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Recovering From A Scandal: Three Key Factors In Getting A Company Back On Track

Singapore has long had a reputation for corporate efficiency - embodied for many by its clean and modern public transport system that is the envy of many world cities.

Recently though that reputation has taken a battering, clouded by headlines about management shortcomings, operational failings and system breakdowns at SMRT, one of two firms that run Singapore’s metro rail system.

In one incident in late November a train collision, later blamed on faulty software, left more than more than 30 injured and three hospitalized. This collision followed unrelated revelations earlier that workers at the firm had falsified maintenance records for work on critical tunnel equipment that had not actually been carried out.

Hearings in the national parliament, growing criticism in the press and an outpouring of commuter anger on social media have put the spotlight on SMRT’s governance and a corporate culture gone astray. There have been growing calls for senior heads to roll.

Responding to the charges, the SMRT’s chief executive officer said the firm was “awash in collective shame,” pointing to “deep-seated cultural issues” that have needed more time than anticipated to root out.

So when a company’s culture goes astray, what measures can organizations take to get back on track? Here are three insights to consider:

1. A new broom is not always the answer

When the rot sets in, it is tempting to demand change at the top.

CEO and founder of Uber, Travis Kalanick, was forced to stand down in June after a series of scandals hit the company. His replacement, Dara Khosrowshahi, has vowed to reboot the firm into what he called “Uber 2.0”. One of his first steps was to introduce a new set of cultural values, writing in a LinkedIn post that “the culture and approach that got Uber where it is today is not what will get us to the next level.”

“Rather than ditching everything, I’m focused on preserving what works while quickly changing what doesn’t,” he added.

Yet Uber is likely an exception. Rocked by a series of scandals, the firm had reached a tipping point where new leadership became the only choice. A closer look at recent corporate history – companies such as Apple, HP, Yahoo and Starbucks - reveals many incidences where a new CEO does not automatically sweep the company clean. In some cases – Apple, for example - the original CEO had to be called back to tackle problems the successor could not fix.

In most instances, a witch hunt may actually prove counterproductive -  a symbolic sacrifice rather than a substantive step to address fundamental problems the company faces.

Instead of demanding a “fall guy” to take the blame, it may be wiser for the leader to “fall in” -  after all, they know best how the company works and how to address its challenges. It is unwise to eject the pilot when we need to fix a flying plane.

2. Be transparent about the problem

After major corporate calamities, it is often the demonstration of commitments that matter more than what the company does with the CEO. Focusing on transparency will be the real determinant of success.

The German multinational Siemens has seen a series of corruption cases dating back more than a century. In 1914, for example, it was involved in a spectacular case bribing the Imperial Japanese Navy. More recently, in 2005, Siemens officials were exposed surreptitiously paying off Greek government officials during the 2004 Summer Olympics. The final straw came in 2005 when investigations by the German and U.S. governments, among others, led to the fines totaling some 2.5 billion euros.

Jolted into action, Siemens' culture recovery was impressive. Strict anti-corruption rules and processes were rapidly rolled out and the number of compliance staff was ramped up to 500 from just 86. In addition, Siemens took on a former Interpol official to head its investigation unit and a co-founder of watchdog Transparency International to serve as an advisor.

Contrast that response with the diesel emission scandal that hit Volkswagen in 2015. When it was first revealed that emission tests might have been tampered with, Volkswagen first went into a denial mode insisting discrepancies were mere technical glitches. It was only in the face of indisputable data that executives acknowledged there had been deliberate deception.

In the following months more revelations surfaced, panic recalls were instituted worldwide and the company’s value and reputation plunged. Volkswagen had not tried to arrest the problem by being more candid in its disclosures.

The commonality between Siemens and Volkswagen was a CEO change after the debacles, but the results were vastly different. This discrepancy shows that corporate culture goes beyond the CEO and highlights the importance of systemic adoption of transparency across all levels and functions of the organization.

3. Stay focused on good governance

The bottom line in any effort to change corporate culture after a crisis is to be resolute in implementing solid governance practices.

Japanese optics and instrument manufacturer Olympus became the poster boy of bad governancein 2011 when a US$1.7 billion fraud was discovered by its newly appointed CEO, Michael Woodford. The revelations took Olympus to the brink of collapse, wiping 82% off its share value within a month and leading some observers to dub the firm “the Enron of Japan.”

Yet in the years that followed Olympus managed a miraculous turnaround, steadily implementing strong governance measures that reshaped even traditionally highly conservative Japanese corporate culture. These include having outside members who form the majority of the board as well as external auditors who are really independent and not linked to the board.

As a result, Olympus today is thriving once again.

Olympus’ business strategy had been totally overwhelmed by its bad culture. As management guru Peter Druckerfamously quipped: “Culture eats strategy for breakfast.”

Good governance, however, can often come to the rescue and put a derailed organization back on track. If anything, I should add: “Governance eats culture for lunch.” 

BouliBrand is a boutique marketing + entrepreneurship + communications + branding movement focused on creating vibrant, purposeful and revenue-generating media experiences on a partner-by-partner basis. With strategic partnerships in New York, Toronto, Athens, Los Angeles, New Delhi and Shanghai, we work directly with savvy, driven and optimistic clients wanting to produce fresh platforms of communication and target nouveau markets internationally with their startup businesses and services. BouliBrand is propelled by Georgios (George) Stroumboulis (Γιώργος Στρουμπούλης) - an internationally seasoned marketing professional with tangible business experiences across multiple industries and diverse cultures. To learn more about BouliBrand, Georgios and the stimulating team spearheading the BouliBrand movement forward, get in contact at www.BouliBrand.com, www.Facebook.com/BouliBrand, www.Twitter.com/Stroumboulis (@stroumboulis), www.Instagram.com/Stroumboulis (@stroumboulis), www.LinkedIn.com/in/Stroumboulis, www.YouTube.com/Stroumboulis or www.Pinterest.com/BouliBrand. BouliBrand shares progressive industry information related to the marketing, branding, entrepreneurship, investment, networking, financing, start-up, public relations, internet, web, creative and business movement. We gather select articles, blogs, news, posts, press releases, announcements, interviews, commentary, videos, clips and anything we feel might be worth reviewing for our visitors, followers, clients and partners.

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