When Good Cultures Go Bad

We are sadly accustomed to board and senior management even at the “best of companies” like WalMart doing bad acts for the usual reasons: the profits, the prestige, the good of the company and careerism.

What’s the usual bad act? It’s typically paying off a corrupt higher-level officer who should know better and accompanied by the usual rationalizations for bribery: local customs, international competition, business is business, and so on.

However, the bad act at Penn State is likely a new low for corporate governance. For the typical rewards of profit and prestige, the board and its senior management tolerated truly extraordinary unethical conduct — the crimes of sexual abuse of minors and the torment of bullied young children. I can hardly believe it myself.

From Walmart to Penn State, there are lessons to be learned about just how low unethical culture, if unchecked, can go even at good companies or even at august, non-profit centers of higher learning.

Some things are so ugly we cannot believe they are happening. We freeze. That would be a mistake for a compliance officer.

A big scandal is always a shock. Reading about WalMart and Penn State is a compliance lesson in being prepared to see extraordinary unethical conduct and still being ready to do the job. When the board and senior management are doing very bad things over a long time and getting away with it, the push back should come from compliance officers long before the criminal prosecution. After the scandal breaks, the new board will appreciate it, not to mention the public at large, including children and their families.

Inside most companies two cultures are always in competition for resources and influence. Over the decades, robust compliance departments with direct reports to the board and the CEO have gained some recognition but remain mostly a grudging work in progress.

Compliance is a challenge to the very identity of what a company is all about. It’s mission is to keep posing the ethical challenge, “Are we the kind of company that would do a bad act in order to succeed?” The road is long before companies would no more proceed without an ethics opinion than they would without a legal opinion.

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Michael Scher is a contributing editor of the FCPA Blog. He has over thirty years experience as senior in-house counsel for anti-fraud and money laundering, regulatory compliance, international transactions and litigation management for financial or aerospace companies based in New York and the Middle East. He now consults and provides training on the FCPA and related laws. He can be contacted here.