“We have so much data now about how our people are feeling and how they behave. But when something goes wrong, we never have sufficient insight to explain why.”
That was the perspective of a senior HR leader in a major European bank, just a few years ago. Our conversation proved to be prescient: within a year of our discussion, the bank was mired in scandals ranging from executive misconduct to negligent risk management.
Too much data not enough meaningful insight
The problem is a recurring one. A decade ago, when Principia was founded to support the Wall St. banks as they recovered from the financial crisis, banks lacked useful insight into company culture.
Most had an engagement survey, but few could explain how the data linked to business outcomes. HR and Compliance were often operating in silos, rarely bringing together their expertise to understand how workplace culture could explain some of the most egregious instances of misconduct and flawed decision-making that precipitated the crisis.
Ten years on, many organisations have the opposite problem as leaders are drowning in data, with little hope of separating the signal from the noise. At one global bank, the culture metrics submitted for quarterly review by the board ran to more than 200 densely typed pages: long on data, short on insight.
Business scandals are a cultural issue
Almost every business scandal has its roots in corporate culture. Significant instances of ethical failure rarely arise from the actions of isolated individuals; the ‘bad apple’ theory has been tested to destruction.
Even those scandals focused on individual behaviour have their roots in a corporate culture that has allowed these behaviours to go unchecked for too long. Executives engaging in inappropriate relationships, for example, or rogue traders stacking up hidden losses.
Any focus on developing a speak-up culture must ensure that leaders are equipped to listen.
Three warning signs of business scandals
How can understanding the roots of previous scandals equip leaders to predict and prepare for the future? At Principia, our network of specialists in corporate culture and organisational behaviour set out to answer that question.
By examining more than 100 examples of ethical failure across geographies and industry sectors, we identified common root causes, and equipped leaders to spot early warning signs.
Early warning sign one: Unfeasible expectations
The Wells Fargo misselling scandal involved employees creating millions of fraudulent accounts without customer consent to meet aggressive sales targets. This widespread unethical behaviour was rooted in a toxic corporate culture that prioritised profit over ethics.
Research by Principia showed that early warning signs were visible fully 18 months before the scandal was revealed by whistleblowers. Analysing employee reviews on Glassdoor reveals a sharp uptick in comments detailing the unreasonable targets to which salespeople were held, alongside a culture of intense and unreasonable pressure applied by managers across the bank.
Leaders seeking to prevent similar scandals should keep a close eye on the expectations they put on their people. When targets become unfeasible, people will cut corners; where failure to meet targets incurs a significant penalty or even loss of employment, people will seek ever more creative measures to avoid punitive consequences.
Early warning sign two: Fear of challenging superiors
The Volkswagen emissions scandal, where engineers manipulated software to pass emissions tests due to immense pressure to meet regulatory standards, reveals another early warning sign: a fear of challenging superiors.
At Volkswagen, staff across the business revealed how fear of reprisal prevented them from challenging superiors, even when they were aware that the company’s conduct was illegal and unethical.
An unwillingness to speak up is a hallmark of business scandals in which individual deviations from ethical behaviour quickly become commonplace and widespread. To prevent this, leaders should ensure that they understand the barriers and enablers to their people speaking up with concerns.
Leaders should ensure that they do not seek to build a speak-up culture through training alone. Rather than simply reminding their people of their responsibility to report misconduct, leaders should focus on removing barriers to open and honest communication.
Any focus on developing a speak-up culture must ensure that leaders are equipped to listen, that those speaking up are protected from retaliation, and that people are confident in the fairness of decisions on progression and promotion. This will give them greater confidence to challenge powerful individuals without fear of reprisal.
Early warning sign three: Losing sight of purpose
At biotech company Theranos, founder Elizabeth Holmes falsely claimed to have revolutionised blood testing through novel technology that could produce hundreds of diagnostic tests with a single drop of blood.
While the intent of the company was laudable – to simplify existing diagnostic tests, saving money and time for patients and clinicians – Theranos rapidly lost sight of their founding purpose in the pursuit of growth and status.
A disconnection between purpose and day-to-day decisions is a common factor in business scandals. Principia research shows that people’s understanding of the organisation’s purpose – and the connection between that purpose and their role – is one of the strongest predictors of behaviour.
Put simply, if people understand why they come to work every day, they are more likely to make ethical, responsible decisions.
To prevent this ethical drift, leaders should ensure that purpose and values are not simply boilerplate on a corporate website or posters on the office wall. Instead, they should ensure that people genuinely understand how the purpose of the company should inform the decisions they make, and how values can help them navigate difficult decisions.
Better data, better decisions
To predict and prevent future scandals, HR leaders must seek better data and better insight.
Traditional engagement surveys are no longer sufficient to understand the factors that determine the way people behave and the decisions they make. Instead, leaders need live data, fed directly to managers, that can help them to understand what is required to equip their people to do the right thing, every day.
