How corporate pressure and silence lead to ethical collapse

[Intro music]

Quỳnh Lê: There’s a lot going on in corporate America right now.

We’ve seen HealthSouth, with its massive accounting fraud in the early 2000s, then Wells Fargo, with the fake accounts scandal, which came to light in 2016. Boeing, with the 737 MAX crashes in 2018 and 2019. And FTX, with the misuse of customer funds in 2022. And most recently, Tricolor, in September 2025.

Investigators keep finding what insiders already knew. And it is, in some ways, the oldest problem in organizational life. My guest today has spent 46 years trying to diagnose it.

Marianne Jennings: It was completely a cover – all that they were doing in terms of goodness was covering up everything that was going on beneath the surface, literally and figuratively.

Lê: That’s Marianne Jennings. She’s an emeritus professor of legal and ethical studies at the W. P. Carey School of Business at Arizona State. Welcome to the Business Journalism podcast. I’m Quỳnh Lê.

Hi Marianne, welcome. In your book The Seven Signs of Ethical Collapse, sign two is fear and silence. You have documented cases where employees were afraid to use an anonymous ethics hotline because they feared being traced. Right?

Jennings: Yes.

Lê: Walk me through what that actually looks like on the ground. The reality of what you have seen in those organizations.

Jennings: Well, what they do is, however unwitting, the signals that managers send. For example, one of the employees I was interviewing gave me this saying: “the first whale to the surface always gets harpooned.”

What he was saying is the first person to bring bad news about something that’s going on: they’re not treated so well in the organization. And so the genesis of that fear and silence is the people who do, perhaps disagree initially, raise issues, who may be outed in terms of who’s making these reports. They can have their careers stalled, no promotions for them. They can be disciplined or they can be sort of flatlined in the organization.

And I can remember sitting with one employee and she told me everything, and it had to do with the revenue cycle. She knew everything that had gone on, and that was pretty amazing given the size of the company. And I said, did you talk to anyone? She said, “Well, yes, I raised the issue with my supervisor and then I went higher. I tried ethics and compliance.”

Then I said, well, I looked at some of the training and the CEO said you could come to them. She said to me, “How do you think that conversation is going to go? How do I sit down and tell the CEO?”

There were so many things stacked against employees that they were just afraid to say anything. And so they just sort of learned to live with it and hope that nothing happens. And sometimes it’s self-doubt. Sometimes employees will look at that and say, “Okay, well, how come all those lofty people on the board.” And they really do have valuable information about what’s going on. But it never quite gets past them because you have this whole culture that sort of may talk a good game, but make sure that people just stay down there and go about your business. So it was really interesting to see the fear. It’s palpable.

And probably the most recent case that has the best evidence that employees know what is going on: if you check the text messages, the slack communication systems at Boeing, I mean, it got out there. It was in the Congressional Record. They spotted the problems exactly with the 737 MAX. They were worried about them. It’s just the culture takes over and they see things very clearly, but they do not get them up to where anyone will listen. 

Lê: That is really interesting in terms of, it’s understandable when young employees come up and confront their CEOs. I want to stay on HealthSouth for a moment. Richard Scrushy directed fifteen CFOs, right? To falsify the company’s earnings. And when FBI investigators asked one of them why, and they answered, “have you ever met Richard Scrushy”?

Jennings: I mean, he had when you talk about the fear: this guy was frightening. He actually had conduct that would intimidate people. He would go around to the facilities that housed HealthSouth to the parking lots in the middle of the night. And when he found trash, he would just explode and yell at people. He made it clear that he was in charge and you weren’t supposed to do that. But there’s another factor, and that is there were young people who were being promoted to impressive positions and they were compensated well. I call it the hook.

You have someone, like Scrushy, who is diabolical, and he was very persuasive and charismatic and charming and very popular in the community because of his philanthropic work. So iconic sort of status. So you have that. They’re being compensated well and they know how he behaves if you don’t do exactly as he says. And so the fear of losing your job, just the psychological fear of having to deal with the tempers and those problems. He was very difficult.

And a lot of the people he hired, all those CEOs, with the exception of the first couple, they were a generation younger and so didn’t have near the experience and probably said, “Okay, maybe I’m seeing this, but I guess this guy knows what he’s doing.” And so, you know, just a whole combination of factors that went into that.

Lê: I want to tackle this sign seven, which is doing good in some areas to make up for the wrongdoing in others. It feels like the most subtle one, but maybe the most important one right now. We’ve seen trends, right?

Jennings: Yes, absolutely. And the book was published in 2006. And I would say that today, of all the seven factors, this is my favorite one. Because it’s so easy to see and you don’t have to have a lot of inside information. The classic example is BP. My goodness, that was a company that was lionized for its efforts in the environment. It’s an oil company being lionized for all of its efforts and social responsibility. And in the meantime, you had them drilling these really dangerous single-thread offshore rigs. And no oil company in the world was using those except them, because they felt the risk was too high.

And sure enough, they had first a small rig and then a year later, you had the huge one. It was completely a cover. All that they were doing in terms of goodness was covering up everything that was going on beneath the surface, literally and figuratively. Nobody was examining them seriously. And that happens with money.

And, you know, FTX is another good example. Samuel Bankman-Fried. He was tied into everybody from Hollywood stars to football players to members of Congress. And he had this goal that he wanted capitalism to do good. That was the only reason he was in business. And everybody bought it hook, line and sinker. And there are conversations that he had internally where FTX was using money from people. You’re not supposed to do that. He was using customer deposits to finance his trading in their separate hedge fund. And one of the employees raised the question and said, “Are we supposed to be doing this?” And he said, “No, it’s fine.” And he said, oh, “Auditors don’t look at that kind of thing.”

And that just makes me laugh out loud because that’s exactly what auditors look at. And no one was questioning him because he had so much cover in terms of donations and appearing on social causes and just contributing money to the right people. He was the golden boy, and nobody was looking at the company and all of the things that were going on there.

Lê: So how should we understand all this? Is that something people do on purpose just to protect themselves? Or do they actually believe that doing good in one area makes up for what they are doing somewhere else?

Jennings: Oh, I don’t think they believe that. I think they understand that they can push certain buttons. And this, the whole social responsibility movement from the 1920s on, was like this, that it really was politically charged. And there were social issues that were important. Others were not.

And I think, as any CEO would look at it, they would look at it and say, “Okay, we’re going to do this because that buys us goodwill.” So they looked at it. In that sense, it was money spent to look like one of the good people and one of the good companies. And that deflected investigations. It deflected criticisms. And as a result, they bought tickets to immunity with just focusing on social issues.

But I can’t say that the CEOs really believed in those causes. If they did, they would have been using their own money and held that up as an example. And that’s fine, whatever the CEO wants to do. But it was the company funds that they were using. And really, I see it as a marketing decision .

Lê: By almost any measure, and I think our latest conversations also about Tricolor, the frequency of corporate scandals and the scale of financial fraud, the situation has not improved since you started this work.

Jennings: I always say “now how effective am I being?” The fraud seemed to get bigger and bigger. When Madoff hit, I was about ready to say, okay, I’m throwing in the towel. But I look at this in the context of what people have been taught. We’re looking at 70 years of moral relativism, and that’s the system of ethical analysis that most students know. It’s what they’ve been taught, that the circumstances control your behavior, not any overarching principles. So if you take, for example, just the very basic principle of honesty, they will carve out exceptions. “Well, you don’t have to be honest about that.” 

The classic example of that is Silicon Valley: fake it until you make it. And that’s Theranos and that’s Nikola. The product, in many cases, was not there. But in their minds, they looked at it and said, “Okay, I may have done all of those things, but I did that so the world would have this wonderful product.” And it’s even better when a wonderful product like Nikola was something that helped the environment. “I just have to keep people away till I make it work.”

And that was the mindset and it’s all wrong. I mean, you don’t lie on your financial statements. You don’t lie to investors. You don’t lie to employees. You don’t lie and say, well, okay, here’s the blood test from this product. And they had been done by a third party lab. You don’t do that.

Lê: I want to go back to the sign three, the bigger than life CEO, the charismatic CEOs, right? But let’s see, we have Steve Jobs. He was dominant, charismatic and surrounded by loyalists. So how do you tell the difference from the outside, and when does that tip?

Jennings: And that’s the beauty of the signs, do you have this? And when you have this and any auditor will tell you that those types of CEOs are always a risk. And so then the question becomes, do you have checks and balances on that CEO? And, you know, if you recall the history of Steve Jobs, he was sent out in the wilderness for a while because of his behavior. And so I think from that experience, Apple got some discipline. Do you have some form of control over the CEO? Sometimes it is just another senior executive in the company. Sometimes it’s someone in design that, you know, the CEO trusts and they can kind of rein them in, the hope and the structure is such that it should be the board, that the board should be able to say, “Whoa, whoa, whoa, whoa, time out. We’ve got to stop this here.”

Still, when you have people like this who are that talented and have been that successful, it’s tough to rein them in. But that’s the question that the auditors ask, and I ask, is there any hope in the structure of the governance? Is there any hope in who the CEO talks to that there’s somebody who can rein them in. So, that should have been a red flag that there’s no control over the CEO. That was the Southern Railroad issue.

And so you have to look at the controls and you can just look and show how high the risk is with the CEO like this, when you don’t have those controls. When was the last time the board went against the CEO’s recommendation? When was the last time the board asked for an outside investigation?

And you can kind of look at the independence of the board, the knowledge of the board. With Elizabeth Holmes, I mean, you had, what, two former secretaries of state, secretary of defense, some brilliant achievers on there, but I’m not sure they were really business savvy. Henry Kissinger, for crying out loud, I would look at that board and say, okay, you got big names.That may be the sign in and of itself that helps her fake it until she makes it, but they’re not going to look into anything seriously. So you look at the experience of the board members, do they have the skill set necessary to really look at the hard issues that the company faces or may be hiding?

Lê: I feel like the pattern keeps repeating, you know, different companies, different eras, but the same signs  that we’ve seen. How do you make sense of all those patterns? What does it suggest about whether ethical collapse is a failure of leadership and education, or something kind of embedded more deeply in how organizations function?

Jennings: I wrote an article, I think it was a two-parter for an auditing magazine in healthcare, and the title of it was How Could You Not Know? Because what I was pointing out is that what happened – there’s nothing new under the sun. What happens in these organizations inevitably happens to somebody else earlier in history, but they didn’t know the story. And so one of the pieces of advice that I give to leaders and CEOs and anyone going into business is to learn the stories of what’s happening in your industry. I’ll just give you a simple example.

There are, well now five, universities that have all had the same situation. You have someone who is employed by you, maybe pretty high up in the organization, and they are molesting someone. At Michigan State, it was the gymnast. At Columbia, it was female patients. At Ohio State, it was pretty much anyone, and it was a physician in the athletic department. At Penn State, it was an assistant coach. And I have a chart and I put this chart up when I’m training leaders and I say, “Okay, I want you to look at this chart.” And I explained to them that sometimes when these cases break, I look at them in the newspaper and say, “Wait a minute, I know this case.” And my husband will say, “How could you know this case? It just broke.” And what I’m really thinking is I’ve seen this whole scenario before.

And then what I like to point out to them is that there are two dates on the chart under each of those universities. One is the first time we have documentation that shows when someone reported the bad person, or when someone made a complaint. So we have that date, and then the next date is when this all became public. In some cases, it’s 15 years. In some cases, it’s 30 years. In some cases, it’s 25. In other words, in all of these organizations, they had someone tell them “Here’s a problem.” And they initially did not react as they should have reacted with the very simple: “This person needs to go. We have to stop this. Or at least this is wrong. If it occurred, let’s investigate.”

And they didn’t do that. Instead, like at Penn State, what they did was say, “Okay, if we call this a police report, you know, a campus police report, it becomes public record because we’re a state institution. So let’s just call this administrative information.” And that way, they could put it away in a file and nobody would have to know about it. And the interesting thing is, sometimes people do that because they believe they’re being noble. They’ll look at it and say, “Oh, I’m really saving this person’s career, and that’s a good thing to do.” But that has a flaw in ethical analysis, where you always have to ask, who’s affected by this decision? 

Well, the victims were affected. And at Columbia, it was really interesting because they classified things as “is this a complaint?” And a complaint would be something like I had a long wait to see the doctor. Whereas a report would be something that focused on some incorrect behavior, like there was no one else present in the room when the woman was examined. So you have these little nuances where when this is first reported, people try to say, you know, some it may be as simple as this is no big deal. This is one time. Let’s let it go. And if you know if it is indeed one time, it’s not documented, and then the next time it comes up, you don’t realize this is the second time because they didn’t go through the formal process. So when you see this happening over and over again, there are lots of factors that go into it.

One, they don’t know the history of these kinds of cases. And I always say my course is a course in history. Let’s teach what happened so you can spot it when you see it. The other thing is, you know, there’s a refusal to believe it because this is someone they’ve worked with, they’ve trusted. They also get that nobility factor. I don’t want to harm their career, and then they don’t want to document anything because that could result in harm.

But what they don’t realize is that all four of those things are actually building the eventual harm and it always comes out. I always say there are no laws of probability. The only variable is when this comes out, and the longer it goes, the worse the fallout for the organization.So as you look at this, yes, people should know. How could you not know your organization was following the exact same patterns as everybody else who was in the same situation?

And that’s what you have to realize. You have to recognize that and that the worst thing you can do is say, “No big deal. We don’t want to harm someone unnecessarily. We don’t need to investigate. Let’s call it this” – it happens in every case.

And so yeah, you can avoid collapse, but it’s when you start with the smallest of things that you prevent the utter and complete deflation of things.