Feb 1 2016
Bodo Wiegand heads Germany’s Lean Management Institute. In his latest newsletter, on Wiegand’s Watch, he discusses the significance of recent problems in well-known German corporations, specifically VW, Siemens, and Deutsche Bank. The VW emissions test scandal has been covered in the media worldwide. Siemens executive were indicted for bribery last year in Greece, for acts related to the Athens Olympics in 2004, and the top management of Deutsche Bank was replaced in 2015 after scandals that included manipulating the London inter-bank lending rate (Libor), and mis-stating financial reports.
Here is the full translation of his article, followed by my comments:
“What’s going on in Germany? Siemens, Deutsche Bank, VW — corporations of world renown — have problems with their staff’s value system. Please do not misunderstand. I don’t want to blame management or pretend to know better. I want to point out relationships and offer possible solutions. I am firmly convinced that these crises have relentlessly revealed problems in the leadership culture we live in.
Let’s be honest – what leadership culture do you see in your position? Surely somewhere is the vision, the mission and the objectives of the company, but I ask you: Is that your corporate culture?
No, I don’t think so.
Maybe we should clarify what the corporate culture is. It is based on a system of values, which in turn is based on certain organizational, managerial or socially relevant principles.
Such principles could be, for example:
- What the boss says goes – A quasi-dictatorship. The result: The staff follows instructions without thinking .
- We do not give answers but ask questions. It would result a leadership style where employees are encouraged to think for themselves about the problems and propose solutions. Through questions they are routed to the correct solutions, accept them as their own, and then implement them to sustainably and responsibly.
You can see what tremendous power principles can have when they are taught and lived by. Don’t get me wrong! Principles are not there to reprimand executives, but to impart guidelines within which they can and should be able to move. A value system thus based on principles, however, is only formed over the years, by the power of the example set by the leadership and by the culture’s past.
Let’s look at the reality, then we see that in fact the time to build such a culture is only available in well-run family businesses. Surely the best known example, is Toyota, with the Toyoda family in the background. There, the value system is passed by mentors to the next management level (mentee) within 8 to 10 years. But what about in today’s corporate world? Executives change every three years, and are judged only by numbers, data and facts. The management culture is left with almost no ifs and buts, and lives by the motto that success justifies the means.
The management culture cannot be left for the managers to define. Instead, leadership behavior should bear the imprint of the owner and be determined by the top.
Let’s look at the merger of two large German steel companies. One had an entrepreneurial culture of freedom for the management; the other, one where top-down decisions had to be executed. These two cultures clashed, and without the a mission statement or a system of values communicated to executives, there was no way to achieve a common leadership. Is that promising?
No! It has taken years for the merged company to resolve its internal issues, with the corresponding consequences. Not to mention the mistakes due to errors in leadership.
If you try to understand how such conduct may develop in a company hierarchy, there are certainly a number of explanations or motives. In many cases, pressure, fear and overwork cause cover-ups, rule violations, dissimulation or a breach in the value system of values, etc. The person who acts this way, feels caught in an emergency situation, from which he doesn’t know how to escape, without harm to himself, his department or his colleagues.
If we agree that it is important to know the leadership’s value system, the expected leadership behavior, and what tasks need to be done, we translate this into the language of the orchestra. If we know the beat and the tempo of the music, then the musicians can be prepared and pursue the same goals together faster, more efficiently and more successfully. Then everybody knows the requirements and the challenges, can be prepared, and coordinate procedures and behaviors along these guidelines.
So what should we do? The owner, the board, or the managing directors and the supervisory board must develop a common value system based on principles about organization, management and context (history, current culture, customers, employees, image, etc.)
This value system is a foundation to avoid the disasters we are experiencing today [at VW, Siemens, and Deutsche Bank]. I maintain that, with a value system that all managers and employees know and live by, with the principles of tolerance for mistakes and open communication, such conduct would not be possible; it would have been detected or reported. With the principle of tolerance for mistakes, if a mistake is detected, it is reported, without this leading to the demotion or condemnation of the responsible individual. It’s when mistakes are covered up or repeated that the executives have a problem.
The principle of open communication means everyone can communicate openly with everyone about anything and everything, as long as it is current and relevant to the tasks — even across two levels of hierarchy. But how do I sustainably change the leadership practices of managers, department heads, team leaders and employees ? Certainly not by emailing the vision, the mission statement, etc. How can we adapt the corporate culture of family businesses? How can we shorten the mentor-mentee-education from 10 years to 6 months?
Now, we have developed an interactive, multimedia learning system called “Go-and-Learn” to align the actions of executives to a certain value system. There executives are faced with everyday situations and resolve these issues in terms of a defined management culture. If they respond wrong, they are not be punished or reprimanded but pointed in the right direction in terms of the values system. Thus, every manager independently and playfully learn how they should behave in the sense of the value system.
This then provides a basis, guideline and rules for their behavior. This allows the entire management team regardless of location, to learn in 3 to 6 months a value system and a management culture, consistent with the direction of the Board, the Supervisory Board or the owner. Moreover, examples and everyday situations can be used to illustrate these rules for all employees, and thus provide a common value system.
This requires a one-time expense that will certainly be worthwhile. This is one solution — certainly there are more — I just do not know any with which 600,000 employees, or 60,000 managers can be reached within this time frame.
Let me summarize. I believe that a living corporate culture, supported by all, is a very important factor for success, to which we apparently have given no significance today in our companies. I think this is a mistake, and a vulnerability.
Maybe recent events will make us rethink this and change our attitudes. Then much would be gained.”
Michel Baudin‘s comments:
Wiegand seems to think that family-owned businesses have the best chance of creating a culture in which this sort of problems doesn’t arise, and cites the example of the influence of the Toyoda family on Toyota. But Toyota is not the only major car company that is controlled by its founder’s family. The Ford family has a big voice in the management of Ford in the US, so does the Peugeot family in PSA in France, and… the feuding Porsche/Piëch family at VW in Germany!
Conversely, there are many successful companies with strong cultures that are not dominated by a family and don’t get entangled in scandals. As a matter of principle, for example, I heard Soichiro Honda say, in an interview, that he did not want his own children to work for Honda, because he wanted the employees to feel it was an even playing field. And there are not many family businesses in Silicon Valley.
Wiegand’s remedy is for top management to develop a value system, and to teach it to the organization from the top down by means of role playing sessions for participants to learn how to apply abstract principles in concrete situations. While this is well known to be the most effective way to teach this kind of subjects, it doesn’t seem to measure up to the problem.
What is the problem, anyway? Are VW’s cheating on emissions testing, Siemens’ bribery in Greece, and Deutsche Bank’s Libor rate manipulations symptoms of a general decline of business ethics in Germany? Or are they separate, unrelated cases of executives caught with their hands in the cookie jar, such as you might expect in the world’s fourth largest economy? Perhaps, as a German, Wiegand is unrealistic in his expectation that such things should never happen in Germany.
Similar scandals occur in other countries, and are more often a sign of diminishing social tolerance of white-collar crime than of rising criminality. When bribery, for example, becomes scandalous, it does not mean that is happens more often, but that it’s no longer accepted. It is a sign that society is cleaning up its act. More than training on corporate value systems, the appropriate response in Germany may be to reinforce the watchdogs and enforce the laws.