As the Volkswagen emissions scandal unfolds, Steve Girdler, Managing Director EMEA & APAC at HireRight, the candidate due diligence company, discusses if companies can recover from such a major misstep, and how to prevent one in the first place.
There is no question corporate scandals have a deep financial impact: look at the recent significant drop in share price at Volkswagen, the losses at oil company Petrobas in light of corruption claims, or the near collapse of jewellery company Ratner following the infamous comments made by the CEO.
Scandals hang over a company, lurking at the back of investors’, employees’ and customers’ minds and get mentioned in every article for years to come. Companies recovering from reputational hits have to accept that they will face questions for an extended period of time.
While not easy, businesses can overcome such struggles, in some cases even becoming stronger than before.
Nearly a decade ago, Mattel recalled millions of toys from across the world that could be harmful to children, but its damage control was exemplary and sales of the Barbie brand continue to be strong.
In 2012, Yahoo CEO Scott Thompson resigned following the discovery of errors on his resume. Today, most people have forgotten his ill-fated tenure ever happened.
What sets the Volkswagen issue apart from these scandals is that, with more executives facing investigation by the day, the emissions scandal does not appear to have been an accident. The implication is that some senior leaders deliberately misled consumers and went against their own stated values.
At a crossroads
At Volkswagen, an all-new top team devoid of any relation to the emissions scandal should be brought in. They need to acknowledge the issues that have led the company to this point, present a clear plan going forward, and differentiate themselves from their predecessors with a clear strategy. Trust with consumers and investors will have to be rebuilt slowly.
Any further risks need to be mitigated to avoid future scandals, as of course prevention is better than a solution after the fact. Business leaders need to take a step back and discover where the biggest risks lie – and often, as in this case, it can be within its people.
Road to recovery
With research following the Volkswagen scandal revealing that over two thirds of the British public don’t trust any major company or organisation, and were not surprised by the emissions revelations, there is clearly a lack of trust in big business. So how can you ensure that you manage your own business so that your customers know they can be confident in you?
1. Start at the top
Businesses must ensure no employee is ‘too senior’ to face in-depth due diligence and rescreening throughout their career, allowing senior leaders to rest easy knowing that the past performance or current behaviour of employees does not indicate the possibility of scandal in the future.
This is not currently the case: recent HireRight research finds that in large organisations CEOs are less scrutinised than graduates as it is assumed leaders do not lie.
2. Values check
Leaders make or break a business, and must truly embody the values of the brand. If senior people make decisions that go against these, the damage may be irreparable.
Just as Volkswagen will need to ensure they have hired the right replacement in Matthias Müller, all companies need to carry out in-depth due diligence on their incoming senior people to ensure that they not only have the right skills and experience but are also a genuine cultural fit.
3. From top to bottom
Technological advancements and changing consumer behaviour have created a perfect storm that should put reputation at the top of board agendas.
Citizen journalism, social media and the increasing importance of online over traditional media mean everyone at every level could tarnish a company’s reputation overnight – whether by being rude to a customer or making a questionable management decision.
Warren Buffet’s saying that ‘it takes 20 years to build a reputation, and just five minutes to ruin it’ has never been truer. Placing an employee at any level has its risks, requiring great confidence, trust and belief in their ability and intentions. As a result, recruitment processes should be examined from top to bottom to determine gaps in screening at all levels.
With a third of organisations facing the possibility of a reputational scandal because of inadequate recruitment processes, it’s time for business to take action. As for Volkswagen, with millions of car owners wondering whether they will be affected by the emission scandal, it is clear that things will never be the same. Only time will tell how the brand recovers.
Steve Girdler is Managing Director EMEA & APAC at HireRight, the candidate due diligence company