What business leaders should learn from VW scandal
In the wake of the Volkswagen emissions scandal, there has been a lot of discussion about whether the VW CEO knew about the software invented to cheat emissions tests and who in the company is to blame.
The answers may not be black and white, even once the inevitable investigations are complete. But VW’s multi-billion dollar compliance failure shows that the software’s creators did not believe company leadership expected them to act with integrity. If they had, VW would have complied with the law and would not be in this mess.
What should business leaders learn from VW’s experience?
As businesses grow, especially as they expand operations overseas, the risk and potential cost of a compliance failure also grows. Employees are more distant from company leadership, making it easier for them to rationalize an unethical shortcut (like the VW software). Employees may even begin to believe that “minor” violations are necessary for both personal and company success.
The U.S. government expects companies to have formal compliance and ethics programs to prevent and detect wrongdoing.
A good compliance program brings two key benefits to a company. First, if an employee commits a crime or “minor” violation, prosecutors may see that employee as a “lone wolf” and level a reduced charge or penalty against the company, or possibly decline to prosecute. Second, and perhaps more important, an effective compliance program will prevent violations from being committed in the first place.
It’s well and good to have a “less bad” conversation with a federal prosecutor, but it’s much better to never have the conversation at all.
What makes an effective compliance program? There are technical legal requirements, and there’s a cottage industry devoted to writing compliance programs and codes of conduct. But the key to compliance is the approach that the company’s leaders take.
The most important influence on how employees will act is their perception of their immediate boss’ expectations. If the boss sets the expectation that compliance failures will not be tolerated, then employees will be less likely to fail. If standards of behavior are left solely to “compliance professionals,” the message to employees will be mixed at best.
This means that an effective compliance program ultimately depends on building a culture of open communication about doing the right thing.
It takes more than online training explaining technical rules or a CEO sending a staff-wide email. When employees are faced with an opportunity to make a big mistake, the company needs them to ask questions. Leaders must have an open dialogue with employees and be comfortable explaining why doing the right thing is a sound business decision.
Compliance programs vary from company to company, and certainly have to meet technical legal requirements. But no matter the industry or company size, the compliance program must have an impact on company culture to achieve its objectives. When implemented correctly, these programs can save a company huge sums. Failure can be very expensive — as VW is finding out the hard way.
David Jaffe is principal at Jaffe Counsel.