Volkswagen crisis: how companies tackle scourge of scandal

Anthony Klan
SEPTEMBER 29, 2015
THE AUSTRALIAN
It’s one thing for a major corporation to make decisions to knowingly and systemically break the law for monetary gain.
But when it becomes unforgivable is to not then, at the very least, have a crisis management plan in place should you get busted, says marketing expert Rohan Miller of The University of Sydney Business School.
“Volkswagen have had in place processes like this that are systematically rorting the system (and) they should have had a plan in place should they be exposed,” Dr Miller says.
He says, ethics aside, former ­asbestos-manufacturer James Hardie put people in danger by continuing to manufacture and sell the material despite knowing of its deadly characteristics, but had in place mechanisms to deal with the fallout.
“James Hardie were premeditated in what they did, but they did as best they could under the ­circumstances, whereas VW is just leading with their chin.”
Revelations last week that as many as 11 million diesel Volkswagen vehicles were fitted with software enabling them to cheat pollution tests have the carmaker on its knees — and put focus on how corporates deal with scandals.
Dr Miller says a key component of crisis management is preventing an information void — the longer a company fails to adequately address the problem the more its snowballs. “Volkswagen have not shared enough information with anyone anywhere in the world,” he says. “They started with putting forward a professor speaking in German and claimed they didn’t know anything.
“You don’t get millions of vehicles with specific types of (corruption enabling) software in them, you just can’t deny things like that,” he says.
Of course while flat denial worked disastrously for VW — its chief executive was rolled within days of the scandal breaking — it remains a key weapon in the ­defence arsenal of other corporations under the spotlight.
In the case of flat denial, it ­either stops the scandal in its tracks by having authorities or commentators drop the matter. The alternative is a slow grind ­release of information, which can often causing the company ­substantially more damage.
In 2011 NBN Co, responsible for delivering the National Broadband Network, faced a scandal ­following revelations about its then chief executive Mike Quigley and chief financial officer Jean-Pascal Beaufret.
The two had previously been senior executives at global telco Alcatel, while the company had engaged in global bribery of governments in emerging countries.
An ensuing foreign bribery investigation became the biggest in US history — but neither Mr Quigley or Mr Beaufret had mentioned anything about the scandal when interviewed for the top jobs at the NBN.
Alcatel’s bribery was first proven in central American country of Costa Rica, with the US government in 2010 fined Alcatel US$137m ($196m) over bribes paid by the company to officials in at least nine countries.
Mr Quigley responded to revelations in the Australian media of the Alcatel corruption by stating he had not been responsible for Costa Rica while at Alcatel.
Over a period of several months, and following ongoing reports by The Australian, it emerged Mr Quigley had in fact been head of Alcatel for the Americas — including North America, South America and Central America as well as Costa Rica.
Mr Quigley later said his earlier claims had been a “mistake” but serious damage had been done.
Mr Beaufret resigned from the NBN months later and in 2013, facing an incoming Coalition government, which said it had lost faith in Mr Quigley, the NBN chief executive stood down.
Mr Quigley has maintained he was not involved in any of the bribery allegations and was not interviewed by US authorities as part of the investigation.
The current head of NBN Co, Bill Morrow, is also facing controversy. The Australian earlier this month revealed Vodafone Hutchison Australia in 2011 hacked the phone of Fairfax Media journalist Natalie O’Brien after she wrote an article damning of the company.
Mr Morrow was Vodafone Hutchison Australia CEO from March 2012 to March 2014.
It has been revealed Vodafone management was aware of the hack from at least June 2012 — while Mr Morrow was CEO.
Mr Morrow, has said he had no knowledge of the accessing of the reporter’s data while at Vodafone, despite Vodafone management being aware of the events, a KPMG “investigation” looking into the hack, and KPMG reporting the findings of its investigation to management. “Mr Morrow does not recall having any knowledge regarding the alleged incident,” an NBN spokeswoman has told The ­Australian.
The spokeswoman said Vodafone had conducted an “exhaustive search” and there was “no evidence” to suggest the issue, “nor the specifics of the independent KPMG investigation” were brought to his attention.
One extreme tack companies can take when facing intense pressure to their brand is to rename themselves. Last week it emerged that an assault was reported at asylum detention centres operated by Transfield Servcies on average every five days for the past three years. The news comes as the listed company has outlined plans to change its name to Broadspectrum Limited at its October general meeting.
For its part, Transfield Services said it was making a “positive contribution to the lives of asylum-seekers” and that no charges had been laid in relation to any “inappropriate incidents”.
Australian Shareholders’ Association director Geoffrey Bowd said companies under public pressure could benefit somewhat from changing names and rebranding, but companies should be focused on preventing improper behaviour. “A brand name change could be beneficial but the horse has ­already bolted; the issue is acting appropriately in the first place,” Mr Bowd said.
“Particularly with respect to VW and 7-11 (recently caught out underpaying staff) the key question is how the companies allowed these issues in the first place.”