The Truth about Tone from the Top by @EricPesik

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Are your executives telling the truth when they say "ethics matter"? Senior executives are involved in 53% of bribery cases. And they know about 86% of corporate fraud cases. If management lies about ethics, what message does that send? What is the true "tone from the top"?

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  • The truth about “Tone from the Top”
    Image: Speaker by Björn Andersson from the Noun Project
    https://thenounproject.com/search/?q=announcement&i=76611
  • FIFA protects the integrity of football and is fighting corruption in football.
    -FIFA Football Governance “The guardians of the game” 20 November 2014
    Source: http://www.fifa.com/governance/videos/y=2014/m=11/video=the-guardians-of-the-game-2477119.html
  • We stand for respectable, honest actions in everyday business that are in accordance with rules...
    - The Volkswagen Group Code of Conduct
    Source: http://www.volkswagenag.com/content/vwcorp/content/en/the_group/compliance.html
  • The “Tone from the Top” at FIFA and Volkswagen share a common element
    What is it?
    Image: Speaker by Björn Andersson from the Noun Project
    https://thenounproject.com/search/?q=announcement&i=76611
  • They are lying.
    Image: Lie By Iconathon, US
    https://thenounproject.com/search/?q=false&i=15281
  • They are not alone.
    Image: Lie By Iconathon, US
    https://thenounproject.com/search/?q=false&i=15281
  • Management or the CEO is involved in 53% of bribery cases; Senior executives know about 86% of corporate fraud cases
    Source: Corporate Executive Board, 2006, quoted in RAND Symposium, Culture, Compliance and the C-Suite: http://www.rand.org/pubs/conf_proceedings/CF316.html
    Source: OECD Foreign Bribery Report: http://www.oecd.org/corruption/oecd-foreign-bribery-report-9789264226616-en.htm
  • If you wanted to design an incubator for generating misconduct, it would look a lot like the C-Suite
    Quote: RAND Symposium, Culture, Compliance and the C-Suite: http://www.rand.org/pubs/conf_proceedings/CF316.html
    Image:: Team designed by Wilson Joseph from the Noun Project http://thenounproject.com/term/team/35432/
  • What makes the C-Suite so susceptible to corruption?
    Image: Dark Money By Iconathon
    https://thenounproject.com/search/?q=corrupt&i=15301
  • Management readily sees cause and effect between bribery and sales
    Image: Linear Interaction By Attilio Baghino, IT
    https://thenounproject.com/search/?q=linear&i=24519
  • Companies that bribe have greater sales growth compared to control firms for 3 years before and 3 years after winning a major contract through bribery
    Source: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1772246
    How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)
  • But...
  • But there are negative side effects of corruption
    Images: Linear Interaction By Attilio Baghino, IT,
    https://thenounproject.com/search/?q=linear&i=24520 https://thenounproject.com/search/?q=linear&i=24519
  • Companies that bribe have poorer net profit margin (net income divided by sales revenue) for the same 6 year period
    Source: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1772246 How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)
  • Companies that bribe have poorer cumulative abnormal returns (difference between the sum of the monthly returns for bribing firms versus control firms) for the same 6 year period
    Source: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1772246
    How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)
  • Companies that bribe perform poorer on nearly every corporate metric used to measure success
    Source: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1772246
    How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)
  • If you endorse corruption to achieve a goal, you endorse corruption (full stop)
    Image: Speaker by Björn Andersson from the Noun Project
    https://thenounproject.com/search/?q=announcement&i=76611
  • If you lie, your employees will lie
    Image: Lie By Iconathon, US
    https://thenounproject.com/search/?q=false&i=15281
  • If you cheat, your employees will cheat
    Image: Deep Web By Matt Brooks, US
    https://thenounproject.com/search/?q=fraud&i=62765
  • If you give bribes, your employees will take bribes
    Image: Bribe By Luis Prado, US
    https://thenounproject.com/search/?q=bribe&i=26816
  • Tone from the top is not what you say, it’s what you do
    Image: Speaker by Björn Andersson : https://thenounproject.com/term/presenter/76611/
    Bribe By Luis Prado, US: https://thenounproject.com/search/?q=bribe&i=26816
  • 81% of all frauds are perpetrated by at least one insider
    Image: Deep Web By Matt Brooks, US, https://thenounproject.com/search/?q=fraud&i=62765
    Source: Kroll Global Fraud Report 2015/16 http://www.kroll.com/global-fraud-report
  • 5% of all revenues are lost due to occupational frauds
    Image:Grab By Iris Sun, GA, https://thenounproject.com/search/?q=theft&i=121228
    Source: ACFE Report to the Nations on Occupational Fraud and Abuse, http://www.acfe.com/rttn.aspx
  • Companies are more often victims of corruption than beneficiaries
    External Fraud Source: OECD Foreign Bribery Report (2014)
    Internal Fraud Source: ACFE Report to the Nations on Occupational Fraud and Abuse, http://www.acfe.com/rttn.aspx
    Image: Fraud By Iconathon, US https://thenounproject.com/search/?q=fraud&i=15213
  • How can you change a culture of corruption?
    Image: businessmen by tsv from the Noun Project https://thenounproject.com/search/?q=team&i=48054
  • Start changing traditional ethics training
    Image: Education designed by Chris Matthews: http://thenounproject.com/term/education/3012/
  • When the big people get in trouble, the little people get ethics training.
    Quote: RAND Symposium, Culture, Compliance and the C-Suite: http://www.rand.org/pubs/conf_proceedings/CF316.html
    Image: Education designed by Chris Matthews: http://thenounproject.com/term/education/3012/
  • Target the “big people” about how corruption causes internal fraud
    Images: Linear Interaction By Attilio Baghino, IT
    https://thenounproject.com/search/?q=linear&i=24520 https://thenounproject.com/search/?q=linear&i=24519
  • CEOs are prone to viewing the company’s success as indistinguishable from their own.
    Quote: Scott Killingswroth, Partner Bryan Cave LLP, “C” is for Crucible: http://compliancestrategists.com/pro/wp-content/uploads/2013/10/%E2%80%9CC%E2%80%9D-Is-for-Crucible.pdf Image: Superhero designed by Juan Pablo Bravo from the Noun Project: http://thenounproject.com/term/superhero/23556/
  • When bribery hurts shareholder value it hurts the CEO
    Image: Graph By Simple Icons https://thenounproject.com/search/?q=decline&i=30986
  • Use targeted motivators in your ethics training
    Image: Education by Travis Yunis
    https://thenounproject.com/search/?q=lecture&i=25971
  • Motivation: Shareholder Value & Exec. Mgmt; Career Opportunity & Middle Mgmt; Job Security & General Employee Base

  • How do whistleblowers help?
    Image: Alert by Phil Laver from the Noun Project
    https://thenounproject.com/search/?q=shout&i=22814
  • Whistleblowers are effective at discovering external fraud, and even more effective at discovering internal fraud
    Bribery Source: OECD Foreign Bribery Report (2014) http://www.oecd.org/corruption/oecd-foreign-bribery-report-9789264226616-en.htm
    Fraud Source: ACFE Report to the Nations on Occupational Fraud and Abuse http://www.acfe.com/rttn.aspx
    Image: Whistleblower By Lorie Shaull, US, https://thenounproject.com/search/?q=whistleblower&i=89125
  • Discovering Internal Frauds.
    Source: ACFE Report to the Nations on Occupational Fraud and Abuse http://www.acfe.com/rttn.aspx
  • Median Losses After Discovery
    Source: ACFE Report to the Nations on Occupational Fraud and Abuse http://www.acfe.com/rttn.aspx
  • Reduction in Median Losses with Effective Internal Controls
    Source: ACFE Report to the Nations on Occupational Fraud and Abuse http://www.acfe.com/rttn.aspx
  • Whistleblowers are one of many internal controls that support an ethical culture that reduces internal corruption
    Image: Linear Interaction By Attilio Baghino, IT, https://thenounproject.com/search/?q=linear&i=24519
  • An ethical culture that reduces internal corruption sustains a profitable culture
    Image: Linear Interaction By Attilio Baghino, IT, https://thenounproject.com/search/?q=linear&i=24519
  • Sustained profits make your CEO a superhero
    Image: Superhero designed by Juan Pablo Bravo from the Noun Project: http://thenounproject.com/term/superhero/23556/

  • So your executives can tell the truth when they say “ethics matter”
    Image: Speaker by Björn Andersson from the Noun Project
    https://thenounproject.com/search/?q=announcement&i=76611

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  • About the Author

    Background
    Eric Pesik is currently the Associate General Counsel and Compliance Officer for Seagate Singapore International Headquarters Pte Ltd.
    He also serves as an Adjunct Assistant Professor with the University at Buffalo, State University of New York, in the School of Management.
    He has been a lawyer since 1997 and is a member of the State Bar of California, USA. He is also admitted to the US Court of International Trade in New York and the US Supreme Court in Washington, DC.
    Many of Mr. Pesik’s presentations are available on SlideShare at: http://www.slideshare.net/ericpesik

    Disclaimer
    This work represents the opinions of the author alone, and is not the opinion his employer.

    Creative Commons Attribution License
    You are free to share, copy, distribute, and transmit this work; to remix or adapt this work; and to make commercial use of this work, under the condition that you must attribute this work to Eric Pesik (but not in any way that suggests that I endorse you or your use of this work). Each slide contains source attributions and URL; before reusing, you must obtain the original images from the original sources, and you must comply with any applicable license restrictions imposed by the original source. http://creativecommons.org/licenses/by/3.0/

  • The Truth about Tone from the Top by @EricPesik

    1. 1. The truth about “Tone from the Top”
    2. 2. Are your executives telling the truth when they say “ethics matter”?
    3. 3. FIFA protects the integrity of football and is fighting corruption in football. -FIFA Football Governance “The guardians of the game” 20 November 2014
    4. 4. We stand for respectable, honest actions in everyday business that are in accordance with rules... - The Volkswagen Group Code of Conduct Source: http://www.volkswagenag.com/content/vwcor p/content/en/the_group/compliance.html
    5. 5. The “Tone from the Top” at FIFA and Volkswagen share a common element What is it?
    6. 6. They are lying.
    7. 7. They are not alone.
    8. 8. Management or the CEO is involved in 53% of bribery cases; Senior executives know about 86% of corporate fraud cases
    9. 9. If you wanted to design an incubator for generating misconduct, it would look a lot like the C-Suite
    10. 10. What makes the C-Suite so susceptible to corruption?
    11. 11. Management readily sees cause and effect between bribery and sales
    12. 12. Companies that bribe have greater sales growth compared to control firms for 3 years before and 3 years after winning a major contract through bribery
    13. 13. But...
    14. 14. But there are negative side effects of corruption
    15. 15. Companies that bribe have poorer net profit margin (net income divided by sales revenue) for the same 6 year period
    16. 16. Companies that bribe have poorer cumulative abnormal returns (difference between the sum of the monthly returns for bribing firms versus control firms) for the same 6 year period
    17. 17. Companies that bribe perform poorer on nearly every corporate metric used to measure success
    18. 18. If you endorse corruption to achieve a goal, you endorse corruption (full stop)
    19. 19. If you lie, your employees will lie
    20. 20. If you cheat, your employees will cheat
    21. 21. If you give bribes, your employees will take bribes
    22. 22. Tone from the top is not what you say, it’s what you do
    23. 23. 81% of all frauds are perpetrated by at least one insider
    24. 24. 5% of all revenues are lost due to occupational frauds
    25. 25. Companies are more often victims of corruption than beneficiaries
    26. 26. How can you change a culture of corruption?
    27. 27. Start changing traditional ethics training
    28. 28. When the big people get in trouble, the little people get ethics training.
    29. 29. Target the “big people” about how corruption causes internal fraud
    30. 30. CEOs are prone to viewing the company’s success as indistinguishable from their own.
    31. 31. When bribery hurts shareholder value it hurts the CEO
    32. 32. Use targeted motivators in your ethics training
    33. 33. Motivation: Shareholder Value & Exec. Mgmt; Career Opportunity & Middle Mgmt; Job Security & General Employee Base
    34. 34. How do whistleblowers help?
    35. 35. Whistleblowers are effective at discovering external fraud, and even more effective at discovering internal fraud
    36. 36. Discovering Internal Frauds
    37. 37. Median Losses After Discovery
    38. 38. Reduction in Median Losses with Effective Internal Controls
    39. 39. Whistleblowers are one of many internal controls that support an ethical culture that reduces internal corruption
    40. 40. An ethical culture that reduces internal corruption sustains a profitable culture
    41. 41. Sustained profits make your CEO a superhero
    42. 42. So your executives can tell the truth when they say “ethics matter”
    43. 43. Please like & share
    44. 44. About the Author Background Eric Pesik is currently the Associate General Counsel and Compliance Officer for Seagate Singapore International Headquarters Pte Ltd. He also serves as an Adjunct Assistant Professor with the University at Buffalo, State University of New York, in the School of Management. He has been a lawyer since 1997 and is a member of the State Bar of California, USA. He is also admitted to the US Court of International Trade in New York and the US Supreme Court in Washington, DC. Many of Mr. Pesik’s presentations are available on SlideShare at: http://www.slideshare.net/ericpesik Disclaimer This work represents the opinions of the author alone, and is not the opinion his employer. Creative Commons Attribution License You are free to share, copy, distribute, and transmit this work; to remix or adapt this work; and to make commercial use of this work, under the condition that you must attribute this work to Eric Pesik (but not in any way that suggests that I endorse you or your use of this work). Each slide contains source attributions and URL; before reusing, you must obtain the original images from the original sources, and you must comply with any applicable license restrictions imposed by the original source. http://creativecommons.org/licenses/by/3.0/

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