How boards miss the crimes happening inside

Boards face a reckoning

Following former Nvidia CEO Jensen Huang's resignation, corporate directors worldwide must assess whether they adequately monitor ethical standards. Misconduct from harassment to accounting fraud exposes companies to billions in penalties.

Apple employee stole car secrets

In two thousand twenty-three, a federal grand jury charged former Apple employee Weibao Wang with stealing trade secrets related to Apple's self-driving car initiative. He reportedly fled to China after authorities searched his home.

Volkswagen's hidden emissions scheme

In two thousand fifteen, Volkswagen acknowledged installing defeat devices in roughly five hundred fifty thousand diesel vehicles sold in the United States since two thousand nine.

The scheme spread globally

Volkswagen later conceded that comparable software had been embedded in approximately eleven million additional vehicles sold in Europe and other markets. Once normal driving resumed, the software directed engines to revert to standard operating modes.

CEO claims ignorance

When the scheme was exposed, CEO Martin Winterkorn insisted he had neither approved nor been aware of it. He said it was incomprehensible why he wasn't informed early and clearly about the deception.

“It's incomprehensible why I wasn't informed early and clearly.”

Board members deny responsibility

Director Olaf Lies, who was also the economy minister of the German state of Lower Saxony, which held a twenty percent ownership stake, argued that executives who allowed the scheme had acted criminally.

Volkswagen's financial collapse

Following the revelations, Volkswagen reported an annual loss of one point eight billion dollars, the worst financial performance in the company's eighty year history. It earmarked eighteen billion dollars to settle U.S. customer claims.

Stock price collapses

VW's share price dropped seventeen percent on the first trading day after the defeat device became public knowledge and fell another seventeen percent the following day.Over eighteen months, the stock declined by more than half.

Shareholders lose billions

Despite Volkswagen's corrective measures, including a shift toward electric vehicles and more than ten billion euros toward sustainable technologies, investors lost an estimated sixty billion euros in value.

Management forced out

While board members ultimately retained their positions, top management did not. Along with the chief executive, several senior leaders were forced out, their careers abruptly derailed by the scandal.

Internal threats worry directors

Brian C.Rogers, chair of the investment management firm T.Rowe Price, has voiced a concern shared by many directors: internal bad actors pose greater risk than external ones.Investment in risk management has increased geometrically.

“Oftentimes I worry more about an internal bad actor than I do an external bad actor.”

Buffett warns of blind spots

Warren Buffett has emphasized the board's duty to protect the organization from managers who drift off course. He argued that it isn't fundamental dishonesty but human nature that causes people to ignore reality.

“It's human nature. There are plenty of people who are really decent people, intelligent people.”

AbbVie restricts data access

Global pharmaceutical company AbbVie recognized that disgruntled employees might attempt to steal sensitive data outside normal working hours.The company restricted access to computer systems after the workday ended and moved critical data into secure environments.

Boards must investigate rumors

Kyoko Takahashi Lin, a partner at the law firm Davis Polk who specializes in white collar crime, has warned that boards need to know what's going on.

“Boards need to know. Nowadays, given the reputational issues for corporations, boards need to know what's going on.”

Culture prevents misconduct

Timothy Richmond, CHRO of AbbVie, cautioned that organizations often frame this risk too narrowly around audit.

“Culture is not a program. It's a reflection of what you do every day, how you engage, how you react.”

Codes of conduct set standards

Boards should support adoption and enforcement of a code of conduct spelling out behavioral expectations.Google's code is more than six thousand words long, addressing corporate reputation, harassment, conflicts of interest, intellectual property, and financial integrity.

Johnson & Johnson's enduring credo

Johnson & Johnson, founded in eighteen eighty six, created a written credo articulating core values and responsibilities to guide employee behavior without constant direct instruction.