“I recommend this book to all Corporate Directors and Executives. It provides a concise look at how things can go wrong, how to deal with the fallout and how to ultimately become a better company. More importantly, Broken Business provides insights to those who have not had to experience an ethics crisis and therefore hopefully will not have to!”

Ian Bourne, former Chairman, SNC-Lavalin Inc.

“The Empowering Integrity process illustrated in Broken Business properly describes the steps a company must take to master the journey from crisis to successful transformation. I got to know Hernandez in 2005 as part of his work for Daimler. I appreciate Hernandez as a person, value his convincing professional work and competence, as well as his understanding of business.”

Bodo Uebber, CFO of Daimler AG

“José Hernandez' “Broken Business: Seven Steps to Reform Good Companies Gone Bad,” is a current and compelling treatise on how to prevent, detect and fix corporate mismanagement, the condition precedent to corruption, fraud, waste of shareholder property, reputational harm and costly enforcement action. Infused and instilled throughout this corporate governance failure ‘post mortem,' Hernandez drives home the core lesson for corporate managers that ‘integrity' is the sine qua non of business success and sustainability. Beyond a good product or service, good business strategy and leadership, a strong commitment to integrity is critical in making a company strong and profitable in the long run. Every CEO, board member, CFO, general counsel and business manager should read and embrace Broken Business.' ”

Louis J Freeh, Former FBI Director, Former US Federal Judge, Chairman of Freeh Sporkin Sullivan LLP

“Excellent reading: very clear and to the point, lively through real-life examples, and ready to implement with practical recommendations based on deep corporate experiences. Broken Business underlines the importance of culture and tone from the top, and how crises are opportunities to make the company stronger and more valuable for society.”

Klaus Patzak, CFO of Bilfinger SE; former Corporate Vice President of Siemens AG

“From a European perspective, Broken Business is an extremely important resource for boards, especially in the context of today's global regulatory environment. It provides invaluable lessons learned about how to uphold your governance duties in the face of a major crisis arising from misconduct, and how to mitigate the risks to your organization. I would recommend it to all corporate leaders, directors, and prospective directors.”

Peter Wakkie, former Executive Board member of Royal Ahold NV; Chairman of TomTom NV; Partner, Spinath+Wakkie

“This book brings together key insights from José Hernandez's career working with business leaders to navigate high-profile corporate crises. In Broken Business, Hernandez shows how to identify and address the root causes of such crises, which very often lie in systemic failures of a company's ethical leadership and culture.”

Roger Dassen, former Global Vice Chairman of Deloitte; CFO of ASML

“Every current and aspiring business leader should read Broken Business. This foundational work shines a much-needed light on the murky business systems failures that lead to corruption and wrong-doing. It provides business professionals with a practical and clear seven-step-road map to fix the inherent problems within their organizations.  Author Hernandez conveys critical insights through compelling stories illustrating how leaders can take action to strengthen their organizations. Broken Business is an easy yet inspirational read. Business leaders who take up Hernandez' challenge and adopt the Empowering Integrity framework will be reshaping their organizations is ways that generate real, sustainable and positive benefits for employees, stakeholders, and society.”

Joy Thomas, President and CEO, Chartered Professional Accountants of Canada

José Hernandez is a respected leader, entrepreneur, and professional advisor to international organizations. His practice primarily focuses on supporting global corporations that face high-profile and complex white-collar and regulatory matters.

Hernandez is a strategic advisor bringing a unique approach and perspective to supporting organizations under criminal investigation. He also advises directors and organizations on corporate governance and compliance matters, including the design of strategies, structures, and policies to mitigate risk.

Since 2008, Hernandez has operated independently and is the founder and CEO of Ortus Strategies, a consulting firm with global clients headquartered in Europe and Canada.

Prior to founding Ortus in 2016, Hernandez was a founding partner of FGI Europe, a strategy and crisis management firm that he built with former FBI Director Louis Freeh. He continues to work with Freeh as a senior advisor to Freeh Group International Solutions.

Prior to that, he was a partner with PwC, where he developed his specialty in forensic accounting, governance, and compliance, supporting Fortune 100 corporations facing regulatory investigation and prosecution. He was based in The Netherlands, Cuba, Canada, and the US, specifically Silicon Valley and Washington, D.C. His client assignments took him to North America, Latin America, Europe, Africa, and Asia.

Over the past two decades, Hernandez has worked on landmark cases that have individually resulted in fines, penalties, and restitution exceeding $1 billion.

His US experience has made him particularly valuable to European-headquartered companies unfamiliar with, and struggling to navigate, the sophisticated and aggressive approach taken by US regulators and prosecutors targeting corporate misconduct.

Hernandez is a Canadian Chartered Professional Accountant (Ontario), U.S. Certified Public Accountant (Delaware), and Chartered Financial Analyst by training. Hernandez holds both Bachelor of Mathematics and Masters of Accounting degrees from the University of Waterloo (Canada). He has a PhD in Economic and Business Administration from VU University in Amsterdam, where he is a guest faculty member. His doctoral dissertation was titled ‘Principles, Processes, and Practices of Fraud Prevention’.

He served on the Advisory Council of the School of Accounting and Finance at the University of Waterloo. He currently serves on Canada's Advisory Committee on Money Laundering and Terrorist Financing, representing CPA Canada.

Hernandez was born in El Salvador and is a national of Canada and The Netherlands. He currently divides his time between Europe and Canada with his wife and two children.

Why do good companies go bad? Why do corporate scandals happen so often? Is corruption and misconduct in business inevitable? And, on a more pragmatic level, what can business leaders do about it? What can they do to save their companies when scandal strikes or, better yet, what can they do to avoid scandal in the first place?

These are the questions that drive this book.

The answers are based on both academic research and years of experience working with venerable, global companies that were nearly taken down by crises of their own making, only to restore themselves and emerge stronger and better than ever. The information contained in these pages is of interest to anyone in a leadership position in their workplace; or anyone with an interest in management, business ethics, or the impact of corporate misconduct on society and what can be done about it.

With every passing year, it seems we are barraged with more and more stories of corporate scandals. Recent examples include a global carmaker rigging their vehicles to cheat on emissions tests, a major bank illegally foisting accounts and credit cards on millions of customers without their knowledge or consent, and innumerable stories about sexual misconduct by powerful entitled leaders. And these are just a few high-profile cases – the tip of the iceberg for anyone who routinely reads the business news.

Sadly, it was the cover-up in these cases by powerful but misguided leaders that caused even more problems than whatever they were trying to hide.

The reality is that it is next to impossible to eliminate misconduct and corruption; human nature, the rewards for cheating, and the relative impunity of corporate superstars in a free market system make it so. The first essential step for leaders is to accept the inevitability of misconduct (note: this is not the same as being OK with it); the subsequent steps are all about calibrating your leadership approach with this reality in mind, and building an organization that knows how to identify misconduct and address it head on before it leads to crisis.

Misconduct is inevitable. Scandal is not.

As Warren Buffett once warned his managers:

Right now, somebody in your organization or department is almost certainly doing something they shouldn't be doing – something that would bring your organization into disrepute if word got out. (Buffett 2006)

Do you have the culture and systems in place to bring the misconduct into the light so it can be dealt with it before it is too late? If your company is like most, the answer is probably not always.

The solution to addressing a crisis and institutionalizing integrity and good conduct is a seven-step process called Empowering Integrity. Empowering Integrity does not mean demanding perfection in how employees behave. It does not mean trying to scare employees into compliance and complicity. Empowering Integrity knows that problems will occur and provides a roadmap for dealing with them before they do costly damage to a company's reputation and bottom line in the form of massive regulatory fines, lost revenues, and compensatory damages. It does so while rebuilding the organization into one where transparency, openness, and, most importantly, integrity drive all decision-making. The result is a better company that is both more strategic and more profitable in the long run.

Does this sound idealistic and too good to be true?

It isn't. I know this because I have seen it work first-hand over the past two decades of professional work in this field.

WHY I WROTE THIS BOOK

I developed Empowering Integrity from many years of witnessing and remediating misconduct and corruption.

Growing up in El Salvador, one of the most troubled countries on Earth both then and now, I watched an entire industry fall victim to it. In 1987, my father was a general manager of a seafood business. The business was severely affected by strikes and got caught up in senseless violence between rival political factions. Three prominent politically-connected individuals approached the company with offers to ‘fix’ the problems, each asking for cash payments of $150 000 or more. Bribes were common then, as they are now. My father's company was eventually driven into bankruptcy by this extortion. Thousands of people lost their jobs. This was not the only company where this was happening. The business and seafood industry never recovered.

Soon after, my family emigrated to Canada, where I eventually launched my career, initially as a forensic accountant for PwC and eventually as a corporate consultant who helps companies in crisis. When an organization has been caught up in issues of corporate misconduct; when it is the subject of investigations by regulators or law enforcement; when it finds itself embroiled in a crisis that seriously threatens its reputation, future profits, and, in many cases, its future existence, one of the first calls they make is to a company like mine. My clients have tended to be well-established corporate brands that operate all over the world. And despite their sophistication and proud histories they have been caught up in some of the largest fraud, bribery, and money laundering cases on record – situations where multiple prosecutors and regulators from various countries become involved. (These investigations are usually led by authorities from the US, and we will explore why that is in subsequent pages.)

My colleagues and I work through what went wrong, advise on extensive efforts to clean up the problems and put in place measures to prevent them from happening again. It's rewarding work, but the primary credit and kudos belong to the leaders of these companies. These dedicated women and men – who are often new leadership brought in to replace those who were in charge while the misbehaviour ballooned out of control – dedicate innumerable hours over many years to bring their companies from crisis to transformation and restore their brands to previous levels of trust and respectability. I am honoured to be a part of the process, serving as guide and advisor to these venerable companies.

I was told by a client that I ought to codify the process, give it a name, and put it into a book.

So here it is: Empowering Integrity. And this book, titled Broken Business, covers the seven steps of Empowering Integrity and addresses the underlying issues at individual organizations and in the system of business in general.

WHAT THIS BOOK CONTAINS AND HOW TO READ IT

This book comprises two broad sections: the Problem and the Solution.

The Problem of why and how good companies go bad is laid out over the course of the first three parts. The centrepiece is a case study about a company called Wind International that does everything wrong and finds itself in a crisis. The case study is fictitious, but everything in the story is based on real-life examples I have seen time and time again.

The mistakes that companies make can be myriad and extremely complex, but certain themes invariably emerge, so describing them via a case study is a useful way to summarize things in a simple and dramatic way. To help set the stage, I will point out that there are always three leading ‘characters’ in every case of misconduct I have seen. These characters will feature prominently in the case study and the rest of the book. Taken together, they fairly neatly encapsulate the main issues that drive this book:

1. Well-meaning but compromised senior leaders (CEOs and Board members) who have blind spots, wilful or otherwise, that allow their companies to get too far out of bounds before realizing they allowed a problem to fester for too long.
2. Highly effective, intelligent, charming but deceitful employees, promoted to positions of authority, who were allowed to operate largely unchecked for too long. After the scandal strikes, these folks are often dubbed the ‘bad apples’. This is a convenient phrase that should be used cautiously for reasons we will get into later. For my purposes, I also dub many of these dangerous characters the ‘superstar managers’.
3. Whistle-blowers or would-be whistle-blowers. These are good people who spoke up but were mostly ignored, or who were afraid to speak up because of a culture of fear and threats of retaliation.

Following the case study and an analysis of the specific mistakes by Wind International, we look at the bigger picture of how misconduct is inevitable because of psychological and societal reasons. There has been some fascinating and occasionally controversial research over the years, and it is useful to take a brief look at what these studies have found. They help explain why there is little value in expecting consistently perfect behaviour from employees. Rather, the key lies in prevention, detection, and accountability; developing the right culture and systems to address misconduct.

Which bring us to the second section and ‘how to’ portion of the book: the Empowering Integrity process. I have dedicated a chapter to each step, and each step will be illustrated with case studies, real-life examples, and specific tips for how to implement them. The first four steps are about getting your company out of a crisis and the last three are about positioning your company to avoid the next one. For readers with limited time whose company is not currently in a crisis, you may consider skimming Steps 1 to 4, and focusing your attention on Steps 5 to 7.

The last chapter of the book summarizes all that came before in a call for a new kind of leadership – one that goes beyond trying to compel good behaviour through internal controls and traditional ‘carrot and stick’ approaches, to one that steers employees and business partners in a responsible and ethical manner. White-collar crime is incredibly complex and pervasive and it feasts on the weakest links in organizations and the blind spots of leaders. Traditional leadership approaches and styles have proven inadequate for properly dealing with it, so we need to recalibrate our thinking.

WHO SHOULD READ THIS BOOK

Corruption and employee misconduct can strike in organizations of any size and mandate – everything from global manufacturing companies with billions of dollars in annual revenue, to national trade associations and unions, to small not-for-profits raising money for their communities. The examples in these pages tend to focus on global for-profit companies because that is where the bulk of my experience lies, but the problems and solutions are applicable to any organization.

There are also no geographical parameters to the issues discussed in this book. This is not to say that some countries aren't more afflicted with corruption than others – I have experienced first-hand the difference between living in a country bereft with crime and corruption versus those that are known to be safer thanks to generally stable governments and a higher quality of life. But corruption ignores political borders and rears its ugly head everywhere.

In fact, I have observed that the organizations and citizens of more developed and safer countries are, in some ways, more vulnerable to corruption. This is because they are far more likely to be surprised by it. In places like my homeland of El Salvador or markets such as Brazil, China, South Africa, and Russia, people expect corruption; they are on guard for it, they factor it into their decision-making. By contrast, when the default thinking is one of trust (like my adopted countries of Canada and The Netherlands, for example), bad actors who thrive off breaking the rules can often commit their misdeeds without scrutiny for much longer. This is certainly not an endorsement for countries where corruption is the norm – far from it. But it does help to remind us how, in places where you may least expect, corruption will hide in the shadows unbeknownst to trusting leaders who don't think to look in the dark corners of their organization.

So, who should read this book? Anyone who works in an organization they care about would benefit, and especially those in leadership positions – those with the mandate to steer the course of their organizations: Board Chairs, CEOs, non-executive directors, directors, vice-presidents, and managers.

There is another group of company leaders I would like to mention specifically – the folks I like to call the gatekeepers. These are the departments whose work makes them uniquely positioned to safeguard the ethical and legal conduct in a business. The gatekeeper functions are led by the Chief Financial Officer, the General Counsel, heads of Human Resources, Internal Audit, Compliance, Risk, Accounting, and Procurement.

I have found these functions tend to be the least understood and appreciated; they are too often considered cost burdens, unnecessary overhead, and a hindrance to business. This is understandable to a point – after all, they are not the departments manufacturing the products, developing new product ideas, making sales, closing deals, and generally bringing in the money. They are not the direct source of profits or growth – the two primary measures of any company's worth – but they are more connected to the bottom line than many leaders realize because they are the functions best able to identify misconduct before it balloons into a major problem. If this capacity is welcomed and appropriately enabled by the CEO and the Board, they can potentially be among the most valuable assets in the organization. Give them the power and access they need to be effective, and they may save hundreds of millions of dollars in fines and lost revenues stemming from reputational damage. We will look at the gatekeeper functions in greater detail later in the book.

So, to sum up: this book is for anyone interested in how to curb corporate corruption and misconduct, and is especially useful for those leaders, including gatekeepers, tasked with safeguarding the ethical and integrity line within their organizations.

My life and experience has been filled with and informed by incredible people who have guided and supported me. The love of family, support of friends and colleagues, and trust of clients have all formed the foundation necessary to bring the ideas in this book together.

This book marks the beginning of the fifth stage of my life. This is the point at which I am ready, willing, and able to bring a compelling and comprehensive point of view to improving trust and integrity in business, beyond my individual client assignments. I had never expected that I would write a book, but I had begun to feel that I needed to go further than what I could accomplish with my consulting work alone. Was there a deeper meaning to what I was doing? What was the root of corporate failure? How do the best organizations fall and rise again?

I spent my childhood years in El Salvador. I was surrounded by a large family, good friends, and a good life until the reality of our environment struck us. Threats and violence forced us to emigrate. I had to grow new roots and work on more fertile ground for a new life. Canada opened its arms to my family, supported by an uncle and his family who sponsored us. All 10 of us were living temporarily in a cramped two-bedroom apartment during the transition months, surely a violation of fire and building codes. We had to start a new life, working and studying at the same time, fighting to take advantage of opportunities to succeed. These transition years were painful and tough, but fun. Looking back, I do wonder from time to time how that little boy and his family endured and pushed through.

In the second stage of my life, I finished high school and university, earning accreditation as a professional accountant in Canada and the United States. It was a bumpy ride but I had the good fortune of doing an internship with PwC during my university years. I was groomed by PwC in Canada, Cuba, the US, and The Netherlands. I worked hard but was given access to fantastic opportunities and eventually became a partner. During these years, I worked on some of the major cases cited in this book and the overall experience helped me grow. I did not make things easy on myself, finishing a PhD while holding a challenging full-time job. Thankfully, I had the enduring support of my beautiful, loving, understanding, and brilliant wife, Shana. She knows that I am a bit extreme in my ideas and energy, yet she tempers and supports me every step of the way.

The third stage of my life brought me together with former FBI Director Louie Freeh. We took a risk in 2008 and built a consulting business together. We travelled the world helping blue-chip organizations on very pressing problems. Senior executives looked to us as sounding boards and to provide answers and roadmaps. The brand and reputation were ours. We were accountable to ourselves and those we served. As they say, it is one of the most exciting and terrifying experiences to be a true entrepreneur with payroll and fixed costs to meet. We operated as a lean multinational. We became victims of our success and had more client mandates than we could adequately serve, so in 2012 we sold the business.

The fourth stage of my life started in autumn 2012, when I realized I had paid a price for extensive periods of travel. It was now time to be home more so I could spend more time with my beautiful and caring children (Bianca and Mateo), and support my wife's career. I continued to consult, with a client that required travel between Canada and Europe, but with a renewed focus on work/life balance.

In 2015 we were asked to write an article about the decade-long journey with one of our premier clients. It was meant to be a compliance-focused article but it turned into an opportunity to revisit the transformation we participated in at one iconic organization. My right hand, Mark Laurie, Louie Freeh and I put an article together that showed the distinct stages when the company responded to the misconduct, rebuilt its systems and programmes, and then transformed itself. It was a eureka moment. This led to a creative period that formed the genesis of our new business, Ortus, and the Empowering Integrity process. A number of articles and brainstorming efforts followed.

I had a few clients in late 2015 and 2016. They were important clients, but the work was not to the scale of prior years and past client mandates, which afforded us the time to fully map out the Empowering Integrity process, give it a name and put the ideas on paper. This work involved much brainstorming and many creative sessions, including with trusted professionals like Roger Dassen and Jonathan Tepperman, and visual artists Bob and Tristan at Inkstrategy, who helped us put the words and ideas into simplified pictures. Big thanks and kudos must also go to Shana, who helped us crystallize the seven steps of Empowering Integrity.

By March 2016, I had the first full manuscript of this book. The ideas were good but my approach to the manuscript lacked colour and came across as complex and technical. The editing and writing were impeccable thanks to the extensive editing hand of Maria Laurie. Individuals that provided valuable feedback included Tom Groot, Jaap van Manen, Tom Scott, David Doyle, Leon Kruimer, Freek Talsma, and Nathan and Barb Laurie.

By July 2016, I was recommended to a business writer, James Geuzebroek, who proposed a simplified approach to the manuscript with an emphasis on storytelling and anecdotes. His vision was to focus the book on the seven steps of Empowering Integrity, adding an introduction, a section on the nature of the problem, and a conclusion. Simple. Mark and I agreed that this was the best course of action. We wanted a book with broad appeal to spread our views and ideas. Over a period of almost two (additional) years, we constructed each chapter, spending time on the phone and on our computers editing.

This took enormous time and effort, but the process brought clarity, and even helped us to see new and different dimensions of the issues we were trying to convey. In the end, I believe our persistence paid off and I hope readers will agree.

In early 2018, the enhanced, full version of the book was ready in draft form. Some of the same individuals that read the first version also spent time on the updated draft. They included Leon, David, Jaap, Freek, Maria, and Shana. Jonathan Gimblett, Rikkert Engels, Kees Camfferman, Laurens Molegraaf, and Peter Wakkie provided valuable feedback. So did Louie Freeh.

As with my PhD dissertation, this book was a family project. It involved my siblings (Lya and Raul), editing by my mother-in-law (Maria), printing and support of my parents (Raul and Guadalupe), writing and idea creation with Mark, commentary from Shana, and pictures from Bianca and Mateo. One of the persons that I have enjoyed meeting is Perry from the VU copy service, who has helped me print and bind probably over 20 versions of the manuscript since 2015.

* * *

To my family in El Salvador: my desire is for this book to capture some of the lessons from living on the edge of war and peace. In a country filled with violence, love, and warmth, heroic efforts are required to stay alive, progress, and hope for a better tomorrow.

To heroes such as Óscar Arnulfo Romero, an El Salvador martyr canonized by the Catholic Church in October 2018, who spoke up for the poor and was murdered at the altar.

To Canada and The Netherlands: I am grateful to you for adopting me and supporting my work as an agent for change in business.

To my colleagues, Louie Freeh and John Rahie: you are incredible partners and we've experienced many things together that have enriched this book.

To the regulators and prosecutors that guard the lines of business, especially those at the SEC and DOJ: you are diligent in your work and are important catalysts to reform.

To the leaders at Ahold, Daimler, Siemens, FIFA, SNC-Lavalin, Telia, and many others: I hope that I've taken the best lessons from my experience working with you for the benefit of other business leaders.

Thank you.

José R. Hernandez