Corruption Matters - November 2019 | Issue 54
Rogue executives
A gap in research prompted criminologist Dr Russell Smith to look into the criminal conduct of senior managers in organisations; a group that makes up one-third of fraudsters around the world. He delivered a fascinating presentation in October 2019 at the Australian Public Sector Anti-Corruption Conference (APSACC).
Dr Russell Smith
Your session “Understanding and responding to corruption involving senior executives” was delivered to a packed audience at APSACC. What prompted the decision to research this topic?
There is a great deal of discussion in the anti-corruption world of heads of organisations being responsible for setting the right tone to deal with corruption. But there is very little discussion about senior managers who actually commit acts of corruption. There is a gap in the research literature; that was one reason that prompted the decision.
The other reason was that, where people at that level commit crimes:
- they tend to do a very good job of it
- there are large amounts of money involved
- often the fraud or acts of corruption will go on for long periods of time
- they are difficult to detect; people are unwilling to report them.
Findings from the KPMG report – Global profiles of the fraudster– indicate that 35% of fraudsters around the world hold an executive or director-level position. Are there statistics for Australia?
Australia has contributed to the KPMG studies, so the figures are embedded. But there are other statistics, particularly those of the Association of Certified Fraud Examiners, which does an annual stocktake of fraud investigations with their membership around the world. That is almost 3,000 cases that they look at on an annual basis, and that includes a large sample from Australia. There are very similar trends across developed nations.
What is the profile of these executives?
They are in their late 50s, early 60s, have had a substantial career, they have a lot of knowledge, and are trusted within the organisation. They are trusted with all the material they need to commit an act of misconduct, a fraud or an act of corruption. They are also in positions where they can cover things up very effectively.
What are the main differences between corrupt executives and non-executives?
It relates to the opportunities each group has to commit frauds. So, senior executives are in positions of trust; they can act illegally for longer periods of time. Whereas, often lower-level employees will commit a fraud and be discovered quite quickly.
The higher up you are in management, the more likely your crimes will take place over three, six, even 10 years before they are discovered.
You use the term "senior executive psychopath". Can you comment on that?
Some psychologists have explored the question of whether people in senior management are what is sometimes called workplace psychopaths. That is, someone with a particular personality profile that makes them very successful at committing acts of crime, fraud and corruption.
It is a mixture of things; sometimes they are actually very productive, useful people in the workplace. They can be enthusiastic, wheeler-dealers. They do good contractual work, and bring money into the organisation. That means they have enormous chances to work with contractors and get kickbacks and bribes in the workplace and make money for themselves.
Sometimes its arrogance. They have a desire to control the workplace, the environment that they work in. They do not like people interfering with them. They, popularly, get called control freaks and do not let their managers to work effectively by themselves.
There comes a point where those personality characteristics can become dangerous and they can fall over into acting illegally to achieve their ends.
You present some prevention and response strategies. Can you talk us through some of these?
Preventing these crimes generally follows basic principles that have been devised over many years, which is basically about making crimes more difficult to commit; for example:
- tightening up computer systems
- making sure that people log onto computers securely, maybe with biometrics systems
- having good records management and good workplace practices
- making sure you do referee checks when recruiting staff
- monitoring your staff over time, and looking out for red flags.
Then, there is increasing the chance of getting detected, so:
- having good systems in place to report misconduct and having it available for easy investigation
- making use of other people in the workplace (“natural surveillance”) so staff can see what senior managers are doing, and, if things do not look right, there should be an avenue for them to report it, ideally through a secure whistleblower mechanism or perhaps an external hotline.
What advice would you give to a whistleblower in this context?
The general approach is to think very carefully about whistleblowing.
There are legislative protections for whistleblowers right across Australia now but they are not used very effectively and people still suffer quite serious consequences and reprisals through the action they take in reporting this conduct.
If you want to remain anonymous, in some states and territories, you cannot do that, you must be identified and put your complaint in writing to have it registered. But, in other places, you can go to an external hotline that is run by an independent business and they will receive anonymous advice and information, and then take it on themselves to investigate the matter.
Dr Smith is a principal criminologist from the Australian Institute of Criminology.
|