Lessons Learned and Compliance Trends from the VW and Takata Scandals (Part III of III)

When unraveling a major corporate scandal, especially multi-year schemes involving senior executives, the blame game or lessons learned approach can easily turn into a fruitless exercise.

The VA and Takata scandals are important reminders of basic compliance and governance requirements. If carefully considered, they underscore the reasons why compliance programs exist and why an effective program is so critical in today’s global economy.

My list of significant observations will not surprise you but take them to heart and hopefully use them to advance your own compliance strategies and projects:

C-Suite Misconduct: Multi-year scandals that are as pervasive as the VW and Takata schemes remind us all that when senior executives engage in misconduct, the impact can be devastating and difficult for a compliance program to detect. In both VW and Takata, senior executives, who were eventually indicted, were able to carry out and maintain massive fraudulent schemes, and even were able to overcome internal questioning and resistance to continuing the scheme.

CCOs have to include C-Suite misconduct in their risk assessments and design of compliance controls. At a minimum, senior executives have to participate in annual training, provide regular certifications, and subjected to internal audits and compliance reviews/audits.

The Yates Memo Bears Fruit: The indictment of nine senior executives on criminal charges, with the arrest of one in Miami, demonstrates that DOJ’s Yates Memo is bearing fruit. The FCPA Unit still lags in this area because of internal reluctance to take on what are perceived as challenging cases and some early round losses in some cases. DOJ did the Yates Memo proud with the indictment of the VW and Takata executives, even though many of them may never be extradited from Germany or Japan to face the charges. Nonetheless, it sends an important message of deterrence and consequences. The executives may never stand in a US courtroom but they will find travel and other movements in the global marketplace to be restrictive.

Maintaining a Speak Up Culture: Surprisingly, VW and Takata engineers and staff raised concerns about the respective schemes with senior executives. Unfortunately they were complaining to the perpetrators who were not about to pull the plug on the ongoing schemes. If, on the other hand, VW and Takata had a speak up culture that promoted alternative reporting avenues, the result may have been different. A responsive compliance program officer may have fielded the concern and acted. It is hard to say what would have happened but the facts demonstrate not only the importance of promoting a speak up culture, but ensuring that there are multiple avenues to report employee concerns especially when such concerns are not adequately addressed in the first instance.

The Absence/Complicity of the Board and an Ethical Culture: Both companies were dominated by ongoing criminal schemes and the need to prevent detection of the scheme. The board of directors (or management) was completely absent in the overall management and supervision of the company. As a consequence, the company’s culture was more than defective – it was toxic. When the board is absent to reinforce the priority of ethical conduct and the need to adhere to standards, a pure drive for money, without any constraints, can easily drive ethical conduct underground. Takata and VW were committed to profit and solving problems the easy way – with good old fashioned fraud, lies and cover-up.

In the case of VW, the absence of any commitment to ethics and compliance was demonstrated by the full-scale obstruction of justice that occurred after the scheme was uncovered. A litigation hold turned into a call to destroy documents and numerous actors furthered the obstruction scheme by destroying documents. Such blatant disregard for the law only confirms what was at the bottom of VW’s corporate operations – a rotten corporate culture.

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  1. January 24, 2017

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  2. January 24, 2017

    […] Read Full Article: Lessons Learned and Compliance Trends from the VW and Takata Scandals (Part III of III) – Corr… […]