Notes on a scandal: it hit Leighton like a wrecking ball

Oh Leighton, what a mess. After successfully laying low on the Australian Federal Police’s investigation on alleged corruption and bribery for nearly two years, the AFR‘s gossipy coverage throughout October has hit Australia’s largest construction company like a wrecking ball.

Former CEO Wal King has signalled that a lack of communication is part of the issue, telling the media that, if his successor David Stewart had identified a problem, ‘why didn’t he say anything to me about it?’ Stewart is the author of the handwritten file note containing some details on the alleged corruption, and that document lies at the crux of the AFR‘s in-depth, tabloid-style reporting – the smoking gun, as it were.

As a former tabloid columnist, I find all of it riveting. For me, the AFR has become the corporate equivalent of Hollywood gossip site TMZ.

Like any relationship, a breakdown in communication between an employee and their boss is only a symptom that something else – that goes much deeper – is wrong. Comms is no silver bullet to corporate governance or risk management issues. However, a sound comms strategy can be an integral part of the solution. And if prevention is better than cure, what role does good corporate communication play in developing a culture that values integrity?

First, some context. Out of all the different types of fraudulent behaviour, corruption is the least prevalent but does the most financial damage to businesses, according to KMPG’s 2012 survey. The average financial value of corruption incidents is $4.6 million.

The financial impact of the corruption scandal in which Leighton is embroiled is worse than the average. What price, reputation?

Leighton Holdings’ share price plunged when the number of news articles on the scandal spiked in early October, wiping almost a billion dollars from the company’s value. Since then there has been an inverse correlation between the share price (on its way to recovery) and media coverage (less saturation). The longer term impact of the scandal on the company’s valuation is hard to predict.

So let’s start with known quantities such as criminal penalties: the company could face a fine, estimated by Deutsche to be in the tens of millions. An individual can be hit with a million-dollar penalty and up to 10 years in prison.

Add to that the legal costs, including any potential compensation relating to the shareholder class action against the company, as well as any investigation by ASIC.

Then there are the consequential losses relating to reputational damage and loss of goodwill.

Super funds could become hesitant about funding infrastructure projects involving Leighton. The Greens’ Adam Bandt is calling for a federal government boycott. While that’s unlikely, the bad press might influence federal and state governments’ decisions on appointing suppliers to large contracts such as the East West link in Melbourne, which is a multi-billion dollar deal.

These parties have their own reputations to guard, and would not want to be questioned by the media over why they continue to award projects to, or finance projects involving Leighton. Foreign clients might similarly be reluctant to get into bed with a company whose reputation is tainted.

The impact on staff morale and productivity are difficult to quantify. ‘Leighton employs 61,000 people across 25 countries’, according to Leighton’s media release, issued in response to the Fairfax media articles. ‘Those employees have a right to be proud of the quality of the work they do for our clients, across more than 400 projects. Unnecessary and unfounded damage to Leighton’s reputation as a result of unbalanced media reporting will have an effect on our staff, clients and shareholders.’ Enough said.

Surveying all of that damage, it seems almost trite to list handy tips on comms, but here are some basics on preventing ever having to calculate those kinds of losses for your business:

  • Make corporate governance policies and euphemistic corporate values such as integrity come to life by setting performance indicators and action plans on preventing bribery and corruption. Discuss these in team meetings from senior management down through the ranks, through to the daily briefings on building sites if necessary. This is where good internal comms practitioners are worth their weight in gold.
  • Be pragmatic about cultural differences relating to kickbacks or soft dollar payments (you say tomato…), openly discuss with employees what’s acceptable or not (and better yet set guidelines), especially with far-flung satellite offices that can often operate with far too much autonomy.
  • Do the front-page test with potential issues, even if the resulting damage is only individual embarrassment – for example, would you like to have your executives’ expense accounts and fringe benefits listed on the front page of a newspaper, down to trivial details such as gardening costs at their luxury homes? If not, it might be time to review your remuneration policy. Let’s face it, the rem package of any well-paid ASX50 senior exec is media fodder, so this should be a priority for any large company.
  • Prevent media leaks by informing employees and contractors about media and confidentiality policies, and make them aware that email and internet use are constantly monitored. (And actually do the monitoring! Needless to say, there’s a fine line between privacy and risk management, and employers need to tread very carefully.)

 

Which of these preventative measures does your business take?

 

Caroline Regidor
BY Caroline Regidor ON 6 November 2013
Caroline Regidor is managing director of First Degree PR. Caroline has over a decade's experience working within the media industry and providing comms advice to leading corporates such as the Commonwealth Bank, Colonial First State, Baulderstone (part of the Lend Lease Group) and Gadens Lawyers.