Susan Divers’ recent post on the FCPA Blog about toxic tone at the top and corporate train wrecks illustrates the importance of CEOs and senior managers listening to and heeding the advice of their compliance team.
For context, one of us is a lawyer running a cross-border fraud and asset recovery law firm based in the BVI; the other is an expert in the psychology of fraud and human risk who helps companies mitigate white-collar and cyber malfeasance threats. We are each dedicated to resolving very complex problems.
And so it is immensely frustrating when a client, or even worse a colleague, decides to ignore our advice. There may be those who take personal satisfaction from being able to say “I told you so” when the situation subsequently blows-up in their client’s face. But that describes neither of us. We both try hard to avoid those sorts of situations.
Still, we are inevitably confounded by CEOs who seem hell-bent on acting (or have already acted) against their interest: what causes these situations? Are they ever preventable? And perhaps most importantly to practitioners, what can be done to contain the damage or put the train back on track?
Corporate leaders are, as a group, generally an elite class of professional: smart, hard-working, thoughtful. And of course, rookies at the helm of start-ups aside, thoroughly vetted with long track records of experience and success.
From a rational perspective, it’s astonishing that there’s such a steady stream of situations involving avoidable, self-inflicted wounds caused by corporate leaders who blatantly disregard expert advice and then proceed to trample over laws, regulations, ethical principles, and shareholder value.
There are however many reasons why this is sometimes so, and most of them do not conform to rationality. At one end of the spectrum are CEOs who are intentionally but secretly misbehaving. Executive fraudsters are the ultimate insider threat. They are grifters in corner offices, whose malicious designs are hidden in plain sight behind the mask of title, authority, and respectability — who play their board, executive officers, and outside experts like marks.
Next on the spectrum are leaders who are, by character, negligent, irresponsible, weak, frightened, stubborn, insecure, immature or just bone-headed. Some may even be wilfully destructive. The wreckage they create is an unintended by-product of a psychological issue (the leadership equivalent of functional but unstable alcoholics or depressives), rather than collateral damage from indifferent self-interest (like Machiavellian egomaniacs who can’t be bothered with puny details such as legalities or consequences, so long as their will is imposed and followed).
We’ve all encountered clients who, despite shouldering extraordinary responsibilities in running a major enterprise, actually act more like toddlers who cannot be reasoned with and whose vocabulary has yet to progress past “no no no” foot-stomping. And each of us has tools, some ultimately more or less effective than others, for hiding the medicine in the mashed potatoes, cajoling recalcitrant executives, or reassuring anxious ones. But these are the benign problems, however frustrating or infuriating they may be to deal with.
It’s the operatically malignant situations which highlight the difference between inadvertent, but chronically poor judgment, and disguised malice. In addition to the recent VW emissions scandal, Theranos Inc., Valeant Pharmaceuticals, and several other high-profile cases, is the controversy surrounding Sir Philip Green, Chairman of Arcadia Group, a London-headquartered multinational retailing company.
Sir Philip was recently excoriated by a panel of MPs for extracting large sums out of his-then company, British Home Stores (BHS), which left the business on “life support”. It was then eventually sold to serial-bankrupt Dominic Chappell for £1 last year. Chappell had been introduced to the deal by Paul Sutton, a convicted fraudster who originally tried to buy BHS but was rejected by Sir Philip’s Arcadia Group on the grounds of his background.
British MPs are working to compel Sir Phillip to cover the £571 million ($750 million) pension deficit at BHS and to strip him of his knighthood. The co-author of the parliamentary report into the demise of company has called on the Serious Fraud Office to launch a formal inquiry into the actions of the department store chain’s former owners. But it remains to be seen if BHS pensioners will be reunited with their pension money.
This point, to be clear, is not intended to force shared accountability. Or dilute the importance of C-suite behavior in cultivating an institutional culture of sound ethics. Or make light of how challenging it can be for even high-level personnel in compliance, risk, information security, or senior management, to faithfully and robustly perform their jobs in the face of abject uncooperativeness, threat of reprisal or sanction.
Rather, we want to underscore Susan Divers’ keen observation that, in so many of these train-wreck scenarios, so many savvy and seemingly level-headed stakeholders can so single-mindedly hunt for value, but ignore values. Unsurprisingly, the vast majority of these situations are the consequence of countless incremental failures and avoidances to which many people contribute and participate.
Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery litigation practice in the BVI focused on multi-jurisdictional fraud and grand corruption cases www.martinkenney.com |
Dr. Alexander Stein is founder of Dolus Advisors, a New York-based consultancy that employs specialist expertise in the psychodynamics of fraud, corporate ethics, compliance, and organizational culture to help companies mitigate white-collar and cyber malfeasance risks. www.dolusadvisors.com |