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Cartoon: satanic CEO wonders what evil his company should next do

When Innovation Becomes Evil

By Jeffrey Baumgartner

Companies are not evil. They cannot be. They are nothing more than legal constructs that enable them to accumulate capital, do business and limit shareholder liability. When companies do things that seem evil it is usually the result of innovation gone bad combined with bad decision-making. Establishing clear corporate values, taking them seriously and applying them would go a long way towards preventing the kind of scandals that have recently rocked Volkswagon, brought down Lehman Brothers and led to BP's Deepwater Horizon oil spill.

An Imaginary Scenario

To understand how innovation-gone-bad can lead to seemingly evil behaviour by companies, let us imagine a scenario in a fictitious car company where a nice guy named Jim is a talented software engineer. (Note: while this story is obviously inspired be a real event, the story itself is truly fictitious.)

One day, Jim's manager tasks him with programming the software for a new diesel engine the company has developed. In particular, they need Jim to bring down the nitrogen oxide (NOx) emission levels which are higher than allowed for both the EU and the US.

Jim tweaks the software and tests the results over and over, but he is only able to make small improvements in NOx unless he allows the engines to spew out more carbon dioxide than is permitted or severely reduces the engine performance. He knows there is not much more he can do. Diesel engines are inherently dirty, particularly when it comes to NOx emissions. He reckons it would make more sense to drop diesels all together and work with petrol (gasoline) engines or move on to new technologies like electric and fuel cell vehicles. However, his company, like all European car companies, has invested considerably in diesels.

So, what can Jim do? To find out, we need to look at some background information.

Firstly, research has shown that highly creative people tend to be less honest than others. This is not because they are intentionally dishonest. Their creative minds come up with a broader range of ideas in any situation than do less creative minds and their creativity enables them to legitimise behaviour in ways that others would not do. Jim is a creative guy, that's why his boss gave him the assignment. He also believes himself to be an honest guy.

Secondly, like most companies, Jim's employer rewards success, especially on important projects, and is less enthusiastic about failure − far less enthusiastic. Jim knows that if he fails in his project he won't get in trouble. But he probably will not get that division manager promotion he's been hoping for. On the other hand, if he succeeds, he will be well rewarded, his success will be noted by top management and that promotion will pretty much be guaranteed. Sure, Jim and the company's numerous 'innovation managers' all know that one should celebrate failure; but they would all vastly prefer to celebrate success.

Thirdly, the European system for measuring automotive fuel economy and pollutants is a joke that no one is laughing about. Car manufacturers are pretty much in control of the testing procedure which bears little resemblance to actual road use. The result is that 'official' figures for cars are considered now to be a whopping 40% (on average) better than real life. In other words, no one takes these figures seriously and no one treats the testing system with any respect. This is probably why the Americans discovered Volkswagon's misbehaviour. In Europe, cheating the system is pretty much the norm.

So, Jim could go to his boss and explain that the project goals are not possible, at least not in the short term and not with diesel engines. His boss would probably question this conclusion, accept it with disappointment and pass the challenge to someone else. Jim would probably not get the promotion. Someone else probably would, especially if she can solve the problem through honest means or otherwise.

It's Okay − Everyone Does It

Alternatively, because Jim is a creative guy, he might work out that he could program the software to identify lab test situations and, when it does, lower engine performance levels in these scenarios. The result would be lower CO2 and NOx emissions. Both he and his company would achieve their goals in the lab if not in real life. Jim knows this is not entirely honest. But he feels morally okay about it because all car manufacturers are designing their cars to pollute far less in testing scenarios than in real life. It's like being on the highway from Brussels to Antwerp on a Friday evening. The speed limit is 120kph, but most people are racing along at 140 or faster, until they approach the one speed camera on the highway, which is near Waarloos. Then everyone slows down to 110 for a few hundred meters before speeding up again. They are all cheating. They are all breaking the law, but since everyone does it, no one cares.

The difference, of course, is that NOx emissions from cars are a contributing factor to global warming, bad air and respiratory problems. Sadly, I am reminded of this every time I bicycle past a village school in the morning. The air is marvellously fresh until I get close to a school and suddenly it tastes and smells like a city thanks to parents' diesel engine cars idling at the school entrance while kids hop out. But I digress.

Jim is not dishonest. He is an engineer who sees emission metrics as arbitrary goals rather than as contributors to global pollution. He might even argue, with some legitimacy, that if people really cared about pollution they would stop buying and using polluting cars, and start bicycling more. But as long as people want high performing cars with engines that at least let them feel they are doing something for the environment, he might as well play the system and give them what they want. These are the kind of thoughts Jim uses to legitimise his solution.

Very likely, Jim even tells his boss what he has done and, with a wink and a nod, the boss says, "don't worry about it; everyone in the industry does it," while patting Jim on the back and telling him it was a job well done. Jim can almost taste the promotion, increased salary and higher level company car.

What would you do?

Responsibility

In such a scenario, it is possible top management is not even aware of what happened, especially if managers come from a business and finance background rather than an engineering background. They may have suspicions. They may know in their hearts that the emission testing results are better than they really should be. But they may well not know the extent their staff have cheated the system. And they may prefer not know the details of the innovation behind the good emission numbers.

Nevertheless, top management is responsible for two reasons. Firstly, they are responsible for their companies and so must takeresponsibility when those under their command behave unethically and possibly break the law in the name of their companies. Secondly, the people at the top set the values of the company and these values should include things like ethical behaviour.

Ethics

Sure, most senior managers will claim that they operate to the highest moral, ethical and legal standards. But do they really? It is one thing to say this. It is quite another to ensure that this is really true. In Jim's case, if he knows that for years his company and every other car company has been rigging legally required emissions testing and that this behaviour is considered acceptable not only by his company's top management, but by his country's and Europe's governing bodies, he cannot see why his behaviour was any worse than business at usual in the car industry.

Exxon Valdez

Let's pick on another industry for a while. The oil industry has always claimed that safety is a priority. Nevertheless, in March 1989, the Exxon Valdez stuck the Prince William Sound's Bligh Reef causing what is considered to be the worst man-made environmental disasters in history. The resulting investigation showed that all kinds of safety precautions had been ignored to save money or because people simply could not be bothered.

Following this disaster, Exxon really started to take safety seriously to such an extent that it seemed compulsive according to Steve Coll in his book, Private Empire - ExxonMobile and American Power. I also know this from experience. My father worked at ExxonMobile from the day he graduated from university to the day he retired. He was always a cautious guy, but after the Valdez disaster, Dad apparently became even more safety concerned at home as well as, presumably, the office. (I was living in Bangkok and he was in New Jersey at the time, however, so I know this more from reports from members of the family and occasional visits.)

If ExxonMobile had taken safety so seriously in 1989, the Valdez almost certainly would not have had the accident that led to the oil spill.

Values

What can you do to ensure your company does not become the next one bandied about as being evil personified? Simple: take corporate values serious, especially when it comes to evaluating innovations. And, if corporate values are not clear, then they need to be clarified immediately.

If values such as ethical behaviour, honesty, safety or concern for the environment are truly important to your company, as opposed to lip service from top management, then these values need to be engraved in stone. Top management must fastidiously adhere to these values. They need to be part of the rules every new employee learns. And they must be part of the evaluation criteria applied to every innovation, every cost saving action, every new product and every product improvement.

If, in Jim's company, every innovation was evaluated for legal and ethical compliance, his emission test cheating innovation would have been rejected immediately. In fact, Jim would have known better than to even have suggested such a thing.

Likewise, had Exxon (as it was at the time) taken safety as seriously in 1989 as it did later, the tanker would almost certainly not have crashed and Alaska would be a cleaner place.

Easier Said than Done

This is all easier said than done, of course. In Jim's case, it is not merely his company, but the entire industry that is less than honest with car emissions. If one company decides to be impeccably honest about emissions, they will also need to accept that their official fuel economy emissions will be comparatively higher than their competitors'. Here in Europe, it means their cars will be in higher tax brackets than before and that will hurt their sales. Moreover, published fuel economy figures will be worse than for competing cars. People who base purchasing decisions on this information are likely to opt for a competitor's product. Rather than helping sell their cars better, integrity and honesty would probably hurt sales.

However, there is another option. Innovate harder. Accept that diesel engines will always be filthy and look again at petrol engines, electric cars (the Tesla is demonstration that it is possible to manufacture desirable electric cars), fuel cells and other technologies. However, it won't be easy. True innovation never is, particularly if you are the only honest player in a less than honest market; a market where being honest could cost you billions in sales and lead to tens of thousands of your employees losing jobs (if you cannot sell as many cars, you will neither need nor be able to afford your big workforce).

On the bright side, when companies do screw up, it forces the industry, lawmakers and the public to pay attention to the situations that permitted them to screw up and to make changes. Perhaps, indeed hopefully, Volkswagon's misbehaviour will motivate governments to set up more realistic environmental testing of vehicles and by doing so, will discourage such cheating in the future.

When Companies Screw Up

When companies screw up, it is not because they are evil. It is usually not even because top management are evil. Rather, it inevitably the result of innovation or cost-cutting (which is often a form of innovation) gone bad. If top management is serious about corporate values then every innovation needs to be evaluated against those values and, when innovation does not meet those values, it needs to be sent back to the drawing board or rejected outright.

Creativity often involves breaking the rules and that is as it should be. However, creative ideas that break ethical rules need to be refined to become ethical. There is absolutely nothing wrong with having the idea to cheat emission testing procedures. There is nothing wrong with playing the idea. However, at some point before the idea becomes a serious proposal, someone needs to say, "Of course we cannot cheat the emissions testing process. But the notion of varying performance and emissions depending on situations is interesting. How could we apply that to on the road driving?" And, if the answer is, "We cannot." Then the idea needs to be disposed of.

So, go ahead, be dishonest, unethical and immoral when you are being creative but be impeccably honest, ethical and moral when you turn those creative ideas into innovations.

 

 

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Jeffrey Baumgartner
Bwiti bvba

Erps-Kwerps (near Leuven & Brussels) Belgium