Skeletons in the Closet Are Worth Bringing Out

The following article by Michael Toebe was first printed by Corporate Compliance Insights.

Once, organizations could mostly be concerned only about newly developing misconduct and shortcomings and failures of governance and compliance. But the times they are a changin’, and errors deep in history can prove to be destructive to brand names and to leaders’ well-being.

“Perils of the Past: What Companies Should Know About Their Histories – and How to Manage Them” is a 2020 survey conducted by Greentarget, a market intelligence and communications firm that illuminates weaknesses in leaders’ thinking.

The survey was commissioned by History Factory and researched racial injustice, financial improprieties, sex or gender discrimination, supporting potentially divisive social or political causes and environmental negligence.

“Seventy-six percent of C-suite executives say they know about practices in their companies’ pasts that might conflict with today’s ethics and standards,” the report reads. “But only 26 percent said they were very prepared if those actions were to suddenly come to light.”

The findings revealed that there are clear, dangerous blind spots for executives and the organizations they lead. “They don’t understand how investors and customers will react to past events that conflict with today’s ethics and standards,” History Factory has written.

Whether leaders realize those standards and sufficiently care about what could be discovered and revealed is vital to gauge. Dangerous assumptive thinking and decision-making that avoids responsibility can escalate negative reactions internally, both in the media and with investors and consumers. Those organizational leaders that understand and ethically respond to the trouble benefit, while those who dismiss, reject or proceed grudgingly and poorly increase the risk of adverse outcomes.

Changing Times, Shifting Standards

“Years ago, we worked with two different financial institutions, both of whom were having to respond to city ordinances that required them to disclose how they had profited from slavery. Regardless of how the executives may have felt about the ordinance, they had to address it,” says Jason Dressel, Managing Director of History Factory.

The two companies stepped into the difficulty distinctly differently, he says. “One responded in a very nuts-and-bolts way, following the requirements of disclosure,” Dressel says. “The other company, which has a large base of both African-American customers and employees, responded in a more holistic manner that focused as much on communications as compliance. They were far more concerned about the reaction of employees, customers and communities.”

Ethical leadership, self-awareness, compassion and governance are not always implemented successfully in organizations. It’s been seen by some figurative bad actors as optional and secondary to business objectives and personal preference. Those deficiencies are becoming less tolerated and invite heated reactions and attacks.

“The embrace of ESG (environmental, social and corporate governance) by companies is clearly taking hold, and here to stay,” Dressel says. “There was a lot of speculation on whether the new purpose articulated by the Business Roundtable last year and the commitments that companies have made to become more socially responsible were going to become empty words when the economy began to weaken.”

Whatever the motivation, whether it be improved morality, new societal expectation or fear, it appears the raised standards of philosophy, morals and conduct are now evolving. That also means facing and humbly communicating wrongdoing – not only today’s, but yesteryears’ as well.

History Factory CEO Bruce Weindruch says, “that notion that we refer to as repent and reform… that’s the process one has to go through, whether it’s with your customers, communities, investors or your employee base. You’ve got to go through a process to, in a sense, reconcile that past behavior with your current belief system so that you can move forward. Or else you’re stuck.”

The response to the higher expectations for rooting out and correcting transgressions and abuses in an organization’s history begins with wanting to know what has taken place, seeking out what might not be easy to discover, listening and gaining understanding of mistakes, errors or egregious behavior. 

“It starts with just having a better baseline of what a company may have in its past in terms of actions it took, practices it had in place and how it presented the brand in the marketplace that are now considered out of step,” Dressel says. “A lot of these behaviors were fully acceptable at the time.”

Leaders should not expect rationalizing of that latter point to earn understanding or forgiveness. If they do, desired outcomes could prove difficult and painful.

“Based on what we’ve learned in the study, we’re proactively not only sharing the results with our clients, but also sharing with our clients what we know could be a source of discomfort or embarrassment for them. We’re also counseling them on what areas of the business may require deeper research,” Dressel says.

A company’s historical practices and behavior can’t be forgotten, ignored or denied. It’s beneficial to track, study and communicate about it.

“A lot of companies have corporate archives like the ones we manage for our clients, and many of them employ archivists and historians,” Dressel says. “Our experience is that the archivists and historians are routinely called to find information to help position the company in a positive light with a proof point from their past, which is perfectly understandable. With this situation, it’s the opposite.”

Managing the Crisis

To aid in crisis prevention, crisis management and better managing risk, organizational leadership should ask itself the smart, bold, difficult questions with humility – and then listen to the answers, regardless of the possibly inflammatory answers that may require a response or present further challenges.

“Executives should reach out to their archivists and historians and ask, ‘What have we done in the past that I don’t know about that is less positive? What could be damaging to our reputation and inconsistent with how we live our values today?’ Companies don’t like looking for bad news, but better safe than sorry,” Dressel says.

Dressel and History Factory don’t entirely focus on history as problematic. The company report says “smart executives know that working to better understand a company’s history can unearth positive details and stories, thereby bolstering brand reputation.”

It matters, according to the math.

“Over 80 percent of the company value of S&P 500 companies is intangible assets, including intellectual property and reputation” – according to History Factory, a number that might be difficult to comprehend and trust, regardless of its accuracy.

Leading is difficult, and the current times are no different. That doesn’t give organizational leaders a pass. It becomes an additional expectation and responsibility that must be accepted and navigated ethically, wisely and successfully.

“Corporate executives have their hands full with the risks that are directly in front of them: cybersecurity, the pandemic, economic downturn and the 2020 election, so it is easy to dismiss the past,” Weindruch says. “But just as the present and future are fraught with risk, a business’s past also contains combustible elements, especially when society’s norms and values are shifting so rapidly. As our research suggests, executives must be better prepared to reconcile the company’s past with those evolving standards.”

As errors or mistreatment in a company’s past are unearthed, ownership, communication and immediate, strong making of amends is expected. It’s the wisest track, the one to earn respect and protect or restore reputation while exhibiting in practice, with character, quality governance as a core value instead of a core narrative.