Volkswagen and the End of Corporate

Spin
by Rob Goffee and Gareth Jones October 28, 2015

The shockwaves emanating from Wolfsburg, Germany, continue. Thousands of

individuals that work for VW, their families and their community are angry,
dismayed and fearful.  They are incredulous that an immensely successful company,
in which many have invested their entire working lives, could have engaged in such
large scale, systemic deceit. And millions of customers around the world also feel
cheated.

And the story will go on and on, as VW decides how to handle this unfolding drama –
in particular, when it comes to deciding which and how much information it is
prepared to share. These decisions will be critical in its attempts to regain trust.

Is VW the only car manufacturer guilty of such transgressions?  They are certainly
not the first company to be severely embarrassed by information disclosures either
coming too late or not at all – with grave consequences for reputation, brand, and
shareholder value.  Think GM and faulty ignition switches; BP and the Gulf of
Mexico; Starbucks, Google and Amazon and UK corporate tax avoidance; Tesco and
horsemeat; Enron and Arthur Andersen. The list goes on.

During the course of research for our new book on what it takes to create authentic
organizations, we saw over and over that the most admired organizations don’t do
“spin.”  Time and again, the people we talked to about authentic organizations told us
that the old world of corporate secrets is over, and that organizations are still trying
to catch up to this reality.

There are complex social, political, and technological reasons for this dramatic
change. At the social level, two phenomena coincide. First, the decline of public
trust in organizations and second, the marked decline in levels of deference to
authority.  Politically, legislators have responded to these social changes by
instituting wide-reaching “freedom of information acts” Which, for all their
inadequacies have dramatically changed the information landscape. At the
technological level, the explosion of the Internet and social media has made the
world more transparent, and has meant that organizations in both the public and
private spheres are being forced to face new information-sharing challenges.

The old practice of “covering up” no longer works. Spin backfires. The breadth and
depth of information available today has created a more knowledgeable public, less
easily swayed by public relations efforts.

In such a world, it would seem almost quaint to say that organizations should be
honest. But the inexorably increasing transparency makes it imperative to do so. So
why aren’t all companies more open in their communication? Because, despite the
transformation of the information landscape, the barriers to candid, complete, clear,
and timely communication remain legion. Some executives feel an obligation to put a
positive spin on negative events out of loyalty to the organization. Other managers
see parcelling out information on a need-to-know basis as an operational maxim,
important to maintaining efficiency. Still others practice a seemingly benign type of
paternalism, reluctant to “worry” staff with certain information or to communicate
with the group about a problem before having a solution to suggest.

But this won’t do – not any more. Clearly there will always be information which is
competitively sensitive but as Google Chairman Eric Schmidt has recently suggested,
the default mode should be to share everything – only holding back that which is
restricted by law or regulation.

In this pristine environment, organizations and their leaders need what we

call radical honesty. This goes deeper than the modern injunction for organizational
transparency. We characterize it as follows: it is proactive rather than reactive; it is
speedy; it surprises people with its candour; it encourages dissent; and finally, it
means engaging with employees and with a wide group of stakeholders –
shareholders, customers, suppliers, regulators, and the wider society. We understand
well that this can mean significant organizational culture change – it requires hard
work, behavioural adjustment, consistent action, as well as free-flowing
communication. But there is really no choice. In a transparent world, the truth – and
the data – will out, and more than likely already are out. Therefore, leaders and
managers must become compelling communicators, operating according to the
following general guidelines:

 Straight and soon. Get the story out honestly and quickly – always assume
you have less time than you think.
 Flood the zone. Use many channels – you need to connect with different
kinds of stakeholders, different generations, genders, cultural backgrounds,
with different communication habits.
 Good, bad, and ugly. Encourage honest conversations about both hopes
and fears. Remember that power relationships sanitize information that gets
to the top. Ensure people can bring bad news, not just good.
 Distill and simplify. Keep communication simple and relevant, don’t drown
people in irrelevant data.
 Repeat. Find ways to reiterate the message and build feedback loops.
Remember that trust builds slowly and quickly fades once the message stops,
or when people see or hear contrary data.

Novo Nordisk was an early convert to radical honesty. In response to its quality crisis

in the 1990s, the pharma giant significantly adjusted its culture around clarity and
communication. It has built radical honesty into its DNA. It uses a wide variety of
channels to communicate with and listen to its various stakeholders – employees,
customers, investors and the wider society. When the company decided to close
down their research facility in California because it no longer fitted with the
company’s strategy, Chief Executive Lars Rieben Sorenson flew to the facility,
gathered the workforce and openly and honestly explained the reasons for the
closure, the time scales involved and the ways in which Novo Nordisk would help
people. The astonishing response from the employees: unanimous applause. This is
what can happen when organizations replace a climate of secrecy and suspicion with
radical honesty.

One problem for the organizational shift toward radical honesty is that many of the
people who populate corporate communications offices – the traditional home of the
spin machine – have acquired their skills in an earlier era of public relations, press
offices, and government liaison posts. These valuable professionals see it as their
duty to protect the organization from damaging information and to brand it as
attractive to potential employees, to clients, and to investors. But their often-habitual
reliance on spin is in tension with the new world, in which the imperative is to tell
the whole story, warts and all.

Freedom of information acts and social media have created a radically different
world, in which reputational capital is more important and more fragile than ever
before.  In this world, radical honesty is no longer a luxury but a business necessity.