The dilemma for under-fire executives at VW and Rolls
Would you rather people thought you were out of touch or risk prosecution as a criminal mastermind?
Here is the dilemma: would you rather people thought you were out of touch and incompetent or risk prosecution as a criminal mastermind?
Two high-profile corporate bosses found themselves in that position this week. When Rolls-Royce agreed to pay more than £671m in penalties and admitted to 20 years of bribery and corruption, the UK judge presiding over the case made clear he believed top management was involved.
Sir Brian Leveson wrote that the investigation had revealed “most serious breaches of the criminal law . . . some of which implicated senior management and, on the face of it, controlling minds of the company”. He also wrote that the company “under different leadership” knew about the allegations of corruption as early as 2010 and decided not to notify authorities.
That line about “different leadership” casts the spotlight on the team headed by Sir John Rose, who was chief executive from 1996 to 2011. UK and US authorities have praised the company for its co-operation since 2012.
Opposition politicians from Britain’s Labour party are already calling for Sir John to lose his knighthood, and the UK Serious Fraud Office has said it is investigating individuals. So far, Sir John has remained silent and did not respond to a request for comment.
Across the channel, former Volkswagen chief executive Martin Winterkorn faced stern questioning this week from the German parliament about his role in the emissions scandal that has already cost the carmaker more than $21bn in penalties and payments to car buyers and dealers.
The company admitted last week that it had started designing special software to cheat on emissions tests as early as 2006, and US prosecutors alleged in court documents that “executive management” had been briefed on the cheating in July 2015.
But Mr Winterkorn, a VW insider who was promoted to chief executive in 2007, insisted to German MPs that he first learnt of the so-called “defeat devices” in September 2015.
Mr Winterkorn has already lost his job: he resigned five days after the scandal broke. But he too faces legal risks. German prosecutors are investigating whether VW executives including him failed to tell investors about the affair quickly enough. US prosecutors have already indicted six lower-level executives on conspiracy, fraud and environmental charges and have said they are still investigating. Mr Winterkorn’s attorneys did not respond to requests for comment.
While they were still at work, both Sir John and Mr Winterkorn received accolades for their leadership and credit for rising sales and share prices. Now, they face pressure to explain why they should not be held accountable for the bad things that happened on their watch as well.
They are not the first chief executives to face this issue. Back in 2005, Bernard Ebbers went on trial for his role in the $11bn accounting fraud that brought down WorldCom, the telecom company he had built. On the stand, Mr Ebbers claimed he had repeatedly failed to to read the first page of monthly reports that showed expenses fluctuating by as much as $900m in a single month. Prosecutors countered that he was so hands-on that he cancelled the office coffee service when he thought employees were using too many beans. The jury voted to convict and Mr Ebbers was sentenced to 25 years in prison.