Airmic

Preventing corporate fraud: lessons from the Lions

The best controls in the world cannot prevent corporate fraud without a positive culture. Ben Hobby of RGL Forensics argues that businesses should look to the rugby world, and the Home Nations in particular, to understand the power of a united workforce.

There are many cycles in the sporting world that are quadrennial - the Olympics, World Cups, Euro's and a Lions tour. Each of these events is a highlight, but there is something particularly special about the Lions, pitching, as it does, the best rugby players from the Home Nations against one of the southern hemisphere giants.

One of the phrases used in association with the Lions is "Four [Nations] Into One". This emphasises that any team, to be successful, needs to pull all of the various groupings together so that the individuals act as one in pursuit of a common cause. Indeed, it is this pooling of talent from four different countries, over a very short time period, uniting in pursuit of a common goal that most former Lions cite as being a life changing experience, irrespective of the rugby results.

This pursuit of a common cause and the team norms within that was one of the features of the English team that won the rugby World Cup in 2003. The team's rules weren't imposed by the coaching staff - quite the opposite. The rules (and fines) were decided by the team. It was the team that decided what was acceptable behaviour and what responsibilities each individual had to the collective. More to the point, it was the team that challenged the individual when behaviours didn't meet these pre-agreed parameters.

As it is in sport, so it should be in business.

One of the features common to a great many frauds is that the collective did not challenge the fraudulent individual on certain aspects of their behaviour or their actions. This failure to challenge resulted in actions continuing to occur that were detrimental to the collective. In essence, the culture was dysfunctional.

James Heskett and John Kotter of the Harvard Business School published research as long ago as 1992* that established a link between corporate culture and financial performance. Their research concluded that strong cultures that facilitate adaptation to a changing world are associated with strong financial results.

Having established that a strong, positive culture is critical in helping a business prevent fraud, what are some of the features of a good or bad culture?

Firstly, culture flows from the top. The example set by senior management will be followed by the rest of the workforce. It is important to get management to understand, commit to, and support anti-fraud and anti-corruption initiatives. The ethics and management style of the leaders in a business - i.e. are they inclusive or dictatorial or domineering - therefore set the tone for others to follow. More importantly, an inclusive managerial style means that individuals are challenged: is the proposed course of action the right course for the company?

Communication is also closely linked to management style. Educating the workforce about the risks of wrongdoing is essential. If a business is set up in such a way that the reporting lines are clear and that messages are communicated clearly upwards and downwards, then there is no scope for ambiguity. Everyone knows their role in the business and, perhaps more importantly, that they are accountable to others.

How a company sets targets and prioritises the key risks to its business, brand and reputation is another indication of how an organisation may prevent fraud. If realistic targets are set, then staff are motivated to at least try and achieve them. However, this will become counterproductive if staff are pilloried for missing these targets. If targets are clearly unachievable, the risk of staff not even bothering or, even worse, cutting corners in an attempt to achieve targets, will increase.

Similarly, what is the work/life balance like? If staff are regularly working late, it could be the consequence of unrealistic targets. It could also be the case that they like what they do and are there for the love of the job! However, one of the features of a number of frauds is the prevalence of regular out-of-hours working or unusual hours of work. Senior management should therefore be seen to ensure that their staff are maintaining an appropriate balance.

Finally, does the office socialise together on a regular basis? If they do, the chances are that, as a team, they get on well with each other and will therefore ensure that they are a cohesive unit. The likelihood of any disruptive behaviour from an individual then being dealt with by the group, without the need for intervention from senior management, will therefore increase.

It seems to me, then, that the business world can learn a huge amount from rugby, and the Lions in particular, when it comes to a positive culture. If the Lions show us nothing else, particularly after the recent series in New Zealand, they show that success should not be measured by results alone.

Ben Hobby is partner at RGL Forensics, a specialist firm of forensic accountants.

*Corporate Culture and Performance, 1992