diesel-idUKKCN11Z1AC">Toyota</a> are already phasing out diesel engines and reorienting their research and development effort towards low-emission technologies. </p>
<p>Others will follow suit, because Dieselgate displaced the nature of organisational competition. In the post-emission scandal car industry, the players best able to innovate and offer truly cleaner propulsion systems are the ones that will survive and thrive. </p>
<p>Volkswagen’s top managers learnt the lesson firsthand. They recently announced the firm’s <a href="http://www.forbes.com/sites/greatspeculations/2016/06/21/volkswagens-strategy-2025-focuses-on-a-greener-future-for-the-company/#7efb79923ce5">ambition</a> to become the world leader in electric cars by 2025.</p><img src="https://counter.theconversation.com/content/69867/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Julien Jourdan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Fallout from the Volkswagen case shows how scandals can give virtuous organisations a competitive edge and help industries evolve.Julien Jourdan, Professeur, Université Paris Dauphine – PSLLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/675012016-10-24T04:09:26Z2016-10-24T04:09:26ZWhy companies like Wells Fargo ignore their whistleblowers – at their peril<p><a href="http://www.nbcnews.com/id/11839694/ns/business-corporate_scandals/t/enron-whistleblower-tells-crooked-company/#.WA1Xktzrr_Q">Enron</a>. <a href="http://usatoday30.usatoday.com/money/companies/regulation/2008-02-14-cynthia-cooper-whistleblower_N.htm">Worldcom</a>. The <a href="http://content.time.com/time/business/article/0,8599,1877181,00.html">Madoff scandal</a>. The <a href="http://www.rollingstone.com/politics/news/the-9-billion-witness-20141106">mortgage meltdown</a>. Now <a href="http://www.nytimes.com/2016/10/12/business/dealbook/at-wells-fargo-complaints-about-fraudulent-accounts-since-2005.html?_r=0">Wells Fargo</a>. </p>
<p>High-profile corporate frauds like these all seem to follow the same pattern. First the misconduct is discovered, and then we learn about all of the whistleblowers who tried to stop the fraud much earlier. Congress then tries to enhance whistleblower protections, with varying success. </p>
<p>The <a href="http://www.soxlaw.com">Sarbanes-Oxley Act</a>, passed in 2002 after the Enron and Worlcom scandals, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2064061">was supposed to protect whistleblowers</a> who uncovered accounting frauds, but judges <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2064061">typically rejected</a> their retaliation claims. The <a href="https://www.whitehouse.gov/economy/middle-class/dodd-frank-wall-street-reform">Dodd Frank Act</a>, approved in 2010, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2020527">provides financial rewards</a> for certain whistleblowers. Its success is still unclear.</p>
<p>While these laws may protect employees who expose wrongdoing from retaliation and encourage more to do the same, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=930226">nothing requires employers</a> to take their disclosures seriously. And as we saw with the latest scandal involving Wells Fargo, several former employees say they tried to get the company’s attention <a href="http://www.nytimes.com/2016/10/12/business/dealbook/at-wells-fargo-complaints-about-fraudulent-accounts-since-2005.html?_r=0">in 2005</a> and <a href="https://news.vice.com/story/wells-fargo-bank-scandal?cl=fp">2006</a>, to no avail. </p>
<p>Their ineffectiveness is hardly unique. The <a href="https://berkleycenter.georgetown.edu/publications/2011-national-business-ethics-survey-workplace-ethics-in-transition">2011 National Business Ethics Survey</a> found that 40 percent of employees who reported misconduct believed that their report had not been investigated. When an investigation did take place, over half thought the process was unfair.</p>
<p>So why don’t companies make better use of the information they get from their whistleblowers – especially when ignoring them could expose their company to millions or even <a href="https://www.justice.gov/opa/pr/glaxosmithkline-plead-guilty-and-pay-3-billion-resolve-fraud-allegations-and-failure-report">billions</a> in liability and permanently tarnish their brand?</p>
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<figcaption><span class="caption">Socially awkward whistleblowing in ‘The Big Short.’</span></figcaption>
</figure>
<h2>Who looks the part</h2>
<p>For a start, real whistleblowers don’t always match our mental image. </p>
<p>Our idealized image of whistleblowers isn’t doing us any favors. We assume that whistleblowing will come from top employees. But when the company already has a poor ethics culture, those top employees may very well be the ones engaged in the misconduct. </p>
<p>Instead, as I described in a previous <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=930226">research paper</a>, important information might originate from employees who don’t fit in or are labeled as complainers or poor performers. </p>
<p>In other words, we expect the true whistleblower to be Ryan Gosling’s suave character in “The Big Short,” while ignoring the angry insights from Steve Carrell, on account of his bad haircut and terrible social skills.</p>
<p>To take whistleblowers seriously, we need to set aside our judgments about them and their motives and focus instead on the message they convey. In the words of negotiation gurus Roger Fisher and Bill Ury, “<a href="https://books.google.com/books?id=SgONZTjbqpgC&dq=%22getting+to+yes%22&hl=en&sa=X&ved=0ahUKEwjft_uD0ufPAhVJ5WMKHWKiAk8Q6AEIOjAC">separate the people from the problem</a>.”</p>
<h2>Where there’s smoke, is there fire?</h2>
<p>A second problem with whistleblowing is that we tend to assume it’s not an emergency if other people don’t think so. </p>
<p>There is a principle in social psychology known as the “<a href="http://psycnet.apa.org/journals/bul/137/4/517/">bystander effect</a>,” which essentially means that people defer to others on how to interpret ambiguous situations and dread the idea of overreacting to a situation and later being embarrassed. It also means that when you observe others doing nothing in response to an apparent risk, you’re more likely to do the same. </p>
<p>In a <a href="http://psycnet.apa.org/journals/psp/10/3/215/">famous experiment</a>, researchers observed how people reacted to a room filling with smoke, contrasting the behavior of those who were alone to those accompanied by others who were instructed in advance to appear indifferent to the smoke. Of those who were alone, 75 percent reported the smoke to the experimenter. By contrast, only 10 percent of the subjects sitting with the passive seatmates reported the smoke.</p>
<p>The same may be true of whistleblowing. The fact that “everyone knows” about a particular type of misconduct may actually make people less likely to report it. In addition, when a particular type of misconduct becomes prevalent, those investigating may discount the severity of conduct they see frequently and thereby fail to realize that it has reached a crisis level.</p>
<h2>How whistleblowing is like an iceberg</h2>
<p>Another problem is that whistleblowers may not know which information is most important. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/142807/original/image-20161023-15950-509mx9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/142807/original/image-20161023-15950-509mx9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/142807/original/image-20161023-15950-509mx9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=508&fit=crop&dpr=1 600w, https://images.theconversation.com/files/142807/original/image-20161023-15950-509mx9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=508&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/142807/original/image-20161023-15950-509mx9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=508&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/142807/original/image-20161023-15950-509mx9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=639&fit=crop&dpr=1 754w, https://images.theconversation.com/files/142807/original/image-20161023-15950-509mx9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=639&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/142807/original/image-20161023-15950-509mx9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=639&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Good investigators dig below the surface of a complaint.</span>
<span class="attribution"><span class="source">ABA Corporate Compliance Officer Deskbook (forthcoming)</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Whistleblowers, especially those uncovering substantial misconduct, have only one piece of what might be a much larger puzzle. They also aren’t lawyers, so they don’t know whether a piece of information is legally important. They only know that the situation feels wrong. Consequently, the important nugget of information might be buried within a lot of irrelevant information.</p>
<p>The <a href="https://news.vice.com/story/wells-fargo-bank-scandal?cl=fp">2006 letter</a> from a Wells Fargo whistleblower – who disclosed that other employees were opening fake accounts – is a good example of this problem. The first page of the letter contains generic complaints about unfair treatment and possibly age discrimination. The second page then talks about how salespeople “gamed” the system to inflate their sales numbers – but apparently with the assistance and consent of the customer involved. Sandwiched between these (somewhat) benign accusations is a story about how a customer complained that accounts were opened without his knowledge or consent.</p>
<p>Wells Fargo apparently ignored the report, to its peril and the detriment of millions of customers. The person reading the letter may have started out feeling suspicious of the whistleblower, confirmed that suspicion based on the first page of the letter and then completely missed the important information on the second page. Like <a href="https://commons.wikimedia.org/wiki/File:Duck-Rabbit_illusion.jpg">this illusion</a>, once the reader forms an initial impression (e.g., that the image features a duck), they became blind to additional data that contradicts the impression (the image could also be a rabbit). </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/142804/original/image-20161023-15944-kx09wb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/142804/original/image-20161023-15944-kx09wb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=306&fit=crop&dpr=1 600w, https://images.theconversation.com/files/142804/original/image-20161023-15944-kx09wb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=306&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/142804/original/image-20161023-15944-kx09wb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=306&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/142804/original/image-20161023-15944-kx09wb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=384&fit=crop&dpr=1 754w, https://images.theconversation.com/files/142804/original/image-20161023-15944-kx09wb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=384&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/142804/original/image-20161023-15944-kx09wb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=384&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Is it a duck? Or a rabbit?</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Duck-Rabbit_illusion.jpg">J. Jastrow (1899) via Wikimedia Commons</a></span>
</figcaption>
</figure>
<p>The idea that we “see what we want to see” is not mere conjecture. <a href="http://psycnet.apa.org/journals/psp/91/4/612/">One study</a> found that people literally saw what they wanted to see in a drawing, perceiving an ambiguous drawing as a “B” or the number “13” depending upon which interpretation led to a more favorable result for themselves in the experiment. </p>
<h2>Challenges investigating complaints</h2>
<p>And a final problem: Explosive complaints are as rare as explosive luggage. </p>
<p>Publicly traded companies like Wells Fargo are required under <a href="https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0ahUKEwiyp76i6-fPAhUFx2MKHfakAr0QFggrMAI&url=https%3A%2F%2Fwww.sec.gov%2Fabout%2Flaws%2Fsoa2002.pdf&usg=AFQjCNG1R7ILxKpeO0FzcC-5beXMyCsz9A">Sarbanes-Oxley</a> to have a process for receiving and responding to anonymous whistleblower complaints. Wells Fargo, like many other companies, had a whistleblower hotline. Why didn’t those folks – whose job it was to investigate complaints – uncover the misconduct early enough to stop it?</p>
<p>Investigating corporate complaints is a lot like being a Transportation Security Administration agent. Most of the complaints they are sorting through will be regular luggage, with a few unauthorized bottles of liquid here and there. Take the problem of reading that 2006 letter and multiply it by 100 or 1,000 letters, almost all of which describe an isolated problem or conduct that isn’t illegal. You don’t get much practice at the most important part of your job (identifying explosives) when it virtually never happens.</p>
<p>Like TSA agents, investigators also have the challenge of identifying a new form of misconduct that doesn’t match the mental models of prior bad acts. In other words, Wells Fargo may have been most worried about mortgage fraud when they should have spent more time investigating fraud in retail banking.</p>
<p>Great investigators are like the guys from the History Channel’s “American Pickers” show. They meet the owners, listen to their story, go through the stuff themselves and then make judgments about what to pursue based on their independent judgment and experience. They’re also open to finding the “best” stuff in unexpected places. </p>
<p>Lastly, great investigators keep an eye out for patterns, noticing when seemingly isolated incidents may indicate a larger problem.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/4nMCB4qDHl0?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">American Pickers illustrate how to be a skilled investigator.</span></figcaption>
</figure>
<h2>An invaluable asset</h2>
<p>Managers and corporate officers responding to complaints need to shed their preconceptions about whistleblowers and instead invest in the information they receive. </p>
<p>Rather than grumbling about the cost of dealing with them, companies should view their information as a valuable corporate asset. Preventative investments like training managers on responding to whistleblowers, maintaining a hotline and hiring investigators and compliance officers to follow their leads ultimately serve a company’s long-term interests.</p>
<p>If the Wells Fargo scandal proves anything, it is that a 164-year-old brand can be tarnished overnight. A whistleblower – however flawed she may be – may be the last person standing between a company and the loss of its reputation.</p><img src="https://counter.theconversation.com/content/67501/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Elizabeth C. Tippett does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The bank’s recent scandal probably would never have happened had senior management only listened to Wells Fargo’s whistleblowers.Elizabeth C. Tippett, Assistant Professor, School of Law, University of OregonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/669512016-10-14T19:09:30Z2016-10-14T19:09:30ZWill Samsung forget its safety lessons as it moves beyond the Note 7 debacle?<figure><img src="https://images.theconversation.com/files/141592/original/image-20161013-31310-pchemh.jpg?ixlib=rb-1.1.0&rect=210%2C10%2C800%2C456&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/135518748@N08/27458903223/in/photolist-HeEURS-GsE9Pz-JvedyC-JzcNNi-HQs4gV-HQs4TX-vFMxxu-uws54G-MVuLSd-N3Beay-LkFpJq-JY44Zu-JR1Xg4-JR1VB2-KJxFcf-JR1C3p-KMochr-KEyEcB-JR1AP2-KmeJBd-JQLXHq-KEx396-JQYNRx-KJvJQS-KmeGgS-JQLUFJ-KJvGsf-JQLTX9-KJvFbs-JQYLqv-KJvEps-Kjijay-Jt93SF-GXRhoJ-GXRfJS-Ho6GDF-Ho6Esg-GsFjiH-Gsy1DE-Ho6qe6-GXQULL-Hh3bg4-GsEWUa-Hh32jr-HeFqM3-Hh1SrZ-GXPoqN-GsD3rB-Hk7RQJ-Hh1yvt">portal gda/Flickr</a></span></figcaption></figure><p>The massive recall of Samsung Note 7 smartphones, accompanied <a href="https://www.ft.com/content/58d215d4-8f69-11e6-a72e-b428cb934b78">by a halt to production</a> after reported battery fires is the latest in another year of breaking corporate scandals. The South Korean firm isn’t the first to experience safety problems as happened in this case – and it is a feature of corporate behaviour to let focus on this issue come and go in favour of other priorities.</p>
<p>The quagmire that Samsung finds itself in is of a different character to many other high-profile cases including Volkswagen’s <a href="https://theconversation.com/how-volkswagen-got-caught-cheating-emissions-tests-by-a-clean-air-ngo-47951">emission-cheating device</a> or the <a href="https://theconversation.com/how-wells-fargo-encouraged-employees-to-commit-fraud-66615">Wells Fargo fake account scandal</a>. For a start there appears to be nothing deliberate about Samsung’s faulty phone problem. And judging by appearance, its reactions to the ballooning scandal have been sincere, including its <a href="http://www.bbc.co.uk/news/business-37253742">previous decision to recall 2.5m Samsung Note 7 devices</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=281&fit=crop&dpr=1 600w, https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=281&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=281&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=353&fit=crop&dpr=1 754w, https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=353&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=353&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Tarnished image.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/mynameispaul/2319745226/in/photolist-qJdgxB-qG65Cb-qrXt1Z-qJnPAF-qJnLTg-qG62Td-8rwYp4-4r1kip-4r5qDm-4r5qsE-4wZirm">Paul/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
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</figure>
<p>Rather than irresponsibility, Samsung appears likely to have underestimated some crucial safety issues. The company has reportedly worked very hard to implement cutting-edge technological features such as an <a href="https://news.samsung.com/global/everything-you-need-to-know-about-the-galaxy-note7s-iris-scanner">iris scanner</a> for improved security. </p>
<p>If it does turn out to be the case that the company temporarily took its eye off the ball on safety issues, it wouldn’t be alone. As it happens, large business organisations have a tendency to gradually <a href="http://amj.aom.org/content/53/3/451.abstract">“forget” safety routines or protocols</a> that have been put in place for accident prevention or safety improvement in favour of an increased focus on innovation or cost efficiency. </p>
<h2>Brand damage</h2>
<p>Whatever the outcome of Samsung’s investigations, the company now has to deal with the media commotion this scandal has attracted. This incident has not had especially dire consequences compared to other scandals – in VW’s case, for instance, the <a href="http/theconversation.com/the-not-so-invisible-damage-from-vw-diesel-cheat-100-million-in-health-costs-48296">health implications are on a grander scale</a>. In Samsung’s case, damage and injury are not to the fore, but there are two main characteristics. The first is the sheer scale of the recall: some estimates reckon <a href="http://www.reuters.com/article/us-samsung-elec-smartphones-costs-idUSKCN12B0FX">Samsung could end up losing around US$17 billion because of the recall</a>. </p>
<p>The nature of the Samsung case also has an impact in terms of perceptions and visibility. Damage <a href="https://www.cnet.com/news/why-is-samsung-galaxy-note-7-exploding-overheating/">has been limited</a>, but some effects have been extremely visible – and for many, scary. Several airlines, airports, and aviation bodies warned against or even <a href="http://whatson.ae/dubai/2016/09/the-samsung-galaxy-note-7-has-been-banned-on-board-uae-airlines/">banned the devices</a>, or insist they are turned off for the duration of the flight. There was <a href="http://www.nytimes.com/2016/10/06/business/southwest-samsung.html">one evacuation prior to take-off on a Southwest Airlines flight</a> due to smoke in the passenger section, emanating from a Samsung Note 7 device. Making people fear for their lives is guaranteed to provoke negative attention to a brand however effective and honest a company’s response might be.</p>
<p>What should Samsung do? Seeing as public attention is still very much on this issue, dealing with it robustly is important. A full recall has already been made, which is a signal to stakeholders that the company is taking the issue seriously. One video apology has already been made. Likely more will be needed, along with a promise to prevent such incidents from recurring. Some form of compensation may be in order.</p>
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<p>An apology certainly does not hurt when a company is clearly culpable. It may encourage the public to forgive – and possibly forget – faster. It was essentially with such manoeuvres that <a href="http://mobile.nytimes.com/2002/03/23/your-money/tylenol-made-a-hero-of-johnson-johnson-the-recall-that-started.html">Johnson & Johnson dealt with the far more serious Tylenol scandal in 1982</a>, in which cyanide-laced painkiller capsules left seven people dead. The company and the product were back on their feet in a matter of months. If Samsung successfully manages the PR, <a href="http://amr.aom.org/content/early/2015/09/08/amr.2014.0208.short">the public will likely forget the issue relatively quickly</a>, and the company’s long-term reputational damage will be negligible at worst.</p>
<h2>Break the pattern</h2>
<p>All of this, of course, depends on preventing similar problems from occurring in the future. For this, that tendency for safety routines to fall short of the required standard needs to be definitively addressed, and efforts made to make those routines stick – long term. </p>
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<a href="https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=486&fit=crop&dpr=1 600w, https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=486&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=486&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=611&fit=crop&dpr=1 754w, https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=611&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=611&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The 1986 Challenger disaster.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-245968618/stock-photo-space-shuttle-challenger-disaster-space-shuttle-exhaust-plumes-entwined-around-a-ball-of-gas-after-a-few-seconds-after-the-explosion-caused-by-ruptured-o-rings-jan-28-1986.html?src=5CjH1PHkxutQH6QBlJmEjQ-1-1">Everett Historical/Shutterstock</a></span>
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<p>This will not be easy. As time passes, organisations tend to oscillate back towards more innovation and efficiency and away from a safety-focused approach. They can forget the lessons they learned from these episodes, as observed in a recent longitudinal <a href="http://pubsonline.informs.org/doi/abs/10.1287/orsc.2015.1010">study of 146 pharmaceutical firms in the US</a>. Such a process was painfully experienced by US space agency NASA with the disintegration of the <a href="http://www.space.com/19436-columbia-disaster.html">Columbia shuttle</a> in 2003, after the tragic <a href="http://www.history.com/topics/challenger-disaster">Challenger shuttle accident</a> of 1986. While initially focusing on safety after the Challenger accident, efficiency slowly gained priority over the years. There was <a href="https://www.nasa.gov/columbia/home/CAIB_Vol1.html">a reduction in the number of safety personnel</a> and <a href="https://books.google.co.uk/books?hl=fi&lr=&id=wIfAU5exEPQC&oi=fnd&pg=PA33&dq=vaughan+columbia+2005&ots=DPy1ibuJxf&sig=f6-iCbaVekjtcQIuvtw6VurUUIY&redir_esc=y#v=onepage&q=vaughan%20columbia%202005&f=false">a general depreciation of organisational knowledge</a>, and a similar accident eventually followed. To avoid this type of reversion, Samsung will need to safeguard its safety routines from now on and embed the memory of the faults that lead to this incident. </p>
<p>This could be achieved through integrating safety training into recruitment and career development processes, by introducing safeguards against safety routines being overridden – and could even, in a brave and humble company, include an annual commemoration of the debacle as a lasting and powerful warning.</p><img src="https://counter.theconversation.com/content/66951/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jukka Rintamäki receives funding from the European Commission as part of the Marie Skłodowska-Curie actions (MSCA). The funding is related to his continuing work on collective remembering and forgetting of corporate irresponsibility.</span></em></p>How can companies brought low by scandal or failure remember the lessons they should be learning?Jukka Rintamäki, Marie Curie Research Fellow, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/660372016-10-03T23:42:33Z2016-10-03T23:42:33ZAustralian corporate social responsibility reports are little better than window dressing<figure><img src="https://images.theconversation.com/files/140073/original/image-20161003-20213-1k7k494.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Despite the increased focus on corporate social responsibility, businesses don't seem to be cleaning up their act.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>Despite increasing visibility of corporate social responsibility (CSR) initiatives over the last decade, real change in corporate behaviour has tended to be modest. </p>
<p>This is clear from the sections in financial reports from Australian companies listed on the stock exchange that cover social and environmental initiatives.
For example, only a fraction of Australian firms report transparently, using <a href="https://www.globalreporting.org/standards/g4/Pages/default.aspx">suggested guidelines</a> when publishing annual reports. Instead, there are carefully tailored public relations documents, fancy media campaigns, and glossy reports that showcase the firm’s social good deeds. This weighting of image over substance, and <a href="http://www.afr.com/leadership/management/corporate-social-responsibility-has-an-image-problem-but-dont-kill-it-20160229-gn6cma">spin over objectivity</a>, leaves us questioning whether social initiatives today are simply window dressing. </p>
<p>According to the longest running study of CSR by the <a href="http://accsr.com.au/wp-content/uploads/2015/04/ACCSR_State_of_CSR_2014_FINAL020614.pdf">Australian Centre for Corporate Social Responsibility</a>, Australians believe that progress in CSR has remained slow and insufficient over the last decade. The same study reports that compared to ten years ago, today there is at least an awareness of CSR. </p>
<p>It seems the majority of Australian businesses are just aware rather than truly integrating CSR into what they do. For example, although <a href="http://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/annual-reports/2016AnnualReview.pdf">Qantas</a> focuses increasingly on addressing its approach to and role in global sustainability, the balance of its latest annual reporting on sustainability in 2016 seems predominantly about the emerging possibilities for Qantas, rather than reducing damage to the environment caused by the company’s CO2 emissions. </p>
<p>Similarly, <a href="http://www.bhpbilliton.com/%7E/media/bhp/documents/investors/annual-reports/2015/bhpbillitonsustainabilityreport2015_interactive.pdf">BHP</a> states in its latest annual report that:</p>
<blockquote>
<p>“Sustainability is core to our business strategy and integrated into our decision-making. It helps us live our charter values of putting health and safety first, being environmentally responsible and supporting our host communities”. </p>
</blockquote>
<p>However, the same report also informs about five fatalities and two significant community incidents in 2015 alone, as well as the disastrous Samarco tailings dam collapse in Brazil. It seems that the company is all talk and no strategic action.</p>
<p>Another example is ANZ bank, which sets its yearly and half-yearly sustainability targets in a separate sustainability report. But, while the bank’s <a href="http://www.shareholder.anz.com/sites/default/files/anz_2016_half_year_corporate_sustainability_report_-_030516_final_9.45am.pdf">2016 report</a> shows that the organisation wants to improve its sustainability deeds, targets like “improving customer satisfaction ranking” are what the organisation should be striving for anyway in order to achieve its yearly profit. </p>
<p>In getting companies to do better, there are various motivations. This could come from increasing regulations, class action lawsuits, and social movements holding firms accountable not just for their misdeeds, but their very existence. An example of such jurisdictions is South Australia’s <a href="http://www.abc.net.au/news/2016-08-02/sportsbet-hits-out-at-sa-governments-online-betting-tax/7680514">“Punters Tax”</a> where 15% of South Australians’ losses will be payable in tax by online betting agencies, in part to assist with gambling addiction. We expect other jurisdictions to follow with similar taxes.</p>
<p>However good initiatives should also be encouraged and promoted. Working with communities to proactively mitigate the potentially damaging consequences of business activities can create significant long-term benefits for generations to come. For example, <a href="http://fmgl.com.au/community/five-star-program/aboriginal-cadetships/">Fortescue Metal’s</a> commitment to training and employing indigenous workers could change the lives of thousands of young people in the Pilbara.</p>
<p>Judging from the CSR reports of Australian companies above, businesses here seem to have at least understood in the last decade that the social and natural environments within which they reside are intertwined with their own existence. But, as there is no national standard on exactly how deep CSR must be entrenched in Australian companies’ strategies, the approach by even the largest firms towards CSR remains operational at best. </p>
<p>If firms truly want to incorporate CSR into their long-term strategy, then this is where CSR needs to sit right in the heart of the firm. Every action that follows, every move the firm does will then simply be a way of communicating this central cause.</p><img src="https://counter.theconversation.com/content/66037/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Rice is affiliated with the NTEU.</span></em></p><p class="fine-print"><em><span>Stephanie Schleimer does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Publicly listed Australian companies are still falling short of proper corporate social responsibility, judging by most recent reports.Stephanie Schleimer, Senior Lecturer in Strategy, Griffith UniversityJohn Rice, Professor of Management, University of New EnglandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/608902016-07-01T11:35:51Z2016-07-01T11:35:51ZCorporate deception: where do we draw the line on lying at work?<figure><img src="https://images.theconversation.com/files/128263/original/image-20160627-28358-1u7acow.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A little white lie can't hurt...right?</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/dl2_lim.mhtml?src=7XVXMdH_imvCizH779H2Dg-1-0&id=252136366&size=huge_jpg">Shutterstock/Syda Productions</a></span></figcaption></figure><p>Lying is part of everyday life and has been since humans first interacted. Consequently, deception has been a focus for ethical and philosophical debates for many centuries. </p>
<p>There have been those who have perceived all deliberate deception as ethically wrong, <a href="http://www.bbc.co.uk/ethics/lying/lying_1.shtml">such as Immanuel Kant</a>,
while others have sought to recognise the subtleties and complexities of human interactions and the ways in which “good” might come from deception. For example, Thomas Aquinas thought <a href="http://plato.stanford.edu/entries/aquinas-moral-political/#Lyi">all lies were wrong</a>, but that there was a hierarchy whereby some lies were “helpful” and so were pardonable.</p>
<p>When it comes to business, the general expectation is that managers should and will tell the truth in their dealings with employees and customers, but these are murky waters. Business leaders may be “economical” with the truth to protect competitive advantage or to limit damage to their organisation. </p>
<p>Recently, research into corporate scandals – such as those enveloping <a href="http://www.economist.com/node/940091">Enron</a> and <a href="https://theconversation.com/how-volkswagen-got-caught-cheating-emissions-tests-by-a-clean-air-ngo-47951">Volkswagen</a> – and <a href="https://startupvolley.wordpress.com/2013/04/23/famous-corporate-whistleblowers/">individual acts of whistleblowing</a> have shed greater light on the shadiness of the business world. Though always at <a href="https://theconversation.com/from-dating-profiles-to-brexit-how-to-spot-an-online-lie-61124">risk of exposure</a>, large-scale fibs happen.</p>
<h2>White lies</h2>
<p>But what of the relatively mundane and everyday deception that takes place in the business world? Despite the ubiquity of lies in day-to-day life, relatively little explicit attention has been paid to deception in studies of organisations. Perhaps because it is so commonplace, lying often passes without comment. Indeed, the <a href="http://org.sagepub.com/content/21/6/867">original intention of our research</a> had nothing to do with lying at work: deception was something that we discovered as part of an in-depth study of a call centre, where our initial objective was to better understand work experiences and the nature of employee engagement. </p>
<p>We had heard a presentation from the co-owner describing how happy and motivated the workforce was. This did not resonate with past evidence on the nature of work in most call centres and we wanted to examine this assertion for ourselves – but it turned out to be true. Furthermore, through in-depth interviews with a majority of the employees and managers working in the company, it became clear that the shared experience of deception that the workers actively and collectively engaged in on an ongoing basis was at the heart of their commitment and enjoyment. </p>
<p>The company in question is a virtual personal assistant and reception services provider and its strategy is founded on providing a high quality, discreet professional service for its customers. The organisation exemplifies what has been described as “strategic deception”: a central feature is that receptionists conceal that theirs is a sub-contracted operation. </p>
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<p>Individual receptionists receive calls on behalf of multiple clients located throughout the country and working in any industry sector. Part of the skill of the receptionists is to flit between “emotional performances”: one minute they could be answering a call on behalf of an events firm and the next for an undertaker. </p>
<p>Technology instantly allows the receptionists to see on a screen who is calling and for whom as they pick up the call. The competitive advantage enjoyed by this market-leading firm relied on the personalities and skills of their employees in meeting client needs, while obscuring the truth that they are neither employed by, nor located in the office of, the company that has been called. </p>
<p>The receptionists developed multiple ways in which they would hide this deceit: pretending to hold conversations with people who were not there, suggesting that the person was in “the other office”, or claiming to be a new recruit who did not have detailed knowledge of the organisation. On one occasion that passed into the company’s folklore, a receptionist pretended to be blind so as not to have to give directions to a work location that they had never been to but were assumed to be situated in.</p>
<p>The autonomy and collective sharing of ideas on how to lie successfully –- and in doing so maintain a discreet, high-quality service –- was reported by the receptionists as both empowering and enjoyable. Many reported that they had grown in self-confidence as a result of their work and laughed as they recounted to us how they “lied for a living”. </p>
<p>The organisation is doing nothing illegal by lying. In fact, one might conclude that these acts of deception are no more than white lies, or fall under Thomas Aquinas’ “helpful lies” category. Perhaps one might consider this everyday behaviour as little different to <a href="http://www.nytimes.com/2014/02/23/opinion/sunday/when-doctors-need-to-lie.html?_r=0">doctors lying to protect patients</a>, or flight attendants lying to calm passengers. But there are at least two important differences here from those examples: the organisation had deception as a strategic aspect of their business plan, and the deception was intrinsic to the ongoing role of each employee. </p>
<h2>Help or hindrance?</h2>
<p>Here lies a bigger question: what about circumstances when such organisationally promoted and legitimated deception is not as minor and may result in significant harm to others? Our research shows how the normalisation of lying takes place and, through this process, how strategic deception at the organisational level becomes accepted and endorsed by employees. But at what stage should this lying be halted?</p>
<p>Though there certainly may be benefits for employees lying in the workplace, our study raises deeper questions about the ethical implications of organisations that require their employees to deceive. At the outsourced reception company, managers invoked the “positive virtues” of professionalism and customer care to legitimate lying to callers. </p>
<p>So what, if any, are the limits to such invocations? The ubiquity and strength of customer service and market discourses in our increasingly consumerist societies makes us wonder just how far employees might go in their acts of strategic deception.</p><img src="https://counter.theconversation.com/content/60890/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rick Delbridge received funding from the Economic & Social Research Council in support of this research.</span></em></p><p class="fine-print"><em><span>Sarah Jenkins received funding from the Economic & Social Research Council in support of this research. She is also a member of the Labour Party but does not feel that this influenced this research in any way.</span></em></p>Unravelling the complex pros and cons of fibbing.Rick Delbridge, University Dean of Research, Innovation and Enterprise and Professor of Organizational Analysis, Cardiff UniversitySarah Jenkins, Lecturer in human resources, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/595952016-05-22T20:06:39Z2016-05-22T20:06:39ZMurray Goulburn and Fonterra are playing chicken with dairy farmers<figure><img src="https://images.theconversation.com/files/123124/original/image-20160519-22310-19bce32.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Dairy giants Murray Goulburn and Fonterra competed in a race to the bottom.</span> <span class="attribution"><span class="source">cskk/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>Dairy giants Murray Goulburn and Fonterra <a href="http://www.gametheory.net/dictionary/games/GameofChicken.html">played a dangerous game of chicken</a> by hanging onto high milk prices despite the global dairy market volatility. Even though both cooperatives are shifting responsibility to each other for the fall in milk prices, which is pushing dairy farmers to the brink, they are both at fault for their race to the bottom. Now both will have to work hard to win back the trust of farmers. </p>
<p>The two companies, both cooperatives (although Fonterra has most of its members in New Zealand) compete head-to-head for farmer suppliers in Australia. Fonterra is the world’s largest dairy exporter accounting for about 40% of global dairy trade and is the fourth largest dairy company behind Nestle, Danone and Lactalis with an annual gross revenue of A$17.61 billion, and 1200 suppliers in Victoria, Tasmania and South Australia. By contrast Murray Goulburn has annual sales revenues of A$2.87 billion, 9% of the global trade market and has 2500 suppliers in Victoria and Tasmania. </p>
<p>Since 2005, when Fonterra purchased Bonlac the two companies have fought for suppliers in Australia and grown their respective businesses to meet increasing global demand for dairy product. Their resulting pricing models to farmers were assured while dairy prices continued to rise. Farmers accepted claw back provisions - it was never thought that they would be invoked - and the companies accepted loose contractual obligations to supply. The competitive environment that ensued, from which dairy farmers benefited meant that neither company was able to hold the mantle of market leader for long. </p>
<p>The game of chicken was on as <a href="https://www.fonterra.com/nz/en/Hub+Sites/News+and+Media/Media+Releases/FONTERRA+FORECASTS+TOTAL+PAYOUT+AVAILABLE+TO+FARMERS+FOR+201516+AND+ANNOUNCES+FONTERRA+CO-OP+SUPPORT">early as August, 2015</a> when Fonterra began reducing its advance payments to New Zealand dairy farmers). Throughout the following eight months Murray Goulburn and Fonterra steadfastly sat behind their respective wheels committed to hanging tough. Much was at stake.</p>
<p>For both cooperatives a reduction in advance payments to their suppliers in March, or earlier would have saved them considerable reputational risk, and in many cases reduced the exposure of dairy farmers to financial failure. Instead they chose not to swerve, but to hang tough, failing to ignore the <a href="https://theconversation.com/milk-price-cuts-reflect-the-reality-of-sweeping-changes-in-global-dairy-market-59251">significant decline in global prices</a>, for which they both appeared oblivious. </p>
<p>While Murray Goulburn swerved first by lowering the milk solid price, they did so far too late. Fonterra swerved last, but by then the events in the international market had raced past the game – leaving both companies’ suppliers stranded with the over-payment problem from which they now suffer. Recklessly both cooperatives thought they could run the gauntlet with global dairy. That they actually did so for eight months is testimony to the merits of market competition. </p>
<p>Where to now for the two beleaguered companies and suffering dairy farmers? The benchmark for corporate behaviour and accepting responsibility for ‘bad’ outcomes was <a href="http://iml.jou.ufl.edu/projects/Fall02/Susi/tylenol.htm">set by Johnson & Johnson in 1982</a>. </p>
<p>The handling of the Tylenol crisis, where a series of poisoning deaths resulted from drug tampering, set the standard for corporate ethics against which all other subsequent behaviours can be compared. Johnson & Johnson took responsibility, took action and set about the recovery – despite not being responsible for the tampering of their product on shop shelves in Chicago. </p>
<p>It will be through remedial behaviour by each of the dairy giants over the next months that these cooperatives will re-cement their relationships with suppliers, as they both try to win over farmers and gain disproportionate market share at the others’ expense. The outcome both cooperatives have been seeking since Fonterra’s market entry in 2005. </p>
<p>Fonterra have reiterated the view that they warned farmers that the price paid did not <a href="https://www.fonterra.com/wps/wcm/connect/Fonterra_NewZealand_en/Fonterra/Hub%20Sites/News%20and%20Media/Media%20Releases/FONTERRA%20AUSTRALIA%20REVISES%20MILK%20PRICE%20FOR%20MAY%20AND%20JUNE%202016%20AND%20INTRODUCES%20SUPPORT%20LOAN/FONTERRA%20AUSTRALIA%20REVISES%20MILK%20PRICE%20FOR%20MAY%20AND%20JUNE%202016%20AND%20INTRODUCES%20SUPPORT%20LOAN?pageID=Z6QReDePPO8MIDC3JD2JM4CLHCGJMG6GPO4JM4733DIJM46G1DCJIT65BEC3OK6J1">reflect the collapse in global dairy prices</a> yet appear to have left the responsibility to them to manage. </p>
<p>Worse, Fonterra’s CEO, Theo Speirings, has now <a href="http://www.radionz.co.nz/news/rural/304226/fonterra-'robbing-from-australia-to-help-nz'">defended the price cut</a> on the grounds that their strategy is to repatriate profit for the benefit of their New Zealand shareholders. This overlooks that the majority that of tradeable shares are held by Australian superannuation funds and that Fonterra’s Australian suppliers had to be subsidising their New Zealand counterparts. How else do you explain the 30% increase in farm gate price on this side of the Tasman? </p>
<p>By contrast Murray Goulburn’s behaviour, especially that towards their suppliers, appears far more conciliatory. Murray Goulburn has been transparent about resignations from the board and management; open about reorganisation and appointment of their interim CEO, David Mallinson; and, shared with suppliers the prioritisation of effort. </p>
<p>They have now offered suppliers a Milk Supply Support Package designed to spread the impact of lower milk payments across the next three years. This package sits on the cooperative’s balance sheet - where it should - with no need to take on individual loans at supplier level. </p>
<p>Whether or not either company can emulate the recovery of Johnson & Johnson remains to be seen, but it is reasonable to expect considerable energy, effort and enterprise being expended by them in the months that follow. </p>
<p>Telling evidence will be reflected in market share in 12 months.</p>
<p><em>This piece has been altered since publication to correct Fonterra’s annual gross revenue, which is $A17.61 billion and Murray Goulburn’s annual sales revenue, which is $A2.87 billion.</em></p><img src="https://counter.theconversation.com/content/59595/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Two of the largest dairy cooperatives have been playing with farmers by pursuing a high price for milk when both should have taken into account fluctuations in the global dairy markets.James Lockhart, Senior Lecturer, School of Management, Massey UniversityDanny Donaghy, Professor of Dairy Production Systems, Massey UniversityHamish Gow, Professor of Agribusiness, Massey UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/525422016-01-05T03:10:27Z2016-01-05T03:10:27ZWhistleblower law needs more bite to fight greyhound cruelty and corporate fraud<figure><img src="https://images.theconversation.com/files/107225/original/image-20160104-28985-1mr3hii.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Stronger laws make for happy dogs. </span> <span class="attribution"><span class="source">Alexandra McEwen</span></span></figcaption></figure><p>One of the biggest animal welfare stories of 2015 was the revelations of widespread animal cruelty in the greyhound racing industry exposed by ABC Four Corner’s Gold Walkley award-winning program <a href="http://www.abc.net.au/news/2015-12-03/four-corners-greyhound-industry-investigation-wins-gold-walkley/6999908">Making a Killing</a>. </p>
<p>The fallout is ongoing. New South Wales, <a href="http://www.greyhoundreview.qld.gov.au/>">Queensland</a>, <a href="https://assets.justice.vic.gov.au/ric/resources/b08942c3-590c-432f-b7c9-ddcb037e639b/2015+own+motion+report+into+live+baiting+in+greyhound+racing+in+victoria.pdf">Victoria</a> and Tasmania have all instigated various forms of inquiry into animal welfare and integrity in the greyhound racing industry.</p>
<p>The <a href="http://www.greyhoundreview.qld.gov.au/pdf/final-report-1-june-2015.pdf">Queensland final report</a> was handed down in June, while in NSW a Special Commission of Inquiry and, in Tasmania, a <a href="http://www.parliament.tas.gov.au/ctee/Joint/Greyhound.htm">Joint Select Committee Inquiry</a> is underway, with a final report from each jurisdiction due in March 2016.</p>
<p>The Queensland report made a number of recommendations, including the establishment of a Queensland Racing Integrity Commission. The proposed regulatory approach includes auditing systems, intelligence capabilities, and “a whistleblower, anonymous complaint service” enabling “the broader community to report allegations, suspicions, concerns or general intelligence”. </p>
<p>While reform is sorely needed to reign in the flagrant sovereignty the racing industry has enjoyed to date, there is a substantial risk that the approach recommended will translate as a “business as usual” model, which ultimately sees the dynamics of corruption and animal cruelty find an alternative path of least resistance.</p>
<p>One obvious “business as usual” risk within the proposed reforms is its approach to whistleblowing. <a href="http://www.jstor.org/stable/25071466">Whistleblowing</a> refers to situations in which former or current organisation members make public interest disclosures about “illegal, immoral or illegitimate practices under the control of their employers to persons that may be able to effect action”. </p>
<p>The whistleblower is often an employee and the disclosure might be made internally, to a statutory body. Some whistleblower legislation in Australia also protects disclosure made directly to third parties, such as the media, in some circumstances. A whistleblower will generally possess insider information that the wider community does not. </p>
<h2>Who would blow the whistle for a dog?</h2>
<p>The majority of whistleblowers experience <a href="http://www.bmartin.cc/dissent/documents/Sawyeretal05.pdf">long-term adverse outcomes</a> as a result of blowing the whistle, including being subjected to various forms of reprisal and victimisation. Indeed, the assumption that fear of reprisal was the “primary disincentive to employee disclosure of wrongdoing” was <a href="http://digitalcommons.law.seattleu.edu/cgi/viewcontent.cgi?article=1656&context=sjsj">a major influence</a> in the adoption of an anti-retaliation model Australia’s early whistleblower protections enacted in the 1990s.</p>
<p>These provisions aim to protect whistleblowers from victimisation; unfortunately they have proven <a href="http://digitalcommons.law.seattleu.edu/cgi/viewcontent.cgi?article=1656&context=sjsj">largely ineffective</a>.</p>
<p>Despite the shortcomings related to anti-retaliation mechanisms, in Australia whistleblower protections for the public sector are relatively strong. Those available for the private sector are considerably weaker. For example, the whistleblower protections provided by the <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/">Corporations Act 2001</a> have been widely criticised and were subject to review by a federal senate committee as part of <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/ASIC/Final_Report/c14#c14f2">an inquiry</a> into the Australian Securities and Investments Commission’s operation.</p>
<p>You don’t not need to look far to find examples of whistleblower intimidation within Australia’s greyhound industry. In the context of the recent revelations <a href="http://www.smh.com.au/sport/greyhound-industry-whistleblowers-intimidated-threatened-and-ignored-20150217-13gw6n.html">whistleblowers</a> claimed that they had been “intimidated, threatened or pushed out of racing circles”.</p>
<p><a href="http://www.smh.com.au/environment/animals/a-report-into-a-mass-grave-site-of-greyhounds-in-the-hunter-valley-is-to-be-passed-to-police-and-the-rspca-for-consideration-of-charges-20150405-1md9pd.html">Potential witnesses</a> to the 2014 Parliamentary Inquiry into the NSW Greyhound Racing Industry were too afraid to speak out about alleged mass dog graves “because any link to them would come with reprisals”. </p>
<p>In an industry notorious for its alleged links to <a href="http://www.smh.com.au/nsw/going-to-the-dogs--bikies-dopers-and-fraudsters-20120811-2418m.html">organised crime</a> and corruption, the Queensland Report’s whistleblower provisions are likely to languish. </p>
<p>Who in these circumstances would be game to blow the whistle on behalf of a dog? </p>
<h2>Look to the US for better protection</h2>
<p>Under the whistleblower system proposed for Queensland’s greyhound industry, allegation or referral sources include licensed industry participants, including trainers, breeders or owners, members of the general public, local councils, and via audit and compliance activities.</p>
<p>How can we support and legitimise these potential whistleblowers when they take substantial risks to their livelihood, future employment opportunities, psychological well-being and potentially their personal safety to make a disclosure and to right a wrong?</p>
<p>Perhaps we need to look further afield, to the United States’ <a href="http://uscode.house.gov/view.xhtml?req=%28title:31%20section:3729%20edition:prelim%29">False Claims Act</a> (FCA) for inspiration. The FCA has been around for a century and a half and has the support of both sides of politics.</p>
<p>In basic terms and in its contemporary sense, “False Claims” refer to circumstances in which corporations knowingly submit false claims to the government for the purpose of financial gain. </p>
<p>Where a person discovers this fraud, provisions allow that person to file an action <a href="https://law.anu.edu.au/sites/all/files/users/u9705219/qui_tam_lawrep-018-jlm-jl-03022_0.pdf">on behalf of the government</a>. Proceedings are initiated through specialist legal firms and the whistleblower then presents the case for further action to the equivalent of Australia’s federal or state and territory Attorney General departments.</p>
<p>There are qualifications to these actions. For example, the action cannot be based on already publicly-disclosed allegations of transactions in a criminal, civil or administrative hearing.</p>
<p>The FCA has two key strengths that are not offered by the whistleblower mechanisms proposed in Queensland. </p>
<p>Firstly, it provides financial incentives for private whistleblowers to commence actions. If successful, the whistleblower becomes entitled to a percentage of any civil damages recovered.</p>
<p>This can be understood as a form of compensation for a risky act of conscience. The amount recovered can be substantial. For example, an action taken against pharmaceutical company Pfizer for off-label promotion and kick-backs under the US False Claims Act resulted in a total recovery of US$2.3 billion.</p>
<p>Secondly, given the victimisation and adverse outcomes the majority of whistleblowers experience, it is essential that as a society we support whistleblowers in recovering their pre-whistleblower status and legitimacy. Unlikely the majority of whistleblowers, those in the United States who receive backing of the Department of Justice in FCA actions “<a href="http://www.bmartin.cc/dissent/documents/Sawyeretal05.pdf">often survive and succeed</a>”.</p>
<p>Were the proposed greyhound racing regulatory reforms to include FCA style financial incentives and associated legal support, it is probable that whistleblower provisions would operate more effectively. </p>
<p>They may finally address the profound regulatory failures that have led to the current inquiries and to longstanding, widespread animal cruelty in the pursuit of gambling.</p><img src="https://counter.theconversation.com/content/52542/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alexandra McEwan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>People who expose wrongdoing – whether it’s cruelty against animals or corporate misconduct – deserve better protection and even financial incentives to do the right thing, as the US has shown.Alexandra McEwan, PhD Student, ANU College of Law, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/481082015-09-24T14:34:48Z2015-09-24T14:34:48ZWe keep choosing cars over clean air – that’s the real scandal<p>The Volkswagen emissions investigation looks set to be of one of the biggest corporate scandals in recent history – and we’ve seen quite a few.</p>
<p>While most of the focus will be on VW in the coming days and weeks, the real scandal lies elsewhere: with European governments and regulators who turned a blind eye to rule-bending. In some cases they’ve actually helped carmakers avoid environmental restrictions. </p>
<p>Documents leaked to the Guardian reveal just four months ago the UK, France and Germany all lobbied to <a href="http://www.theguardian.com/environment/2015/sep/24/uk-france-and-germany-lobbied-for-flawed-car-emissions-tests-documents-reveal">maintain loopholes</a> from outdated car emissions tests.</p>
<p>Such behaviour isn’t unusual. For decades European car industry regulation has been weak and inconsistent, while car traffic and the resulting air pollution levels have been allowed to increase manifold.</p>
<h2>The UK’s air pollution is getting worse</h2>
<p>The UK government quietly launched its <a href="https://www.gov.uk/government/news/government-launches-air-quality-consultation">consultation on air quality</a> earlier this month. This was in response to a supreme court ruling stating the government must take immediate action to cut nitrogen dioxide pollution, which has reached dangerous levels in many of the UK’s big cities.</p>
<p>The only national measure in the proposed plans are for clean air zones, similar to the one <a href="https://tfl.gov.uk/modes/driving/low-emission-zone">already run in London</a>, but responsibility for their implementation has been passed onto local authorities for which no additional money is available.</p>
<p>The document notes that approximately 80% of the NO<sub>x</sub> (nitrogen dioxide and nitric oxide) emissions are due to transport, with the largest source being diesel vehicles. Air pollution has been linked to <a href="https://www.bhf.org.uk/%7E/media/files/publications/medical-information-sheets/air-pollution_is21.pdf">coronary artery disease, heart attacks and strokes</a>.</p>
<p>In the consultation it is estimated that the impact of nitrogen dioxide on mortality is equivalent to <a href="https://consult.defra.gov.uk/airquality/draft-aq-plans">23,500 deaths</a> every year in the UK. This figure has been taken, along with earlier estimates of mortality due to particulate matter (<a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/304641/COMEAP_mortality_effects_of_long_term_exposure.pdf">29,000</a>), to give 52,500 premature deaths each year due to air pollution. </p>
<p>We can’t simply add up the mortality statistics from the two pollutants due to double counting, but this huge number should nevertheless be taken very seriously. In fact, it should be treated as a national emergency.</p>
<h2>An EU-wide problem</h2>
<p>Despite tightened emission standards for diesel vehicles, air pollution measurements in the UK have failed to show improvements. As such the gap between on-road and test measurements of emissions is not itself new. A <a href="http://www.transportenvironment.org/publications/dont-breathe-here-tackling-air-pollution-vehicles">number of studies</a> have indicated that new diesel vehicles breach EU standards when <a href="http://www.theicct.org/sites/default/files/publications/ICCT_PEMS-study_diesel-cars_20141010.pdf">tested under real world conditions</a>.</p>
<p>The recent report from campaign group <a href="http://www.transportenvironment.org/publications/dont-breathe-here-tackling-air-pollution-vehicles">Transport & Environment</a> found that nine out of every ten new diesel vehicles broke EU limits. On average real world NO<sub>x</sub> emissions were about <a href="http://www.theicct.org/spotlight/use-nox-emissions">seven times higher</a> than permitted levels. Cars from all the major motor manufacturers were in breach of the limits with the worst car producing 22 times than that permitted.</p>
<p>It is evident that the current practice of allowing motor manufacturers to select the bodies to test and check their compliance with emission limits is not fit for purpose and an independent testing authority should be established.</p>
<p>Yet for many years the European car industry has <a href="http://news.bbc.co.uk/1/hi/world/europe/6527547.stm">lobbied against tighter environmental regulation</a>, despite the mounting evidence of car transports’ rising negative impact on the climate (carbon emissions) and urban air pollution (NO<sub>x</sub> emissions).</p>
<p>In the UK, for example, successive governments have been very eager to <a href="https://www.gov.uk/government/publications/automotive-industry-in-the-uk-investment-opportunities/automotive-industry-in-the-uk-investment-opportunities">support car manufacturers with operations in the country</a>. Just earlier this year the industry celebrated <a href="http://www.smmt.co.uk/2015/04/new-car-registrations-march-2015/">record sales of cars</a> and vans in the UK.</p>
<p>Yet the dark shadows of this one-sided policy now become visible. While the overwhelming focus of the UK’s transport strategy has been on expanding individual car journeys, <a href="http://www.bettertransport.org.uk/sites/default/files/research-files/Getting_there_final_web_0.pdf">public transport</a> has become more expensive and worse in terms of quality and reach.</p>
<p>Hopefully something good will come out of the VW scandal. Perhaps the UK and European public will become more aware of the threats of air pollution, not only by diesel engines, but by all car traffic. We need a sustainable transport strategy and have a real go at tackling air pollution in our biggest cities. With urban centres getting ever bigger and car ownership steadily rising, the problem is not going to go away.</p><img src="https://counter.theconversation.com/content/48108/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steffen Böhm has received funding from: British Academy, East of England Co-operative Society, Green Light Trust, Swedish Energy Agency and the ESRC, though he writes in a personal capacity.</span></em></p><p class="fine-print"><em><span>Ian Colbeck receives funding from NERC, EU</span></em></p>If some good can come out of the Volkswagen scandal, it’s that public will be more clued up about air pollution from cars.Steffen Böhm, Professor in Management and Sustainability, and Director, Essex Sustainability Institute, University of EssexIan Colbeck, Professor of Environmental Science, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/479802015-09-24T09:57:33Z2015-09-24T09:57:33ZVolkswagen CEO has fallen on his sword – but is it the death of diesel?<p>Volkswagen CEO Martin Winterkorn <a href="http://www.theguardian.com/business/2015/sep/23/volkswagen-ceo-martin-winterkorn-quits-over-diesel-emissions-scandal">bowed to mounting pressure for his resignation</a> as a result of the US diesel reporting revelations scandal. Others may follow his exit trajectory, but several important questions still need to be answered. </p>
<p>Did global car maker VW really need to <a href="http://www.ibtimes.co.uk/volkswagen-boss-martin-winterkorn-endlessly-sorry-emissions-scandal-1520759">deliberately cheat strict US car emissions tests</a> to sell cars in the US? With the money it spent to develop software to cheat the system, would it not have been better to invest in the development of cars that could actually <a href="http://www.volkswagen.co.uk/technology/glossary/emissions-standards">meet the standards</a> and put itself in a powerful position to sell much cleaner cars in Europe as well?</p>
<p>Cutting regulatory corners is far from unknown in the automobile industry – and not just in the US. There appears to be gaming of the system going on in Europe too, where for the test cycles the cars are equipped with the best tyres, but not the tyres with which the average cars will be sold – meaning that many cars on the road never meet the <a href="http://www.honestjohn.co.uk/realmpg/">test results on fuel efficiency with which these cars are marketed</a>. Of course, VW is not a lone wolf here, and in fact this is somewhere where <a href="http://www.honestjohn.co.uk/realmpg/volkswagen">VW scores slightly above the industry average</a>.</p>
<p>Pushing the envelope on tests can be seen as a practical effect of the intersection between the search for profit on the one hand and, on the other, the perception among many – but not all – car makers that government is not really the appropriate setter of rules, as <a href="https://books.google.co.uk/books?hl=en&lr=&id=wEQ6QGS6sPkC&oi=fnd&pg=PA11&dq=government+failure+to+regulate+stiglitz&ots=OZFFz3flrP&sig=Ktx1mtzKaD7H5FwYctxN-4zuXIg#v=onepage&q=government%20failure%20to%20regulate%20stiglitz&f=false">The Tobin Project has highlighted</a>. The point is that a company which does not respect the rule-making process may find it easier to break the rules, even if it is formally and publicly committed to being a good corporate citizen.</p>
<p><a href="http://bit.ly/1OPNugv">Our research</a> has identified two different ways that some car makers in Europe have approached the regulation process and regulators, typified by either freedom from rules to do what they want, or freedom to innovate within a common set of rules. Will this ethical crisis precipitate an overdue curtailment of automotive giant freedom and lead to a necessary tightening of regulatory oversight?</p>
<h2>Taking responsibility</h2>
<p>A dramatic fall, measured in tens of billions, in the VW share price has seen big business ethics again dominate <a href="http://www.independent.co.uk/news/business/news/volkswagen-emissions-scandal-spreads-to-europe-and-threatens-to-embroil-more-models-and-rival-carmakers-10513290.html">front-page news for several days</a>. Any short-term bounce back to business as usual looks unlikely as nearly £5bn has been set aside to cover the potential product recall costs for the 11m vehicles involved. </p>
<p><a href="http://www.bbc.co.uk/news/business-34340997">A reportedly “shocked”</a> CEO Martin Winterkorn, vowed that “<a href="http://www.ibtimes.co.uk/volkswagen-boss-martin-winterkorn-endlessly-sorry-emissions-scandal-1520759">manipulation at VW must never happen again</a>”. In resigning he claimed he was “<a href="http://www.bbc.co.uk/news/business-34340997">not aware of any wrong doing on my part</a>” – a refrain not disimilar to claims from FIFA’s <a href="http://www.dw.com/en/blatter-defends-fifa-record-says-he-is-clean/a-18670028">Sepp Blatter</a>. Our media-fuelled culture of blame likes to see blood letting after a scandal of this magnitude and the VW board statement anticipates announcing <a href="http://www.bbc.co.uk/news/business-34340997">further personnel consquences</a>. </p>
<p>And so yet another high-profile global enterprise chokes and splutters over business ethics. The respected German automotive giant joins <a href="http://www.bbc.co.uk/news/business-18685040">Barclays</a>, <a href="http://www.bbc.co.uk/news/business-33605638">Toshiba</a> and <a href="http://www.ft.com/cms/s/0/995ce64a-ac78-11e4-9d32-00144feab7de.html#axzz3mVB2piJN">Petrobas</a> in an expanding band of leading companies who have been decapitated following reporting standards scandals. </p>
<h2>Diesel’s demise?</h2>
<p>Another big question that this episode throws up is the future of diesel in car manufacturing. Paul Nieuwenhuis at <a href="https://theconversation.com/how-volkswagen-got-caught-cheating-emissions-tests-by-a-clean-air-ngo-47951">Cardiff University’s electric vehicle centre</a> suggests this crisis questions the credentials of diesel as an emissions-efficient fuel and further undermines public support, perhaps fuelling the regulatory case supporting an acceleration of power-train electrification. </p>
<p>VW’s <a href="http://www.ft.com/cms/s/0/a3d1041a-6138-11e5-9846-de406ccb37f2.html#axzz3mVB2piJN">2.4m diesel vehicle sales in 2013</a>, more than double its nearest competitors, accounts for 25% of its factory output. </p>
<p>Major European cities such as Paris and Birmingham are already calling for a crackdown on diesel and the FT has suggested that Europe, <a href="http://www.ft.com/cms/s/0/a3d1041a-6138-11e5-9846-de406ccb37f2.html#axzz3mVB2piJN">where 53% of 2014 engines sold used diesel</a>, might switch “virtually overnight” to petrol. </p>
<p><a href="http://www.volkswagenag.com/content/vwcorp/info_center/en/news/2015/09/statement_ceo_of_volkswagen_ag.html">Winterkorn’s unambiguous public apology</a> stated: “I personally am deeply sorry that we have broken the trust of our customers and the public.” That was a precursor to falling on his sword. </p>
<p>With the very real threat of a large fine and potential for criminal charges, <a href="http://www.bbc.co.uk/news/business-34325005">according to the BBC</a>, we can expect Europe’s largest commercial organisation to remain particularly tight lipped, although this story appears to still have enough gas to roll on and on.</p><img src="https://counter.theconversation.com/content/47980/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The sensational confessions of the car-manufacturing giant have sent shockwaves through the industry and have wider implications for the whole corporate sector.Professor Justin O'Brien, MBA Programme Director, Royal Holloway University of LondonSigrun M Wagner, Senior Lecturer, School of Management, Royal Holloway University of LondonStephanos Anastasiadis, Lecturer in Sustainability, Royal Holloway University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/402952015-05-19T09:55:19Z2015-05-19T09:55:19ZWhy do students cheat? Listen to this dean’s words<figure><img src="https://images.theconversation.com/files/81881/original/image-20150515-25422-wb7mwu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Students are encouraged to cheat when they see people getting rewarded for dishonest acts in society.</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/cat.mhtml?lang=en&language=en&ref_site=photo&search_source=search_form&version=llv1&anyorall=all&safesearch=1&use_local_boost=1&search_tracking_id=m2hkBT-owjM4jGMetng7Ig&searchterm=students%20cheating&show_color_wheel=1&orient=&commercial_ok=&media_type=images&search_cat=&searchtermx=&photographer_name=&people_gender=&people_age=&people_ethnicity=&people_number=&color=&page=1&inline=129150578">Hand image via www.shutterstock.com</a></span></figcaption></figure><p><em>Editor’s note: Since the publication of this article, the University of Florida terminated Chris Loschiavo’s employment when it learned he used his UF work computer account to purchase pornography.</em> </p>
<p>Cheating in college has been with us since the inception of higher education. In recent months, cases of cheating, including <a href="http://www.cbsnews.com/news/large-scale-cheating-allegations-rock-stanford-campus/">large-scale</a> <a href="http://www.nydailynews.com/news/national/harvard-cheating-scandal-dozens-students-shared-answers-plagiarized-final-exam-article-1.1148725">cheating at elite colleges</a>, have led to considerable turmoil. </p>
<p>Many of these behaviors could well start to take shape right at the level of high school. A survey conducted by renowned academic integrity researcher <a href="http://www.business.rutgers.edu/news/work-retiring-professor-donald-l-mccabe-inspires-award-promote-academic-integrity">Don McCabe</a> shows how widespread the problem is in high schools.</p>
<h2>Large-scale cheating</h2>
<p>In a survey of 24,000 students at 70 high schools, McCabe <a href="http://www.business.rutgers.edu/tags/332?page=1">found </a>“64% of students admitted to cheating on a test, 58% admitted to plagiarism and 95% said they participated in some form of cheating, whether it was on a test, plagiarism or copying homework.”</p>
<p>Statistics for cheating for college students are much the same. <a href="http://www.glass-castle.com/clients/www-nocheating-org/adcouncil/research/cheatingfactsheet.html">Surveys</a> indicate as high as 70% of students report some kind of cheating in college. These survey results, which have remained consistent over time, represent a variety of behaviors. </p>
<p>So, what could possibly lead to such behaviors?</p>
<p>As Director of Student Conduct, I have been responsible for addressing these behaviors for the last 16 years. I have also served as president of the <a href="http://www.theasca.org/">Association for Student Conduct Administration (ASCA)</a>, an organization of over 3,300 professionals doing student conduct work at over 1,800 institutions across the US and Canada. All these positions have given me unique insights into the issue of cheating beyond my institution. And I can say these results are not at all surprising to me. </p>
<p>Students cheat for a variety of reasons: </p>
<p>It can be an intentional, calculated decision in order to get ahead. Often, it is motivated by the path to success that they see around them – people cheating without incurring any real consequences.</p>
<p>From politicians cheating, to corporate scandals such as <a href="http://www.cnn.com/2013/07/02/us/enron-fast-facts/">Enron</a>, to the <a href="http://www.baseball-almanac.com/legendary/steroids_baseball.shtml">steroid scandal in Major League Baseball</a>, to the <a href="http://www.nfl.com/news/story/0ap3000000493052/article/kraft-on-deflategate-this-has-been-very-disturbing">NFL’s “deflategate,”</a> our students are surrounded by examples of dishonest acts.</p>
<p>What’s worse, society seemingly rewards these individuals for their dishonest behaviors. Students then come to believe that dishonest behavior is rewarded and often do not hesitate to engage in it. </p>
<p>My experience shows students engage in a cost/benefit analysis that goes like this: “If I cheat and don’t get caught, the reward is an ‘A’ in the class, admission to a graduate/professional school of my choice or a great job. If I get caught, it isn’t as bad as what Enron did, so the consequence won’t be so bad.”</p>
<p>The example we set as a society is what I have found to be the most significant reason for students cheating. </p>
<p>This also gets combined with a pressure to succeed. These students have grown up in a culture where even the team that scores the least gets a trophy. So they are not prepared for failure. </p>
<p>When they believe they are going to fail (which nowadays is often anything less than an “A”), students will do whatever it takes to avoid it, because they don’t want to let others (often family) down.</p>
<h2>High schools are not teaching research</h2>
<p>Another reason for student cheating is being unprepared for college level work. Over my many years addressing the issue of plagiarism, I have seen student after student who has written a research paper and not given proper attribution. This is not because they were taking credit for someone else’s words, but simply because they were never taught how to write a research paper. </p>
<p>I have had many conversations over the years with students who truly don’t understand how to write a research paper. So much of high school these days is teaching to the large number of standardized tests. As a result, learning how to research is being lost. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/81884/original/image-20150515-25415-1ojvlgd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/81884/original/image-20150515-25415-1ojvlgd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/81884/original/image-20150515-25415-1ojvlgd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/81884/original/image-20150515-25415-1ojvlgd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/81884/original/image-20150515-25415-1ojvlgd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/81884/original/image-20150515-25415-1ojvlgd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/81884/original/image-20150515-25415-1ojvlgd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">There could be many reasons behind cheating. At times, it could be poor time management skills.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/s/students+cheating/search.html?page=3&thumb_size=mosaic&inline=231503050">Man image via www.shutterstock.com</a></span>
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<p>Also, students aren’t being taught how to paraphrase. So, they just cut and paste from the articles they read on the internet – it is easy, quick and takes very little effort to do this.</p>
<p>Some others don’t have any confidence in their own thoughts. So when given the chance to write a paper in which they must share their own ideas, they simply go to the internet and cut and paste someone else’s words or ideas, thinking they are worth more than their own. </p>
<p>I once had a student who cut and pasted large parts of her paper from the internet. When she was asked why she did it, she stated that the author had said what she wanted to say much more eloquently. She said she was afraid of changing it using her own words, as it could be an incorrect interpretation. </p>
<p>This student lacked confidence in her ability to interpret what she read and then translate it in her own words. Another student once shared that he didn’t know as much as the author he took his information from. He concluded, “Why would the professor want to hear the student’s own thoughts?” </p>
<p>This has been a potential downfall of teaching to the test, as many of our secondary educators are being forced to do – students aren’t able to think and problem-solve for themselves. </p>
<p>And when they are forced to do so, they simply take someone else’s ideas.</p>
<h2>Cheating could be a cry for help</h2>
<p>Some others cheat because they have poor time management skills. College work is challenging, and some students underestimate how long it will take them. When they run out of time, they panic and take a shortcut. </p>
<p>Sometimes these students also have inappropriately prioritized social or extracurricular events over their academic work.</p>
<p>Finally, some students cheat because it is a cry for help. I will never forget a student I met with many years ago for a cheating case. </p>
<p>He admitted responsibility and accepted the consequence of a failing grade in his class. I felt convinced that he truly learned from this incident. However, within the week, he was accused of engaging in the very same behavior in the same class again.</p>
<p>This was very early in my career, and I was ready to remove him from our institution. However, as I found out more, I learned that his girlfriend had just broken up with him, his grandmother (to whom he was very close) had recently passed away and his mother had been recently diagnosed with terminal cancer (I did actually have proof of every one of these events). </p>
<p>The combination made it impossible for this student to focus on his academics. While these incidents certainly didn’t excuse his behavior, they helped explain why he made such bad choices. </p>
<p>He was afraid to ask for help. It was only when there appeared to be no other option, did he open up about what he was dealing with. I was able to hold him accountable appropriately while also making sure he had access to the resources that would help him address his current emotional state. </p>
<p>He went on to graduate from the institution once he was able to get his life back together. Had his faculty not bothered to address the behavior, he would have likely dropped out. </p>
<p>I have never forgotten the lesson this student taught me. </p>
<h2>What can administrators, faculty do to help?</h2>
<p>I learned to ask more questions. Now, I try to dig a little deeper when trying to find out why a student made a certain choice. Additionally, it has shaped how I present to faculty on the importance of reporting cheating. </p>
<p>So often I hear from faculty either that they don’t want to be the reason a student gets into trouble, or that they shouldn’t have to deal with these issues.</p>
<p>When I tell the story of this student, it reframes for faculty the importance of reporting. It really isn’t about getting the student in trouble; rather, it is about making sure someone with training can interact with the student to help and set the student up for success when dealing with life’s challenges.</p>
<p>When faculty see it as potentially helping the student, they become much more willing to report. </p>
<p>Cheating is a challenge for our society, both at the high school and college levels. We need to remember, however, that it is rarely a thought-out, premeditated act. More often, it is an impulsive act. </p>
<p>To have a real impact, we need to address the underlying issues.</p>
<p><em>Tomorrow: Students cheat for good grades. Why not make the classroom about learning and not testing?</em></p><img src="https://counter.theconversation.com/content/40295/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Chris Loschiavo is affiliated with the National Center for Higher Education Risk Management and the Association for Student Conduct Administration.</span></em></p>Surveys show that 95% of high school students and 70% of college students are involved in some form of cheating.Chris Loschiavo, Associate Dean, Director Student Conduct and Conflict Resolution, University of FloridaLicensed as Creative Commons – attribution, no derivatives.