José Hernandez, Ortus Strategies

José Hernandez, a Canadian CPA and principal of the Zurich-based consultancy Ortus Strategies, has carved out a unique niche in the high-stakes world of scandal response and remediation. (Photography by Aaron Wynia)

Features | From Pivot Magazine

Who do you call when it all goes bad?

When scandal hits, José Hernandez can help clean it up and fix your company. But you may have to face up to some unpleasant facts.

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A dawn raid. Websites screaming “corruption” and “bribery.” A massacre on the stock market. And amid all the chaos, a carefully managed international brand lying in tatters. 

When this sort of corporate nightmare hits, José Hernandez can often expect a frantic call for advice. A Canadian CPA and principal of the Zurich-based consultancy Ortus Strategies, he has carved out a unique niche in the high-stakes world of scandal response and remediation. With two decades of experience advising multinational organizations such as Daimler AG, SNC-Lavalin, Siemens and FIFA, Hernandez helps companies recover from crises and ensure such things never happen again. In the process, he has had to become as much a philosopher on the human condition as an expert on fraud detection, brand management and global accounting regulations.

“Bad behaviour is embedded in the DNA of the human race,” he observes. “Every day something bad is going to happen in an organization—someone will be sleeping with a subordinate or cheating on their inspection forms or falling off a ladder. You can’t change that. But as the leader of an organization, your job is to ensure you have procedures in place to deal with this behaviour.” The good news: “Misconduct is inevitable. Scandal is not.”  

When a corporate crisis does hit, Hernandez notes, it’s generally because all those small and inevitable instances of human misconduct have been allowed to metastasize into something larger and more dangerous—a culture of systemic failure that eventually manifests itself in damning headlines and early morning police raids. No company would tolerate an employee stealing from the till or abusing customers. Yet the biggest corporate scandals often arise when companies turn a blind eye to behaviour that’s equally unethical but on a far bigger scale. Hernandez explains this can include such things as deferential treatment for rule-bending star performers, lax financial controls over highly profitable divisions or “winking” at the use of arms-length agents to hand out bribes or other inducements to win big contracts in foreign countries. “Double standards are the great evil of the corporate world. If you give a pass to someone in the organization because they’re a rainmaker or a high performer, you have lowered the ethical bar for everyone,” he warns. “No one can go unchecked.” 

Hernandez has made cleaning up corporate business practices his life’s work. He studied accounting at the University of Waterloo and earned his professional accreditation in Canada and the United States. As a partner at PricewaterhouseCoopers, he developed a specialty in corporate fraud and since 2001 has been based in Europe, where he’s worked on many of the continent’s biggest accounting scandals, at the same time earning a PhD in fraud prevention from Vrije Universiteit Amsterdam. In 2005 Hernandez began working with former FBI director Louis Freeh at the firm Freeh Group, to advise companies on how to recover from major scandals. These efforts were expanded upon two years ago when Hernandez established Ortus as an independent consultancy specializing in the longer-term aspects beyond a crisis and toward corporate transformations.

“Bad behaviour is embedded in the DNA of the human race,” observes Hernandez. “Misconduct is inevitable. Scandal is not.”

All that experience has taught him that most business leaders caught up in corporate wrongdoing don’t set out to do wrong. Rather, their downfall generally arises from a well-meaning effort to boost growth or otherwise satisfy investors and the board. Yet an unhealthy obsession with performance above all else can distract from the primary purpose of an effective business leader—to protect the firm’s most valuable assets over the long-term; in particular, the company’s brand. He notes, for example, that between 2005 and 2015 every company that’s held the top spot in global auto sales has been hit with serious allegations of criminal misconduct, massive fines and devastating reputational damage. (Most recently with Volkswagen’s calamitous efforts to cheat on diesel emissions tests.) 

Hernandez also warns against falling under the spell of charismatic leaders. During his work for FIFA, international soccer’s governing body, he met long-time FIFA president Sepp Blatter, who was recently banned from the sport for eight years after an ethics investigation uncovered secret payments made on his behalf. “He was unbelievably charming and larger-than-life,” Hernandez recalls. “And the power of such leaders can be intoxicating to those around them. It is often difficult to resist subscribing to their mission, even when our better instincts may be telling us their mission is on the wrong side of ethics and the law.” When difficult decisions must be made, Hernandez says, courage is far more important than charisma or popularity. “It’s not about good and bad people,” he notes. “It is about good and bad judgment.” Quite often the best decisions will not be the most popular ones. 

So when that first frantic phone call does come—sometimes in the immediate fallout of the crisis, sometimes months later when the scandal simply refuses to die—Hernandez’s first piece of advice is to accept the situation as real. “There’s a natural tendency for business leaders to want to deny bad news,” Hernandez observes. “They’ll say ‘prove it.’ ” Lawyers, too, often consider it their job to defend the company from attacks without considering the validity of the claims. It’s the wrong approach, he argues, since it simply delays a comprehensive understanding of the crisis and the creation of a permanent solution. As difficult as it may seem, “my first piece of advice is always to own it,” he says. “Set up an independent investigation by a competent third party and give them carte blanche to go wherever the facts take them.” 

As Hernandez explains in his upcoming book, Broken Business: Seven Steps to Reform Good Companies Gone Bad, to be published this fall, once the facts are established, complete resolution of a corporate scandal then includes accepting responsibility, remediating the problem—an often difficult and time-consuming process that can include admitting guilt, removing tainted employees and possibly making wholesale changes to the business—and finally establishing new compliance systems. 

Above all else, he says, a reformed company must commit to operating in the highest ethical manner. It’s not always an easy task, as enforcing rigid rules may create dilemmas for firms that operate overseas, where business and government practices differ substantially from home. He recalls the response he got when explaining new anti-corruption policies to a client firm in Russia: “I had one employee say to me, ‘So you want me to not pay bribes during work hours, but when I drive home and get stopped by a policeman and need to give him a payment, that’s okay?’ ” As a matter of fact, yes, says Hernandez. 

“In my opinion, accounting is the greatest profession in the world,” says Hernandez.

“We can accept that the world is not perfect, but still take reasonable steps to do things in the right way,” he advises. Corporations must therefore set standards for themselves that may supersede those of their constituent human workers. This includes protecting whistle-blowers and letting employees know they won’t be punished for acting in ways that put corporate ethics and brand-protection first. It may also mean forgoing deals that require bribes or cut corners. That said, Hernandez notes, “a lot of bribery and corruption tends to disguise lazy business practices or technical problems.” In his experience, firms that commit themselves to acting ethically often find those lost deals come back once they fix the underlying performance issues and compete on value rather than graft. 

Hernandez’s efforts are more than just a professional calling. He’s experienced the devastating impact of corruption first-hand. In the 1980s, his father, Raúl, was general manager of a successful seafood plant in the city of Puerto El Triunfo, in his native El Salvador. “I would visit the plant every summer, and I loved to check out the busy factory and the docks and all the boats,” Hernandez recalls. “Then one year there were demonstrations outside the plant and rumours it was going to be seized. I was afraid for my father’s life.” In 1987, when Hernandez was 13, his father abruptly abandoned the plant and moved the family to North York to live with relatives, who sponsored them as immigrants to Canada. Only years afterwards did he learn the reason for their sudden departure: “My father later told me that when the workers took over the plant, the CEO was visited by three individuals—one close to the president, one close to the workers and another who was a lawyer. Each demanded $150,000 to make the problems go away.”

When Hernandez returned to Puerto El Triunfo as an adult several years ago, he was shocked to see the once-thriving operation of his youth lying in ruins—long since driven into bankruptcy by corruption and politics. “It’s a ghost town now,” he says wistfully. “You can still see the ships abandoned in the mangroves, and the whole area has slipped back into poverty. It really saddens me.” 

His experiences have given him a deep and unique global perspective in tackling corporate fraud and corruption. And while his head office and focus is currently in Europe, Hernandez remains committed to the profession back in Canada as well; he is the CPA Canada representative on the federal government’s Advisory Committee on Money Laundering and Terrorist Financing.

Hernandez has also become something of an evangelist for the broader role of accountants in society. “In my opinion, accounting is the greatest profession in the world,” he boasts. “We’re not doctors, and we don’t save lives, but corporations can do a lot of damage if they’re not managed in the right way. And accountants are the guardians of business lives. We have the power to speak up, a great code of ethics and a commitment to the truth.”