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VW and the Dark Side of Compliance Failures

Image from Shutterstock/Julius Kielaitis

Dr. Ann-Marie Nienaber is the Head of the Trust Group at Centre for Trust, Peace and Social Relations, Coventry University, UK.

Do you still trust Volkswagen? How to avoid failures in the future? – here are my evidence based suggestions.

A report on fraud and occupational abuse states that more than one-third of the 1,388 incidents investigated between 2010 and 2011 were schemes involving corruption. Organizational non-compliance is apparently a global risk and corruption is the foremost complaint of U.S. executives operating overseas. In a related report, nearly half the 400 chief financial officers interviewed admitted that they could justify non-complying practices in order to help their organization survive during an economic downturn. Indeed, non-compliance increasingly appears to be perpetrated top-down through the actions of numerous employees in the organization, as opposed to being the action of a single misguided individual. In this case, the criminal group acts for the benefit of the organization rather than for its members’ own sake. A glance at today’s headlines illustrates the point: Volkswagen!

The crisis is an embarrassment for Volkswagen, which has for years held up as a model of its engineering prowess and its corporate social reponsibility engagement. What has happened is an embarresment for Germany in general. So it is not just a company but also a huge range of different stakeholders that have to deal with this crises now. Thus, we can find statements from all sides: govermental agencies, policy makers and university heads. They all try to repair trust – but does it work? I rather question that!

My suggestion: What has to be done now? Think strategically!

Start internally:

  • Companies are not considering intrinsic motivators as part of their compliance management system. Compliance management, however, needs to be perceived as a holistic concept of internalisation of before external company values. Aligning the values and needs of the company with the one’s of their employees has to be a top priority. For instance, by way of providing a greater degree of involvement and a greater voice, employees can be convinced that compliance behavior is built on their own responsibility instead on control and external regulations. Incentives in the form of pay rises, promotions, praise, or recognition can have a powerful effect on compliance management, but these extrinsic effects may not lead to internalisation of the companies’ regulation as values.
  • Concerning normative beliefs, companies may identify groups with a strong cohesion and affect the group leader, so that the group members are positively influenced in relation to compliance behavior. Training on the company’s internal compliance management requirements may contribute to an increased self-efficacy of the employee, i.e. the knowledge and skills that are needed for them to comply with the requirements of the compliance management system. Finally, valuable resources for controls and incentives can be provided by companies if the employees work as a result of their own sense of responsibility, i.e. if they conform on their own to compliance management requirements. Such a value-based integrity strategy can contribute to responsible and exemplary ethical behavior, rather than seeking the minimum goal of preventing breaches of the law.

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Approximately 2.1 million Audi Diesel vehicles are thought to be affected as well, as VW own Audi among many other well known manufacturers – Shutterstock/Vanderwolf Images

Go externally:

  • Communicate with your stakeholders in the right manner: Although external regulations and controls are an effective and powerful devise for repairing organisational trustworthiness, over the last two periods of significant crisis, their impact appears to be warning; Yet reassuring customers of their expectations of the other party’s future behaviour is central to trust. Alternative remedies need to be considered, such as the establishment of a more effective regulator, or board of governors who oversea and assure compliance. Monitoring and surveillance offer a further external means of reducing the possibility of future misbehaviours However, as my research indicates, other strands are required to build trust, including greater attention by firms on customers’ direct experiences, which in turn would enhance the third part endorsement of their competence and goodwill intentions of organisations.
  • Significantly, my research indicates the potentially partial erosion of credence factors, and thus confidence, over the last twenty years, during what has been a period of repeated exposure to trust breaches. Single strand solutions, such as improvements to customer communication, are no longer sufficient, nor, more importantly, do they have the same impact. Instead, I show the necessity to utilise more effectively and target attention towards three distinct antecedents: external regulations and their enforcement; third party and expert endorsements, and therefore external reputations; and customer satisfaction in terms of the effective delivery of customer expectations.

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Ryan Walker