A year ago, most consumers would have fully trusted two major brands: VW and Tesco. How things change!
Tesco and their “Every Little Bit Helps” campaign made consumers comfortable; getting a fair deal from a company they could trust. Yes, Tesco had its ups and downs under pressure from competitors including the discounters, but nothing untoward for the shopper. After the departure of the enigmatic Sir Terry Leahy, the wheels started to wobble with concerned rumblings from the financial markets and problems in overseas subsidiaries.
I bought a new car this time last year, the third from the same manufacturer, Volkswagen. A trusted brand, an excellent product – “Das Auto” – and great TV ads!
VW has had its wobbles too, the most colourful exposed in 2005; the 10-year supply of cash, sex, drugs and no doubt more to members of the supervisory works council by the then personnel director to ensure smooth industrial relations. Denial by senior management kicked in promises to do better, but no prosecutions.
Be it Tesco or VW (and there have been and will be others), what drives management to jeopardise their valuable brands, wiping out massive market value? At present it is unlikely that either company will go under, but for sure both have irate shareholders, customers and employees.
What do we think they did?
So what went on? Tesco was in dire need of delivering better profit numbers to the market after a series of profit warnings. However, out of the blue, last September, an employee in the finance department alerted Tesco’s General Counsel that the company had overstated its profit guidance to the market for the previous six months by about £250m. This was not a small accounting oversight and is currently being investigation by the UK’s Serious Fraud Office. The share price bombed.
VW, meanwhile, had been increasing its penetration into the US market for several years by selling so-called “clean diesel cars”. This was in the face of the anti-diesel lobby and stringent pollution tests. However, in meeting the US Environmental Protection Agency tests, someone in VW came up with the “bright idea” of installing denial engine management software which could switch back to normal when the engine was not being tested, thereafter increasing the tested emissions by an alleged 40 times.
Why? It’s a difficult one! In both cases, it would appear a corrupt act has taken place where responsible manager(s) have deliberately abused their position to make gains for their companies (or perhaps themselves if bonuses were in play) through unethical behaviour. Those responsible probably don’t have a criminal record at present (but certainty will if convicted). However, the big questions are: How far up the chain of command did Tesco and VW folk know about these malfeasances? For how long? Did cultures and leadership of these companies provide a breeding ground where those concerned thought they could do this? Had they lost their moral compass or just thought nothing of it?
Of course, both companies have rules, regulations and compliance hierarchies, probably enough to crash into with a shopping trolley or write off a car! But did anyone really bother, and were these incidents “accidents waiting to happen?”
Corruption is exercised in many forms, as appears to be the case with Tesco and VW. It may be exercised in one or more crimes such as bribery and fraud. In business, we tend think “It wouldn’t happen in my company” or “We have policies and procedures to prevent this sort of thing ever happening”.
Corruption occurs in all societies, and if the perpetrators believe themselves unassailable then it’s time for them to think again. Tesco and VW are but two serious cases. Let’s not forget the allegations against FIFA, GSK and others? It takes just one bad apple (or maybe two or three) to cause untold financial, societal and personal damage.