Leading by Example: Fighting Fraud From the Top

“You shouldn’t blindly accept a leader’s advice. You’ve got to question leaders on occasion.”     – Sir Richard Branson, CEO of Virgin Group

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Leaders – in business, politics and life – are not chosen at random. They move to the fore through traits of personality and character. Often strong-willed and charismatic, they influence people and gain followers through their deeds and their words.

It is the faith that many of us put in our leaders that makes it all the more difficult to accept that they are fallible. Sometimes, the same instincts and attitudes that pushed a leader to the top can end up being a weakness if they cause the person to tune out doubts, or questions… or criticisms. In the business world, this can lead to disaster.

The Enron fraud more than 10 years ago taught us what can happen when “the smartest people in the room” begin to make flawed decisions. In the end, the massive accounting fraud went straight to the top, leading to criminal and civil charges for top company executives. They had allowed a culture of unethical behavior to run amok, and it led to the company’s undoing.

Fraud and corruption affect organisations worldwide, and no region or industry is immune. Transparency International (TI) provides exhaustive research on this problem in its yearly Corruption Perceptions Index. According to TI, the Index “serves as a reminder that the abuse of power, secret dealings and bribery continue to ravage societies around the world. The Index scores 177 countries and territories on a scale from 0 (highly corrupt) to 100 (very clean). No country has a perfect score, and two-thirds of countries score below 50. This indicates a serious, worldwide corruption problem.”

The findings are backed up by a recent PwC survey that finds economic crime is rising globally. The survey was completed by 5,128 respondents from 95 countries between August and October 2013, and of the respondents, 50 per cent were senior executives, 35 per cent represented publicly listed companies, and 54 per cent were from organizations with more than 1,000 employees.

Some 37 per cent of respondents, a 3 per cent rise since 2011, say they have been victims of economic crime, according to the survey. And, about 25 per cent say they have been victims of cybercrime, as fraudsters increasingly turn to technology as their main crime tool.

In a news release, Steven Skalak, PwC Forensic Services partner and lead editor of the survey, said: “Like a stubborn virus, economic crime persists despite ongoing efforts to combat it. No organisation of any size anywhere in the world is immune to the impact of fraud and other crimes.”

What does this say about leadership? Sadly, it tells us that it is failing, at least when it comes to stemming fraud and corruption. This stark reality makes fraud prevention and proper due diligence an absolute must for any organisation.

Preventing fraud is a proactive endeavor. Unfortunately, discovering it after it already exists is usually too late to save a company from losses. The greatest visionaries will look beyond their “instincts” and “gut feelings,” which have no doubt served them well, but might cloud problems that lurk in the details.

Leaders in business must be open to changing the culture of their organisation and listening to those who might question, or even criticize, business practices that could lead to fraud. The most effective leaders will engage their employees and seek out experts, as needed, to strengthen the company and help protect it from unseen risks What kind of leader are you? What kind of leader do you want to be?