Andrew Wilson: VW latest to focus solely on results
WOODY Allen is a favourite of mine, despite all his human flaws. Sleeper, made in 1973, is a futuristic comedy set in 22nd-century America. In one scene our hero stumbles upon a 200-year-old VW Beetle in a cave. He steps inside, turns the key and says: “Ah, they really built these things, didn’t they?” as it whirrs effortlessly into life.
Perfect product placement for a brand built on quality and trust. All of that is almost destroyed last week in the car industry’s own version of the Libor fixing scandal. Volkswagen produced a truly gobsmacking example of heinous dishonesty and fraud by one of the world’s biggest companies in an era of such behaviour getting found out.
The banks led the way, of course, which I learned first-hand through the crisis. Former Chancellor Alistair Darling told me the other night that payment protection insurance (PPI) compensation claims had boosted the economy more than any government spending or scheme. The total payouts from the banking sector for the scandal could top £27 billion. The consumption silver lining on a very dark cloud.
This is probably the most visible and simple to understand scandal of the many that have shaken that sector. People taking out loans, already anxious about whether they would get the loan, were preyed on and often sold an insurance they didn’t need or want as part of the transaction. Retired people bought them even though they had no job to lose. Ugly.
At a time when people still trusted that a bank was staid, conservative and had your better interests at heart, the sale was easy.
In a culture where short-term income and profit was king and shareholders were screaming for returns, this was the icing on the cake of the long debt-fuelled boom. But it gouged the household budgets of people who should be clients.
We are living through an era where all the major institutions and organisations of life are getting the bad practices of the past exposed and, we hope, reformed.
Volkswagen is the latest in a long line that will undoubtedly keep forcing companies and institutions into the glare of scrutiny with an existential challenge to reform or die.
Government and public service is going through its own in many countries. Parliament, the monarchy, the BBC, the media, the food industry, energy companies and utilities, retailers. All have had their moment and others will follow.
What we learned in the banking crisis is that the culture that allowed bad behaviour to happen in one place is likely to produce the same result elsewhere. HSBC is hit by a money laundering scandal? Hit the stopwatch, as others will follow suit shortly. Only the extremes vary.
As consumers we know when things just don’t seem right. PPI never felt right, which is why very few bank workers bought it for themselves. That should have been a clue. Barclays’ former CEO, Matt Barrett, told a parliament committee in 2003 that he’d never allow his kids to use Barclays credit cards because they were too expensive. A clue right there.
This is an entrenched issue. In pursuit of short-term returns, companies are rewarding behaviour that, when discovered, is destroying the initial gains. In turn, if the people representing shareholders (often your pension fund) only shout for short-term rewards, they end up getting what they wish for, which is jam today and pain tomorrow.
So what should leaders do to learn from others’ failures?
First, 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.
Then listen to those quiet 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.
Third, 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.
Fourth is culture: focus on it, and how we behave when no-one is looking. That is what the true DNA of your organisation will be. And finally think long term over short term all of the time, even when the shareholders (or voters) shout. What is the long-term purpose of the organisation?
Last week I spent a remarkable evening listening to Arun Gandhi in Edinburgh. The great Mahatma’s grandson spoke about peace and non-violence in all our daily lives and how our own actions count. He ended the night with these words: “We are hooked upon results in this world. We should focus instead on the sincerity of our actions and the results will come.” How many shareholders of Volkswagen wish their company had lived in that truth? «