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What can companies learn from infamous corporate scandals?

15 Feb 2019 By José Hernandez

José Hernandez explains why HR’s role is so pertinent to keeping organisations out of the headlines

Why do good companies go bad? Why do corporate scandals happen so often? What HR lessons can be drawn from infamous corporate scandals? Over my career advising global companies on crisis management and remediation in the wake of major ethical scandals involving fraud and corruption, I have noted that cases of serious organisational misconduct predictably follow certain patterns. 

Notably, to understand the anatomy of misconduct, you need to understand the dramatis personae. Like formulaic genre films, corporate scandals often feature recurring characters, each of whom plays a specific role as the misconduct spirals into crisis. In my experience, these are:

  • Well-meaning senior leaders (CEOs and board members) who have significant ethical blind spots and allow their companies to drift out of bounds by not asking the right questions or having the courage to say ‘no’ to certain business models, practices, and partners;
  • Superstar managers. These are highly intelligent, charismatic, ambitious, but deceitful employees, who have been promoted to positions of authority and are allowed to operate largely unchecked;
  • Whistleblowers (or would-be whistleblowers). These are good people who spoke up but were mostly ignored, or who were afraid to speak up because of a prevailing culture of fear and threats of retaliation.

There are a few important lessons that HR professionals can take from these characters, which may be effective in identifying and addressing misconduct before it gets more deeply embedded in the organisational culture – or hits the headlines. 

Focus on the superstar managers

They are often afforded the autonomy and latitude to circumvent established policies, systems and controls. They are feted by their companies (and often by investors and the media too) for their successes. They can also be monstrous to the people they want to control. Individuals with this much power frequently end up being the focal point of fraud, corruption, and abuse in their companies. 

Keep an eye on pressures to perform and conform

When employees are pushed to an unrealistic degree – or are left operating within silos ruled by powerful managers – they often find themselves forced to cut ethical corners or rationalise improper conduct.

Promote a ‘speak up’ culture 

As noted, whistleblowers can play a major role in bringing issues to light, but only if they feel empowered to speak up about conduct that they have observed in the course of their jobs. Protect them from all forms of retaliation and discrimination, and ensure that they are made aware of the communication channels that are available to them.  

Get accountability right

CEOs set the ethical bar for an organisation through the conduct that they demonstrate and tolerate, their transparency in decision-making, and the courage that comes from admitting mistakes (along with the resolve to take swift corrective action). All too often, they undermine their organisations by giving a pass to superstar managers who are implicated in misconduct. Resist the tendency to rationalise bad behaviour. Avoid double standards in discipline. Ensure that integrity and ethical decision-making are non-negotiable considerations in promotions, rewards, and sanctioning.

Scandals reveal lapses in governance and leadership

When ethical lapses inevitably do occur, use the opportunity to scrutinise (and refresh) your organisation’s people, culture and leadership; your business models, practices, and partners; and systems, controls and structures to prevent, detect, and correct misconduct. Don’t allow warning signs to go unheeded or the next lapse could be catastrophic.  

As HR leaders know, the reality of organisations composed of fallible humans is that it is next to impossible to eliminate misconduct and corruption. HR plays a critical leadership role in building an organisation that knows how to identify misconduct and address it head on before it leads to crisis.

José Hernandez is CEO of Ortus Strategies and author of Broken Business: Seven Steps to Reform Good Companies Gone Bad

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