The recent convictions in the US opioid crisis and the German “Dieselgate” scandal serve as stark warnings, showing the devastating consequences of corporate misconduct and the critical importance of robust compliance frameworks.

The prison sentences handed down to former McKinsey partner Martin Elling and several ex-Volkswagen directors are not merely legal outcomes; they are powerful lessons in reputational risk management, demonstrating that a failure to uphold ethical standards and legal obligations can lead to individual incarceration and tarnish even the most prestigious brands.

When compliance crumbles: Martin Elling, McKinsey

The six-month prison sentence for Martin Elling, a former senior partner at McKinsey & Company, is a reminder of the personal liability that can arise from a breakdown in corporate compliance and ethics. Elling admitted to obstructing justice by deleting documents related to McKinsey’s consulting work with Purdue Pharma, the manufacturer of OxyContin. This wasn’t merely a lapse in judgment; it was a deliberate act to conceal information from a Department of Justice investigation into McKinsey’s controversial strategies, which advised Purdue on how to “turbocharge” opioid sales amidst a burgeoning public health crisis.

Elling’s actions exposed a fundamental flaw in McKinsey’s internal controls and a disregard for the reputational risk associated with their client engagements. McKinsey agreed to pay a $650m deferred prosecution agreement with the US justice department in December to settle criminal and civil investigations – a direct financial consequence of its misconduct.

McKinsey said in a statement that it regrets its opioid work and has stopped working for opioid manufacturers: “We are deeply sorry for our past client service to Purdue Pharma and the actions of a former partner who deleted documents related to his work for that client.” The consultancy also agreed to: “Maintain an enhanced compliance program to prevent and detect violations of law.”

Elling’s conviction underscores the ultimate personal price. His actions not only damaged his own career and freedom but also inflicted a severe blow to McKinsey’s highly prized reputation for integrity and strategic excellence. The case serves as a powerful testament that for individuals at the pinnacle of corporate influence, ignoring compliance protocols and engaging in misconduct carries deeply personal and professional ramifications. In a statement from his legal team, Elling “accepted responsibility for his conduct, for which he is extremely sorry.”

Systemic misconduct: Volkswagen’s “Dieselgate”

The German court’s convictions of four former Volkswagen managers for their roles in “Dieselgate” paint a broad picture of systemic misconduct and the impact it has on a company’s standing. Jens Hadler, former head of diesel engine development, received the steepest sentence of four and a half years in prison, with other executives facing significant sentences. The case highlighted an entrenched culture of non-compliance leading to fraud within the automotive giant.

Jelden’s lawyer, Philipp Gehrmann said he would appeal the verdict which he described as “wrong.” The Braunschweig court spokesperson said four further criminal proceedings were still pending in attempts to uncover how widely emission fraud was known with the company.

The 2015 scandal, which involved the deliberate software installation of “defeat devices” in millions of diesel vehicles to cheat emissions tests, was not an isolated incident. It was the result of a coordinated effort to circumvent regulations, driven by a prioritization of profit and market share over ethical conduct and environmental responsibility.

The reputational damage to Volkswagen was both immense and global. Once a symbol of German engineering prowess, the brand became synonymous with deception and fraud. The financial cost, exceeding €32 billion ($36.2 billion) in fines, compensation, and buybacks, pales in comparison to the erosion of consumer trust and the long-term impact on its brand image.

Raising the alarm

These convictions, and others such as that of Sam Bankman-Fried (FTX) – who received a 25-year prison sentence for orchestrating a multi-billion dollar fraud, serve as an alarm bell for corporate boards, compliance officers, and individual executives worldwide. In an era of heightened scrutiny and increased public demand for justice, a failure to prioritize compliance, manage reputational risks effectively, and prevent misconduct can result in legal penalties, reputational consequences, and, increasingly, the very real prospect of prison time.

The days of white-collar criminals consistently escaping with mere slaps on the wrist appear to be drawing to a close.