Analysis: VW ‘deliberately immoral’ ruling pushes governance lessons

And it certainly must have caused some sleepless nights for VW management; while they only need pay Gilbert the sum of €28,257.74 (U.S. $31,355), they will also be required to pay similar sums to 60,000 other purchasers of VW cars in Germany—another backward step in VW’s efforts to repair its reputation.

The big questions that come with tiny ‘ifs’

I posit “if” is essentially the world’s biggest word, since the possibilities that follow it are infinite. For instance, it’s likely right now VW executives and shareholders are thinking: “If only we had implemented a whistleblowing process staff.” Where would VW be now if this had never happened? Between VW and scandalized German car manufacturer Daimler, they’d likely be €30 billion (U.S. $33 billion) better off, with higher sales and dividends; well-respected brands; and 60,000 repeat, happy customers, including Herbert Gilbert.

There are far too many stories written about the aftermath of a whistle having been blown and not enough written about a whistle not being blown. Logically the latter is not a sought-after story, because it’s not a sensational story. Having said that, it is still the story that needs to be told to boards and shareholders in order for them to understand and support the importance of encouraging employees to come forward and report wrongdoing.

Here in the United Kingdom, some people hold to the belief that whistleblowing, or “telling tales out of school,” is wrong. Others assert rewarding whistleblowers, similar to the U.S. model, is “not British”—whatever that means. Notwithstanding any of this, a company can decide to reward whistleblowers—and shareholders and investors can demand it. After all, it is far less costly than the catastrophic failures and fiscal losses that follow when industrialized deceptive practices are identified and broadcast to the public.

Talking and walking good governance

Investors need confidence, they need stability, they seek returns—not losses, and none of this materializes when companies undertake frauds and cheat their customers. The problem is too many people blame the whistleblower, rather than the wrongdoers. I saw this firsthand when I worked at Wachovia Bank N.A. (now part of Wells Fargo N.A.). Before I joined Wachovia, there was a perception that the business was absent money laundering concerns or, seen another way, there was no money laundering until I turned up. For the sake of clarity: I am not a money launderer, but I do happen to have a blood hound’s nose for dirty money.

Thus, when I ferreted out the bank was experiencing money laundering within its ranks and raised my concerns (ultimately blowing the whistle), I became the problem. The bank paid a significant financial penalty and later, because of the 2008 financial crisis, the share price dropped 98 percent—incurring huge losses for all investors, including employees invested in share purchase schemes. There was clear correlation between the money laundering, weak compliance, and a business model run amok. The same thing happened with HBOS in the United Kingdom, when my colleague and friend Paul Moore blew the whistle, but the board would not listen and the CEO fired him.

It’s high time investors start insisting companies implement whistleblowing processes that engender employee confidence. Employees are the eyes and ears of investors; when employees aren’t working in the best interests of investors, it means the company’s culture is flawed and presents a significantly high risk to those shareholders. If you are still not convinced, just ask the investors of Wachovia, VW, HBOS, and many more. Good governance includes the fair treatment of and respect for both customers and employees. Simultaneously, it is a key component of an investor’s long-term strategy. Remember: When good governance goes missing, so does investor money.

Beware of talking the good governance talk and failing to take the good governance walk. When a company, its directors, and compliance professionals fail to adhere to the good governance articulated within the annual report, it may actually be deceiving investors—and those investors may come calling through their lawyers on each individual to personally seek compensation for their losses. Increasingly, investors are frustrated by corporate failures that do not reflect the apparent good governance within a company. And, class-action lawyers have identified this failure of governance and resulting failure to protect investors as an area of litigation.

Nowadays, be sure to live up to and live by the good governance language that likely attracted investors in the first place. After all, it is their money, and you have an obligation to keep it safe.