It is critical that the set of activities decided to execute the strategy take the company in a consistent direction.I agree that when the senior executives have stretched profit targets compatibility problems appear in areas involving costs (e.g.: maintenance). If the company is one whose assets are key to deliver the activity (e.g.: airlines, car rental, lifts rental…) there will clearly be a compatibility problem between the senior executives targets on profits and the company’s activity via its assets. By establishing short-term performance measures that are not linked to value creation (increasing profits does not necessarily means creating value) the ground for compatibility problems is set.senior executives focus on short-term measures to get their bonuses. Complacency and lack of ethics are at the very bottom of many scandals and compatibility problems. I hope that Mrs May words (“get tough on irresponsible behaviour in big business” do end up in clear actions.
Despite their incompetence, their six-seven figures salaries keep on growing.
I do no think an incompetent senior executive is kept on the role in a simplistic way. The senior executive is kept in his/her role because he/she is of some interest to the company. His/her incompetence may not be the reason why….so? what is it? I have seen cases where the senior executive was covering up a company’s wrongdoing.
Many corporate scandals have been unveiled by whistleblowers
Many of them suffered retaliation. Few of them were properly rewarded…..a smear campaign against the whistleblower starts as soon as the whistleblower uncovers any wrongdoing
Société Générale was ordered to pay unfair dismissal award to his former employee, Jérôme Kerviel, who caused the French bank significant losses in trading.
The Tribunal agreed with Mr. Kerviel’s argument that his risky trades were accepted, tolerated and even “tacitly” encouraged by his managers provided they were profitable.
Mr. Kerviel was not alone on this, so all the additional parties involved (i.e.: his line managers, the internal auditors and compliance department) should be brought in front of Justice and compensate the bank and its shareholders.
Regulators are also benefited, as this judgment opens the scope of the fraud and corruption cases, due to lack of controls or control weaknesses, to senior management, in particular when the lack of controls has been due to a corporate decision.
Moreover, politicians should think twice who in the corporate world they deal with, as campaigning for good governance and dealing with senior executives linked directly or indirectly to fraud or corruption (or just conscious poor governance) may* be perceived as antagonistic.
Ten biggest banks scandals have costed £53bn in fines, FT 11 April 2016. Apparently Internal Audit and Compliance teams did not see any of the issues that caused the scandals, neither the financial crisis…Can you imagine the VW Internal Audit team being told that they had style of writing issues as soon as they raised the emissions problem? The way some companies reward an internal auditor or compliance person highlighting serious issues is by campaigning against, raising negative feedback against and putting him/her under huge stress.
Is it really so difficult for senior executives to know what is going on? What is the escalation process? Is there any? If so, how does it work?
There are many cases of wrongdoings in the business and the corporate world.
Internal Audit and Compliance departments are at the forefront of the speak-up and escalation lines and yet, when looking at the scandals, it seems these lines are not very busy.
The Economist 5 March, VW former boss had been handed a memo informing about “inconsistencies in emissions from its diesel cars.” “..it is not known whether he read it as it was included in a batch of extensive weekend mail”
Does anybody know how many people were involved in writing that memo? Does anybody know how many phone calls and meetings there were where the memo was discussed?
…these executives were still paid their high salaries and bonuses,…because they did not know!