Why organisations don’t appear to learn from crises
‘IWOULD like to start by apologising for the acts that have brought us here. The nation has a right to expect its rules and laws to be obeyed. And at Salomon, certain of these were broken. Almost all of Salomon’s 8 000 employees regret this as deeply as I do. I apologise on their behalf as well as mine,” Warren Buffett, possibly the greatest investor of all time, told US legislators 26 years ago.
“I want to find out exactly what happened in the past so that this stain is borne by the guilty few and removed from the innocent. To help do this, I promise to you and the American people Salomon’s wholehearted co-operation with all authorities,” said the Berkshire Hathaway chief executive, nicknamed the “Oracle of Omaha” and one of the richest people on the planet.
Recently, Nhlamu Dlomu, the new chief executive of KPMG, echoed similar sentiments, telling South African legislators: “I have personally been greatly disappointed by how far we have fallen short of the standards we set ourselves. I am determined that these mistakes do not happen again, which is why we have already made a number of changes.”
Like Salomon, which admitted widespread wrongdoing in the US government bond market and was forced to lay off scores of executives, slashed employee bonuses, restructured management and refocused business lines, KPMG has been sucked into a huge corruption scandal after it admitted that its accounting tasks related to the Gupta family were short of acceptable standards.
KPMG International is conducting an external investigation into whether its South Africa-based workers were complicit in illegal activities or colluded in producing a report that has since been discredited.
The world has seen unprecedented corporate crises and scandals. Some chief executives and many high-ranking officials have been arrested for fraud and for looting their companies.
Corporate scandals, boardroom blunders, business bombshells, from Enron, WorldCom, to the recent diesel emissions fixing scandal involving Volkswagen, to McKinsey, Bell Pottinger, Eskom, Trillian, PetroSA, Prasa and many others, these days fraud, greed, enrichment go together as many executives have been accused of testing the borders of ethics.
We know that there are at least three steps that every company should take to ensure it is prepared to communicate in a crisis situation: develop a crisis communications plan; the plan must be backed up with infrastructure and the plan must be implemented by a team with the authority and the ability to make decisions and move quickly.
Given the fact that a corruption scandal is not a new crisis, nor are proposals for dealing with it, one is prompted to ask: Are organisations, companies, executives, members of the board learning anything from other organisations’ scandals, crises, ethical lapses and failures and corruption scandals?
Reactions toward crises are, unfortunately, very often similar. Most of the time, organisations adopt a defensive “it won’t happen to us” attitude. Managers believe that scandals in other companies do not necessarily deserve further consideration in their backyard, because they are unique events with very low probability of occurring in their organisations.
However, whenever a scandal occurs across the world, closer to home or just next door, there is usually a feeling of déjà vu. It appears that the recurrence of most corruption scandals shows that organisations just do not learn from the impact and result of scandals occurring in other companies and organisations.
Of course, employees and their top executives rely, to a great extent, on compliance with codes of behaviour drafted by human resource executives. This forces attention on the norms and modes of behaviour that respectively prevail in organisations, pretending that all is well.
‘No easy task’ I recall, as a political science student, Plato’s suggestion that a “strong sense of duty” would help to prevent corruption. But, he also noted that this would be “no easy task”.
These days what is at issue is not just the general sense of duty, but the particular attitude to rules and conformity, which has a direct bearing on corruption.
I also remember what Adam Smith called “propriety”. Giving priority to rules of honest and upright behaviour can certainly be among the values that a person respects. And there are organisations or companies in which respect for such rules provides a bulwark against corruption.
Scholars also assert that crises of corruption are unique opportunities to learn and to question the conventional management assumptions that guide organisations. A crisis, whether caused by ethical lapses or human nature, should be seen as a step in the evolution of an organisation, something other organisations must learn from.
So what are PwC, Deloitte, Ernst & Young, Mazars, Moore Stephens, PKF, SizweNtsalubaGobodo, Grant Thornton and SekelaXabiso learning from their competitor, KPMG?
Indeed, what is every company or organisation learning from the scandals that engulfed KPMG, Volkswagen, to McKinsey, Bell Pottinger, Eskom, Trillian, PetroSA, Prasa and many others?
Of course, the task of learning from crises is complex, but necessary. Executives should learn, simulate and debate corruption scandals occurring around them and build learning and solutions into crisis management plans.
When that happens, the crises of corruption are thus analysed as a crucial moment of transformation that can potentially bring about radical changes in organisations.
Unfortunately, organisations are very reluctant to learn from other organisations’ corruption scandals and even to consider them as learning opportunities. Many address scandals as if they are too exceptional to justify a learning process.
The fact is that corporate corruption scandals are paradoxical in nature. On the one hand, they actually have revealing properties and uncover hidden factors that the organisation wouldn’t have been aware of if the scandal had not occurred. In that sense, the scandal may bring forth important changes at different levels of the organisation.
Corruption scandals are important opportunities for learning. Top managers play a critical role in determining the extent to which their organisations will learn from scandals. The leadership team must be on the task of reducing defensiveness and maximising openness to learning.
Top managers need to exemplify what it means to be open, apologise for the organisation’s role in the scandal and embark on a restitution process. During a scandal employees look to top managers specifically to understand how they should behave.
For employees and managers to move from defensiveness to openness they also need to feel that they can trust top management. It is, therefore, critical that top managers actively build trust. Their ability to build trust during a crisis, however, is constrained by the extent to which they were trusted prior to the crisis.
In sum, scandals are a valuable source of learning for every organisation. Learning from ethical lapses to corruption bombshells is partly an exercise in analysing what went wrong.
Executives should learn, simulate and debate corruption scandals occurring and build learning and solutions into crisis management plans.