On a scale of 1 to Volkswagen, what’s the biggest lie you’ve ever told on the job? You might say “great work” to an employee whose work is merely ok, but would you tell the world “clean diesel” when your cars are emitting 40 times the legal limit of environmentally toxic pollutants? Recently, Volkswagen was exposed for doing just that. As more details of the scandal emerge–and VW stock plummets–you may be wondering: how does a breach of integrity even happen at such a high level, and how can you avoid it?

A Culture of Fear

When top leadership lapses in integrity, fear culture can take over. That’s exactly what happened to VW. Back in 2009, Volkswagen launched multiple public initiatives to “debunk the myths on clean diesel.” But behind the scenes, VW had been busy crafting its own myth: that its cars could deliver outstanding mileage and performance while also being eco-friendly. To support this lie, the world’s largest car maker covertly equipped 11 million vehicles with software that cheats EPA tests. Volkswagen is now facing severe penalties for every car that’s not in compliance with federal clean air rules.

A Culture of Integrity

Acting with integrity means acting honorably—without compromising the truth. A culture of integrity exists in the workplace when employees perceive company leaders as trustworthy and ethical. The Great Place to Work Institute (GPTWI) measures a company’s level of integrity in 58 statements, including:

• “Management’s actions match its words.”
• “Management is honest and ethical in its business practices.”

Want to avoid “Dieselgate” at your company? Here’s our 6-step plan for building and maintaining workplace integrity.

6 Steps to Building Workplace Integrity

1. Make integrity a core value.

Core values support your mission, shape your culture, and educate people about your company. If you think core values are a “kumbaya thing,” you’re missing out on a powerful recruiting and retention tool. Volkswagen’s populist and progressive values made the brand iconic. Just a few months before the scandal broke, Entrepreneur was heaping praise on Volkswagen’s values-based marketing and encouraging other businesses to “take a page from the VW playbook.”

Well, it seems Volkswagen may have gotten more mileage out of its values than its cars. On the core values hierarchy, integrity trumps growth. With employees reeling and customers seething, Volkswagen’s reputation could be irrevocably tarnished. So, take a page from the Coca Cola or Zappos playbooks instead, and tell your employees (and customers) that you value integrity.

2. Lead by example.

One of the best ways to communicate company values is to live your values. A work culture of integrity begins at the top and moves down. Your employees—like most humans—learn through observation. If leaders and managers consistently demonstrate core values in their behavior, these values spread through the workplace.

When Volkswagen’s CEO Martin Winterkorn resigned on September 23rd, he said he “wasn’t aware of any wrongdoing.” His statement is problematic because it implies that either: he’s lying, or he was so removed from operations that he didn’t know VW was engaging in large-scale fraud. Lying and cheating are antithetical to integrity, and if caught, both behaviors also carry stiff sentences in the court of public opinion. Remember Lance Armstrong? Leave the legacy you intend, by acting with integrity.

3. Hire good people.

While you can’t really ask job candidates if they have integrity, you can interview for it by asking scenario-based questions. In his book, Hiring Talent, Tom Foster breaks down how to interview for integrity. Once you have your team in place, get to know them. It doesn’t matter what kind of hierarchy you have at your company. In a culture of integrity, leaders solicit opinions and feedback from their employees. Managers establish trust by making sure the newest employee, the lowest paid worker, and the freelancer all feel like they’re an important part of the team.

After Winterkorn’s resignation, Volkswagen needed a new CEO in a hurry. Environmentalists and business analysts aren’t convinced that his replacement, Matthias Mueller, is “good people.” Mueller was VW’s head of product planning during the years they were developing the cars that caused the scandal. It’s unlikely that Mueller was personally involved, but appointing an insider says that Volkswagen is more interested in protecting its existing structure than investigating its fraudulent activities and regaining its lost integrity.

4. Keep communications open.

In a culture of integrity, information flows in all directions. Transparency promotes open discussion and healthy feedback. Employees are motivated by the greater good. Then, there’s a culture of fear. Information exists in silos, and there’s no room for dissenting opinions. Employees are motivated by fear, and they set aside values to gain favor with top management.

In Volkswagen’s Villains, Slate points a finger at Ferdinand Piech, former chairman of the supervisory board of the VW group: “Even if Piech didn’t know about the scandal, his draconian management style, close selection of executives, and shuttering of dissent clearly enabled the conditions that allowed for such gross malfeasance. If VW executives greenlit the defeat devices without Piech’s knowledge, they may well have done so to stay in his favor.” The story is required reading for proof of how integrity—or lack thereof—really does begin at the top.

5. Encourage professional reporting.

A closed culture gives rise to bad groupthink. A small group of people at the top control all information, and in this silo, they begin to disregard core values. In a fear-based culture, employees fear job loss or retaliation and are afraid to report breaches of integrity. In a culture of integrity, there are checks and balances, and all employees feel empowered to raise their concerns. Management encourages professional reporting by promoting the message that staff are responsible for ensuring the ethical health of the company.

In 2007, Bosch warned Volkswagen that its “defeat device” technology was for internal testing only—not for use in vehicles to be sold. In 2011, internal audits showed problems with the diesel engines, and an employee reported that the software might “infringe on legislation.” In the coming weeks, we may hear about other Volkswagen “whistleblowers” who were silenced or ignored. We may also hear from employees who wanted to speak out, but felt like they couldn’t.

6. Learn from mistakes.

Researchers have found that large corporations will try to squash an integrity breach by silencing stakeholders and removing traces of the scandal. This risks “erasing the lesson,” and therefore repeating the mistake. The ability to learn (and grow) from mistakes is what truly separates successful leaders from the simply self-deprecating. Failure is a great opportunity to regroup with your team and improve what isn’t working. You can also proactively develop a “lessons learned environment” where staff can learn and develop from experience.

Volkswagen has had plenty of experience redefining their brand. The question is: have they developed? Hans Dieter Poetsch (expected to be named the next chairman of the Volkswagen Group) told managers last week that despite the current “existence-threatening crisis for the company,” he believes VW can overcome this. It’s going to be a bumpy road ahead, but they may succeed—if leaders act with transparency and integrity.

Volkswagen has set aside 6.5 billion euros ($7.3 billion) to handle the scandal, but Credit Suisse estimates the total damages at between 23 billion euros ($26 billion) and 78 billion euros ($87 billion). New CEO Mueller responded: “While the technical solutions to these problems are imminent, it is not possible to quantify the commercial and financial implications at present.” VW has yet to quantify the costs of the integrity breach to its employee morale, customer loyalty, and overall reputation.

As an engineer would say, it’s difficult to stop a train from wrecking if the locomotive has already derailed. By using these six steps to build a culture of integrity in the workplace, you can stay on track with your values, detect an integrity breach early, and prevent disaster before it happens.

The post What the Volkswagen Scandal Can Teach Us About Leading With Integrity appeared first on Zenefits Blog.