Kanika Datta: The fudge culture

Last week, the resignation of the venerated patriarch Osamu Suzuki as chief executive officer (CEO) of Suzuki Motors added one more act to serial scandals in the global automotive industry that raise again the question of managerial ethics in large corporations. Suzuki Motors was the fourth trusted auto brand to have been caught cheating regulators and customers in the past three years.

That is not the only thing that links them. All four corporations - General Motors, Volkswagen, Mitsubishi Motors and Suzuki Motors - have value statements that talk of integrity, responsibility, sustainability and variations thereof.

Nor is that the only irony in this sorry saga. In three of the four companies, the CEOs stepped down owning responsibility for the acts of employees but not without some hedging. In his resignation letter, Volkswagen's Martin Winterkorn said he was resigning in the interests of the company even though he was not aware of any wrong doing on his part. Mr Suzuki, however, stayed on as chairman.
 

In General Motors, which suffered consecutive scandals, in 2013 (emissions fraud) and 2014 (a record 20 million vehicle recall worldwide for multiple safety issues), fewer top jobs were axed. For the first scandal, a global department head was sacked together with some employees in the US and India who were directly concerned with fudging data. In the second, Mary Barra did not need to step down because she had been appointed CEO just six months before and could not be held responsible for it.

GM issued a new code of conduct in January 2016. As a preface to the code, titled "Winning with Integrity", Ms Barra wrote a letter stating, "As you read through this Code of Conduct …take time to understand the policies and guidelines you are required to follow each day."

Like corporate vision and mission statements, the code is standard stuff, couched in the sort of corporate-speak that makes your eyes glaze over. Most large listed companies have similar statements that employees are required to sign. They matter as far as protecting companies against legal action if employees are sacked for misconduct. How seriously employees take the ethical element embedded in such statements is an open question, and asking them to take time out to a read a lengthy document is hardly the answer. The real issue for leaders to consider is establishing their values within the corporate culture in genuine and dynamic ways.

At the very least, they should be asking the right questions.

How, for instance, was it possible for Volkswagen - which leverages its trusty German engineering credentials with the brilliantly simple tagline "Das Auto" and drones on about a "global compact" that includes environmental protection and combating corruption - to systematically manipulate emission tests data in its diesel vehicles in Europe and US for years together? It is hard to believe that the top management was unaware of the use of the cheat device, when it was an open secret in the conglomerates' engine development department. Mr Winterkorn may be right to imply that he was not a wilful participant in the fudge, but he was certainly responsible for the culture that allowed it to flourish.

Within Suzuki, the transgression was, incredibly, considered less serious. The discrepancy between advertised fuel efficiency and actual performance was because the tests were conducted inside a building instead of the external test track that was situated on top of a windy hilltop. Thus, the company argued mendaciously, employees were not wilfully fudging data. Mr Suzuki acknowledged that these kinds of lapses occur when companies grow so large that managerial attention gets diffuse, which is why he had stepped aside from hands-on management. This is hardly a robust message to send down the line.

Mr Suzuki could have added that the acute pressure to perform magnifies the temptation to cut corners or cheat (in much the same way as top athletes guzzle banned performance-enhancing drugs) and for managements to look away. At GM, it transpires that one whistle-blower did warn a senior manager of the fudge, but was ignored because the automaker was under pressure to deliver an environmentally-friendly engine for the American market. It was only after US regulators uncovered the scandal that the company belatedly introduced an amnesty programme for employees who would volunteer information on the emission-supressing device. In her letter, Ms Barra urges employees: "If you see something, say something" and lists various internal helplines to access.

Sadly, though, laws can protect whistle-blowers only legally; they can do little to shield them from the social isolation that is an inevitable consequence of their act, however high-minded. Thus, managements can design codes of conduct and craft marvellous vision and value statements till they're blue in the face, but none of it will matter unless they are ready to place a premium on integrity over performance and demonstrate to their employees that they really mean it.

Or as a senior Volkswagen executive put it, "This company has to b****y learn and use this opportunity in order to get their act together, and 600,000 people worldwide have to be managed in a different way. This is very, very clear."