In 2002, an investigation into WorldCom revealed that CEO Bernie Ebbers “created, and the [then] board permitted, a corporate environment in which pressure to meet the numbers was high, the departments that served as controls were weak, and the word of senior management was final and not to be challenged.”
In 2015, an investigative report on the profit inflation scheme orchestrated by Toshiba found “a corporate culture at Toshiba where it was impossible to go against the boss’ will” and “a systematic involvement including by top management, with the goal of intentionally inflating the appearance of net profits.”
“When you put the two reports side by side it’s almost like they used the cut and paste function,” said Gerry Zack, CFE, CPA, CIA, Managing Director – Global Forensics at BDO Consulting in his session, “The Return of Tone at the Top.”
So much has been written and discussed about the tone at the top and corporate culture in the aftermath of huge financial fraud scandals like WorldCom and Enron. Companies have made reforms so that schemes like this would not happen again and regulators have stepped in to make changes to requirements for corporate governance structures, accountability and other areas associated with the tone at the top.
In the wake of these changes, Zack asked, “Did anybody learn anything? What, if anything, has changed?”
He then opened the floor to attendees who shared their own experiences of unrealistic management expectations and the pressure they felt to meet numbers or achieve certain metrics.
“How many of you have had to tell a boss ‘no, I just can’t do that’?” asked Zack. “But they don’t really want to know what measure you employ. That way they can deny culpability.”
Zack cited a study by Chartered Global Management Accountant (2015) that says 37 percent of management accountants have felt pressure from managers or peers to compromise corporate ethics. “That struck me as an incredible figure,” said Zack.
So what can be done to change things? Zack emphasized that it starts at the top. Is ethics a regular item on the board’s agenda? Are ethics metrics tracked? Is the executive compensation linked to ethics? Has the organization considered external measures? All of these are great places to start.
And of course, encourage the “speak up” line. Organizations should:
• Make sure their hotline policy is well communicated throughout the company.
• Make the policy available in multiple languages.
• Provide guidance, not just a tool for reporting.
• Provide protection for providers of information.
• Enforce all parts of the policy consistently.
Zack explained that there is no one single step, but rather a series of incremental steps. “Pressure is a fact of doing business, but it can be better managed.”