That three global companies at the pinnacle of their industries, considered superstars with all the trappings of success – Toyota and Goldman Sachs heading Fortune’s list of the world’s most admired companies and BP and Goldman heading the most profitable – could put themselves and their stakeholders in harm’s way so dramatically and needlessly, at such exorbitant financial, human and reputation cost, illustrates how easily failures in leadership and vulnerabilities in corporate culture can blow up.
Toyota, Goldman and BP were required to testify before U.S. congressional committees and covered endlessly by international media. Each has been criticized for: not operating transparently; making decisions where profit trumped ethical considerations; cutting corners; ignoring potential harm to stakeholders; and having leadership failures that allowed the crises to implode.
The companies’ initial response to crisis was defensive and slow to take responsibility. Subsequently, their leaders apologized, said the crisis should never have happened and indicated they would get back to basics, reform business practices, or thoroughly investigate what happened to ensure it doesn’t occur again. Sound formulaic?
Progress as of mid-July 2010 includes:
- BP has appeared to cap the oil spill, a big step in finding a permanent solution. It continues to be criticized for not having a greater sense of urgency in the cleanup and slowness in processing and paying claims.
- Goldman settled with the Securities and Exchange Commission, entering into a three-year consent decree, agreeing to reform business practices and pay $550 million, of which $535 is a civil penalty. Whether ethical behavior will be reinforced in the practices depends on expectations set by Goldman’s board of directors.
- Toyota paid a $16 million fine, reinforces safety in ads, and is awaiting the results of an ongoing U.S. Department of Transportation investigation into its recalls.
There is no shortage of ironies. The crisis stripped away the brand identity each company had cultivated: safety and reliability at Toyota; putting customers first at Goldman Sachs; and BP’s priority on safety. How could that happen? Is it because the brand identity was made real by tradition, marketing, advertising, or PR and not by embedding it in the culture? Or is it that everyone can agree on the words but doesn’t feel safe raising questions or red flags when decisions or financial priorities run counter to them?
Whatever the reason, Akio Toyoda at Toyota, Lloyd Blankfein at Goldman, and Robert Dudley who has replaced Tony Hayward on the front lines in the Gulf of Mexico, need to decode the answer for their company. It gets to the heart of where their corporate culture is vulnerable, and where leadership is failing to deliver.
The collective impact of these tragedies on hundreds of millions of people from companies who say their priorities are customers beg the question, what can other companies learn from this epic wake up call?
One key lesson is ensuring that reputation risk is a regular agenda item for the CEO’s direct reports and for board discussions. Sensitivity to reputation risk needs to be built into the culture as part of routine decision making at every level.
It is an understandable business strategy to try to limit the scope of recalls as Toyota did, but what happens to Toyota or any company if there aren’t others at the table encouraged to look at issues from all sides, probing for unintended consequences. And in the case of BP, when employees and contractors made recommendations for safer options for Deepwater Horizon well that were disregarded in favor of faster, cheaper and riskier options, what review process at a higher level will weigh short- and long-term risks and consequences?
The haunting question these crises raise is how did these companies fail at what they said was most important?
Gael O’Brien, July 17, 2008