Culture and Troubling Friends, Family, & Relationships…

Troubling Friends, Family, & Relationships

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With the recent frauds and bad acts in the news I can’t help wondering who was recruited or jumped on the wagon to help perpetuate the misbehavior. Here are some thoughts for the board, audit committee, general counsel, compliance, and internal audit to consider.

Fraudsters seek out those who share the same social background are gullible and easily manipulated. Trouble tends to attract trouble!

As Warren Buffett has observed, “There’s seldom just one cockroach in the kitchen.” Trouble tends to attract trouble. For assistance with committing crime, fraudsters often look for people who share the same social background or ambitions or are gullible and easily manipulated. Scott Green in his 2005 book “Sarbanes-Oxley and the Board of Directors: Techniques and Best Practices for Corporate Governance” noted, “Those who are willing to commit fraud recruit from the corporate employee pool weak or needy personalities and go to lengths to reward and protect them.”

Culture

Remember that most fraudsters don’t think in terms of right or wrong and are unlikely to be impressed by moral constructs, so an ethical corporate culture is unlikely to deter them. A company’s culture, however, can help determine if co-workers are inclined to blow the whistle on wrongdoers, or if the misbehavior is likely to go unreported.

Don’t be fooled! Good tone and conduct from the top does not mean there is an ethical culture!

A resolute tone from the top along with transparent conduct can help to create an ethical culture, which is the foundation of good corporate governance.

Based on my experiences, culture is often shaped, solidified, and destroyed by the worst behavior the board and senior management is willing to tolerate or overlook!

Regular interactions by the board with senior leadership and senior leadership with employees can help determine whether the culture of the organization is bedrock or sand.

I have developed a tool for and have been assessing cultural risk for over 25 years. It’s not perfect, but it generally provides some interesting data and in some instances has been a “silent whistleblower” and helps flesh out blind spots.

More to come on this topic!  I welcome your thoughts, comments, and suggestions.

Jonathan

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