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Ethical lapses press home need for risk management


A quick and easy way to set expectations for ethical corporate behavior by managers is to ask how they would feel if their decisions and actions were reported on the front page of The New York Times. Executives at Volkswagen A.G. are getting a stark lesson in what happens if employees don't ask themselves that question.

As readers of The Gray Lady and hundreds of other newspapers around the world are learning, the German car manufacturer appears to have had some serious ethical lapses with regards to emissions controls. The story is still unwinding, but the company faces allegations that it rigged computers on some diesel cars to detect when they were being tested and alter the running of the engines to lower emissions for the duration of the test — an ingenious but morally questionable strategy that wiped billions off the company's market value and cost the CEO his job last week.

The now-former CEO, Martin Winterkorn, accepted responsibility for the scandal but said that he had personally not done anything that was wrong.

Some people at the company, however, appear to have done some very wrong things that contravene the company's own code of conduct, in addition to more enforceable regulatory standards and laws.

In its code of conduct, VW asserts: “We bear responsibility for continuous improvement of the environmental tolerability of our products.” The code also states ominously: “Inappropriate behavior by just one employee can cause serious damage to the organization.”

The rest of the document details all the usual stated aims of global organizations of wanting to be the No. 1 in their market while acting ethically and in the interests of all stakeholders, and that “every superior has responsibility for his or her employees.”

Mr. Winterkorn can check that last box, but clearly work needs to be done on some of the other elements.

VW is just the latest example of a company that has failed to adopt an effective risk management strategy to address ethical behavior. The problem large global corporations with hundreds of thousands of employees face is: How do you create a corporate structure that maximizes profits without contravening accepted ethical standards? Implementing an enterprise or strategic risk management program should be the first step.

Any corporate risk management program that hopes to set an ethical compass for all employees must take an enterprisewide approach that instills the corporate ethical philosophy across all operations. Stating goals in an employee handbook is not enough. Compliance, transparency, accountability and communication have to be more than just buzzwords, and crafting a practical risk management program that covers all those issues is an invaluable tool.

Armed with the right approach, risk managers can go a long way to ensure that their bosses think all their corporate news is fit to print.