Bad apples and wilful blindness: How CEOs can avoid corporate scandal
From climate change to extreme inequality and institutional corruption—society is facing a once-in-a-generation set of challenges. We can’t look to governments alone to solve these problems; trust in our democratic institutions is at its lowest ebb.
Businesses are under growing pressure to make dramatic changes in how they engage with environmental, social, and governance (ESG) issues. Capitalism needs to be pursued with greater corporate responsibility. Capital markets are shifting in response to more aggressive ESG-influenced investment agendas. Shareholder primacy is no longer considered sufficient commercial motivation.
Yet, despite this growth in complexity of the economic ecosystem, companies remain under pressure to compete; individuals within those organisations are still required to deliver results. The conditions are perfect for a disconnection between performance and human management. People begin to cut corners. Rule breaches go unnoticed or worse, ignored.
‘Misconduct is inevitable’, argues José Hernandez, CEO of Ortus Strategies and author of Broken Business: Seven Steps to Reform Good Companies Gone Bad. “But it’s up to us fix those mistakes before they turn into a scandal.”
As we learned in a recent conversation with Hernandez, it is vital that corporations take a human-centric approach to tackle corruption, embed good governance practice, and support sustainability without sacrificing profits and growth.
“Organisations are not intrinsically bad.”
Scandal doesn’t happen overnight
Corporate corruption doesn’t just happen, but rather is the result of long-term systematic failure at all levels of governance.
“It is not like you breached the rules one day and then it was found out the next, and it all happened quickly,” says José, reflecting on decades of experience in corporate forensic compliance and business rehabilitation.
“Organisations are not intrinsically bad.”
Nonetheless, even the best corporations in the world are vulnerable to coming under criminal investigation for corruption, regardless of location.
What begins as “the actions of a few individuals who like to push the boundaries” turns into a slippery slope. José warns that these so-called bad apples or rainmakers “are just like you and me, but smarter and more charismatic, and that’s what makes them dangerous. They corrode the organisation from the inside, over a long time, until something turns into a scandal.”
Wilful blindness enables corrupt culture to thrive
Psychology studies have shown that, given the right range of factors, people can do things utterly out of character. When translated into the workplace, wilful blindness enables us to institutionalise behaviours we know to be wrong. Left unchecked, they become part of the corporate culture.
It’s human to make mistakes, so to find a remedy, you need a human approach.
For example, says Hernandez, “you’re operating in a foreign country with some challenging circumstance, and a third party asks you to add a mark-up of 30% to their invoice. You know that this additional 30% extra is going to a government official as a bribe. Yet, some people may say ‘well it’s not my organisation that’s bribing the government official—it’s a third party.”
This is the nub of the issue, says José. Not investigating, even while you fully suspect wrong-doing, is “wilful blindness”. It’s a method that enables us to “rationalise ourselves away from doing the courageous actions that we need to do, in order to stand up and address problems.”
“It’s human to make mistakes, so to find a remedy, you need a human approach.”
What makes good leaders cross a line? According to José, “it can happen to all of us” because “it’s due to an element of pressure, incentives and understanding. It’s about being aware that profits and shortcuts sometimes are rewarded more than just doing the best thing in the interest of a corporation.”
Consequently, Hernandez strongly believes the solution starts with CEOs and leaders engaging in the issues, fact-finding to gain understanding and following through—even on the small things, as these set the precedent.
“It’s excusable to make a mistake. But if you hide it, you start creating a real problem that affects more than an individual. It affects the whole corporation.”
Therefore, the onus falls on leadership to engender a more human-centric culture, with greater transparency where mistakes are actively acknowledged and followed up.
Constant recalibration is required to drive meaningful change
As businesses find themselves grappling with ESG issues like good governance, social investment and environmental sustainability, they increasingly need to revisit their systems of measure and reward. Maintaining a ‘winner takes all’ environment is at odds with embedding a culture of accountability.
“It’s about not seeing lines of responsibilities as only where the legal walls begin and end, but also looking at the supply chain, distribution, and being accountable.”
Good intentions are great, but not enough. Because, if your plans are not embedded strategically into the incentive system and within governance practices, they quickly become redundant. For example, José explains, “I say I’m going to try to offset my carbon footprint when I’m building huge dams – it doesn’t work.”
Through a process of recalibration, CEOs and leaders can begin “to connect an organisation to its purpose, to its sustainable development goals, and to broaden the lines of responsibility.” Moreover, Hernandez warns it’s about “not seeing lines of responsibilities as only where the legal walls begin and end, but also looking at the supply chain, distribution, and being accountable, not changing the world with one stroke.”
As businesses seek to become more purpose-driven to address ESG challenges, it’s clear they need to broaden their lines of accountability. By taking a more emphatic approach to organisational structuring, businesses can begin to engage with stakeholders, board members, as well as leadership and third parties to commit to serving more than just the bottom line.
Good intentions are great, but not enough.
There is only one planet. By becoming more human-centred, corporations can ensure future sustainability and begin to create a broader set of measures to help all individuals commit to a strategy that doesn’t just focus on today.
This article accompanies an interview with José Hernandez as part of Headspring’s podcast series.
To listen to more interviews with other leading thinkers in organisational and individual transformation, visit Learning REWIRED page here.