Sunday, 27 September 2015

The Volkswagen Scandal Exposes The True Cost Of The "Free Market".

I have worked as a therapist and as a leadership adviser to big business and I’ve encountered far more psychopaths in the boardrooms of Britain than I ever did in Broadmoor.

In his book, The Corporation: The Pathological Pursuit of Profit and Power, Joel Bakan compares corporations to psychopaths, for whom people are purely a means to making profit. They employ sophisticated control mechanisms, such as excessive pay, to indoctrinate employees into compliance. History is littered with examples of how corporations put profits before people, with calamitous consequences. 

The Volkswagen emissions scandal is the most recent. Whether its emission rigging by the car industry, Libor rigging by the banks, suppressing unfavorable trial results by the pharmaceutical industry (see Seroxat story this week) or the usurping of public services and workers’ rights via the Transatlantic Trade and Investment Partnership (TTIP), far from being free, worshiping at the altar of “the market” has cost people and the planet dearly.

VW could face a fine of up to $18bn (£11.6bn), as well as criminal charges and legal action from customers and shareholders amid claims in the US that it used a device to falsify emissions data. Suspicions that the “defeat device” was also installed in European models, if substantiated, would add to the already crippling pecuniary and reputational costs. It has been described as the biggest corporate cover-up since Enron.

It seems inconceivable that no-one at managerial level knew of this software. The more likely scenario is that a cost-benefit analysis was done and life threatening respiratory problems and irreversible damage to the planet came out cheaper than investing in producing legally compliant cars. The alleged rigging of emissions tests may have added around 1 million tonnes of air pollution annually.

This isn’t the first time the car industry has been in the dock. Ten years ago, I used the Ford Pinto case study to demonstrate that, apart from the morality of conducting a cost-benefit analysis where customers’ lives are known to be at risk, it’s also bad for business in the long term. 

When a fatal fault was discovered in the Pinto production in 1968, Ford’s executives conducted a cost-benefit analysis and concluded it was cheaper to continue selling the faulty car and treat predicted deaths as the cost of doing business. Ford’s now infamous “Pinto memo” caused public uproar and resulted in record compensation payouts. Ford’s reputation never fully recovered.

Last year, General Motors agreed to pay $900m in a bid to prevent the company's executives from facing criminal charges over a serious ignition defect and cover-up which has been reportedly linked to 124 deaths. The company was also accused of hiding the defect (for 13 years) from regulators and defrauding consumers. Apparently, wait for it, a cost-benefit-analysis was conducted which concluded that paying off deceased relatives was cheaper than installing a $10 part per car.

In Bakan’s book he explains the logic behind such amoral decisions, time and time again. Directors are legally obliged to put profit before everything else. Maximising shareholder profit is their first priority. Setting aside for a moment the ethical issues of killing customers, scandals involving cover up, cheating and corruption, kill corporations too. About €25bn (one third), has now been wiped off the value of Volkswagen’s shares in the few days of trading since the scandal erupted. How are tumbling share prices and astronomical penalties good for shareholders?

In 2005, BP was hit with a (then) record $50.6m (£32.5m) fine for failing to fix hazards at its Texas City oil refinery resulting in an explosion that killed 15 people. Numerous red flags had reportedly been ignored.

Four years later, the company hit the headlines again for unleashing yet more human and environmental carnage at Deepwater Horizon. An explosion killed 11 workers and led to 3.2 million barrels of oil spilling into the Gulf of Mexico

The cause? Same as the last time, “Management failure which put costs before people’s safety”. So why weren’t lessons learned? Because corporate psychopathy (the delinquent offspring of unregulated capitalism), and political incompetence, has no conscience, feels no remorse and refuses to abide by the same rules as mere mortals.

A record settlement of $18.7bn (£12bn) was reached with US regulators and share prices fell by around 46% in the wake of the disaster. History has shown us that ethics belong at the heart of leadership decisions, not as an optional extra thrown in at the end of an MBA.

CEO of Turing Pharmaceuticals, Martin Shkreli, also made headlines this week when he raised the price of a drug called Daraprim from $13.50 per pill to $750. Shkreli has a monopoly on the drug and is effectively holding a gun to the heads of sick and vulnerable people. Further proof, if we need it, that the “free market”, which assumes multiple competing sources, is obsolete. Shkreli has since said he’d reduce the price but hasn’t disclosed by how much. It was later reported that Mr Shkreli is being investigated by the US government for being involved in illegal activities and that he was ousted from his previous post amid multiple allegations of misconduct.

In his book “Snakes in Suits: When Psychopaths Go to Work”, Dr. Robert Hare highlights the disproportionately higher percentage of people with psychopathic tendencies in positions of power. I’m not suggesting everyone in power (and definitely NOT those mentioned here) is a psychopath, but I am perturbed by the proclivity with which we reward dysfunctional, amoral behaviours.

Probably half of society’s psychopaths are incarcerated (the poor) while the other 1% (the rich) are more likely than people without psychopathic traits, to occupy powerful positions. Both groups are a danger to others (as opposed to themselves), the difference being that one is heavily medicated, the other is the lunatic in charge of the asylum.

No comments: