Is the next corporate scandal just around the corner?

22 October 2015 -

“Scandal"

With the VW scandal still rumbling on, new research from CIPD warns that the next business scandal could already be in the pipeline as managers abandon ethics in the hunt for success

Jermaine Haughton

With Volkswagen’s new chief executive Matthias Mueller admitting that the £7.9 billion set aside by the motor manufacturer will likely not be enough to cover the costs of the emissions scandal, the intense international scrutiny and humiliation of the brand seems far from over.

The German giant’s admission that it used illegal software to manipulate emissions tests on diesel vehicles in the United States has opened the floodgates into one of the biggest corporate crisis in motor industry history. The devices, which mislead testers into believing VW’s vehicles emit lower pollutants than it does on the road, have since been found in millions of vehicles across the world, including the UK and Australia.

Former chief executive Martin Winterkorn resigned shortly after the revelations became public, and senior executives have already been grilled by US political chiefs in Washington D.C. Industry expert Stefan Bratzel, director of the Centre of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, estimated that the scandal will cost VW as much as £20.1bn.

Meanwhile, rumours spreading across European trading floors suggest that the German automaker could be forced to sell off some of its trademark car brands, including Porsche.

And new research from CIPD, the professional body for HR and people development, has warned that the next international business scandal could be just around the corner if management practices don’t change.

Surveying more than 5,000 business leaders and HR practitioners worldwide about ethical decision-making in business, the report found that when tasked with increasing organisational performance, 30% of business leaders would choose to continue rewarding high-performing individuals regardless of the values they demonstrate.


Watch: Why do many managers leave their morals at the office door?

Suggesting that many companies currently risk breeding the next big corporate scandal, only one quarter (24%) of respondents said they are ‘always’ prepared to make short-term sacrifices for the long-term interests of people, organisations, and society.

This is in stark contrast with what they said is “the right thing to do”, with almost 90% claiming they would protect the long-term organisational health and reputation, when given a choice of pursuing expedient or sustainable decisions.

CIPD chief executive Peter Cheese said: “The VW scandal is a stark reminder that organisations – particularly large and complex ones – need to think carefully about how they create organisational culture and how they increase the chance that people at all levels of the organisation will make ethically sound decisions.

“Our research suggests that far too many business and HR leaders continue to be focused on the short-term at the expense of the long-term interests of the organisation and its people. This risks unintended consequences when people try to cut corners or maximise short-term returns without thinking about the consequences of their actions on all their stakeholders, which includes employees, customers, suppliers, and communities, and, as we’ve seen in the case of VW, the shockwaves are considerable and can significantly damage even the biggest brands.”

Set to be exhibited at the CIPD’s annual conference next month, the startling study found that 29% of bosses and 34% of HR managers admit to compromising their principles to meet the needs of their business.

Furthermore, the survey revealed a feeling among managers that upholding principles can hold back their firm’s success. Some 22% of leaders (and 21% of HR practitioners) said they have to compromise on their principles because they affect their ability to succeed in their organisation.

Cheese concluded: “We need to see more transparency and consistent reporting of the people and organisational elements of business to get more insight on how an organisation is working, how it is looking after and developing its people, and some understanding of corporate cultures. We need to move beyond accounting to accountability.

“We’re starting by identifying some key principles that can help business leaders, HR practitioners and employees make ethical decisions when under pressure and faced with ambiguous and complex situations.”

Want to know more about management ethics? Then download the CMI’s ethics pack