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09 OCTOBER 2018
What misbehaving companies can do to regain our trust

by Tim London: Senior Lecturer at the GSB, focusing on issues of leadership.

Corruption is toxic and, according to the World Economic Forum’s Partnership Against Corruption Initiative (PACI), it thrives in environments where trust in institutions and companies has been eroded. In the fight against corruption, it is essential therefore to regain trust, but most will go about it all wrong.

South Africa dropped 14 positions in this year’s Global Competitive Index. That’s a significant drop and corruption is the main culprit. The PACI has only just wrapped up its research operations into corruption in Argentina and is now on its way here for phase two; South Africa will be a case study in the research to understand the nature of corruption and how to get rid of it. Being known as a prime example for corruption should worry everyone in the country.

Of course, it doesn’t help that the list of scandalised institutions keeps growing almost daily. In April, in a report entitled The Time is Now, Corruption Watch said there were 25% more complaints in 2017 than the year before. Big names in the economy have been in the headlines for over a decade: the South African Revenue Services, the prosecuting authority, the police, and even the Hawks. Most recently we have Eskom, state capture, KPMG, Trillian and McKinsey, amongst others.

Both public and private institutions have taken actions that have broken the trust of close stakeholders and the public at large, and the perception inside and outside the country is that things will only get worse. A recent Ipsos Report shows that 73% of South Africans surveyed said the country is on the wrong track and 68% said financial and political corruption are at the top of the list of concerns. This is a lot of distrust.

If we are ever to dig our way out of this hole, regaining trust ought to be the top priority for both public and private companies. But how can this be achieved?

The quick fix: Brand management

The quick fix approach is deeply flawed, but unfortunately is also the road most travelled. When Volkswagen Group were caught faking emissions readings in 2015, they essentially shook it off without too much fuss. They apologised, recalled the cars, fired a few people at the top, laid out a plan to remedy the situation, paid fines, and then blended into the background until the news cycle moved on to something else. Considering that their engines produced 40 times more nitrogen oxides than what is allowed, they got off lightly. But have they changed their internal culture that led to this degree of deception? We don’t know.

This approach is a PR exercise, a bandage, which involves a few individuals, sensationalised actions, and big promises. It is the easiest way out: say you’re sorry and pay your dues, but change very little about yourself that led you into the trouble in the first place. This ignores the widespread and deep-rooted toxicity that is required for corruption to actually take place.

What usually happens is that the new people stepping in after a scandal find that they’ve inherited a world of problems. CEO of KPMG South Africa, Nhlamu Dlomu, was “thrown to the wolves” when she took up the position just after the SARS and Gupta scandals. She inherited an exodus of clients and a perpetual target on her back while the executives who resigned during the scandal were all paid severance packages and given get-out-of-jail-free cards.

Unfortunately, the newly pared client list and rotating cast of characters in top positions will not change the more systemic issues that led to their front page scandals. Unless the leaders of KPMG take steps to dig into that more fully, there is a good chance of more scandals rocking the group.

The positive route

The other route that organisations can take to rebuild trust is to commit to a shared purpose, re-establish the driving values, bring in and develop the right people, and put in place as leaders only those individuals who live these values and set an example for others to do the same.

Every company should have a set of values that become part of the living fabric of the company’s day-to-day existence. These should be built around a shared and clear purpose, the why the company does what it does. When things get ugly, it is important to see whether the organisational culture has perhaps veered from these core values or lost the sense of their common purpose. Are all operations, promotions, procedures, rules and regulations, and decisions still revolving around achieving the organisation’s purpose and in alignment with its values? Do the people in the organisation still resonate with these values? Are the organisation’s best interests still aligned with the best interests of the individuals inside the organisation and the society outside it?

If leaders want these values to be lived, they have to hire and invest in their people accordingly. While skills are obviously important, the right person for the organisation should be someone whose passion and core values fit with those of the organisation. Are the employees committed? Are they fully engaged? Or are they maybe just going through the motions and waiting for a bigger pay check to come along somewhere else?

Leaders have a key role to play: no organisation exists in a vacuum and the leaders in the organisation have a responsibility to create an environment where internal and external pressures are less likely to cause people to stray from their values. Are the leaders ensuring that the organisation’s structures, culture and people are pulling together to handle these pressures? Are they avoiding or tackling challenges constructively?

One of the clear examples of this at the moment is actually the Special Prosecutor’s investigation of issues airing from the more recent presidential election in the United States. Led by Robert Mueller, you’ll likely have seen the incredibly public nature of abuse he and his team have taken from all sides. What you won’t have seen, is any hint of leaking, not a single moment of grandstanding, and a clear singular focus on the task at hand. Regardless of your politics, you have to admire the ability to give an objective observer no cause to lose trust that the team is doing just what it has been told, racking up convictions and guilty pleas, in the face of tremendous pressures.

In the corporate realm, we have the historical example of Johnson & Johnson in 1982 which was faced with a potential catastrophe of trust after several of their Tylenol capsules were poisoned, resulting in the deaths of seven people. The company immediately pulled all of its Tylenol stock (resulting in huge losses in earnings), proactively engaged with law enforcement to find the culprit, and came up with tamper resistant packaging that is now the norm. While it’s far from clear how it will turn out, we can also look at Apple which is still in the early stages of investigations into their slowing down of iPhones as well as claims that their most recent laptop keyboards were defective. They have taken steps to clarify the situation in both cases, and also provided free battery upgrades and keyboard replacements to affected customers. In the short term, their approach has kept customers in the fold; longer term, they may be setting themselves up for a breach of that trust if customers continue to feel that the company is raising more concerns than they’re addressing. We will see how leaders of companies currently at risk of losing massive amounts of trust permanently (such as Tesla, Facebook, and Tiger Brand) learn from these examples in the coming months and years.

This is no easy task and leaders need to take steps to ensure that they build their personal resilience, too. A self-reflexive practice of some kind is also helpful to be able to hold themselves accountable to the values of the organisation they lead.

What KPMG, McKinsey, SARS, Eskom and others should do after coming clean is take a long, hard look inside and ask themselves how they can rebuild their organisational structures, re-establish their values, and align their goals with the goals of their workforce and the nation in which they operate. Maybe then they’ll begin to regain a little trust.
Useful resources:

University of Cape Town Graduate School of Business
UCT GSB is internationally renowned as one of a few business schools in Africa with the prestigious triple-crown accreditation with endorsements from EQUIS, AACSB and AMBA. As a top school with more than five decades of experience in Africa and other emerging markets, UCT GSB has a responsibility to engage with its socio-political and economic context. Its teaching, learning and research are directed towards addressing the complex and pressing economic and social challenges of our world today. Visit our InfoCentre or website.

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