“Paralysis” and a Culture of Wrongdoing

We all are familiar with the “horror” stories circling numerous infamous corporate scandals – Wells Fargo, Boeing, General Motors, Airbus, Ericsson, HSBC and on and on.  When you read about each of these scandals, layer by layer, the corporation is infected with a culture of wrongdoing. 

In these situations, senior management, middle management and employees embrace differing levels of commitment to wrongdoing, ranging from intentional and knowing violations, to deliberate indifference, and to reasonable suspicion.  On occasion, senior management will mouth the words of compliance but the contradiction is evident and permeates the corporate culture. 

In these scandal-ridden companies, there often is a small group that is fighting back, attempting to bring about a law-abiding solution.  But in most cases they are overrun by forces committed to making money, “protecting the company,” increasing market share and “winning” the competitive battle in the marketplace.  These are dynamic forces and make no mistake – a culture of wrongdoing tolerates very little opposition, even when it is vocal.  In some cases, the parties pushing the right solution are ostracized and shunned.

As a company becomes committed to its culture of wrongdoing, positive actors eventually are pressured to keep silent.  This is culture “paralysis.”  The message from leadership and management is the opposite of a Speak Up culture – it is a Keep Quiet culture.

Slowly but surely, a positive culture is replaced by paralysis – actors who know about the misconduct, want to report it and speak up to correct the problem, but eventually are paralyzed by the company’s message and commitment to the wrongdoing schemes.

It is sad to observe but powerful when good actors are sidelined through pressure to commit wrongdoing.  Employee morale sinks rapidly in this culture of wrongdoing, and any trust in the company evaporates.

The danger to a company in this situation is significant – a lawless culture faces an enormous risk of government enforcement and eventually reputational harm. 

Wells Fargo’s misconduct eventually lead to regulatory enforcement from the Office of Comptroller of Currency, Consumer Finance Protection Bureau, and the SEC, along with the Justice Department.  Add to that, collateral litigation, retaliation claims against whistleblowers, and substantial reputational harm.  The Wells Fargo brand is now tarnished with little chance of a full recovery.  Whatever short-term or even long-term gains earned from lawless conduct, are rapidly outweighed by the full impact of government enforcement actions and substantial reputational damage. 

We are often forced to acknowledge that humans are not infallible, and that corporate leaders are not always angels – frankly, my comments is a terrific understatement.  Our history is littered with corporate scandals that have had dramatic impacts on society, political movements, and our economy. 

Just because a company has a code of conduct with statements of commendable purity and commitment to ethics and integrity, there is no guarantee at all that, in practice, the company’s leadership, middle management and employees adhere to these statements of high-minded purpose.  The proof is in reality – the real and tangible actions taken to demonstrate a commitment to integrity, the encouragement of speaking up, and the enforcement of a culture dedicated to “doing the right thing.”

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