A Corruption Crisis – avoidance and management tactics

By Dani Cohen and Sandra Sowray, Prolog Consulting

Volkswagen, Enron, Anderson Consulting, McKinsey, KPMG. These are – or were – some of the world’s best known brands. They are also companies which have been embroiled in corruption scandals, grabbing media headlines for months across the globe. Some are still with us, having weathered the storm, others have been pummelled into oblivion, unable to overcome the reputational damage associated with such a corruption crisis.

There are few corporate crises which can threaten the continued existence of a company as significantly as the discovery of corruption. Big or small, an individual or group, private sector or involving the bribery of government officials, any of these can escalate into media headlines which will send investors, shareholders, customers, employees, and other stakeholders running for the hills.   The impact of corruption, whether it happens inadvertently, through extortion, pressure, or willingly, through the actions of some executives or employees, will be significant.

The risk of falling foul of a corruption crisis is increased for companies operating in countries outside their home base, where the business environment, customs and politics may force a company to engage in corrupt or unethical business practices in order to compete.  A corruption scandal not only affects a company’s reputation in the country where it has been perpetrated, but it can also significantly damage that company’s global reputation by eroding trust.

It also comes at a significant cost.  In addition to fines by local and global regulators and law enforcement, which can run into billions of US dollars, a company also needs to take into account the cost of restitution and remediation, the loss of exceptional employees, and rebuilding a reputation.

In a world where shareholders, employees and customers are demanding greater accountability, and where corrupt actions are easily exposed through social media, whistleblowers, data leaks, and global investigative journalism, it is imperative that a crisis is managed quickly, appropriately and responsibly.

So what can companies do to prevent, prepare for, and to manage such a crisis, should it occur?

First of all, ethical behaviour requires leadership commitment to infallible values, morals and ethics. We need to change hiring criteria to include a far stronger emphasis on ensuring leadership candidates embody the morals needed to drive ethical leadership. Companies chase executives who will drive competitiveness, growth and financial targets, but it may be time that we place the same amount of importance on driving an unrelenting commitment to values. 

The South African state capture example shows us that in most cases, those in leadership positions, both within the public and private sectors, lacked the ethical fortitude to steer clear of temptation. Get the leadership piece right and you’re halfway there.

Crisis preparation and training is critical  

Some of the biggest global corruption crises were made worse because companies and their internal teams were not prepared, trained or ready to effectively manage the issue. To be prepared, management and senior staff have to undergo annual crisis training, which should include simulations of the worst disasters and scandals that could occur and how to respond to them. This includes putting in place systems to mitigate and manage them.  This is over and above the regular training on understanding and implementing a company’s overall internal crisis strategy and protocols. Being prepared could very well mean the difference between a company’s survival or its demise.

Your stakeholders are going to judge you on how you respond to a corruption crisis.  Although ‘doing the right thing’ may seem the obvious course of action, it is necessary to interrogate what ‘the right thing’ is against the backdrop of the company’s sustainability and values, but also against the current local political and socio-economic environment.  Keep doing this, because while your values might not change, the environment in which this crisis exists most certainly will. 

If you’re a corporate involved in a corruption scandal that involves many actors in both business and government, it is critical that you manage your involvement carefully.  Corporates, by the very nature that they are accountable to shareholders, customers and other stakeholders, can quickly become the lightning rod for civil action, especially, as is the case in South Africa, politicians seemed to act with impunity.  When a nation is angry and hurt, its people will default to those it can hold to account, the low hanging fruit.  In South Africa, a number of prominent voices rose against companies involved in the state capture project in very short order.  These voices included big business, organised business, civil society organisations, political parties, activists, and the general public.  They cancelled contracts with companies involved, expelled them from their associations, spoke out against them and called for the public to boycott them.  

While you can never manage a corruption crisis away, you can decrease the risk if your stakeholders believe you are doing the right thing. This strategy has to be centred on working backwards from answering these four critical questions:

  1. Did you respond appropriately?
  2. Did you hold those responsible to account?
  3. Did you interrogate how you got here, and put appropriate measures in place to prevent this in future?
  4. Did you make amends?

There is no comprehensive playbook for managing a corruption crisis, each one is unique.  However, if you take a principled and values-based approach and follow these guidelines, you are more likely to survive.

If you have any questions on Make Trade’s projects on anti-corruption in developing countries please contact charlotte.kalin@maketrade.se

The comprehensive E-Manual below – Managing a Corruption Crisis gives further guidance.