THE PUBLIC has lost faith in key parts of the business sector. It has endured the mis-selling of payment protection insurance, the rigging of Libor, insider trading, and an ongoing probe into the forex markets. Something has gone badly wrong. But why do so few in business have the courage to speak out about wrongdoing when they witness it?
This is hardly a new phenomenon. The failures of corporate giants like WorldCom and Enron led to the introduction of the 2002 Sarbanes-Oxley Act in the US, which required senior management to affirm the quality of their organisation’s internal controls. But internal compliance procedures can only go so far. We mustn’t ignore the hard-to-define area of institutional culture. Barclays’s former chief executive Bob Diamond has said that culture is “how people behave when no-one is watching”. In October 2010, former FSA head Hector Sants argued that we should not attempt to define culture itself, but focus on what an unacceptable culture looks like and what outcomes it drives. He is right.
Many institutions purport to abide by certain values like transparency and social responsibility. But these ideals are not necessarily “lived” within the firm. In an ideal world, every worker will assess their actions by whether short-term rewards justify the long-term risk to their own reputation and that of the firm. It doesn’t always happen like this.
Whistleblowing hotlines can help expose problems. But the manner in which a company handles difficult issues raised internally by employees is key to driving culture change. Too often an individual with the courage to highlight concerns is ostracised by senior managers and colleagues. The part of the brain that expects tribal loyalty is uncomfortable with the perception, however misplaced, that one of its own is breaking ranks. There is also a potential impact on future career prospects. It takes a lot to speak up in the face of wrongdoing. But those that choose to do so understand that acting with probity cannot be outsourced to the compliance department.
Take the example of Michael Woodford, former president and chief executive of Olympus, the electronics giant. Within weeks of taking up his job, Woodford received an email from an employee alleging that a fraud approaching $2bn had been covered up. He could have ignored it. He had a lot to lose, including his 30-year career at the company and a seven-figure salary. But he chose to investigate.
When he delved deeper, he realised that senior executives were implicated in the allegations. He wrote multiple letters to the board detailing his concerns, but he was frozen out, fired, and forced to leave the office with nothing but his mobile phone.
I set up the Contrarian Prize to recognise the independence, courage and sacrifice of individuals like Woodford, because their actions can have an identifiable and positive impact on business culture. If others displayed similar integrity, the business world would be much better for it.
Ali Miraj is the founder of the Contrarian Prize. Michael Woodford will be giving the inaugural Contrarian Prize lecture at Cass Business School tonight at 6pm. www.contrarianprize.com