On the trail of rule-benders who go too far

By Nancy Dunne

Cynicism begins early these days. Almost one-third of teenagers believe that to be a success, they must “bend the rules”, according to a recent poll by the Junior Achievement organisation and Deloitte & Touche, the professional services firm.

If the poll had been taken among adults that percentage would possibly be much higher. The endless succession of corporate scandals has put ethics – or rather the lack of them – front and centre in the American consciousness.

If the pressures are severe enough, anyone at any given time is capable of committing fraud, says Carl Pergola, national director of FIRSTGlobal Investigations, an investigations practice of BDO Seidman, the tax consulting and professional services firm. “There are also people who are inherently bad, who get up in the morning believing their job is to take your money,” he says.

For both classes of fraudsters, the number of institutions, organisations and firms devoted to combating them has been climbing. Auditors are offering preventative anti-fraud programmes. Services, such as The Network, are establishing hotlines so that workers can report fraud anonymously and some companies are encouraging them to do so.

Junior Achievement, which offers free enterprise and economic education to schoolchildren from 4th to 12th grade has expanded its offerings on ethical behaviour. Universities and business schools, too, are stressing ethics education.

The Ethics Officer Association, founded in 1992 by a dozen company ethics officers, now has more than 955 members. Member companies include more than half the Fortune 100. To spread ethical consciousness, the EOA is developing business conduct standards with the American National Standards Institute.

FIRSTGlobal investigates fraud and now offers a proactive programme for preventing fraud. The demand for certified fraud investigators is “tremendous”, says Mr Pergola, but a relatively small number of qualified applicants exist. One colleague was hired by a corporation to build an antifraud unit of 40-50 people. So far the colleague has been able to find only five.

What is needed, Mr Pergola says, are people who understand the mind of a fraudster. “They have to understand why people perform in certain ways. If they are under undue pressure and their work is tied to compensation, they may start thinking creatively. Some say they are just borrowing. Some are having affairs they want to cover up, or they are gamblers or drug users. They figure out ways to get the money.”

He says there is constant pressure on public companies to perform, and the pressure passes down through the ranks so that individuals conceal mistakes or bad news.

On the other hand, in the uproar over corporate scandals, there is a risk that some people are being prosecuted unfairly, says Mr Pergola. “There is pressure on people to name names for reduced sentences. People are prosecuted with no evidence by some else's word. Juries can get confused, and there are risks that the true perpetrators are getting away with little or no punishment.”

David Gebler, an expert on business ethics, says ethics programmes took hold well before Enron. President Ronald Reagan demanded them in the defence industry after the scandals over expensive toilet seats and vast cost overruns. The US Sentencing Commission laid down guidelines for what would become the business ethics movement.

The Sarbanes-Oxley Act, passed after Enron, put teeth into demands for ethics in accounting and reporting. “Many senior leaders are honest but they don't know how to convey ethical standards to their people,” says Mr Gebler.

Difficulties arise when a corporate culture is not defined – after mergers for example – and managers do not know what is expected of them. “Ninety-five per cent of all unethical activities are not done for personal gain,” says Mr Gebler. “They are done because an employee thinks it is expected of him to keep his job, to get the boss to like him.”

Mr. Gebler says company leaders must set the tone if they want to create an antifraud culture. They must strongly convey that they value honesty and ethics and why. They must tell employees when their company is in trouble and explain plans to address it.

Jim Myers of Take the High Road, a consulting firm, surveys workers in its client companies to determine general attitudes on morality and ethics before establishing company ethics programmes. He attributes some of the wrongdoing to bad communications. “What we find now is a lot of communications by instant messaging. Employees don't have relationships with people, not even by telephone. Since they don't know people how can they deal with them?”

Too many company leaders show little consideration for the welfare of their employees, says Mr Myers. “When a company is in trouble, why aren't the top people taking pay cuts? How can the CEO, who is getting $8m-$10m, fire someone making $40,000 a year without taking some cuts themselves?”

Many headhunters see ethics as top priority when they look for able job candidates. Fred Greene, managing director of Boyden Global Executive Search firm in California, performs reference checks on candidates himself. California privacy laws are so stringent that he cannot contact anyone not listed on a resumé, and the candidates must be allowed to see his reports if they ask.

Even so, Mr Greene believes he can evaluate a candidate's integrity in interviews. “We are reasonably good at getting behind façades when we delve into the whys and wherefores,” he says.

Sometimes he feels compelled to advise his clients that they may want more thorough investigations. These can be performed by the rising number of career verification agencies, which have millions of records from public – and sometimes private – sources.

Pollsters also have reported some optimistic findings. The survey of teenagers also found a conviction that 62 per cent of those who practice good business ethics are more successful than people who do not. A new poll by Harris Interactive found investor confidence is closely aligned with companies' compliance with Sarbanes-Oxley. Fifty-seven per cent said they would be very unlikely to invest in a company that failed to comply with Sarbanes-Oxley. It is only a wonder that that percentage is not much higher.