Are Your Values in the Drinking Water?: The E&C Pulse - April 15, 2020

April 15, 2020 Ben DiPietro

April 8, 2020

Deadly Outcomes Can Result From E&C Failures


Before the COVID-19 virus exploded into a worldwide pandemic, LRN’s 2020 Ethics & Compliance Program Effectiveness Report was focusing on how ethics and compliance failures can sometimes have fatal consequences.


This year’s report, released last week, looks to three real-life examples--the Vale dam collapse, the Pacific Gas & Electric wildfires in California, and the Boeing 737 MAX aircraft crashes--to illustrate what happens when companies have E&C programs in name only, and why it’s so vital to create a strong culture based on ethics, values, and transparency.


In each case, the problems leading to catastrophes were known, regulators were deceived, or not fully informed. The companies ignored concerns raised by their employees that pointed to weaknesses that led to disasters. Vale’s dam collapse resulted in more than 250 people losing their lives, PGE’s fires killed 85 people, and destroyed more than 18,000 buildings, while two Boeing crashes killed nearly 350 people.


All this took place despite extensive sets of rules, processes and procedures put in place presumably to prevent these specific behaviors.


“Those are very stark and tragic examples of what can happen when people say one thing or focus overly on procedures, but neglect and don't focus enough on what's actually happening, and whether the procedures are in fact being followed,” LRN’s Susan Divers, who helped to author the report, told Tom Fox in a podcast.


“Whether, in fact, the underlying culture is telling people informally, ‘You don't really need to do this, and it's not going to matter because we're going to get the airplane into production by this date anyway,’” said Divers. “Or, ‘We know there are cracks in the dam, but we'll deal with it at some point.’ Or, in the case of PG&E, ‘We're going to mislead regulators about the fact that our towers need maintenance and are sparking.’”


Time and again, companies rely on processes but neglected to address how they work in practice. Failure to identify and address the critical issues that determine the health of an organization’s ethical culture leaves the door open for misconduct, no matter how well organized or funded the E&C program may be. 


“These scandals and others, including many that have come to light as a result of the #MeToo movement, occurred in organizations that had staff, training, policies and the other standard elements of E&C programs,” said Divers. “But they did not deter significant misconduct.”


One common element to these scandals is top leaders in the companies knew of the problems. Internal emails revealed concerns among those working on the 737 MAX aircraft, that Vale promised to improve safety after an earlier dam collapse but did nothing. They showed PG&E knew 48 of its towers needed immediate replacing, retaliated against workers who raised concerns, promoted a manager who was falsifying reports, and lied to regulators.


“That makes a mockery out of any process or any ethics and compliance program that they had in place at the time,” she said.


The overarching theme in the report is, you must address culture if you really want to prevent misconduct. One of the shifts in the E&C profession has been a recognition culture is what determines whether misconduct occurs. And regulators now understand this, she said.


“It's been a while and coming, but they recognize you can pay us a little the laws you want, you can have as many procedures as you can invent, but in the end, it's the culture of the organization that determines whether they're followed and how they're followed,” said Divers.


                                                                                                            BEN DIPIETRO



The Centers for Disease Control and the Federal Emergency Management Agency are working on a plan that would allow for parts of the U.S. to reopen within weeks, Washington Post reports.


Corporate compliance monitors are being hampered by their inability to make on-site visits to companies, Wall Street Journal's Mengqi Sun reports.


The COVID-19 outbreak is spotlighting disparities in health services provided to African Americans, Dr. Anthony Fauci said. 


The loopholes still exist that led to the Panama Papers money-laundering scandal four years ago, Transparency International reports.


Alexandre Di Miceli writes on LinkedIn about the qualities companies will need to thrive in the post-COVID world.  


About a quarter of the companies surveyed by Compliance Week said they don't have a plan to deal with a second wave of COVID-19, should one occur.


Audit committee chairs discuss the implications of COVID-19 in an NACD blog post co-written by former LRNer Marcel Bucsescu.


The pandemic may change corporate responsibility as we know it, Emily Chasan reports for Bloomberg. Social impact expert Carol Cone says the crisis will lead to more companies embracing purpose.


One in four chief financial officers expects layoffs at their companies, up from 16% who said so two weeks ago, PwC said in a survey reported by Axios.


Some privacy advocates are concerned police are obtaining names and addresses from health officials of people who have contracted COVID-19, NBC reports.


European Union lawmakers are considering creating a regulator to cover "blind spots" in the oversight of crypto assets, CoinTelegraph reports.

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