The news that Volkswagen (VW) apparently engineered its diesel engine management software to give false emission readings, created worldwide astonishment and anger. VW has said it will now recall at least 8 million vehicles which will need modifications, for which the company will have to pay.
The financial cost to VW will be enormous, but the damage to the company and its reputation will not stop there. There are likely to be many legal cases brought against the company by governments for fraud and by individuals who find that their vehicle’s resale value to be nearly worthless.
This situation where a company is brought into serious difficulties or even total collapse through the rogue actions of individuals is rare but not unusual. In recent years such cases have usually been confined to the financial sector.
In 1995 the actions of Nick Leeson, a futures trader in Singapore, lost $1.4bn in derivatives trading, which brought about the total demise of Barings Bank. Other financial institutions such as Allied Irish Bank, Japan's Daiwa Bank, Société Générale of France, and UBS, the Swiss banking giant have all been seriously damaged by the unauthorised actions of individual employees.
How did these situations arise? What are the lessons from which all businesses can take note and benefit?
It would seem that in most of the cases involved in the finance sector, rogue traders manipulated the system in order to increase their potential for earning high levels of commission by taking unauthorised risks. Thus, their motivation was for personal financial gain.
In the case of VW, it would seem unlikely that by manipulating the engine management software to give false emission readings, individuals would gain any financial benefit. It may be that the decision to engineer false emission readings was to cover up and avoid the embarrassment that VW engines did not meet the required government emissions standards, which would have affected sales.
The commercial manager is responsible for producing and maintaining the levels of necessary profitable income for the continued development of the business. Therefore, it should be their specific interest to ensure that all the workforce understand that individually and collectively, their actions affect customer perceptions and satisfaction, which ultimately effects the level of income on which they all depend. Instilling enthusiasm, motivation creativity and expertise is not simply a matter of communication, but of effective management and leadership. When effective leadership and management break down, opportunities arise for individuals to game the system to their own advantage and to the disadvantage of the business.
Whenever there are serious management problems the buck stops with the chief executive officer. But when it involves any relations with the customer, the responsibility ultimately rests with the commercial manager. To prevent rogue activities, it is important to recognise how such situations can arise, as there is no real excuse for not knowing. When rogue activities are uncovered, the commercial manger must immediately establish the extent of the problem, the damage caused, and implement the necessary remedial actions.
Problems arise when senior managers do not fully understand the activities for which they have overall responsibilities. Such situations discourage senior management from asking relevant informed questions, either through over confidence in their sub-ordinate executives’ abilities, or through fear of revealing their own ignorance to better qualified specialists.
Large organisations especially, can develop a “silo mentality” amongst their different departments, which can foster individuals gaming the system to their own advantage and the potential development of wayward activities.
The principle cause that allows rogue activities to occur, is bad management through:
- Lack of attention and supervision.
- Lack of fore sight of the potential damage, and consequences of rogue activities.
- Company organisation where a “silo” mentality prevails such that internal communications and cooperation are poor.
When detrimental rogue activities are uncovered it may already be too late to prevent their negative consequences. If such activities are shown to be illegal or damaging to customer relations, there are immediate actions which the commercial manager needs to take to try to mitigate their effects.
- Identify the business areas involved.
- Establish if the activities involved deliberate actions to deceive, or to cover-up embarrassment.
- If possible, identify which individuals were responsible and deal with them according to their employment contract and employment law. If the actions were illegal or seriously damaging – immediate suspension and dismissal may be necessary.
- Ensure that sufficient publicity is given to the uncovering of the problem and the subsequent actions to rectify it.
But it should be noted that prevention is always better than cure.
So what should the commercial manager do to prevent rogue activities?
- Have a full understanding of all the processes for which the commercial manager has overall responsibility.
- Ensure close supervision of all activities but avoid micro management.
- Develop an integrated team spirit so that all problems are discussed.
- Ensure that those earning commission cannot game the system to their own advantage.
- Try to develop an atmosphere where mistakes and error may be identified and dealt without rancour.
- Ensure there is a regular reporting system that identifies all important activities, the relevant progress and highlights any problems.
The commercial manager is responsible for all those activities involved in producing profitable income by anticipating and satisfying customer requirements. When things go wrong through the actions of individuals, the commercial manager has the final responsibility of knowing how the business is being conducted at all times. For the commercial manager, there is no excuse for not knowing.
Nicholas Watkis is the founder of Contract Marketing Service, established in 1981. He is a fellow of the Chartered Institute of Marketing and a certified management consultant of the Institute of Business Consultancy.