How to Avoid Corporate Scandals and White Collar Crime

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How to Avoid Corporate Scandals and White Collar Crime

I must have written it a dozen times by now: short term value creation (listening too much to financial markets and greedy investors) is a sign of poor leadership, is also the reason behind most white collar crimes and resulting corporate scandals, and was even a key reason behind the last economic downturns.
White-collar crimes include things like bribery, cheating, embezzlement, fraud, money laundering.
Recently there have been corporate scandals at Alstom, Odebrecht, Petrobras, Rolls-Royce, Siemens, Telia, Teva Pharmaceutical, VimpelCom, Volkswagen, etc.

New research by Prof. Healy and Prof. Serafeim confirms that the root causes of these white-collar crimes and following corporate scandals isn't ineffective regulations nor compliance systems, but weak leadership and a flawed corporate culture. A culture in which making the short-term numbers trumps any concerns about how the targets are met.

Not much seems to have changed since Marianne Jennings' excellent 2006 book "Seven Signs Of Ethical Collapse". While Jennings already provided detailed antidotes to each of the 7 reasons for ethical collapses she mentioned, Healy and Serafeim say corporate leaders have to be deeply involved in setting social norms at their firms and in managing the risk of misconduct in the following ways:

• Broadcasting a clear message that crime hurts everyone in the organization.
• Not making exceptions when they punish perpetrators. Don't just talk the talk, but also walk the talk.
• Recruiting and promoting managers who value integrity.
• Creating decision-making processes that reduce the opportunity for illegal or unethical acts.
• Going the extra mile in making their transactions in corrupt countries transparent.
• Being proactive when it comes to cleaning up their industry's dirty practices.
• Supporting societal institutions that empower corporate accountability and honest business behavior.

Surprisingly Healy and Serafeim do not mention in above list that leaders should manage for long term value creation, even when they do mention that short-termism is the ultimate reason behind most white collar crime. Anyway, the issue is not we don't know what has to be done; the issue is that a number of global firms still don't do it, a global regulator is missing and local regulators still let them get away with it, often to protect local interests.
Source: Paul Healy and George Serafeim: "How to Scandal-Proof Your Company", HBR Jul-Aug 2019.

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		1 Graham Williams Management Consultant, South Africa
	How can we Avoid White Collar Crimes Yes. Legislation, compliance mechanisms, policies, committees, ombuds, best practice manuals, norms, standards and procedures, deviation-detection software, whistle-blower hot-lines... All the laws, rules, regulations, ethical principles in the world will not guarantee virtuous behaviour. Complex pycho-social factors apply at the individual, team, and organisation levels. So, although challenging, we need to develop psychological and ethical maturity in our people. We must convert carefully chosen values to virtues. There are ways of doing this, like behaviour indicators, behaviour modification techniques, authentic purpose and sustainability programmes, creation of psychologically safe work spaces where people can speak out.

		2 Connie James Professor
	Real Value Sustains Us I agree that true leadership creates long-term value for all major stakeholders. The problem is that few leaders can motivate followers to see a vision of the future that creates real value. It is easier to sell short-term products and services than to really contribute to the quality of a person's life. Real leaders create real and lasting value. They make our lives better. They make us better.

		0 Paramathmuni srinivas Kumar India
	Holistic Framework to Avoid Corporate Scandals To me corporate scandals and white collar crimes cannot be avoided unless and until a holistic framework is taken into consideration and is implemented. Such holistic framework is based on providing good experiences to the people involved in the delivery mechanism. It's a framework that includes the righteousness, aims at continual improvement, and is giving consideration to values and spirit behind the values to all activities involved in the delivery mechanism.

		1 Owolabi funso
	Avoid White Collar Crimes by Frequent Audits Thanks, but in my view relying too much on managers without frequent auditing of accounts equally encourages White collar crime. Take my personal case as an example. A manager was employed in my small scale business in 2007 on whom all managerial power was entrusted. I took up a job that didn't allow me to supervise him. To my dismal on my retirement in 2019 a sum of #80,000,000 was fraudulently misappropriated. I now realized and learned my lesson in a bitter way. So in my experience, monitoring and policing the business financiers and entrepreneur and frequently auditing the firm is the best method to curb white collar crime.

		2 Gandhi Heryanto Management Consultant, Indonesia
	The Role of Corporate Culture to Avoid White Collar Crime Strong internal control systems as well as corporate governance have been proven insufficient to detect and prevent frauds. Corporate culture plays a critical role in managing the risks of fraudulent acts. Particularly, when ethics are solidly implanted in the corporate culture and exemplified by top ethical leadership. An ethical corporate culture leads to appropriate ethical behavior within all the organizational levels. Creating an organizational culture of ethical values such as integrity and openness can help to reduce the risk of fraud. Top management should create and sustain an ethical corporate culture that integrates an organization's core values, motivates employees in doing what is right. Employees should be empowered to voice out their suspicions and to see their crucial role in minimizing frauds. Source: Ocansey E., Ganu J., 2017, "The Role of Corporate Culture in Managing Occupational Fraud", Research Journal of Finance and Accounting, 2017.08.24.

		2 Ronald Ainsbury Coach, New Zealand
	Stock Market Short Focus In addition to a long-term profit focus and culture I think that Purpose and Values are vital. My theory is that most businesses start with a clear purpose, a la Drucker. They have found a customer a...

		1 Prof. Arup Barman Professor, India
	Conduct a Forensic Audit The exercise of a forensic audit in a corporation can be a good weapon trapping any corporate scandals. A forensic audit is an examination and evaluation of firm's individual's financial records to de...

		1 Prof. Arup Barman Professor, India
	How to Develop Skills for Forensic Accounting Forensic accounting is a vital knowledge domain for the detection or investigation of crime and the administration of justice, providing crucial accounting information about the evidence found at crim...

		1 Maurice Hogarth Consultant, United Kingdom
	White Collar Crime Probability There seem to be three aspects to this. Two seem to be 'criminal' in nature the other more 'scandalous'. 1. The individual criminal who embezzles from the organisation for personal benefit. (Editor: ...

		2 Jaap de Jonge Editor, Netherlands
	How to Avoid Corporate Scandals and White Collar Crime See also the practical expert tip: How to Identify Integrity Issues Early On?...

		0 Maurice Hogarth Consultant, United Kingdom
	White Collar Crime & Scandal Complexity @Jaap de Jonge: Agreed that my comments do rather over simplify the complexity of white collar crime. Thanks for the links....

		2 aloke mookherjea Director, India
	White Collar Crime & Complexity Interesting comments from almost all! Most have been tried in many places with some good results, and also some not so good. I have seen and heard of many forensic audits. But I think in all cases th...