Peter Fonda died last week. He was of Hollywood royalty, the son of Henry Fonda and brother to one of the top actresses over the past 50 years. Yet Peter Fonda was a part of the Hollywood firmament which created the years of the Directors Age of Hollywood. According to his New York Times (NYT) obituary, “During his acting and filmmaking career, Mr. Fonda earned two Oscar nominations, almost three decades apart. He shared, along with Dennis Hopper and Terry Southern, a best original screenplay nomination for “Easy Rider,” the story of two hippie bikers on a cross-country trip fueled by drugs and the thrill of youthful freedom.” While Fonda never again achieved the heights of fame garnered from Easy Rider, he was nominated for a second Oscar, “in 1997 for “Ulee’s Gold.” He was nominated for best actor for his role as a widowed beekeeper with grandchildren.”

For anyone interested in the 60s,Easy Rideris mandatory viewing. From the uber cool motorcycle excursions across the southwestern United States, to picking up one very square Jack Nicolson and introducing him to Mary Jane to the ending where the rednecks get their revenge on the long-haired hippie types, it was certainly a movie for its time. So, here’s to Peter Fonda, The River flows, Flows to the Sea; Wherever that river flows, that’s where I want to be. (From the Byrds theme song Ballad of the Easy Rider).

Fonda’s life informs today’s blog post as we begin a multi-part series based upon the recent Harvard Business Review (HBR) Spotlight on White Collar Crime. Today, we begin the article by Paul Healy and George Serafeim, entitled “How to Scandal Proof Your Company”. In it, the authors, two Harvard Business School professors, posit that a rigorous compliance is not enough to help ensure a company steers clear of fraud and corruption based illegal actions. They believe that while “government-mandated corporate expenditures on systems to deter white-collar crime,” corporate scandals around unethical action continue to rise. Unsurprisingly the authors point to Wells Fargo as a classic scandal based upon the failure of ethics, unfortunately Wells Fargo continues to be in the news for its unethical conduct. The NYTreported that not only is Wells Fargo continuing to close customer accounts for no stated reasons but in some instances, they are continuing to charge fees after the account is closed and there is no outstanding balance.

While acknowledging the need for robust compliance programs, the authors believe that the root cause of the problem is “ineffective leadership and flawed corporate culture.” Even Wells Fargo had not only a gold-plated papercompliance program but numerous internal whistleblower reports of the illegality of its fraudulent account’s programs but “a culture of making the numbers trumped any concerns about how those targets were met.” Most interestingly, the authors do not lay the problems on the ubiquitous “few bad apples” out in the sticks figuring a way to engage in bribery and corruption for the company’s benefit.

Instead they point directly to the top of organizations. They stated, “Senior executives at most companies that suffered highly publicized transgressions didn’t see these incidents as their personal responsibility to address or as evidence that something was fundamentally amiss in their organizations. Rather, those leaders viewed them as extremely rare occurrences caused by “a few bad apples” and insisted that they couldn’t have been prevented. Although the leaders accepted the importance of investing in compliance systems and said they expected employees to act with integrity, they typically saw outperforming competitors and wowing investors—not enforcing high legal and ethical standards—as their priorities. Even worse, all too many leaders overlooked questionable business practices or were lenient toward members of their old-boy networks who were caught committing crimes. That indifference trickled down to employees. It encouraged them to develop a “check the box” mentality: to satisfy training and reporting requirements without internalizing the standards that compliance programs are supposed to instill.” This is laying the blame directly at the feet of those in charge and, most importantly, those who have the ability to do something about it.

There are those who blame everyone but the corporation which allowed the illegal conduct to occur. Typically, they are those who blame “the other”; i.e. foreign officials in other countries who are out to extort money. Or they blame the foreign political system or anything which takes the responsibility away from the company from which the bribes are paid. The authors destroy this facile position by noting “in large organizations, mistakes will be made. The world is a messy place, and humans are imperfect. But by creating a culture that encourages employees to act ethically and legally, leaders can minimize the likelihood that a scandal will hit their company and increase its ability to bounce back from any illicit actions that do occur. To set the right tone, leaders have to model high standards in both their professional and personal lives.”

It is about the importance of “organizational integrity” which the authors believe senior leadership does not stress enough. The authors state, “They either underinvest in compliance systems or have a check-the-box mentality toward risk management and delegate the responsibility to lawyers and accountants. Red flags go unheeded. When crimes are detected, they’re dealt with quietly and unequally. These leaders justify their behavior by saying, “Corruption is an industry problem that we cannot fix,” “It’s the way business is conducted in these countries,” or “We can’t afford to lose the business.””

The authors set out five prescripts for making an organization do business ethically and in compliance with anti-corruption laws such as the Foreign Corrupt Practices Act (FCPA) which we will take up tomorrow.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

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