A corporate scandal is potentially disastrous for employee morale, but there are ways of keeping people onside when their firm’s name is being dragged through the mud
The autumn of 2015 was not the best period for Nicolai Laude, director of litigation communications at Volkswagen, to be heading out on the town. That September, the company had been exposed for using engine management software known as a defeat device to enable its new diesel cars to pass emissions tests. This had allowed the firm to sell 11 million vehicles whose output of nitrogen oxides could be up to 40 times higher than the legal limit.
“I must have had hundreds of conversations when I was out socialising at that time,” Laude recalls. “People laughed at me for being a Volkswagen employee. ‘The company that cheated the world,’ they said. It was annoying, tiring and demoralising. Most of my colleagues were anxious, listening to the media reports and worrying about their jobs and the future of their company.”
Fourteen years earlier, Nicole Alvino was experiencing similar emotions. She was working for US energy giant Enron, which was teetering on the edge of bankruptcy after a huge accounting fraud was uncovered.
“I remember the stock price falling, then the leadership team telling employees that everything was fine and that now was a good time to buy Enron shares,” she says. “Two months later, the company was gone.”
More recent episodes that have left the reputation of a once-admired business in tatters include the departure from fashion retailer Ted Baker of its founder, Ray Kelvin, amid accusations of inappropriate behaviour towards staff; a lawsuit against gaming group Activision Blizzard making several complaints of “unlawful harassment, discrimination and retaliation”; and revelations of labour exploitation in factories supplying clothing retailer Boohoo.
To restore confidence among consumers, investors and, crucially, employees, each of the above firms acted decisively. Ted Baker arranged training for staff on acceptable workplace conduct. Activision Blizzard hired an inclusivity expert, Julie Hodges, as chief people officer to instigate cultural changes. And Boohoo commissioned an independent review of its supply chain, refined its supplier audits and introduced training for garment workers.
But it’s also vital for any firm at the centre of a scandal to maintain effective communications with its workforce, stresses Jonathan Hemus, MD of Insignia, a consultancy specialising in crisis management. He believes that time is of the essence in preventing a scandal from crushing their motivation and wellbeing.
“All employees want to be proud of the company they work for,” Hemus argues. “A scandal hits them personally. They’ll feel embarrassed, worried and betrayed. Communicating with your employees effectively is a top priority – and you need to do it quickly, transparently and frequently. They’ll be asking: ‘Do my leaders care about me? Can they overcome what has happened? And do the corporate values stated on our website mean anything at all?’”
He advocates ensuring that all staff have someone they can approach who’ll keep them informed. Senior executives therefore need to brief line managers on keeping their doors open and displaying the right empathetic skills in the effort to preserve team morale.
Front-line staff, often facing the ire of customers and clients, should be given a script with positive messaging. This needs to state what action is being taken to address the scandal and give assurances that the situation will never recur.
Hemus advises employers in a crisis to give their customer-facing staff “accurate information and a question-and-answer sheet. Get the tone of voice right. These employees can be your best ambassadors in putting across the right message.”
Seven years on from her Enron experience, Alvino co-founded a workforce communications platform called SocialChorus (since merged to form Firstup, where she remains chief strategy officer). She says that the most senior executive left standing should front up to the workforce as soon as possible.
“They need to deliver the message at a town-hall meeting or on video,” Alvino says. “They need to be authentic and empathetic. They need to address the scandal head on and say this is not our culture and it never will be. Employees need to see the emotion and feel the human connection.”
She notes that employees at a company in crisis will experience something like the five-stage grieving process proposed by the influential psychiatrist Elisabeth Kübler-Ross. They will endure shock, denial, frustration and despondency before entering the right emotional state to see any positives in the situation.
“After any change, leaders need to know where employees are in this process,” Alvino says. “There’s no point talking about how great the future will be if they’re still all in the second stage, for instance.”
Laude says that the Volkswagen executive team’s first attempt to communicate with staff about the diesel scandal was hampered by legal restraints and a lack of reliable information.
“At the start, we really didn’t know exactly what had been going on. All we could do was give employees the same public statement our leaders had made through the media and promise them that we’d investigate and provide information whenever it became available,” he says. “This wasn’t very satisfying from a communications point of view.”
What the company did manage to do quickly was roll out training for about 200,000 employees around the world. This reaffirmed the group’s cultural values, gave advice on regulatory compliance and set out a new code of conduct. Employees were encouraged to air their concerns and suggest corrective measures.
The company organised town-hall meetings, in which senior executives held Q&A sessions, and roadshows where its compliance and integrity teams talked of “the new Volkswagen”, Laude recalls.
Alvino argues that a crisis, if managed correctly, can even help to bring employees together.
“If your people can feel pride in how a scandal has been handled and someone down the pub asks them what is going on, they can be an advocate for your company’s recovery,” she says.
Laude notes that some Volkswagen employees self-organised and set up groups such as “We Love Volkswagen” on Facebook.
“Our culture has improved because it had to. It was common sense. We couldn’t survive a Diesel 2.0,” he says. “This chapter hasn’t closed, and it will be with the company forever, but it does feel better – both at work and at play.”