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Corporate scandals: are innocent staffers adversely stigmatised?

In years gone by, major corporate scandals were few and far between. But when they did occur, they hit big, in impact and publicity. Hence the Enrons and Lehmans made headlines around the world. Their ex-employees had nowhere to go, and few employers felt inclined to take them into their folds. Still less did head-hunters feel inclined to recommend them for new jobs, and found it hard to place them, even if the ex-employees in question had no connection with the causes of the scandals.

Today, the situation is somewhat different. Especially in the financial world, there seem to be very few leading names that have not been found to be riddled with fraud and outright corruption. Leading banks subjected to massive billion-dollar fines imposed by the Federal Reserve, bear witness to the extent of the contamination that has affected the corporate world. It is not only the banks that have wallowed in transgression: automotive companies have been found to deliberately falsify their emissions records, or to have incorporated components that are known to be seriously life-threatening.

Likewise pharmaceutical and food companies have been found to have serious shortcomings in their vigilance for consumer safety, in the pursuit of profitability. There are so many companies that have fallen short of minimally-acceptable corporate probity, that one cannot realistically stigmatise all of their employees when it comes to new job searches.

Ex-employees of tainted companies also have an easier time in countries with less exacting standards of corporate governance. In Thailand, there has also been a succession of scandals affecting certain banks and finance companies. Ex-employees of scandal-hit banks might find it hard to relocate in the finance sector, but they can usually find places, perhaps at lower salary levels, in other sectors. Mention of a scandal-hit institution in a CV may attract attention, but need not be a reason for rejection.

International experience

Recent research published in the Harvard Business Review (September 2016) suggests that in Western countries, linkages with a former scandal-hit company can have adverse impact on job prospects and also salary levels throughout a lifetime career.

Brands are supreme in today’s world. When scandal hits a leading brand, the impact can be devastating. Studying more than 2,000 executive job histories over a period of eight years, it was found that linkage with a scandal-hit corporation at some stage in a career history does have an adverse effect on job prospects and salary achievements. The effect may be more pronounced than identified by the research, because quite a number of scandal-hit executives might have dropped out of the corporate world altogether, becoming self-employed or in lower level jobs. This happened in Thailand too, with some financial executives turning to become street-side noodle sellers. Actually enjoying the job, they stayed that way throughout their careers.

The researchers found that career handicaps arise mainly in firms where serious faults occur. An employee of tobacco, liquor or armaments industries does not necessarily experience rejection when moving to another type of industry. Companies suffering mishaps along the way because of strategic misjudgements were also found not to convey a contamination upon ex-employees. Entering an unsuccessful product area or market and suffering resulting failure did not thereby convey a lasting stigma upon ex-employees. It had to be an actual transgression, such as fraud, bribery, corruption or involvement in political chicanery in a home or an overseas market that risked prejudicing ex-employee future prospects.

Why corporate stigma contaminates

Three major reasons were identified in the research as causes of stigma for ex-employees. Firstly, such stigma is not always rational. Judgements of people are often caused by a fear of association with undesirable people. Here in Thailand, one often does not want to be photographed in the company of those with bad past or present reputations. This is a worldwide phenomenon.

Secondly, it was found that prospective employers tend to evaluate candidates in relation to former career history, such that an infamous employer might create an unfavourable impression. Some candidates try to conceal periods of employment by study or inserting another employment or lengthening the period claimed to be with a previous or subsequent employer. If detected, as often will be the case, this will disqualify the candidate, but some may get away with the deception.

Thirdly, corporate scandals tend to be complex, with half-truths and misconceptions. The specific involvement of a particular individual may be hard to assess. As a result, a head-hunter or prospective employer may simply pass over a prospective candidate, being unwilling or unable to make a convincing judgement.

Impact on affected individuals

Pay impacts were found by the research to be more pronounced in countries with strong regulatory systems. In smaller countries or tighter industrial sectors, the truth about corporate scandals was found to be better known. This could mean that innocent parties could be less affected, but it would be hard for the guilty to hide themselves. Penalties in terms of remuneration were found to be more significant in finance-related careers, and in more senior positions than junior ones.

Women also appear to have been more affected than men, possibly because they are already more vulnerable and perhaps expected to have better governance and probity than men.

Bouncing back

All need not be lost for those tainted with past affiliation with a scandal-hit company. Big time fraud perpetrators may become successful authors of best sellers or sought-after lecturers on the circuit. Others who have not really lost reputation can rebuild by a period outside the job market, such as in advanced further education or career change. Rehabilitation by a carefully-selected job in another market, or in social entrepreneurship may be a solution.

For recruiters, there are clear implications. One’s judgement of candidates should be on their own merits, and not on the de-merits of their former organisations, over which they had no control. The experience of those affected by corporate scandals suggests that the time to get out is before, rather than after, the scandal breaks. Those who left an organisation conveniently before the storm hit, and are safely in a new situation, are always much less affected than those still on board when the ship sinks. Corporate scandals should not happen, but they do and, if recent experience is anything to go by, this is a growth industry. Potentially-affected employees should check the exit and maybe hasten to use it.

Christopher F. Bruton, over 46 years in Thailand, is Executive Director of Dataconsult Ltd, a local consultancy. He can be reached at Dataconsult’s Thailand Regional Forum provides meetings, seminars and extensive documentation to update business on present and future trends in Thailand and in the Mekong Region.