How to Keep Your Company From Being the Focus of the Next Scandal

Multinational companies, which must learn various cultures, are particularly susceptible to bribery, and run the risk of misinterpreting a business culture that think they values connections, but instead, promotes bribery. Take, for instance, British pharmaceutical giant GlaxoSmithKline, which is still reeling from a 2013 scandal in China that resulted in criminal charges and $490 million in fines. On paper, GlaxoSmithKline had corporate governance policies in place that should have uncovered such rampant corruption. In reality, they didn’t work.

Often, ethical failures involve not a lack of corporate social responsibility policy, but an ineffectiveness of corporate governance. Tough-sounding words—whether delivered in writing or in speeches—are meaningless if they are not backed by action. To enact more effective deterrents beyond a mere anti-corruption policy, executives must start with change at the top to avoid becoming the next corporate scandal. Here are 4 ideas that can help you tighten your strategy.

1. Change the corporate tone from “maximizing” profits to “optimizing” profit. For companies to truly change corporate culture surrounding bribery, change must be evident from the top down. To shift the corporation’s tone and messaging, executives must lead the evolution by phasing out phrases such as maximizing profits, as this implies a “win at all costs” mentality. By instead saying optimizing profits, this implies more sustainable growth over time. That change in tone must come from top executives and wind through the organization resulting in a positive effect on behavior.

Because those engaging in bribery likely rationalize that they are doing so for the good of the company, what they are really doing produces only a short-term boost that causes long-term damage. This change in tone from the executive team helps remove that rationalization and promote a more ethical culture.

2. Incentives should match policy. Executives can further promote their commitment to the company’s evolving tone by expanding incentives so that compensation is not tied solely to landing a contract, as this invites abuse of the system. Instead, incentives should be based on a wider array of metrics such as customer satisfaction and product knowledge, in addition to closing deals.

GSK, in fact, changed its system so that employees who interact with customers will be evaluated according to their technical knowledge, quality of service, and adherence to the company values of transparency, integrity, respect and patient focus. Similarly, IBM is known for implementing Customer Service Based Incentives in its salesforce compensation schemes, while the CEO of Whole Foods has been quoted as saying “[w]hen you add suppliers and society as a whole, and work to create value for all of them, you optimize the system.” This approach promotes and encourages both profit growth and long-term sustainability—hallmarks of an ethical culture.

3. Adopt internal penalties, including financial recoupment, to enforce anti-corruption policies. Aside from rewarding employees for engaging in ethical business development, executives must also enforce a culture that punishes unacceptable behavior. By strictly enforcing anti-corruption policies and ensuing penalties, employees realize that whatever incentive they might think they’ll gain from engaging in bribery will be lost. This reinforces the message to employees at all levels that cutting corners is a non-starter and will be a detriment to their career. Some companies, such as Raymond James, have started down this path with compensation policy that include potential recoupment of incentive pay and bonuses for serious misconduct.

4. Boards of public companies should create anti-corruption committees. Given the role of the board to oversee and assess the overall direction and strategy of the business, establishing them as an anti-corruption committee is well-aligned with their function. Not only can the board be a place for whistleblowers to turn, but they also can regularly examine potential red flags and make anti-corruption a pivotal part of their responsibilities.

Since its own scandal, Siemens has hired hundreds of compliance officers, and is considered to be a corporate standard-bearer in its anticorruption efforts. Almost immediately after the scandal, Siemens’ board recruited Peter Löscher to become the first outsider to lead the company, and within months, it replaced more than 80% of its top executives.

Corrupt practices are the common enemy in the global economy, as they skew the market and destroy shareholder value. Executives must lead the way, guiding their multinational corporations in an effort to stamp out corruption among their ranks. By changing a company’s tone from the top down and implementing rigorous oversight, executives can root out—and eventually prevent—corruption. In addition, ethical companies will see positive returns.

 

 

Cindy Schipani :Cindy Schipani is a professor of business law and business administration at the University of Michigan’s Stephen M. Ross School of Business.