Article originally published in the Philadelphia Business Journal on May 13, 2019
Regardless of a leader’s tone at the top and the culture he or she nurtures within their organization, bad things can occur that run counter to the values espoused by that leader.
While I was CEO of PQ Corporation, during a heavy rainstorm, one of our plant managers discharged highly alkaline process water down a sewer to protect electrical equipment from damage due to rising rainwater levels. The plant didn’t have a permit to discharge the process water.
The Environmental Protection Agency noticed a spike in the pH of water in the sewer and traced the source back to our plant. When questioned by the EPA if the source of the high pH water was his plant, the plant manager said no. Had he told the truth, the plant would have most likely received a modest fine and a warning not to have the incident re-occur.
However, because the plant manager was not truthful when he responded to the EPA’s question, the company was charged with a violation of the federal Clean Water Act and subjected to harsh financial penalties. PQ’s environmental performance was then investigated by the EPA, which found that we were in compliance with environmental laws at all of our other plants.
The plant manager was terminated, and the board launched an investigation into my tone at the top and the culture within the organization, to determine if I was indirectly complicit in the plant manager’s actions. If the board found that the tone I set and the culture I nurtured as the CEO did not make it clear to all employees that they were to act ethically and obey local, state and federal laws, I could have been terminated.
Fortunately, my actions, remarks and written communications to employees over time demonstrated that I espoused a very strong ethical tone and culture. However, as CEO of the company, the illegal act by the plant manager occurred on my watch, so the board sanctioned me by significantly reducing my bonus that year, which was the right thing to do. What protected me from termination was tangible proof of my strong tone at the top and the organizational culture that I nurtured.
Leaders are often warned about over-emphasizing the achievement of a goal to an extent that it encourages people to commit unethical or illegal acts to achieve that goal, regardless of the purported tone or culture of the company. In the case of Wells Fargo, the bank’s public boiler plate ethics statement within the Community Banking Division was ignored.
In a Sept. 8, 2016 press release about the Wells Fargo scandal, the Consumer Financial Protection Bureau stated, “Spurred by sales targets and compensation incentives, employees boosted sales figures by covertly opening accounts and funding them by transferring funds from consumers’ authorized accounts without their knowledge or consent, often racking up fees or other charges. According to the bank’s own analysis, employees opened more than two million deposit and credit card accounts that may not have been authorized by consumers.”
Volkswagen was caught installing software in its diesel-powered cars designed to give false low readings during exhaust emission tests. From 2009 to 2015, VW equipped 11 million cars with this software. In a Sept. 21, 2015 statement reported by Reuters, the EPA said, “Only [due to the threat of withholding 2016 diesel model certification] … did VW admit it had designed and installed a defeat device.”
Former Volkswagen CEO Martin Winterkorn was criminally charged with defrauding customers and Volkswagen investors. Two lower-level executives have been sentenced to prison for their involvement in the fraud.
The scandals at both Wells Fargo and Volkswagen were caused by poor tone and corporate culture at various levels within their respective organizations, and cost both companies many billions of dollars in fines and lost business. Just as important, they lost the trust of their customers, which takes time to rebuild.
Leaders, the reputation of your company and your personal reputation depends on the tone and culture that you espouse, and how you respond after an unethical act occurs. Ensure that the people throughout all levels of your organization know your values and your expectations of them.
Audit mission-critical areas to ensure rules are being followed and innocent errors are caught. When bad things do occur, you want the incident to be viewed as an aberrant violation of your values and not a reflection of your tone at the top and the culture that you have nurtured.
Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker, advisor and nationally syndicated writer on leadership, entrepreneurship and corporate governance. Silverman earned a Bachelor of Science degree in chemical engineering and an MBA degree from Drexel University. He is also an alumnus of the Advanced Management Program at the Harvard Business School. He can be reached at Stan@SilvermanLeadership.com. Follow Silverman on LinkedIn here and on Twitter at @StanSilverman.
