It’s Out There Somewhere

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Stock Market Down

turteltaub-adam-200x200-150x150By Adam Turteltaub
adam.turteltaub@corporatecompliance.org

The next big corporate scandal started earlier this week when stocks tumbled.  While the market may have overreacted to slowing growth in China, the economic landscape has clearly changed.  The China growth engine is slowing, at least for now.

Somewhere out there a manager is setting a goal that is too aggressive for this new reality.  They may be setting the goal to “inspire” the workforce, or to meet analyst expectations, or to curry favor with a superior, or because of honest, but overly optimistic, beliefs.

Whatever the reason the goal will be set.  Workers will be told they have to hit the target.  And they will do whatever it takes, even if it means bending or breaking a few rules.

If they don’t make it, finance may be asked to help “adjust” or “smooth out” the numbers.   And some time in the next few years it will all unravel spectacularly, costing the company far more money than anyone could imagine.

So what do compliance and ethics professionals do?  First, make sure management knows that as business gets tougher, employees will be tempted to cheat more to make their numbers.  It’s as inevitable as Enron, Worldcom, Toshiba and countless others.

That means leadership has to pay extra attention to corporate goals, both big and small, to make sure that they are truly achievable, and that “stretch” goals don’t lead to broken laws.

The new environment also means that leaders need to turn “tone at the top” into TONE AT THE TOP.  They have to shout loud and strong that corners may not be cut and that staying inside the lines doesn’t mean looking for ways to blur those lines.

[bctt tweet=”The new environment means that leaders need to turn ‘tone at the top’ into TONE AT THE TOP @AdamTurteltaub” via=”no”]

Compliance officers need to determine which divisions are most likely to be affected by the changing economy.  That’s where the stress will likely be greatest and the temptation to cheat the highest.

Risk assessments will need to be reassessed to see if the changing global economic picture means changes to risk profiles.

And, there are countless other steps to take.  Share your suggestions below for what they are.  It may help prevent the next mega scandal.

 

3 COMMENTS

  1. Spot-on ideas for a proactive approach to what we know is coming.

    One modest suggestion would be that managers take a look at the HBR article, “A Way to Know if Your Corporate Goals Are Too Aggressive.” The authors discuss the endemic overoptimism in financial goal-setting, and suggest that before settling on a quantitative goal, it might be wise to take a look at the statistical likelihood of achieving the goal you’re considering, based on data from thousands of businesses. (And then ask yourself, I imagine, “Do you feel lucky? Well do you, punk?”) Kind of a cold-shower approach to overheated optimism. https://hbr.org/2015/07/a-way-to-know-if-your-corporate-goals-are-too-aggressive.

  2. Good heads up for compliance officers. Now is a good time to ensure that your hotline is well-promoted and that employees are encouraged to share their concerns with the compliance staff. (In other words, the hotline is more than just to report document shredders.)

    While some managers will expose their motives with a “get it done regardless of how you do it,” we should be alert to less-obvious conduct like the possibility of bribery and over-the-top entertaining, as well as bosses who create peer pressure by favoring the risk takers who get results.

  3. Meric and Scott: Great additions. Meric, you’re right that the possibilities for wrongdoing are much wider than we think.

    And Scott, thanks for spotting that HBR article. It’s striking how much overconfidence there appears to be. It made me think of Patrick Kuhse, who spoke years ago at our annual meeting. A convicted felon, he noted that “super optimism” was a trait he found in himself and the other criminals he came to know while incarcerated.

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