A version of this article appeared in The Guardian sustainable
business section on the 9th October 2015.
The German car manufacturer Volkswagen has long styled itself as a champion
of environmentally sensitive technology and corporate social responsibility, so
when it was revealed that it had been cheating on emissions tests, people were
However it turns out this is not the first time VW has cheated emissions
tests. As far back as 1973, VW had been fitting defeat devices to cars. At the
time the company was pursued by the Environmental Protection Agency (EPA) in
the US and eventually settled out of court. So why didn't VW learn from its
It seems that many companies readily forget costly lessons they learn
following gross acts of irresponsibility.
In the past, companies would go to great lengths to avoid taking
responsibility for wrongdoing. VW may have paid a fine in 1973, but it did not
admit responsibility. Similarly, when heads of the largest banks were called in
front of the UK's Treasury select committee following the Global Financial
Crisis, they expressed profound regret at the unfortunate turn of events yet
none of them accepted responsibility.
More recently companies have started to admit culpability and ask for
forgiveness. The former CEO of VW, Martin Winterkorn, said sorry for his
company's impropriety and outlined steps to put things right, conforming with
PR and crisis management best practice guidelines. Winterkorn also resigned
several days after news of the scandal broke. Saying sorry and claiming you are
going to make amends is one thing, learning from mistakes and wrongdoing is
Forgetting the past
Academics at Cass Business School contemplated the sort of corporate amnesia
exhibited by companies such as Volkswagen. They asked why companies in so many
industries fail to learn from prior bad practice. As they looked deeper into
corporate crises, they noticed that when one occurs there is a clear pattern of
To begin with, companies go out of their way to play down the crisis. They
claim that minimal harm has been caused. They then shift the blame on to an
individual or a small group of people. Volkswagen is a case in point - the
automaker has heaped blame for a collective failure on to the shoulders of just
four people, the CEO and three divisional heads. Finally, they shift attention
away from the scandal to another issue.
It was also noted that corporations can forget about deep crises remarkably
quickly. The horsemeat scandal is one example. Generally little remains of the
public discussion three to six months after a crisis has passed. Once initial
public outrage passes, companies seemingly forget their own wrongdoing. They
sack those who might remember what went wrong. Those they don't sack, they try
to gag with legal settlements. A third common tactic is sidelining people who
were in the know by placing them in marginal roles.
There is a danger this could happen at VW. Already we have seen employees
who were not attached to the emissions crisis replacing those who had some
connection with it. While it's often vital to remove the CEO, the end result of
getting rid of everyone involved in a corporate scandal is that the people who
have learned painful lessons are not around to warn others to avoid repeating
Once the immediate crisis has blown over, companies attempt to ensure it
vanishes from the public's long-term memory. Material artefacts such as failed
technologies are disposed of, documents are shredded or made hard to access,
and media stories are drowned out with fresh online content. Unocal - a now
defunct US oil company - covered up oil spillage from rusty pipes into an area
of Californian sand dunes for decades. Employees repeatedly lied in public
about it and a culture of silence emerged around the spill within the company.
As a result, 20m gallons of gasoline seeped into the dunes, fouling the
groundwater and the beach. A whistleblower leaked the story in the 1990s and
Unocal was finally forced to own up about the spill.
Forgetting about corporate scandals is a double-edged sword. On the one
hand, putting past wrongdoing behind it helps a company to move on. For
instance, BP wanted to move on from the oil spill in the Gulf of Mexico, not
just because of the drain on corporate resources but also because it continued
to damage the company's reputation. For a period following the disaster BP
employees could be coy in admitting to people who they worked for. Now with the
passing of time BP employees happily hand out their business cards again.
But "those who forget the past are doomed to repeat it". This is what has
happened at VW.
When faced with a large-scale corporate crisis, firms need to visibly
demonstrate they are doing something substantive. Following the the Piper Alpha
disaster in 1988, companies operating in the oil industry took practical steps
to improve worker safety. This showed they were taking their responsibilties
Companies also need to ensure they preserve the memory of what went wrong.
This can be difficult as the tendency is for people to distance themselves from
scandal or failure. Forgetting, however, makes it tough to learn. This means
the knee-jerk reaction of performing a symbolic cleaning out of the company
should be avoided.
Companies also need to hold on to reminders of what went wrong. These might
be stories of wrongdoing or even evidence of what went wrong. The US apparel
maker Gore-Tex, for example, ritually celebrates failed projects with
champagne. The idea being that by raising a glass to failure, it will help
people to learn from it.
Other companies ensure that newcomers are told about times when things went
disastrously wrong. For instance, there are many reminders of the Challenger
space shuttle disaster in Nasa. Engineers working with the agency are often
drilled in the failure as a case study of what can go wrong. There can be few
more powerful or painful reminders of what not to do in the future.