OD
Synergy Article
Organizational Effectiveness Article...
Advancing Organizational Effectiveness Through Understanding and Taming Corporate Frauds: The Heart of the Matter
Dr.
Oladele Akin-Ogundeji
President, OD Synergy Ltd and Better
Poise
Summary:
Corporate frauds undermine organizational effectiveness. Understanding the root causes of corporate frauds and dealing with them is critical to advancing organizational effectiveness and corporate integrity. Understanding
corporate frauds is more than skin deep. It’s truly
a matter of understanding the heart. This excerpt from our
white paper, 'Taming
Corporate Frauds from the Root', gives you some hints.
Corporate
fraud is becoming hydra headed in nature. Its scourge is increasing
globally. Corporate frauds undermine organizational effectiveness. So attempts to understand and tame corporate frauds, conceived here as frauds committed against organizations,
will enhance organizational effectiveness and the level of corporate integrity and fidelity.
However, there is need to focus on far more fundamental root
causes than have been given much consideration.
In view
of the pervading nature of corporate frauds, it is apparent
that financial behavior in the corporate environment is a
matter of the psychological make-up of executives. The article
addresses this.
The Scourge
Frauds
and financial malpractices have become cankerworms globally.
In the African region, where there is less than thorough statistical
record, anecdotal reports indicate that a staggering amount
of the equivalent of U.S. $1.75 million is lost yearly to
corporate frauds, defined here as frauds committed against
organizations. For example, in Nigeria the indication was that
between 2003 and 2005, over N12 billion was lost through frauds
and forgeries in the banking industry alone! That’s
a huge amount of money; more than the national budget of one
or two of Nigeria’s less endowed neighboring countries.
Although such amount of money may be peanuts when compared
to large scale corporate frauds in more developed economies,
no organization can reach its potential or attain corporate
excellence when paralyzed financially, and, particularly so,
from within.
The damaging
impact of corporate fraud has been grim wherever it found
a niche. For example, the U.S. Association of Certified Fraud
Examiners estimated the annual cost of occupational fraud
and abuse in the U. S. to be an outrageous amount of $600
billion in 2002, up from $400 billion in 1996. These crimes
are seen as crimes against the organization by employees rather
than corporate crimes against outside interests or employees.
Also, according to an article in The Financial Times Ltd on
August 9, 2006, corporate frauds in Argentina was projected
to reach over $9.5 billion by the end of 2006, which was estimated
at about 5% of Argentina’s GDP.
In view
of the pervading cankerworm of frauds at various levels in
the corporate environment globally it is apparent that financial
behavior in the corporate environment is no respecter of
national boundaries or color. It is largely a matter of an
executive’s psychological make-up. Therefore, organizations
can attain much mileage in enhancing organizational effectiveness, corporate integrity, and the level of financial
fidelity by a deliberate attempt on the part of corporate
management to understand the critical elements underpinning
corporate frauds and adopt key programmatic approaches to
manage them. Here is a brief overview of a few of the key
behavioral-linked approaches to understanding and managing
corporate frauds.
Behavioral
Explanations
Current
behavioral analyses point to a combination of personal, cultural,
situational and experiential factors in the understanding
and management of corporate frauds. Let us consider three
of such. This is an excerpt from the white paper, Taming
Corporate Frauds from the Root. The white paper addressed more than twenty behavioral approaches
to understanding and managing corporate frauds.
1.
Socio-cultural Factors:
Values make a social system tick. A breakdown in values is
at the heart of lack of respect for the general good, which
corporate frauds epitomize. The increasing wave of frauds
in the last 15 years is symptomatic of the discontinuity in
the value system and ethical commitments of key corporate
players -the shareholders, the management, the employees,
the customers, and, if you like, the larger society. In most
social circles, particularly in African and many third world
societies, the decisive test of a person’s worth is
how liquid he or she is. How he or she gets the cash is a
non-starter!
Many employees,
members of management, shareholders and customers program
themselves to get rich quick, or to catch up with the Jones,
in the instinctive fear that patient and honest efforts in
the right direction may devastatingly impact on their instinctual
drive for pleasure, self gratification and economic security;
more so in societies with chronic lack of organized social
security. A core corporate inference, with antidotal impact,
is the increasing need to create a socially responsible organizational
life, responsive and responsible governance, and a benign,
ethical top-management leadership.
2.
The Availability Syndrome:
Corporate frauds happen where the funds or resources are available!
They take place where the conditions are conducive. Fraudsters
tend to exploit the slightest opportunity to perpetrate fraud
if the time is ripe. Thus, fraudsters will wait, and even
scheme, for the opportunity and for the right moment to act.
Like a hot radiator that explodes at the careless handling
by a motorist, fraudsters will lay low-perfecting their acts
and biding their time where they know the funds or resources
are abundant to snap-waiting for any carelessness or imperfection
in the system.
What conditions-
what lapses, what facilities, what machinery- in your organization
can potential fraudsters exploit? What surveillance, perhaps
of an autopilot nature, is in place to outsmart insider frauds?
3. Innate Psychological Imbalance:
Innate psychological elements are often seen as important causes of corporate frauds. The psychologist, Sigmund Freud, and other Freudian theorists believe that human beings have the innate tendency to be antisocial (in this context, to commit corporate frauds) because of their uncontrollable instincts, called id impulses. Freudians see human personality as consisting three elements, which are: the id (the instinct), the ego (the reality gauge or rational center), and the superego (the value judge or conscience).
For Freudians, antisocial behavior (in this context, corporate fraud) results from various dysfunctions of these psychological elements. Thus, a faulty ego, in which the individual has problem with learning from experience, handling frustration and insecurity, and inadequate perception of social reality, may predispose the person to such acts as corporate frauds. Where the person has an underdeveloped superego or conscience, he or she does not feel remorse for wrongdoing and, thus, may see fraud as an organizational game.
Such propositions as were made by Freudians, suggest, for example, the need for robust staff recruitment systems and the use of appropriate psychological and psychometric tests.
Programmatic
Management of Frauds
The management
and control of corporate frauds should be at three key levels:
corporate, work group, and individual. Here are three of the
programmatic approaches for taming corporate frauds.
1.
Psychometric Testing:
Knowledge of employees who hold attitudes, values and beliefs
supportive of fraudulent behavior will enable an organization
orientate its monitoring antenna. A beginning step in this
respect is to engage psychologists to administer personality
tests and rating scales on new employees, with emphasis on
issues of integrity. These usually consist of a sizeable array
of emotional, social and attitudinal variables.
2. Reward System Optimization:
The reward system should focus on ethical performance, integrity, responsible self-leadership on the job, and standards-linked incentives. More over, there should be a commitment from top management to mitigate inequities, nepotism and sectionalism in the organization. Besides, the management should promote enhanced objectivity and transparency in the staff performance appraisal system and use balanced measures with strong emphasis on behavioral attributes linked with values of corporate excellence.
3.
Cultural Reorientation:
There may be need to review the corporate values and the prevailing
way of life in the organization. This may require a systematic
diagnosis of the cultural alignment with the strategic situation
of the organization. Norms and values relating to self-managed
high performance and team responsibility as well as strategic
mentoring may be considered.
The Nub!
Yes, there
is a lot involved in understanding corporate frauds. Much
progress will be made by a greater understanding of the hearts of people!
Therefore, should you want to advance organizational effectiveness, corporate integrity and financial fidelity in your organization a first step may be to sensitize your key people and raise their awareness regarding such root causes as are discussed in the white paper, ‘Taming
Corporate Frauds from the Root.’
To buy the white paper, 'Taming Corporate Frauds from the Root' (Price: U.S. $5.0), click, Taming Corporate Frauds from the Root White Paper.
Dr.
O. Akin-Ogundeji , is based in Lagos, Nigeria. He holds PhD of the University
of London and leads OD Synergy (http://www.odsynergy.com),
a team of strategic human resources and organization development
consultants in Africa. He also leads Better
Poise (http://www.betterpoise.com), promoting people's capacity to be on top of their world
and attain sustainable self-fulfilment.
The total
organization development brief, OD
Synergy Digest (http://www.odsynergy.com/od-synergy-digest.html) , gives you insight on developing total
poise for sustainable high performance in your organization.
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