Recent shocking revelations that the Nine Entertainment Company, the nation’s largest media organisation, allowed a culture of sexual harassment to go unaddressed has once again thrown the spotlight on poor organisational culture among too many of our flagship corporations. Allegedly perpetrated by senior executive Darren Wick, the harassment was said to have been an open secret in the organisation.
That such a toxic culture directed at female employees could be perpetuated anywhere, especially in a post-#MeToo environment, is incomprehensible. Equally unfathomable was the response of Nine’s CEO Mike Sneesby, who declared that he’d been unaware of the allegations before their publication in the media.
In the wake of the controversy, Nine’s chair, former federal treasurer Peter Costello, scrambled a board meeting to consider the claims, raising questions about what he and the board knew or, maybe, preferred not to know. As longstanding corporate chair Lindsay Maxsted once declared, when a corporate scandal breaks, the question needing to be asked is “where was the board?” The words came back to haunt him.
Denial by senior management and boards in the face of corporate wrongdoing is common. Examples abound.
When the 2015 scandal broke around 7-Eleven’s perpetuation of an underpayment of wages scam throughout the company’s 700+ Australian stores, reclusive billionaire owner Russell Withers declared he was shocked to hear of its existence. So too was CEO Warren Wilmot. Apparently, knowledge of Australia’s largest ever wages scam didn’t reached the top of the company, despite claims of widespread knowledge of its existence among the company’s franchisees.
Who could forget banking chiefs pleading ignorance about the appalling lack of ethical standards among the big four banks during the 2017-18 banking royal commission? Denial of problems was their default position.
Even after royal commissioner Kenneth Hayne delivered his scathing report, Westpac was in denial mode once again. Lindsay Maxsted, chair of Westpac at the time, was in the firing line when scandal erupted over the company’s systematic breaching of its anti-money laundering legislative responsibilities leading to money being sent by known paedophile customers to the Philippines to engage in child sexual abuse.
Like Withers, Maxsted claimed he knew nothing of the revelations surrounding the company’s installation of cheap anti-money laundering technology, despite clear evidence that the company was warned about its potential dangers. CEO Brian Hartzer was similarly in the dark. He only knew about the company’s green light to paedophiles when he read about it in the media.
What, then, do we make of such denials? Short of judicial inquiries to obtain admissions under oath, corporate denials of wrongdoing have to be taken at face value, however improbable they might seem.
That senior management are ignorant of damaging issues that simmer away inside a corporation is directly linked to the perpetuation of poor corporate culture. Despite a continuing string of scandals over recent years, the revelations at Nine shows too little has changed. It’s business as usual.
Part of the reason for this is the “good news” culture that rules inside many big corporations. Bad news is prevented from getting to the top.
A 2018 review of Westpac’s culture found this to be the case. The review team highlighted “an excessive focus” on a “good news culture” within Westpac. Directors interviewed by the review team noted “a tendency for reporting of issues to be accompanied by ‘comforting’ messages regarding actions underway to address issues … and to ‘manage’ messages and weight towards ‘good news'”.
Westpac is not alone in fostering such a convenient organisational norm. It was part of the culture rotting away inside consulting firm PwC. Following the revelations that senior managers participated in a scam to on-sell to multinational corporations confidential tax information they had obtained from consultancy work with federal Treasury, experienced executive Ziggy Switkowski conducted a review of the company which, among other failings, found a work environment where “good news gets communicated and bad news gets held back”.
In these cases, the good news culture is “enforced” by real or perceived damaging consequences to those lower down the ranks who break the rules. But how can boards claim that they don’t know about serious problems fomenting away inside the companies they are charged with running? Disturbingly, boards regularly fail to effectively have oversight over the work of management. Too often board life is a sinecure — a gravy train of high fees for little real work. Any readers of my study of corporate behavior — Rogue Corporations. Inside Australia Biggest Business Scandals — are given more than a dozen such examples.
We don’t know that this was the case at Nine under Costello’s leadership, and short of a company-instigated review, the community is unlikely to find out. Boards remain in a cloistered world.
But common problems are known to exist. Chairs often don’t ask hard questions of management. An overly cosy relationship can exist between the CEO and the chair. And a groupthink mentality infuses board members who are overwhelmingly drawn from the same elite circles. Few want to rock the corporate boat.
These deficiencies go to the heart of the need for good corporate culture. Yet it is routinely overlooked. And the reason is straightforward. Organisational culture can be an ephemeral concept; hard to define and difficult to measure. Profits and share price are the key measures that most corporations focus on to measure performance. These are easy to quantify and flow onto escalating remuneration packages and directors’ fees which come with an in-built defence: “we know nothing”.
But the failure to establish a healthy, shared organisational culture in corporations can lead to real hardships being inflicted on employees, customers and society at large. That’s what’s happened at Nine. It’s time the corporate regulator, ASIC, got tougher on those corporations that knowingly fail to deal with bad corporate culture.
How can we hold corporations accountable for their culture? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
