No more ‘Sergeant Schultz’ for top executives in a crisis

How long can top executives credibly claim ignorance of malpractice happening on their watch? The bumbling Sergeant Schultz on Hogans’ Heroes became famous for his catchphrase “I see nothing. Nothing-g-g”.  The joke of course was that he DID see what was happening and pretended not to.

In the same way, two major reputation crises in the last few weeks raise the very obvious question – How could senior managers NOT know what was taking place?

The first case saw Princess Cruise Lines agree to a record $US40 million penalty after pleading guilty to Princess Caribbean discharging oily waste into the ocean. Moreover court documents showed illegal practices were found on four other Princess ships, including use of ocean water to fool on-board sensors that would otherwise detect dumping of contaminated bilge-water. Authorities said cost saving was the motive and that the ship’s officers and crew conspired to cover up what was going on.

The company’s official response was to blame “the inexcusable actions of our employees, who violated our policies” and went on to say that although they had policies and procedures in place, “it became apparent that they were not fully effective.” No mention of that fact that the illegal practices came to light after an engineer on the ship told investigators looking into a big discharge off the coast of England in 2013.

The second reputation crisis reported just days later was when BMW Australia’s finance arm agreed to pay back $72 million to car buyers who were misled into thinking they could afford a luxury German car and were provided loans on false documents. BMW will write off $50 million in loans the company should never have made, will pay $14.6 million to people who were misled, and grant $7.5 million in interest rate reductions on current loan contracts.

The Sydney Morning Herald reported “there was evidence that the company’s management was aware of the failures and lack of controls in its business.” The paper said an earlier review blamed “a strong sales culture” in which people with “known compliance failings” were paid unprecedented bonuses, while risk and compliance teams were undermanned, under-trained and not taken seriously. Again it raises the question, where were top management in all of this?

Such cases are eerily reminiscent of the VW emissions scandal, which was initially blamed on a handful of low level employees, unbeknownst to the CEO, whereas later reports make it clear that the problem was known in the executive suite much earlier. Or the recent scandal involving systematic underpayment of employees at 7-Eleven Australia, which was initially blamed on unscrupulous franchisees acting without the knowledge of Head Office. The company later admitted a culture of underpayment and false records had become ‘normalised’ in its network

Let’s not be naïve here. In some such cases the CEO steps down, but in the background there are usually highly-paid lawyers warning executives not to admit responsibility, and trying to avoid their clients being forced to undergo cross-examination in open court. However, it would be a welcome change – albeit unlikely – for a top executive to step forward and candidly say: “Yes, I knew about it, and I’m really sorry.” Just don’t hold your breath waiting for that day.

Tony Jaques PhD
Director, Issue Outcomes P/L