Elephants traps ahead

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What do a British oil company, an American bank and a Japanese car maker all have in common? Rob Cox on Reuters’ Breakingviews.com believes there is no link. I disagree.

BP, Goldman Sachs and Toyota are linked by a common failure of corporate governance. They did the saving-cost-at-all-costs thing instead of doing-the-right-thing-no-matter-what-the-cost thing.

Johnson & Johnson’s handling of the Tylenol recall in 1982 is a good case study for how to minimize damage to brand and reputation.

The painkiller was recalled when seven people died in Chicago after taking capsules of Tylenol laced with cyanide. At the time it was thought the brand would not recover from the sabotage. However, an extensive product recall followed by a media campaign and the introduction of tamper-proof packaging saw Tylenol return to the market within two months.

Johnson & Johnson handled it so well they were able to enhance their reputation.

BP, Goldman Sachs and Toyota have all made themselves look even more guilty by blaming others, denying any culpability and doing too little, too late.

Any company facing irate members of the public, customers or the press has got to speak openly, candidly and forthrightly to its customers and the wider public about what has happened and what they intend to do to put it right. And a genuine apology is the first place to start.

People recognize that mistakes are made and that CEOs cannot be everywhere all the time. They appreciate being kept in the loop about what’s happening and when things will return to normal. This isn’t the time for corporate deception; it’s the time for common decency.

It is also time to wonder how we have produced a generation of so-called business leaders who seem to have no moral standards and a generation of workers who go along with things they know to be wrong.

The fact that business schools see fit to include modules on ethics as part of MBA courses is probably symptomatic. Some MBA students are even being asked to take “ethics oaths”. But if anybody can reach 21+ years of age and still not know right from wrong, then a classroom course is unlikely to help.

It Takes Two to Tango

Employee engagement, in various guises, is among the new buzzwords of recent years. To be more accurate, it’s a repackaging of old ideas by the consulting industry. Under a shiny “NEW” label the consultants have found yet another way of exploiting corporate insecurity and thereby picking its pockets.

There appears to be only circular definitions of what constitutes an engaged employee. The CIPD defines employee engagement as “a combination of commitment to the organisation and its values plus a willingness to help out colleagues (organisational citizenship). It goes beyond job satisfaction and is not simply motivation. Engagement is something the employee has to offer: it cannot be ‘required’ as part of the employment contract.”

In short, an engaged employee is any employee who is engaged. It’s a matter of attitude.

Today’s employers are encouraged to recruit for attitude; train for skill when searching for new employees. That approach saves the job of instilling an attitude seen as ‘right’ by the employer in question, but it only goes so far. Whatever attitude is exhibited during the recruitment process it will only be retain if the employee’s circumstances are conducive.

To a large extent that depends on the employer, but it can equally be affected either by changes in the employee’s private life, or by shifts in their personal beliefs and values. Over the employee’s private life and over beliefs and values the employer has little or no control. And rightly so. An employment contract is an exchange of time and skills for money and associated benefits. It is not entry into a closed religious order.

Most of the literature on this subject talks about measuring employee attitudes and conducting regular employee attitude surveys. Any organisation that needs to do that has to raise an immediate red flag in its own mind. If concern for the attitude and mindset of employees is not part of the daily interaction in the company, if senior management has actually lost touch with how employees think and feel, then there is an immediate problem.

Organisations that have a high proportion of employees who are unengaged or disengaged are offered various approaches to reverse that situation. These include:
• giving the opportunity to feed views and opinions upwards
• keeping employees informed about what is going on
• seeing that managers are committed
• having fair and just management processes for dealing with problems.

Perhaps more telling – and rarely mentioned – is the sobering process of the organisation examining its own value as expressed in its formal and informal manner of doing things. What message is the organisation really giving to its employees (and its customers)? Can people be reasonably expected to sign up enthusiastically to such a message?

This search for paragons of virtue among employees has an interesting parallel in the education sector. In England, when a pupil truants from school, we ask what is wrong with the child. In France, they ask what is wrong with the school. If you are an employer looking for greater engagement then be prepared. If it is absent then the cause may lay uncomfortably close to home.

Clinging to the Wreckage

UBS, Switzerland's largest banking group, has just written off $37bn (£18.7bn) of its sub-prime investments.

Following an internal investigation demanded by the Swiss Federal Banking Commission, the Swiss version of our own dear FSA, it admitted a series of mistakes including inadequate supervision, poor risk management and a failure to react quickly enough when the sub-prime market started crumbling.

UBS was so focused on racking up ever larger profits that it “forgot” every silver lining has a cloud.

This is its first full-year loss (Sfr4.38bn for 2007) since its came into being 10 years ago following the merger of Swiss Banking Corporation and Union Bank of Switzerland. Planned job cuts are rumoured to run to more than 3,000 people.

As one might expect of the Swiss, those in charge have shouldered their full share of the responsibility and suffered the inevitable consequences. The Chief Executive, Peter Wuffli, was ousted in July last year, followed by the CFO, Clive Standish and the Head of Investment Banking Huw Jenkins. This month it was announced that the Chairman, Marcel Ospel, would not seek re-election.

Meanwhile, here in the UK, RBS came up with a further £5.9bn of write-offs on bad debts yesterday having already declared a £1.7bn write-down of sub-prime investments in December. However, you would search in vain for any admissions of abject personal failure by top management, let alone a principled resignation. In any industrial company the chairman and chief executive would both have been fired and forgotten by now. Not so with RBS.

Apparently RBS's has two excuses: (1) things have changed, and (2) it didn't foresee quite how bad things would become. Well, isn’t that what leaders are paid to do? Doesn’t leadership imply vision – the ability to see and foresee, rather than stumbling over the truth, picking themselves up and hurrying off as if nothing had happened (Churchill). And if they fail to uphold their end of the contract should that contract not be properly terminated?

According to Sir Tom McKillop, the RBS chairman, the board is unanimous: the current team is the one to take the bank forward. On what logical basis should that be the case? Those that have engineered dramatic expansion are rarely adept at managing either a holding operation, or retrenchment. Those call for very different skills. Endangering the ship when it’s in stormy seas, based solely on your capacity in calm waters, constitutes reckless conduct in anybody’s book.

Marianne Jennings, Professor of Legal & Ethical Studies at Arizona State University has identified the belief by management that they are so brilliant and innovative that the mundane rules of accounting, corporate governance and even basic economics do not apply to them as one of the seven signs of ethical collapse. RBS fits the bill.

Of the five leadership traits identified by Kouzes and Posner’s research that was done for the book ‘The Leadership Challenge’ namely:

~ Honesty
~ Forward-Looking
~ Competency
~ Inspirational
~ Intelligence

RBS seems to fall short on the first three.

If the Swiss banking fraternity have the principled leadership qualities needed to do the right thing then those privileged individuals on this side of the Channel should exhibit the same qualities.