A view from the street

@cstreetpartners

A view from the street

For decades the Alpha Dog adage was that a leader should “never apologise never explain”. Over the last decade or so that has gradually changed but now the flood gates have opened.

During the banking crisis CEO’s were dragged kicking and screaming to an apology. Even then the apology was more “I am sorry you fell”, rather than “I am sorry I pushed you”.

This week it was the turn of the CEO of Volkswagen to roll out ‘the hardest word’ following a quite astonishing turn of events that led to his resignation. The ‘diesel dupe’ scandal in the United States was the manufacturing world’s version of LIBOR fixing. It will cost the shareholders of Volkswagen billions and the long-term reputational damage is almost beyond quantification.

What we learned in the banking crisis is that the culture that allowed bad behavior to happen in one place is pretty much endemic across the sector. Only the extremes vary. So we can be certain that other countries and carmakers will have their own version of the same or other problems. The UK is also looking at Volkswagen.

This is an entrenched issue. In pursuit of short-term returns companies are rewarding behaviour that, when discovered, is destroying the initial gains, hobbling the company and tarnishing the industry. And in this era your sins will always find you out.

So what should the leaders of any company do to learn from other’s failures before it is too late?

1. Embrace transparency no matter how embarrassing the bumps along the way can be. They are going to come anyway, better that you are in charge of your own story.

2. Listen to those discordant voices in the room. How much do bank shareholders now wish that someone had won the argument not to gouge their customers with PPI sales they didn’t need? Those prescient voices were jeered down.

3. Seek out signals that conduct may not be right. Actively examine the sources of your profit and whether it is to the mutual advantage of your clients.

4. Focus on culture and how we behave when no one is looking. That is what the true DNA of your firm will be. The ‘soft’ stuff has hard impact on numbers.

5. Think long term over short term even when the shareholders shout. What is the long-term purpose of the company? That’s the focus and the profits should follow.

Volkswagen and car manufacture is just the latest in an era of reform scandals. Banks are a long way from fixed. Utilities likewise. Insurance, asset management, pensions, professional services all will have their moment. All will.

There is a much more sustainable future ahead. Getting from here to there is the challenge for all. Best get on with it.

Andrew Wilson
Founding Partner