I hope everyone had a great 4th of July. One of the small pleasures I take each week is reading the New Yorker’s Cartoon Caption contest. I have entered most weeks for the past 10 years or so when the spirit moved me with a caption to submit. I won once, in the issue dated February 11 & 18, 2008. So you might imagine my surprise and thrill when I received a call from the section Editor, Bob Mankoff, last week to tell me I am a finalist yet again, for the July 25, 2016 issue. My request is that you go over to the contest and, if the spirit so moves, you will vote for me. You do not have to be a subscriber to vote but you do have to vote by Sunday, July 10th. You can go to the Cartoon Caption contest by clicking this link.
As you see from my entry, I was inspired by the long drought of Cleveland in winning a major sports championship, remedied by the Cavaliers in dramatic fashion in June. Having lived in or near Houston most of my life, I certainly understand futility of sports franchises. Yet I was reminded of my entry, the overcoming futility in a dearth of championship banners and their intersection with compliance in a The Atlantic magazine article by Jerry Useem, entitled “What Was Volkswagen Thinking?” Useem reviews the design and implementation of the VW defeat device that led to its emissions-testing scandal. He pointed to the sociologist Diane Vaughan, who coined the term normalization of deviance to explain the “cultural drift in which circumstances classified as ‘not Okay’ are slowly reclassified as ‘okay’.”
It is this type of corporate culture that leads to not only total disaster, such as currently being experienced by VW, but also allows companies to slip into conduct that violates the Foreign Corrupt Practices Act (FCPA). One step is that management does not model the behavior that it alleges to aspire to for its employees. Yet Vaughn goes further to describe the process as a “script” which develops a definition of the situation, which allows the employees to carry on as if nothing was wrong. It is this script about marching to make your numbers that causes many employees to come to grief. For it does not matter what your Code of Conduct says or even what senior management might say, it means if the focus is on making your numbers, employees will get that message.
Consider the recently concluded Analogic Corporation (Analogic) and BK Medical ApS (BK Medical) FCPA enforcement action. Here there were two separate high-level red flags raises over the BK Medical bribery program and neither the subsidiary, BK Medical, nor the parent, Analogic, followed through with an investigation, discovered the rather obvious (and blatant) conduct and ended it. How could this occur? Useem notes that Vaughan’s theory allows employees to move beyond acting as if nothing is wrong. They come to believe, “bringing to mind Orwell’s concept of doublethink, the method by which a bureaucracy conceals evil from not only the public but itself.”
Contrast the VW and Analogic examples of Useem who further wrote about Johnson & Johnson (J&J) who had one of the greatest corporate scares of all-time when there were cyanide-laced capsules sold in Chicago area stores in 1982. J&J set the gold standard for corporate crisis response when it pulled every bottle of Tylenol nationwide, warned consumers not to take the product and sustained a $100MM loss. Yet it turns out the genesis of this crisis response had occurred three years earlier when the company’s Chief Executive Officer (CEO), James Burke, became concerned that the J&J Credo, which included a duty to protect those who used the company’s products “had become something like the Magna Carta: an important historical document, but hardly a tool for modern decision making.” Burke led a reinvigoration of the company’s core values into its business practices.
This reinvigoration led directly to the company’s response to the Tylenol-cyanide poisoning. Indeed, Useem said the company’s actions “flowed more or less automatically from the signal sent three years earlier. Burke, in fact, was on a plane when the news of the poisoning broke. By the time he landed, employees were already ordering Tylenol off the store shelves.”
Useem’s article points towards why tone at the top is so important. The tone to do business in compliance with the FCPA must be set by senior management and that message must be continually communicated. When those communications stop and the message becomes ‘make your numbers’ then the company’s commitment to doing business the right way will also falter. Even disgraced former Chief Financial Officer (CFO) of Enron, Andy Fastow, recognized this when he was quoted in Useem’s article for the following, “A robust ‘code of conduct’ can be emasculated by one action of the CEO or CFO.”
The setting of unrealistic sales goals individually or even by region can lead to the cutting of corners. Consider the illegal actions of GlaxoSmithKline PLC (GSK) in China, which led to a fine of approximately $497MM for the company’s bribery of Chinese government officials in the health care sector. GSK had set sales growth of 20% annually in China. How were the leaders of the Chinese business unit to hit these numbers? Apparently that was not something senior management in the corporate office was too worried about. The setting of such unrealistic sales goals can be the simple message that over-rides all the statements about doing business in concert with the business ethics expressed in your Code of Conduct.
Tone at the top does matter. But it is more than simply saying the right thing. It is setting your goals in a realistic manner that can allow employees to reach them without engaging in bribery and corruption or, in the case of VW, fraud. Useem ends his piece with the following, “Decisions may be the product of culture. But culture is the product of decisions.”
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© Thomas R. Fox, 2016