As a racially-tinged scandal wrecks Bell Pottinger, we ask what businesses can learn

The collapse of Bell Pottinger, a public relations firm which pioneered work with financial services and represented authoritarian regimes worldwide, might be the most spectacular implosion in the history of spin doctoring.

In the wake of accusations that the company helped stir racial tensions in South Africa on behalf of Oakbay Investments, its chief executive James Henderson quit; big clients such as HSBC ditched the firm; and the investor Chime wrote off its 27% stake in the company.

With its international arms being spun off and the core firm in the UK now in administration, many will wonder how Bell Pottinger could have been so mismanaged.

In its response to a publicly-released investigation by law firm Herbert Smith Freehills, Bell Pottinger provided a shopping list of what could have prevented the disaster. Among the fixes proposed were the development of an ethics committee, more stringent reviews of new client work, and the creation of culture in which junior staff could contest work 'with which they feel uncomfortable'.

As Chris Hodge, policy advisor at ICSA, put it: 'Some of the steps Bell Pottinger propose taking, such as engagement and ethics committees, have come too late to help them. But they are sensible ideas that other companies might want to consider as preventative measures not remedial ones.'

Ethics committee

Ethics committees are a relatively new idea in corporate governance. Research from the Institute of Business Ethics (IBE), ICSA and professional services firm Mazars from March 2016 found that 30 of the FTSE 100 had formed committees to embed corporate responsibility in their companies, even though there is no requirement that they do so.

Peter Montagnon, associate director at the IBE and author of the research, told Governance and Compliance: 'I think the essential starting point for all of this is the leadership of the organisation.

'Most have a clear view of the values they want the organisation to espouse. They must articulate those values, and in the governance they need a means of assuring themselves that the values they say they want are the ones they have actually got.'

Larger companies can set up an ethics committee outside the main board, while smaller ones can give the board direct oversight of ethical concerns.

"Ethics need to be woven into the fabric of the company, otherwise it tears too easily and cannot always be stitched back together"

According to ICSA's Hodge: 'The role of such committees, and of the board and senior management generally, needs to be about enforcing the values of the business as much as about procedural oversight. Ethics need to be woven into the fabric of the company, otherwise it tears too easily and cannot always be stitched back together.'

Montagnon recommended that companies develop a code of conduct, which is then used to instil the leadership's values into the organisation.

'This code needs to be more than something you get given when you arrive at the company, put in a drawer and never look at again unless you are facing disciplinary action,' he said. 'You need to make sure employees are aware of it, and actually get them to sign something that says so.'

He added that while the board does not need to handle all of this, it does need to check that the processes are being carried out, including by checking whether employees believe the company culture matches the aspirations of management.

'In most companies of any size you need to have some surveys to check whether the values are embedded,' he said.

Review client work

At the heart of the Bell Pottinger scandal is its relationship with Oakbay, controlled by the Gupta family in South Africa. Both the company and the family have faced criticism over their alleged links to South African officials, including president Jacob Zuma.

The PR firm's stoking of racial tension in the country for Oakbay was what led to the recent backlash. 'I think it is quite likely that the kind of work that was being done in South Africa for the Gupta brothers has been contrary to the core values of the business,' said Montagnon.

ICSA's Hodge said: 'It appears from the Herbert Smith Freehills report that there was little senior level oversight of the account.

'In an industry where the reputation of the advisor is so closely linked to that of the client, that is surprising. Divisive clients and campaigns can be significant risks to the business, and should be managed accordingly.'

Montagnon believes that companies with a leader's values knitted into the organisation are less likely to sign up morally dubious clients. 'That way the risk of taking on work that contrasts with those values is reduced – but it never fully goes away,' he said.

'We have seen not just in Bell Pottinger but actually across the picture where there have been problems – G4S, Volkswagen, Wells Fargo. Obviously there were issues around the banks [in the financial crisis], but it is quite dangerous to think this only applies to banks.'

"Ethical behaviour actually sustains and strengthens the business if you espouse values that are more acceptable in the eyes of society"

Though some would argue that moral qualms could hurt profits for companies, Montagnon said that the picture is not so clear, especially in the long term.

'You could say our values are to work with everybody, and we do not care what we are projecting, that is what we do to help our clients,' he said. 'That is a possible business model, but it does have a higher degree of risk.

'I think this is part of the business case for ethical behaviour: it actually sustains and strengthens the business if you espouse values that are more acceptable in the eyes of society.'

Whistleblowing

The final area that Bell Pottinger committed to working on before it fell into administration was its whistleblowing policy – in addition to opening other channels for junior staff to report concerns of unethical conduct.

Lydia Christie, senior associate focusing on employment at Howard Kennedy law firm, said: 'The Bell Pottinger example is a case highlighting the reputational damage that can happen when things go wrong.

'If you do not have channels for people to report concerns and for those to be investigated they cannot be addressed.'

A whistleblowing policy must detail who staff should contact, what issues can be raised, and what will happen. It must also emphasise that there will not be repercussions if they choose to blow the whistle – though this can be hard to ensure.

'Anonymous reporting is one option and that has the plus side of giving the worker some assurance that nobody will know they are the one whistleblowing,' said Christie.

'The downside is if the business wants to go back to the person who raised the concerns to get more information to investigate the issues, they do not know who reported it.'

For boards, whistleblowing can be seen as a way of managing strategic risk and a means of discovering information both welcome and unwelcome. 'It is also an opportunity for businesses that want to know about things that are going on so that they can be addressed,' Christie said.

Montagnon said that small companies would find it harder because of their size, but noted that outsourcing services are available. 'In some ways having an independent organisation running the whistleblowing environment is quite sensible,' he said.

'You have to have environments which make people believe that when they ring up they will be listened to because often they will not. You have to have some assurance that there will not be retaliation or retribution against people who blow the whistle.'

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