Tales from the Corporate Scandal Crypt: GM, VimpelCom, VW and Wells Fargo
We are fascinated by corporate scandals. Since the 1980s, the US public has enjoyed unraveling corporate scandals, and vilifying corporate leaders caught in the web of deceit and misconduct. I am sure there are historical trends and themes for US public reaction to corporate scandals and the political response to the scandal of the day.
The US public is rightfully outraged over the Justice Department’s failure to prosecute senior executives and responsible individuals who were caught up in the financial crisis in 2008. It took years for the country to recover, and some even argue that we still have not recovered from this financial disaster.
Over the last two years, we have seen some significant scandals underscoring weaknesses and problems at several major companies. I call these latest scandals Tales from the Corporate Scandal Crypt.
The GM Nod: Over the course of at least a decade, GM lawyers and engineers were able to bury a significant technical problem with GM cars – an ignition switch that would turn off while operating the car. The technical fix for the problem cost $1.99. Unfortunately, numerous drivers were killed when their vehicles suddenly turned off causing the drivers to lose the ability to control the vehicle.
In the aftermath of this scandal, numerous lawyers and engineers were fired from GM. The Justice Department did not indict any individuals and GM paid a large fine. Over the course of ten years, numerous meetings were conducted with lawyers and engineers and when action items were proposed, they were often met with, “The GM Nod,” a nod of agreement that meant nothing. In fact, The GM Nod appeared to be agreement but in fact turned into the exact opposite – no action was taken.
VimpelCom Shuffle: When VimpelCom sought to acquire two cellular telephone companies, including cellular licenses from two Uzbekistan companies, the VimpelCom board shuffled from a critical question – who was the beneficial owner of the two companies? As it turned out, the beneficial owner was the daughter of the Uzbekistan President, a notorious corrupt family operating in the CIS region.
VimpelCom’s board, senior management, and legal and compliance all shuffled among each other, passing the buck, until finally VimpelCom obtained an outside legal opinion based on incomplete facts. The bottom line – no one at VimpelCom identified the beneficial owner of the cellular telephone companies. A classic shuffle of responsibility committed with the intent to circumvent the law.
VW Fear Factor: Volkswagen engineers and compliance personnel planned to install equipment in VW diesel vehicles to circumvent US emissions testing programs. VW engineers developed an elaborate mechanism to achieve this objective. When confronted by line engineers about the plan, senior engineers squelched such inquiries and told the engineers to keep the issue quiet and maintain confidentiality over the plan. The engineers followed this exact instruction.
The VW senior engineers, a compliance officer and others were indicted and charged with serious criminal offenses. VW is still dealing with the fall out and follow on investigations of this corporate scandal.
Wells Fargo Revenge: In an attempt to increase its banking business, Wells Fargo management pushed local banking managers and employees to meet a targeted 8 for 1 marketing plan – 8 accounts for each customer. To this end, sales incentives were adopted and pushed. Many sales staff and local officers opened fraudulent accounts without the customers’ consent, and the scandal quickly mushroomed across the organization.
In response, Wells Fargo whistleblowers reported using hotlines to inform management of the burgeoning problem. Wells Fargo’s response – fire the whistleblowers. Wells Fargo was not committed to ethical business practices – in fact, it was just the opposite — Wells Fargo took revenge against any employee who raised the specific problems from the sales incentive program and fraudulent accounts.