How Congress can put an end to America's corporate scandals

Every few years, we enter a cycle of corporate scandals that sees a parade of CEOs called before Congress to be publicly grilled by outraged lawmakers. The very fact that this cycle continues to repeat itself — complete with new batches of executives doing the “walk of shame” — tells us the usual congressional approach isn’t working.

But this should come as no surprise. As most parents know, shouting louder doesn’t give kids any better understanding of what they did wrong — or cause them to change their behavior. It usually just causes them to tune out.

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The spectacular failures that lead to a CEO’s unpleasant appearance before Congress are too easily dismissed by other corporate leaders who don’t think it will happen to them. And while many of the pointed questions asked by legislators during these hearings are valid, the spectacle of the delivery overshadows any attempt to get meaningful answers or impact the behaviors of others who may be watching. Maybe it’s time to try a different approach.

 

Let there be no doubt, it is necessary for our lawmakers to express displeasure, disappointment, and the need for corrective actions when stakeholders have been harmed by corporate malfeasance. But perhaps it is time to move beyond public scoldings and instead focus on more constructive root-cause analysis and on gaining corporate commitment to measurable corrective actions.

In order to have a smarter, rather than merely louder, conversation about corporate wrongdoing, lawmakers need to educate themselves. It’s important to understand effective processes that enable organizations to embed a strong culture and to institutionalize processes that detect and prevent wrongdoing.

This knowledge will lead to more productive hearings, with lawmakers asking specific questions that focus on how and why companies fail to uncover brewing scandals — and identifying how other companies can prevent them. Perhaps it is also time to hear from some CEOs and compliance officers who are getting it right.

Experienced compliance professionals will tell you that behind every spectacular failure lies a series of smaller failures and unheeded warning signs. These include unpunished bad behavior, misaligned incentives, silenced whistleblowers or worse, and persistent personnel-related complaints from troubled operations — in other words, culture failures. In every case, there are always other employees who knew something inappropriate was happening.

So how can congressional leaders conduct smarter conversations with CEOs?

They can start with best practice guidelines, including those developed by government agencies in conjunction with industry organizations. Most notable is the Federal Sentencing Guidelines for Organizations, long seen as the guiding beacon of ethics and compliance effectiveness with its carrot and stick approach. Unfortunately, over the years, executives have become immune to these, primarily because few organizations are actually “sentenced,” as the title implies, so a change in nomenclature may be needed.

Best practice guidelines are deliberately not prescriptive, perhaps too much so, because it is too easy for organizations to apply their own limited interpretation and make compliance a “check-the-box” exercise. Recently, the Department of Justice published a set of specific set of hard-to-evade questions they will ask before deciding whether to file criminal charges. These questions could also be useful in congressional hearings.

Board members and executives can easily read a balance sheet but often have no idea how to interpret data relating to their hotline reports. They and Congress need to learn to do this because those reports contain a wealth of red-flag opportunities. For example, a spike in HR complaints, often dismissed by executives as a nuisance, is often an indicator of management issues worthy of review by financial auditors.

Receiving no hotline reports is not good news. It is often a sign of a repressive or stifling management culture. Navex Global’s 2017 Hotline Benchmark Report, which analyzed nearly one million reports made annually to company hotlines, shows that organizations are receiving more reports every year. Many of them are actionable, but it’s taking too long to close cases, leading employees to lose confidence in reporting. It also shows that few employees are willing to raise concerns about retaliation internally.

 

Carrie Penman is chief compliance officer and senior vice president of advisory services at Navex Global, a company specializing in compliance software and services.


The views expressed by contributors are their own and are not the views of The Hill.