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How the mighty have fallen – avoiding a VW experience

It was difficult to miss the sad fall from grace in recent weeks of the German automotive giant Volkswagen.

A few weeks ago, the Volkswagen Group was ranked the most sustainable automaker in the world’s leading sustainability ranking. It was “classed … as the Industry Group Leader in the automotive sector in this year’s review of the Dow Jones Sustainability Indices (DJSI). Volkswagen is thus one of only two automakers to be listed in both DJSI World and DJSI Europe.”1 Embarrassingly, this comment was still on the company website at the time of writing this article.

Now, the German carmaker has been accused of illegal tampering to mask engine emissions during testing, enabling it to sell high emitting vehicles illegally. It is quite possible that the manufacturing giant may not survive this scandal.

Even worse, the newspaper Frankfurter Allgemeine Sonntagszeitung reported that VW technicians had warned of illegal emissions practices in 2011, and that board members knew of the practice. If this claim is proven, the responsibility for the potential crime stretches right to the top of the company.

I suspect it may have sent shudders through the boards of businesses around the globe. Many directors must be wondering if their firms have similar hidden risks, and are contemplating action to investigate and remedy any such problems. What can directors and companies do about it?

Culture trumps strategy

The first and basic step is to build, or rebuild, a culture of transparency and compliance in the organisation, one that is embedded through policy and practice, and well communicated. Some simple steps can make the difference.

Creating environments in meetings, interviews and workplaces where “speaking up about a problem” is encouraged, not stifled. Staff and management should be rewarded for alerting the board and executives to problems, and participating in the process of repair and reform. The phrase “setting the tone from the top” may sound tired, but its value is heightened by a scandal of the Volkswagen proportion!

Actions speak louder

Setting that tone involves the behaviours of leaders – directors, executives and managers. Staff observe their leaders’ ethical (or unethical) behaviours and respond accordingly, in their own actions and their willingness to report upwards. It also involves having the right policies and procedures for the business, to encourage and reward compliance and transparency – more on this shortly!

Train and reinforce

Professional development on the corporate culture of compliance, ethics and standards is critical. Promote it when you induct staff, reinforce it annually, and embed it within other staff training programs.

Managers in particular need training on how to handle complaints, reports of fraud, and ethical and compliance breaches. They are often the first respondents, so need the support and resources to handle issues properly. If they supress complaints, or retaliate against complainants, they can quickly undermine the company’s culture.

Reinforcing the corporate values, and the requirements of employees, may seem boring. So it should be undertaken with care and imagination. If the CEO’s annual lecture puts everyone to sleep, then maybe an employee-voted award for ethical standards, or for identifying and reporting a company breach, may tell the same story with more effect.

Facilitate the whistleblower

Many companies fear whistleblowers, assuming they are motivated by media sensationalism and revenge. A recent report by The Network tells a very different story about whistle-blowers.2 Their report indicates that 92% of whistleblowers report inside the company, and only 20% end up reporting outside the firm. Most whistle-blowers are actually engaged and valued employees, and the primary reason identified for reporting outside the company is the fear of retaliation.

So a well-structured whistleblower policy and procedures will assist your firm in identifying and remedying fraud, error and other non-compliance.

The Network’s report makes some useful suggestions on how to structure a whistle-blower program, including:

  • Publicise the program to staff, and ensure it is applied and communicated to external contractors and consultants, who make up 20% of all whistleblowers;
  • Ensure that actions are taken in response to complaints and that this is communicated to complainants;
  • Ensure that middle managers are well trained on the program, as they are likely to deal with initial complaints
  • Focus on developing and implementing anti-retaliation policies to protect whistleblowers; retaliation only drives them outside, creating serious reputational damage for the company, in addition to any existing problem;

The Australian Standard Whistleblower protection programs for entities (AS 8004-2003) provides a sound basis for the implementation and handling of whistleblowing schemes in the private sector.

Can directors sleep at night after Volkswagen?

The global scandal engulfing Volkswagen provides all company directors with a wakeup call, alerting us to the risks to our businesses of not acting ethically and in compliance with laws and regulations.

But it should not keep us awake at night. Ensuring that we personally create the lead for businesses, that we have appropriate policies and procedures in place to facilitate compliance, and that we encourage staff and other stakeholders to raise legitimate issues internally to enable corrective action – these are the building blocks of a healthy corporate culture.

1 Volkswagen, 2015, “Volkswagen is world’s most sustainable automotive group”, https://web.archive.org/web/20161027094804/www.volkswagenag.com/content/vwcorp/info_center/en/news/2015/09/sustain.html [accessed 29 September 2015, original link removed - archive provided].

2 The Network, Embracing Whistleblowers: Understand the Real Risk and Cultivate a Culture of Reportinghttps://web.archive.org/web/20170112194522/https://www.tnwinc.com/downloads/whitepaper-2015-embracing-whistleblowers.pdf [accessed 29 September 2015, original link removed - archive provided].