Every CEO wants to produce good returns for their shareholders. The danger is when good returns focused on growth creates a high performance pressure cooker that drives bad decisions.
VW, for instance, is a brand that people trusted and captured the zeitgeist of freedom, love, and happiness. Did the CEO know software engineers were designing a defeat mechanism to deceive EPA standards in the U.S? We will probably never know the answer to that question. We do know one answer for sure. The engineers failed to consider the reputational risks of their thinking. They failed to consider how their decisions were in direct violation of the companies written policy statements.
Why? Because the CEO and board had failed to create a culture that put equal weight on all of their values. A culture of growth and financial performance became pre-eminent, overriding the importance of preserving the brand identity of VW. Middle managers responded to this pressure and produced just the results the board and CEO were asking for. As Paul Agenti, a leading ethicist from Duke University says, “VW forgot to remind employees not to do anything they wouldn’t want to read about online the next day.” Ultimately, VW had a leadership failure at the top. Indeed, the CEO needed to resign.
Agenti makes several recommendations to avoid ethical failures in the future. Two of these include:
- Explicitly state intolerance for wrongdoing and affirm that nothing is worth losing your reputation over.
- Measure and monitor reputational risk in the same way that the company looks at operational and financial risk.
On a positive note, I add one more to the list. Find stories of people who made courageous decisions that actually cost the company money, but the decisions were exactly correct because they added to the equity of the overall brand. For instance, a food company that praised a supervisor for spotting poor produce that she threw out - even though it technically passed an FDA inspection. Or a homebuilding superintendent who saw a flaw in the insulation but it was behind the dry wall. The customer would never have known. The superintendent fixed the problem. It cost the company money and delayed a promised closing date for the buyer. Yet, the construction superintendent was praised for making the right call. The head of operations in both of these cases used it as an example of making good choices that lined up with the values of the culture.
High performance is a great ambition. High performance coupled with the failure to continually reinforce high ethical standards anchored in your values is a losers game that will eventually take you down.
* For further reading by Paul Agenti, see his text book designed for students to engage around compelling cases on the social, reputational, and environmental consequences of corporate activities.