We have learned more about Port of Seattle CEO Ted Fick’s recent suspension amidst concerns of an unauthorized wage increase, improper gifts from Port tenants, and a potential conflict of interest involving Fick’s father’s company.
I agree with them. Tone at the Top DOES matter. One story in particular stands out as a perfect example of what happens when Tone at the Top isn’t a consideration within an organization.
Many years ago, I assisted in the investigation of a large international parts dealer who was preparing for an initial public offering. There was just one small problem… Corporate Executives at International Headquarters were concerned that their American CEO and his two VPs had been “bending the rules” with expense reimbursements and they asked that we take a look at the problem so that they could “head it off at the pass” with regulators.
So we did. We combed through the CEO’s expense reimbursements finding that he charged everything from his daily fast food breakfast to his personal skybox suites at sports arenas to the company. Between the CEO and his two direct reports, we identified $2 million in fraudulent transactions that spanned a few years.
Given extra time and scope, we were asked to look at the five deputies who reported to the three top executives, and wouldn’t you know? Their expense reimbursements, in earlier years, were meticulously supported by receipts, names of customers and business purposes. By the time we had analyzed those reimbursements through present day, we were looking at items such as kids’ swimming lessons, wives’ spa treatments, and family vacations being run through their reimbursements, too.
The unofficial company motto seemed to be, “If the boss is doing it, then we can, too!”
Tone at the Top has a trickle-down effect. Per the ACFE’s 2016 Report to the Nations on Occupational Fraud and Abuse, poor Tone at the Top is cited as one of the primary internal control weaknesses present when fraud occurs.
Because the Port matter has not been adjudicated in a court of law, there is no clear way to classify any of the alleged actions in the case as outright fraudulent behavior or an abuse of power. But in cases such as this, the most important step is for leadership to boldly address any potential fraudulent behavior and take immediate steps to reduce risk of potential fraud in the future. You see, while there is a direct correlation to fraud and poor tone at the top, the opposite is also true: an organization with a healthy tone at the top typically has a lower risk of fraud.
What does a Company with a healthy Tone at the Top look like?
· Standard of ethical behavior is communicated, displayed by management, and expected of employees at all levels
· Open-door communication between management and staff
· Hotlines or other reporting mechanisms are in place and working
· Support programs are available for employees in need
· Low turnover of management and staff
In light of potential difficult decisions you may be facing in your own organization, have you considered the following?
1. What message(s) are your decisions or business practices sending to employees at all levels?
2. Would the decision indicate that there are different rules for different levels of employees?
3. If Tone at the Top was a primary consideration, would it change the decision you are about to make?
Don’t underestimate the far-reaching impact of the Tone at the Top of your organization. Is it sending the message you want every employee to hear?