Jack Whitaker died last week. For myself, and many others who grew up in the 60s and 70s, he was the voice of the National Football League (NFL) and enlightened sports commentary (those two are not mutually exclusive). I can still remember looking forward to his commentary wrap up of the NLF scores each Sunday afternoon. I also greatly enjoyed the CBS Sports Spectacular, which was created to compete with ABC’s Wide World of Sports. The reason I was such a CBS sports fan? It was simple but does not exist too much in today’s world. The town I grew up in was so small we only had one television station and it was a CBS affiliate so unless I went to someone’s house who had a great antenna, it was CBS I was watching.
It was his on-air essays which garnered him his greatest fame. According to his New York Times (NYT) obituary, “he was perhaps best known for his essays about sports, inspired by writers he admired like Alistair Cooke and Heywood Hale Broun. He received an Emmy in 1979 as “outstanding sports personality” and a Lifetime Achievement Award at the Sports Emmy Awards in 2012. “I know that I’m regarded as The Talking Head,” he told Sports Illustrated in 1977. “I’d like to be exactly that and say something that people will remember or get excited about. I’d like to bring sports into the thinking process.””
Whitaker’s greatness introduces today’s blog post where I continue my multi-part series based upon the recent Harvard Business Review (HBR) Spotlight on White Collar Crime. Today, we conclude our two-part exploration of the article by Paul Healy and George Serafeim, entitled “How to Scandal Proof Your Company”. The authors set out five prescripts for making an organization do business ethically and in compliance with anti-corruption laws such as the Foreign Corrupt Practices Act (FCPA), all to help provide you the best protection against a major ethical slip-up.
Broadcast a Clear Message That Corruption Doesn’t Pay
Here the message is for top management to broadcast not “don’t pay bribes” but “bribes don’t pay”. As the authors had previously demonstrated that business obtained through bribery and corruption does not add to the bottom line. Indeed, it actually costs a company more money. The authors’ research found that multinational companies with weak or poor compliance programs “saw lower profitability on their sales growth in weakly regulated regions than their highly rated peers did. The profitability differences were comparable in magnitude to the bribes typically paid in those regions.” Moreover, it does not end with poor sales performance, as the there is a 28% higher likelihood that a corruption scandal will break in the media. Of course, if that happens, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) will not be far behind.
Don’t Play Favorites
Everyone recognizes that institutional justice and institutional fairness are key components of any compliance program and ethical business system. The reason is painfully obvious, if you are not going to succeed by playing by the rules and will only succeed in an organization by lying, cheating and stealing; employees will get the message. Witness Wells Fargo and the fraudulent accounts scandal, where a “postmortem revealed that much of the illegal behavior had been prompted by pressure to hit overly aggressive sales targets linked to bonuses and promotions… Yet leaders of the retail bank had blamed a few bad employees for the problems.”
But institutional justice and institutional fairness are more than simply hitting your numbers. If the company says illegal conduct will not be tolerated, then those who engage in such conduct must be punished severally. It means that those who cut corners should not be promoted to senior leadership positions or rewarded with bonuses. Finally, it also means that if employees are fired in Argentina for cheating on their expense accounts, the top producers in the US who engage in the same conduct must also be terminated.
Recruiting Leaders with a Record of Integrity
If it really does begin with the top, if you want to change a culture, the authors advocated “to change the culture of a company plagued by systemic crime, you need to bring in new leaders with a reputation for honesty.” The pointed to the example of Siemens AG who hired a new Chief Executive Officer (CEO) “Peter Löscher, an executive from the pharmaceutical industry. One key factor in Löscher’s appointment, cited in the press release (in a rare move for such announcements), was “his upright character.”” But it was more than simply bringing in Löscher, who brought in a team of top lieutenants known for their commitment to doing business ethically and in compliance who led the company turnaround from their FCPA scandal.
Requiring Employees to Make Tough Decisions in Groups
When one person or a small tight-knit group becomes hyper-focused on the bottom line, it can lead to serious problems. The authors quoted one senior executive who had gone through a corruption scandal at his company, who told them “one lesson from that scandal was that employees were much more likely to cut corners and do the wrong thing when they made calls on their own.” This is because “making a tough decision in a group requires people to have “open and honest discussions”.” But it is more than simply group decisions, “employees must have faith that other group members are committed to hearing and valuing their opinions and that the firm’s leaders will support the group’s decisions, even if they have adverse financial consequences. If leaders don’t inspire that trust, simply relegating decisions to groups is unlikely to solve the problem.” In other words, there must be real psychological safety.
Champion Transparency
The authors conclude with the well-known disinfectant of the light of day, shined into the darkest corporate corners. The authors cite to Statoil ASA (now Equinor ASA) who made the decision to publicize the payments the company made to foreign governments. Another way to champion transparency is to investigate and report on corruption as that demonstrates to employees the company is serious about doing business ethically and in compliance.
The authors conclude that leaders who are committed to doing business ethically and in compliance with laws such as the FCPA, even when operating “in high-risk countries or sketchy industries, set high standards and practice what they preach. They don’t just install strong compliance systems; they also support training programs and performance-feedback and whistle-blowing systems; create an atmosphere where it’s psychologically safe to speak up when something seems wrong; and engage their industry peers to fight corruption together. Our research indicates that organizations with such leaders don’t pay a high financial price for their integrity. Although they may not grow as quickly as their less-scrupulous peers, their growth is more profitable.”
Yet the authors point to less widely discussed benefits. They believe, “Many employees who have chosen to work at high-integrity companies in high-risk countries and industries have told us that they did so because of those firms’ values. Some people even told us that they accepted lower pay from those employers. Such companies and their leaders have the respect of their customers, regulators, and communities. They are more likely to prosper and endure.” Finally, I have long posited that more effective compliance leads to more efficient business processes and at the end of the day, greater business profitability. Stay tuned….
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