Corporate Scandals- How Long Will the Pain Last? Nearly Five Years…

How long does the average customer remember a corporate compliance scandal? Common wisdom states that people’s attention spans are smaller every day, shrinking to nano-seconds when it comes to trends, fashion or the latest antics by a celebrity.

If we extend that logic to corporate scandals, then they shouldn’t hurt that much anymore, right? There are scandals every day, so it’s easy to argue that one more won’t be remembered tomorrow. Right? Wrong.

Bloomberg reported on a new study out of Stanford University showing that the average corporate scandal resulted in 258 news articles and reputational damage that lasted nearly five years. Five years is a very long time to have a company’s name drug through the mud and associated with misdeeds and problems.  
The fallout from the failure to invest properly in compliance and corporate governance controls can be vividly seen by the recent ouster of LendingClub CEO Renaud Laplanche.

Laplanche created the largest online lender by volume, but was told to resign or face being fired after it was learned that he owned an interest in a company that he recommended LendingClub invest in, creating an obvious undisclosed conflict of interest. LendingClub lost nearly half of its stock market value within 48 hours of the scandal being made public.

The Wall Street Journal reported that “LendingClub grew so fast that its internal controls couldn’t keep up.”
Rapid growth without proportionate internal controls creates disaster. LendingClub’s securities filing detailed what is obvious from the fallout:an internal review revealed that they had “control deficiencies.”

Five years of reputational damage, hundreds of negative articles, fired executives and failed leadership are high costs to pay for a lack of investment in compliance, corporate governance and good proportionate internal controls.

Compliance officers are often asked for metrics to prove the return on investment that a company gets for putting money into the compliance program. Ironically, the more successful the compliance program, the more likely compliance is to have its budget cut, as the company forgets the risk and believes that everything will continue swimmingly with no further investment.

As history has shown, without investment, especially in times of corporate expansion and financial growth, the risk of compliance failure increases dramatically.

When executives and boards consider the cost of investment in compliance, they must consider the ultimate cost of compliance scandal. Failure to see the value in avoiding five years of reputational damage is willful blindness that cannot stand any longer in the face of the evidence.

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Kristy Grant-Hart

Kristy Grant-Hart

Kristy Grant-Hart is the founder and CEO of Spark Compliance.
She's a renowned expert at transforming compliance departments into in-demand business assets.