Companies embroiled in scandal after scandal. Outlandish CEOs ousted under murky circumstances. Corporations that seem so toxic their own customers don’t want to touch them. We’ve seen it all before, but what really happens after a company’s top brass is tarnished and its reputation ruined? Is reform really possible, or does it just prolong that company’s slide to the bottom?
To toxicity—and beyond!
Uber, the taxi-disrupting darling of Silicon Valley, is currently the ‘Uber’ of scandalous corporate behavior. In the public eye, Uber’s gig economy-based business is a sort of necessary evil, especially in areas without a strong taxi infrastructure, but it certainly hasn’t won any popularity contests with attempts to strong-arm cities into allowing it to operate completely on Uber’s terms. On one hand, insisting on skirting verification requirements enforced by other driving services has led to the perception that Uber is directly responsible for drivers assaulting and harassing passengers. On the other, the contractor business model has led to allegations that the company underpays and even manipulates those literally driving the international company’s engine.
But things weren’t much better inside Uber’s headquarters, either. Under its founder, former CEO Travis Kalanick, the company embraced an aggressive culture with core values like “always be hustlin’” [sic] and “meritocracy and toe-stepping.” The combo of chest bumps and growth dogma paved the way for a cutthroat environment where employees ‘toe-stepped’ all over the place, regularly undermining upper management with the naked goal to dethrone them, according to an article from The New York Times which contacted 30 current and former Uber employees. Outside of the office, behavior could be even uglier. During a 2015 company retreat in Las Vegas, some Uber employees were using cocaine in bathrooms, while another hijacked a private shuttle bus for a joy ride. A manager also groped female employees at the same event (although he was fired within 12 hours, according to The New York Times).
Kalanick himself didn’t seem to shy away from public displays of juvenile overconfidence. In a 2014 GQ article, he joked about nicknaming Uber “Boob-er,” because the app made him filthy rich, which helped him attract women. (Fortune estimates Kalanick’s net worth at $7.1 billion.)
But lame jokes aside, serious issues with Kalanick’s leadership became more visible as Uber became a global behemoth. In early 2017, an Uber Black driver recorded Kalanick berating him during a ride after he criticized the CEO for cutting down on fares, which the driver said hurt his take-home pay. Kalanick called that claim “bullshit,” during a rant that won him few friends in the press.
Kalanick also appeared complicit when a different Uber executive obtained medical records of a woman who alleged she was raped by her driver during a ride in New Delhi in 2014. That executive shared the records with Kalanick and several other employees when the company came under fire in India—though the driver was convicted and sentenced to life in prison, it appeared the company was searching for additional proof, or ways to discredit the victim.
And then the bottom fell out. In February, Susan Fowler, a former Uber employee, blew the lid off the company’s systematic condoning of sexual harassment. Shortly after leaving Uber, Fowler wrote a vivid, unsettling blog post about being sexually harassed by her manager on the very first day on the job and the company’s subsequent ‘hush hush’ response.
“It was clear that he was trying to get me to have sex with him, and it was so clearly out of line that I immediately took screenshots of these chat messages and reported him to HR,” Fowler wrote. When she attempted to file her report, she was blown off and told that the offender was a “high performer” who made “an innocent mistake,” according to Fowler. But when she joined a new team, she met other women who told her that same “first offense” manager had sexually harassed them as well.
When news of these kinds of misdeeds leak to the public, many are left wondering how these businesses survive at all. How can the same employees who are hijacking rented shuttle busses also be responsible enough to push the company to a nearly $70 billion valuation?
It’s tempting to think that much of a company’s problems are just bad management, stemming from a single founder or corrosive C-suite, and if you simply get rid of them, you’ll wipe your business’s slate clean. “A company culture is bred from the founders,” says Kean Graham, CEO of the ad technology firm MonetizeMore. But, Graham continues, “The stronger the culture, the harder it is to change.”
And that’s the rub. That kind of environment often attracts a “work hard, play hard” pack of mainly privileged dudes whose relentless drive and myopic vision can certainly power short-term success. “There are some [business] cultures that are high-risk, high-turnover, with high stakes, and there are personalities drawn to that kind of reckless culture,” says Nathan Regier, CEO of advisory firm Next Element and author of the book Conflict without Casualties: A Field Guide for Compassionate Accountability.
But investors and customers will only allow a bratty business and its leadership to “grow up” for so long—once bad behavior starts to drag down profits and public perception, recovering that trust isn’t easy.
Habitual scandal and the gift cards it brings
For proof of this, just look to two other massive companies with fresh reputational catastrophes.
Unlike Uber, Wells Fargo’s corporate culture didn’t exactly scream ‘toga party,’ but it was similarly intense. The banking goliath’s incentive-based compensation system resulted in managers instituting bloated quotas for their employees. As one former branch manager, who worked for Wells Fargo from 2004 to 2008, told CNN, “I was told to instruct my tellers and personal bankers they needed to get their goals no matter what.”
Taken to its logical conclusion, employees opened at least 3.5 million unauthorized accounts their customers never signed up for, or even knew about. Regulators have already slapped the bank with a $185 million fine, and several executives, including former CEO John Stumpf, resigned or were fired.
New CEO Tim Sloan has overseen several attempts to put Wells Fargo back in the public’s good graces—including issuing $3.2 million in refunds to retail and small business accounts, and promising nearly $1 million in refunds to individual customers who were charged fees on phony accounts without their knowledge. Six months after taking the helm, Sloan also issued a “thank you” to remaining customers with promises of further accountability in the future, including creating a new “Office of Ethics, Oversight, and Integrity.” But, with the megabank now acknowledging sham accounts stretch as far back as 2002, five years before Stumpf was named CEO, many are still skeptical that the 165-year-old company is truly changing.
Volkswagen is also trying hard to win back public trust after its “diesel dupe” scandal of 2015, when it was discovered the German car manufacturer installed computerized devices in some 11 million diesel engines to cheat emissions testing. The flagship VW brand had been associated with charming young families, idealistic hippies, and car nerds, so it came as a major shock that the company was relying on these false test results to pump up sales of its flagging diesel models.
Volkswagen CEO Martin Winterkorn stepped down in 2015, right after the scandal. In March 2017, Volkswagen pleaded guilty to defrauding the U.S. government, agreed to pay $4.3 billion in penalties, and spent billions more to buy back rigged cars, according to the Los Angeles Times. In August, a U.S. court sentenced ousted Volkswagen executive Oliver Schmidt to up to five years in prison for his involvement. “Some of this stuff, it’s bit by bit, and over time [the company] goes bad. Sometimes it’s systematic. Volkswagen was systematic deception,” says Regier.
After the scandal broke, Volkswagen took out a full-page ad in several newspapers titled “We’re working to make things right.” After current VW owners saw their car’s resale values tanking, the company started offering a “goodwill package” including free roadside assistance, a $500 gift card, and $500 off the purchase of a new VW.
But fixing a company after a scandal isn’t as easy as some platitudes and a gift card.
Cleaning up the mess
“Changing a company culture can be done, but it takes a lot of dedication by a lot of employees, not just a single consultant,” says Debbie Searcy, a management professor at Florida Atlantic University. “There often has to be some sort of negative ultimatum involved, as in the company will cease to exist if things don’t change.”
The first step to getting back on track is cutting off the head. “You get rid of the top guy. You need a fall guy [when] the public calls for someone’s head,” says Regier. But the next step is even more important: empowering a successor to steer the entire organization toward a less toxic culture.
Searcy uses General Motors as an example. “While I wouldn’t say GM had a toxic culture, they clearly went through some hard times. Until its bailout in 2008, GM was an old-boy, bureaucratic, resting-on-its-laurels company. They promoted Mary Barra as CEO in 2014 as part of a deliberate culture shift.” Barra tossed out the old rulebook and rewrote one that included both accepting responsibility and putting customer’s needs above maximizing profits. In a defining moment of the Barra era, GM issued a public apology and claimed full responsibility after an employee allegedly concealed faulty ignition switches that led to multiple accidents and deaths, according to USA Today.
A new CEO can foster the seeds of change in company culture, but bad behavior needs to be ferreted out all the way down the ranks. “If someone who was a big proponent of the old culture is in a leadership position, they can continue to perpetuate this culture via hiring practices, training, incentives, and most powerfully, leading by example,” says Graham.
That means you either change the old guard’s views, or fire them and their followers. All of this can be enormously difficult, costly, and time-consuming. It’s such a rare occurrence that experts interviewed for this article struggled to find a well-known company that completely reworked itself from the inside out after scandals like those at Volkswagen, Uber, or Wells Fargo.
“A successful cultural pivot is quite rare,” says Graham.
Regier says he’s only consulted for two companies that completely overhauled their structure from the top down, including a large, multi-site organization after a new CEO made improving the company culture a top priority. “It wasn’t even that bad,” he says. “We’re simply talking about favoritism, gossip, not holding teams accountable. The company was profitable. It was more about going from good to great.” Even then, the process was difficult. Sites had to be evaluated and when a bad actor was found, they were given opportunities to get onboard with the company’s new direction. Regier estimates the firm’s entire restructuring—man hours, transportation, meetings, new agendas, hiring, and firings—cost roughly $2 million and took about two years.
Huge corporations with a long list of public (and private) misdeeds need exponentially more time and money to change a toxic culture. At Uber, after Fowler’s bombshell, the company launched two internal investigations—one led by former U.S. Attorney General Eric Holder’s firm Covington & Burling, investigating Uber’s shady workplace practices, and another led by Perkins Coie, investigating sexual harassment claims. In the Perkins Coie investigation alone, the firm received 215 complaints and acted on 100, according to the Los Angeles Times. As a result, 20 employees have been fired for offenses including bullying, sexual harassment, discrimination, and retaliation. Alexander, the executive accused of obtaining medical records in India, was fired in June after questions were raised by reporters.
Kalanick’s recently named successor knows that it will take a lot more than flimsy sensitivity trainings and a new marketing campaign to regain its customers’ trust. In a letter to the company after London pulled its license to operate this fall, new CEO Dara Khosrowshahi wrote:
“While the impulse may be to say that this is unfair, one of the lessons I’ve learned over time is that change comes from self-reflection. So, it’s worth examining how we got here. The truth is there is a high cost to a bad reputation … Going forward, it’s critical that we act with integrity in everything we do.”
Khosrowshahi—formerly the CEO of Expedia—has been generally well-received by the press and is considered to be a respected leader among peers, according to the Los Angeles Times. But he faces an uphill battle turning Uber’s public image and workplace culture around. Kalanick isn’t CEO anymore, but he’s still on the board of directors, and just a month after his ouster bragged to friends that he was “Steve Jobs-ing it”—crafting a way to regain control of the company he founded. In fact, he reportedly “blindsided” the board by abruptly appointing two new members in September, according to CNN. And there’s even more drama unfolding: Uber is facing yet another lawsuit from three women who are claiming pay discrimination based on their gender and race. News of the lawsuit broke October 25, as this article was being written.
“I really think the new Uber CEO will need to perform a miracle to get the company back on track,” says Graham.
If they do, it’ll be one for the history books.