While misconduct scandals in the banking sector have tended to grab the headlines over much of the last year, the challenge of managing culture and conduct risk cuts across all industry sectors and, when the relevant risk governance processes fail, it can have devastating impacts on customers, reputation, and shareholder value.
Consider Boeing, which has been reeling in response to breakdowns in safety oversight related to its 737 MAX aircraft. What began as an isolated breakdown in product testing appears to have expanded to include fundamental questions about Boeing’s culture, and the degree to which it led to deeply harmful behavior.
A pair of articles in the Wall Street Journal recently described the challenges Boeing faces in restoring trust even as reports surfaced regarding the content of emails and chat exchanges among contractors and mid-level employees that criticized or even mocked Boeing’s lax safety standards. The WSJ reports that a number of the senior executives who oversaw departments in which those communications took place have been disciplined or removed from their positions.
Awareness in the leadership ranks as to whether or not misconduct it taking place, “is not an excuse if it is happening,” said newly installed Boeing CEO David Calhoun, shortly after taking the helm. “Disciplinary actions have to be taken.” Culture and conduct risk management will no doubt be a focus among senior executives at Boeing for the foreseeable future, reflecting trends across many industries towards elevated expectations in this regard.
Bank regulators across the globe have turned towards executive accountability regimes in an effort to promote closer attention to culture and conduct risk management. US regulators have not followed in this trend. But, it is worth noting, some of the most significant individual penalties ever seen were imposed by US regulators recently, against former Wells Fargo bank executives who did not live up to current expectations for culture and conduct risk management.
Regulators have made clear that the expected standard for executives does not turn on whether they knew misconduct had taken place – but rather whether they ought to have known. Boeing’s recent disciplinary actions suggest that they have recognized this trend and are embracing the approach as the new normal. We expect others will soon follow.