Conduct, Conflict and Collusion – The Evidence Lies Within Your Own Data
With more cases of internal misconduct emerging recently, Radar examines some of the most glaring examples in non-financial sectors, and asks what can be done to protect organizations from these costly and common aberrations.
The financial services industry, particularly the banking sector, has had a torrid start to the 21st century from a reputational perspective. The general suspicion that bankers are taking more than they give has been evidenced by a number of scandals related to conflict management and fraud, which peaked in 2008 as the global financial crisis brought reputations to a new low. Regulatory pressure to control these abuses has ramped considerably since then, and aggressive remediation from key regulators has resulted in many of those that faced enforcement feeling very constricted.
However, some bankers and attorneys who represent the financial sector might be justified in pointing the finger accusingly towards other sectors, wondering if they might need to be regulated as tightly. They might have a decent argument based on the flurry of cases and news items that show that the finance sector gets an unjust share of the attention when it comes to misconduct, conflict management, and collusion with competitors.
The other key message is that the indicators of this sort of anomalous and often fraudulent/criminal activity are hiding in plain sight. In every case, the incriminating evidence trawled through the courtroom consists of emails, chats, and telephone calls where employees, managers, and even leaders brazenly reveal their intentions and culpability.
Aviation – The Landscape Just Keeps Looking Worse
In current times, it feels wrong to kick a sector when it’s down, but the woes at both Boeing and Airbus in the past year have caused multi-billion dollar reputational harm and deep fiscal damage. The start of 2020 saw several explosive news stories about emails and instant messages sent internally between 2015 and 2018 by employees of Boeing about the new 737 Max aircraft. These generally mocked the Federal Aviation Administration (FAA) and revealed a deeply concerning disdain for their own colleagues that later forced senior management to label these disclosures as “completely unacceptable.”
One employee sent an email saying “would you put your family on a Max simulator trained aircraft? I wouldn’t,” while another stated, “I still haven’t been forgiven by God for the covering up I did last year,” in reference to employees misleading the FAA about the simulator hours required to certify pilots for the Max.
Three large sets of redacted messages were disclosed publicly and described as “incredibly damning” by Peter DeFazio, an Oregon Democrat who chairs the House Committee on Transportation and Infrastructure. Senator Richard Blumenthal made reference to the emails as “astonishing and appalling.”
Boeing was trying to manipulate the FAA to make the switch from the 737 NG to the 737 Max as quickly and efficiently as possible to minimize costly training time in the classroom and simulator. This haste and deception left pilots unaware of its new software that ultimately brought down two flights and caused a large number of fatalities.
When the chief technical pilot finally convinced one purchasing airline that simulator time was unnecessary, he promptly emailed a colleague, “looks like my Jedi mind trick worked again! These are not the droids you are looking for…”
Not everyone was comfortable with these mind tricks. One employee wrote in a chat at the time, “not sure I will be returning in April given this — I am not lying to the FAA. Will leave that to people that have no integrity.”
There are so many other choice quotes in this expansive data set that are screaming for attention — here are the most damning:
“I have used the words ‘misleading’ and ‘mischaracterization’ a lot over the last two years in relation to this program. I could be even more honest and use other synonyms that even better describe what has been going on”; “I don’t know how to refer to the very very few of us on the program who are interested only in truth…”; “This airplane is designed by clowns, who in turn are supervised by monkeys”; “Amazing what a brown envelope can achieve…it isn’t anywhere near as it would appear to be reading the report. The FAA were neither thorough nor demanding and failed to write up many issues. And the lies, the damn lies.”
Now that legal process is under way, the extent of how systemic this scandal was throughout Boeing will become clearer, but the unashamed behavior and collusive silence, except through internal communication, beggars belief. The tripwires that even a basic communications monitoring system deploys would have been triggered at a very early stage and given senior management, or an independent reviewer, immediate awareness before a catastrophe like this occurred.
At this time Airbus would normally be reveling in the travails suffered by its most fierce competitor. But it had a few skeletons of its own that were about to emerge.
In early February, the press ran stories about Airbus conducting “a massive scheme to offer and pay bribes” that included some of its top executives, according to disclosures made in court in France, the U.K., and the U.S. Many of these bribes were paid through shell companies that were set up by executives working for a “special purpose,” autonomous strategy, and marketing unit. This team was described by Tom Enders, ex-CEO, as “bullshit castle.” The entity managed numerous middlemen in export markets around the globe, covering up this corrupt sales practice by creating fraudulent contracts, accepting fake invoices for non-existent services, and generating a vast cache of false management information.
The authorities in France claimed that this facade boosted the aviation giant’s profits by one billion euros. Airbus agreed to a deferred prosecution settlement of 2.1 billion euros with the French government, 983 million euros with the U.K., and 530 million euros with the U.S. This fraudulent practice had been in place since 2008. Airbus handed over 30 million documents to authorities as part of the investigation, and the aviation group took the ignominious first prize for the size of its settlement, which made the previous £671 million paid by Rolls Royce look like loose change.
The investigation demonstrated that bribery was endemic in two core business areas within Airbus, where it set out emerging market growth as the main target at whatever cost. That cost now looks like it was miscalculated, and many senior executives have been fired as a result. There has been considerable collateral damage. Air Asia’s boss Tony Fernandes had to step down after it was revealed that 180 of his planes were secured by way of improper payments.
The Tech Titans Are Far From Immune
While there are glaring examples of misconduct, collusion and conflict in more established industries, there are similar tales in the newer ones too.
Uber was founded in 2009 on a promise to transform urban transportation. In 2015, Susan Fowler joined Uber as an engineer, and in February of 2017, she published a blog that reflected on her time as an employee. That blog changed her life, and that of some of the most senior executives at Uber, forever. It was also instrumental in blowing the lid off the misconception that the shiny new tech companies supported by Silicon Valley were the perfect workplaces for the younger generation, devoid of all the usual bad habits, malpractice, and prejudice that are present in almost every company.
The blog hinted that Uber’s ultimate ambition for explosive growth and success had a significant side effect that created a festering combination of paranoia, aggression, and unhealthy competition in the workplace. It suggested that discrimination and harassment were common, and even accepted by the Human Rescources function. Fowler was sent sexist messages by her boss, but her complaint to HR was ignored as the manager was a star performer. She was given the option to shift roles or accept a sub-standard evaluation from her existing manager.
Fowler was deeply disillusioned by what she saw after working so hard for Uber and having such belief in its mission at the outset of her employment. She and her colleagues were made to feel “worthless.” In one year, the proportion of female engineers in her area dropped from 25 percent to six. A colleague committed suicide, and his widow said that Uber had “crushed his self-esteem.”
The reaction to her account was immediate and dramatic. Travis Kalanick, Uber’s founder and CEO at the time, tweeted that her blog’s revelations were “abhorrent and against everything we believe in.” As it started to change its approach, the company described Fowler’s initiative as the catalyst for much-needed change. Executives were pushed out and Uber began developing a corporate certification program to address workplace harassment. Its new mantra is, “We do the right thing. Period.” Travis Kalanick resigned after extensive negative press and increasing pressure from the board of Uber and its investors, as the company attempted to start a journey toward a better workplace, culture and image as an employer.
Even Attorneys Are Not Above The Law
You’d be forgiven for thinking that those who advise industries and individuals on the confines of the law would be the standard-bearers for corporate propriety. The truth is rather different. Lawyers are humans after all, and they are exposed to the same common stresses and strains that drive extreme behaviors and result in some of the worst outcomes.
A number of high-profile sexual harassment cases have come to light at some of the U.K.’s top London law firms in the past 12 months. The powerful light of #MeToo has been shone on sexual misconduct where allegations of abuse of power have been revealed at leading practices.
One involved Ryan Beckwith, who was a partner at Freshfields, and another related to Gary Senior, a managing partner at Baker McKenzie. The latter case is being heard currently, with judgment expected in June 2020.
Of most significance is the concerted reaction of the legal industry to these accusations. Freshfields has developed a conduct committee that can sanction partners by reducing their profit share. Many firms have banned the consumption of alcohol at corporate events or established “sober chaperones” to be present to help police any potential for misconduct.
Critics remain unimpressed by these modifications, arguing that this is just window-dressing that does not uproot the endemic cultural defect at these high-pressure organizations where the natural hierarchy creates opportunities for abuse and conflict, whether online or in physical situations. These businesses need to focus on creating a healthy and respectful workplace, not developing policies on alcohol consumption or a penal system designed to hurt the senior managers’ wallets.
Dieselgate – The Automotive Sector Shows How “Not” To Do It Right
Our final anecdote involves an unlikely miscreant but epitomizes how even the most well-run public businesses can hide internal corruption, blind avarice and fraud that is wilfully overlooked, and in the worst cases, encouraged by the highest levels of senior management.
Volkswagen Group deliberately implemented “defeat devices” software to run their engines for lower emissions while under evaluation. This software was prohibited by the Environmental Protection Agency and was installed in close to 11 million diesel cars worldwide.
In test mode, the hidden software ensured that every car was fully compliant with all federal emissions levels, but once the owner was driving, the internal computer switched to a separate mode, permitting heavier nitrogen-oxide emissions, which is a smog-like pollutant linked to lung cancer, up to 40 times higher than the federal limit. One Audi engineer had written in an email to a colleague about the progress of their attempts to sidestep the emissions tests, “we won’t make it without a few dirty tricks.”
Volkswagen agreed to pay a final settlement of $14.7 billion with the Environmental Protection Agency, the Department of Justice (DOJ) and Federal Trade Commission. For their various parts in implementing defeat devices, Volkswagen, Audi, and Porsche’s emissions scandal cost the Volkswagen Group approximately $33.5 billion in penalties and fines. In January 2017, the DOJ announced $4.3 billion in criminal and civil penalties, and arrested eight VW executives for their alleged connection with the scandal, mandating a corporate compliance monitor to remediate Volkswagen for three years during its probation.
It was an “appalling” fraud that went to the very top of the company. The indictment claimed that Martin Winterkorn, the former Volkswagen CEO, was not only fully aware of his engineers’ deceit, but he also approved its continuing concealment. It described how management repeatedly sanctioned the plot despite objections from employees. Senior engineers conspired to appear cooperative with enquiries from regulators while extending the scheme.
This endemic scandal was exposed by a whistleblower at Volkswagen. Former engineer James Liang and compliance officer Oliver Schmidt are both spending time behind bars. Schmidt was imprisoned for seven years. Schmidt told the judge before he was sentenced that he was “misused by my own company.”
He added that he had been coached on a script for an official hearing with a regulator which he “was directed to follow for that meeting that was approved by management-level supervisors at VW, including a high-ranking in-house lawyer.” He added, “regrettably, I agreed to follow it.”
The Data Do Not Lie
The examples above indicate that the temptation to collude, conspire, and abuse power for both corporate and personal gain are manifold in corporate life. This leaning is not confined to the excessively maligned “bad guys” that have hit the headlines of the Wall Street Journal this century.
Perhaps most alarming is the realization that many of these instances are condoned by the very highest echelon of management, which seriously questions the efficacy and independence of many of the internal control functions, especially of public companies where shareholders are the ultimate victims of these abuses. The fate of employees who also face the impact of these malignant practices must also not be underplayed.
The reality is that our current mode of communication in corporate life can be a very powerful and easily deployed indicator of trouble ahead; a plot brewing, a costly case of misconduct, or a systemic and toxic cluster of activity that is being concealed. Any well-governed business can get ahead of this by using a system operated by appropriately empowered and independent monitors to give management, employees, regulators, and stakeholders the comfort that there is not something rotten at the core or indeed in any part of an enterprise