Choosing wisely and timely: annual CPEs

Outside the US and the UK, this requirement is fairly unknown – certainly among all those who do not hold a qualification which requires Continuing Professional Education (CPE). As a Certified Fraud Examiner (CFE), earning and reporting CPE credit on an annual basis is mandatory. It’s not a nice to have, it’s a must.

Some of the misconceptions I have encountered are rooted in cultural differences. For instance, in Germany, CPE tends to be confused with concepts such as Lifelong Learning. Of course, the language barrier may play a role, too. CPE is most adequately translated to Kontinuierliche Berufliche Weiterbildung or Fortbildung. Howevermost German professional qualifications do not require any CPE, so the concept per se remains foreign to many.

I would like to help readers across Europe and beyond to understand what it means and why it is beneficial to the professional individual and the professional community but also to the wider industry, the employees, and even the public.  So I decided to clarify this here on my website:

The ACFE’s CPE requirements for CFEs – What are they, how do they work?
As Certified Fraud Examiners we have to fulfill a number of academic, professional and character-related criteria (see here) prior to our certification, these constitute the eligibility criteria. Subsequent to studying the 2,000 pages manual (or alternative ways to prepare) and passing the exam, certification can be applied for.

Once, we have achieved certification, an annual CPE requirement applies, as the ACFE specifies:

To maintain your CFE Credential, you are required to earn at least 20 hours of Continuing Professional Education (CPE) every 12-month period.
At least 10 of these hours must relate directly to the detection and deterrence of fraud and 2 hours must relate directly to ethics.

What’s the purpose and how is this meaningful?
CPE is not just meaningful but a vital means by which we CFEs maintain our professional knowledge and specific skill set. Continuing education in our profession is particularly valuable and vital, as the area continues to undergo frequent change and evolves on a global scale.

The competence maintained in this way benefits the individual in so far as we can continue to develop our full potential. It also aids the overall standard of the profession and keeps it on a high and up-to-date level. Ultimately though, this also helps the wider civic society.

CPE options, formats, and financial aspects:
The ACFE currently counts more than 60,000 certified members in over 120 countries. To some, their nearest chapter is the provider of workshops, seminars, and conferences where CPEs can be earned.

Others, in more remote locations, less mobile, with limited funding or a very tight schedule may prefer earning their CPEs with webinars, webcasts, self-study books, and university materials or authoring of materials. The ACFE provides a wide range of CPE credit options, they differ in the format of delivery, duration and in terms of subject area. They also differ widely in financial aspects, some are entirely free of charge – for an overview see here.

CPE reporting, failure, and disciplinary consequences:
CPE credits need to be reported to the ACFE on an annual basis, reminders are issued from around 90 days prior to the expiration of annual reporting period – which equals an individual member’s annual membership period.

CPE reporting is subject to audits. The ACFE also maintains a database of suspended members. Those who fail to earn their CPE credits or committed fraudulent acts in earning them become subject to disciplinary measures in line with the ACFE bylaws, rules and regulations.

Here is how I chose to fulfill my CPE requirement:
a) I opted for a 20 CPE self-study course, focusing on public sector fraud with a specific focus on the FCPA and the UK Bribery Act. This course contains the 2 mandatory CPE hours of ethics training and requires passing an exam. This could be sufficient to fully earn my annual CPE credits.

(b) However, I have also completed a number of webinars with the ACFE, each of them at 1CPE. This has provided me with fresh insights into areas the self-study course did touch upon but in a different way. For instance, I attended a webinar which focused on data analytics and how it can be used in compliance testing – which overall acted also as an eye-opener in terms of creative thinking when it comes to fraud prevention and detection.

(c) Further, I chose a few of the American Institute of Certified Public Accountants’ (AICPA) CPE webcasts (see all CPE courses). AICPA has been maintaining a very close collaboration with the ACFE for years. The webcasts differ slightly from the ACFE’s webinars insofar as they are often panel discussions, they contain test questions which pop up during the cast and an overall exam.

Especially the AICPA Behavioral Ethics webcasts, amounting to 1.5-2 CPE credits, are very interesting and useful (to fulfill ACFE ethics CPE requirement). They may cross-reference the ACFE material, for instance, the Annual Report to the Nations, or else.

Overall, I find the mix of sources, predominantly provided by ACFE and AICPA courses, very valuable and thought-provoking. The combination I strongly recommend also includes CPE credit from a wider variety of organizations, for instance, Protiviti and Thomson Reuters offer respectively 1 CPE for the attendance of a live webinar on Anti-Money Laundering Model Validation and a live webcast on hidden risks surrounding sanctioned entities.

Earning CPE credit and enhancing one’s skill set can be and should be as interesting, stimulating and positively challenging as possible. Hence, to me, earning CPEs are not just an annual duty – they are a vital part of my professional development and as such, I actively seek opportunities to enhance the mandatory requirement. You’ll never know where inspiration comes from…..

 

 

 

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My interview with the ACFE

I’ve recently had the honor and the privilege to give an in-depth interview to the ACFE. It was published yesterday and is available here (PDF contains images, 3 pages) and here at the ACFE .

It provided a wonderful opportunity to reflect deeply and express my gratitude and appreciation for the many influences, challenges, and discussions over the years in academic, situational and professional settings. Not to forget the personal encounters, remarkable projects, and support I experienced and that underpin my motivation in fostering a better and broader understanding of fraud risk, effective controls, and applied ethics. Of course, it’s also a statement of deep appreciation for the ACFE organization and its members and an encouragement to share knowledge and mentor others in order to strengthen the professional community. Below the introductory paragraph compiled by the editors:

Britta Bohlinger, CFE, MA, BSc (Hons), Quality Manager and Auditor (IHK Berlin), founding director of RisikoKlár, is no stranger to debates or uncomfortable discussions. From a young age, she enjoyed lively conversations with her father about his work and later became active in academic association discussions. She said, “The element of informal mentoring was invaluable — a source of motivation, challenge and aspiration. [The discussions] were also a source of comfortable discomfort as being an active member always reminded me of how much more I needed to learn.” As the only female CFE in Iceland, she now brings her passion for discourse and spreading risk management knowledge […]

and the list of questions I answered:

  1. How did you first become passionate about fighting fraud?
  2. What is your current role and what does it entail?
  3. What caused you to start RisikoKlar?
  4. What is one of the biggest lessons you have learned since becoming a CFE?  
  5. You’re very active in the online ACFE Community. In your opinion, how important is the exchange of ideas and knowledge between anti-fraud professionals?
  6. What is a memorable case or project that you have worked on; one that made you feel especially proud?
  7. How has earning the CFE credential benefited your career?
  8. What do you like about being an ACFE member?
  9. What activities or hobbies do you like to do outside of work?

The Importance of Legal Counseling for Whistleblowers

By guest author Sercan Ercinler, who was born in 1987 in Istanbul, and currently lives in Vienna, Austria. He is a Certified Fraud Examiner (CFE) with a master’s degree in accounting and author of the two books: Corruption, Money Laundering and Financing of Terrorism (2017, English) and The U.S. Sarbanes-Oxley Act of 2002 and Internal Control (2016, Turkish).

Employees, who spare no sacrifice to report their organizations to competent judicial and/or administrative authorities because of the heir illegal activities, are widely appreciated by the public opinion in this day and age. According to the detailed information contained in the ACFE Reports to The Nations on Occupational Fraud and Abuse, the most common fraud detection method is tips from employees and some other parties such as customers or vendors when it comes to the financial crimes.

Whistleblowers come forward publicly when something illegal is going on in their organizations after they do not receive an acceptable reply through their organizations. This situation causes the risk of retaliation against a whistleblower by the employer. For this reason, authorities take legal measures to protect whistleblowers from retaliation.

Other than employer retaliation, whistleblowers face the risks of industry blacklisting, professional violations, legal consequences etc. Therefore, employees should get a legal counseling to minimize or eliminate the risks of being a whistleblower before reporting an illegal activity to competent authorities. Section 806 of the U.S. Sarbanes-Oxley Act of 2002 (the SOX Act), which is titled as “Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud” states that reports must be filed with some specific authorities in order for the reports to be handled properly. These authorities indicated in Section 806 are:

  1. a Federal regulatory or law enforcement agency;
  2. any Member of Congress or any committee of Congress; or
  3. a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct).

Otherwise, it will not be possible for the whistleblowers to be protected in accordance with the provisions of the SOX Act. A case which occurred in 2007 (Los Angeles Times, Two auditors not entitled to whistleblower protection, court rules, 4-May-2011) can be given as an example to the importance of legal counseling. The case involved two internal auditors assigned to assess Boeing’s compliance with stricter financial reporting regulations and safeguards imposed by the Sarbanes-Oxley Act. The two were fired after the Seattle Post-Intelligencer carried an article on July 17, 2007, headlined “Computer security faults put Boeing at risk.”

The story said Boeing had been unable for the previous three years “to prove it can properly protect its computer systems against manipulation, theft, and fraud.” These two auditors, Matthew Neumann and Nicholas Tides were not entitled to whistleblower protections because they leaked the information to a newspaper instead of the appropriate authorities indicated above.

Boeing legally fired Matthew Neumann and Nicholas Tides for the reason that they violated Boeing’s Company Principles:

  • PRO-3439* prohibits the release of company information to the news media without prior review by companies’ communications department
  • PRO-2227* considers information protection and
  • PRO-1909* considers companies’ reputation and its relation with the elements of business environment such as customers, creditors, and shareholders.

This case proves the importance of legal counseling in whistleblowing issues.

SILVERMAN, Circuit Judge:

We hold today that by its express terms, the whistleblower provision of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A(a)(1), protects employees of publicly-traded companies who disclose certain types of information only to the three categories of recipients specifically enumerated in the Act—federal regulatory and law enforcement agencies, Congress, and employee supervisors. Leaks to the media are not protected

*Source: Tides and Neumann v. BOEING appeal of 2011 (13 pages, section OPINION)

Complex Risk: due diligence, conflict of interest, ultimate beneficial ownership

Recent headlines covered Brexit and Britain’s subsequent repeal of laws, Germany’s private bank Hauck & Aufhäuser, dissolved Welling & Partners in the British Virgin Islands (IcelandReviewruv.is), and Fashion brand founder Karen Millen’s bankruptcy. Unrelated, at first glance, they also entailed various fraud-related issues and bring a pressing need for effective due diligence back into the focus of public attention.

National and international aspects:
The headlines and underlying cases are indicative of the complexity of cross-border transactions in a globalized world where legislation, regulation, and enforcement still remain largely a national matter.  Further significance has been added by the recent conflict of interest breach at the Bank of England, resulting in the Deputy Governor’s resignation.  The ongoing prolific debate around conflicts of interest in the current US White House (visualized web ) has additionally furthered public appetite for scrutiny and clarity byeond national confines and territories.

Spanning Britain, Germany, Iceland, the European Union (EU) and EEA (European Economic Area), as well as off-shore tax havens in the British overseas territories, taking a birdseye view helps to understand and illustrate the challenges resulting from a broad network of anti-money laundering regulatory provisions and policies.

Risk perspectives:

“EU legislation requires that institutions adequately manage and mitigate operational risk, which is defined as the risk of losses stemming from inadequate or failed internal processes, people and systems or from external events.

Operational risk includes legal risks but excludes reputational risk and is embedded in all banking products and activities. It has always existed in banking, and non-banking organizations but it has acquired a greater relevance given the increased complexity and globalization of the financial system and the recent materialization of unprecedented extremely large losses.”

Source: European Banking Authority (EBA)

Conducting required checks and ongoing monitoring and registry maintenance sufficiently, requires both, the buyer’s and seller’s concerted efforts in order to mitigate and manage risk emanating from improper or inadequate due diligence.

 

The complex landscape of regulations and guidelines:

  • Britain‘s exit from the EU will leave its leading role in anti-money laundering (AML), anti-corruption (and anti-bribery and sanctions compliance) mostly intact thanks to the UK Bribery Act which is independent of EU regulations.  Of greater concern is the stricter control of offshore territories, mainly in former colonies, as well as compliance regulation, applicable to financial firms, which is predominantly derived from EU legislation (OECD concern).
  • Iceland, as a member of the European Economic Area (EEA), has to comply with the EU regulations and its interpretations of the Financial Action Task Force (FATF) standards (Iceland in FATF). This scenario could also apply to Britain, depending on the outcome of future negotiations, for now, Britain remains a member of the FATF.
  • The European Union’s 4th Anti-Money Laundering Directive (4AMLD – summary) was adopted in May-2015, became effective in Jun-2015, and its national transposition is required by 26-Jun-2017.This will entail central registers of beneficial ownership as already set up in Ireland but currently not yet in place in Germany (see the Beneficial Ownership Transparency – Country report, 2015 – for in-depth analysis).

 

Knowing which rule, regulation, and watchlist apply:

Conducting checks is time-consuming, resource-intense and it may be costly.  However, failing to thoroughly substantiate the identity of a customer or UBO (buyer, seller, business or other transaction-partner alike) may be significantly more costly and damaging to the reputation and funds.

“Risk, I had learned, was a commodity itself. It could be canned and sold like tomatoes.  Different investors place different prices on risk. ”

(Michael Lewis, Liar’s Poker, 1989)

Outsourcing the checks may be one option but ultimate responsibility may remain with the outsourcing party – as the case of Karen Millen’s tax evasion scheme around-the-world (see EU Parliament Library note on corporate tax avoidance) demonstrated.  A list of significant failures of duty of care in this regard is available on the UK’s Financial Conduct Authority site (FCA).

Knowing when to conduct checks:
Certain types of risk cannot be insulated, transferred, or legally sold.  Due Diligence (and Enhanced DD: EDD), Know Your Customer (KYC), Conflict of Interest (COI), and Ultimate Beneficial Ownership (UBO) regulations and rules are neither effective nor meaningful past the event, which does not render them obsolete but makes their use all the more valuable as a set of preventive instruments throughout the interaction. Compliance programs and efforts have become increasingly sophisticated, however, human factors such as misplaced bias, trust, unquestioned routines, and practices may enhance the operational risk.

“Let me put it this way: I’m standing in front of a burning house, and I’m offering you fire insurance on it.”

(Jared Vennett explains Credit Default Swaps (CDS) in M. Lewis’ The Big Short: Inside the Doomsday Machine, 2010/2015)

Latent reputation risk and litigation risk may arise instantly, at a very early stage during negotiations.  This may apply irrespective of the nature of a transaction, whether an acquisition, a merger or a sale of a specific stake.

It requires due consideration and pro-active mitigation at a time when there is neither smoke nor fire, a long-term approach that may be deemed a challenge in environments where accounting for long-terms risk conflicts with short-term objectives. Adhering to ethics codes voluntarily may be one way to address the issue, voluntarily applying EDD can be yet another.

Overall, it can be argued that transparency of data, consolidation of watchlists, regulations, and enforcement efforts are increasing and increasingly streamlined, consolidated, and subject to public awareness and debate.

Do People Care More About Corruption Than They Used To? Evidence from the US and Germany

Korruption in Germany and corruption in the US – an interesting analysis that raises questions as to cultural differences, connotations and the role of the media: “This is perplexing. What explains the mismatch between the popular narrative that there’s been a surge in public concern about corruption?”

GAB | The Global Anticorruption Blog

Sometimes it feels like corruption has become the topic of the year: We’ve heard repeatedly that it is (the perception of) corrupt elites that has fueled the rise of populists, nationalists, and new socialist parties and politicians. The most prominently of these, though not the only one, is Donald Trump, who promised in his campaign to take back power from the corrupt elites (see here and here).

But has the topic of corruption actually become increasingly prominent in popular and media discourse over the last two years? To investigate this question, I did a simple search on the Factiva database within the eight most widely-circulated American newspapers (USA Today, the New York Times, the Wall Street Journal, the Los Angeles Times, the New York Post, the Chicago Tribune, the Washington Post, and Newsday) for the term “corruption.” I did a…

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Do Codes of Conduct work? Misconduct, Fraud and Ethics.

In a recent interview, I talked about internal controls and ethics and referred to Wells Fargo as an example of the implementation of a Code of Conduct which did not result in the desired ethical behavior.

The reasons, as far as I have been able to observe and analyze are complex, far from obvious and even counter-intuitive. I believe we require a much better and more holistic understanding of the power dynamics, the collective unconscious and the interplay between individual-peer-community dynamics and pressures, sector and industry practices and the national society as well as the global.  This applies especially to transnational corporations and cross-border operations where cultural aspects further add to the complexity and potential failure of a Code of Conduct.

The main reasons why an Ethics Code or Code of Conduct, even if fully embedded, rolled out and vigorously communicated, fails to bring the desired change, center strongly around the following:

Corporate predicaments:

  • Tone at the top (set by CEO or the entire C-suite) mismatches tone at the middle – long-serving middle management has its own practices;
  • Expectations at the top (C-suite, Board but also shareholders) remain profit-focused, no shift towards a greater paradigm shift gets underway;
  • Ethical behavior is mainly valued as reducing litigation risk (and costs) but not valued as profit-generating;
  • Compliance and risk departments are seen as non-profit generating, no counter-narrative from the C-suite is offered/communicated;
  • Weak internal controls including weak HR division are impacting internal whistleblowing and act as a deterrent (rather than deterring misconduct).

Cultural issues:

  • Ethics and the Code of Conduct are being mocked by (long-serving) middle-management as something that will pass as so many initiatives before;
  • Code of Ethics is coupled with zero tolerance – correctly interpreted as unrealistic;
  • Acting ethically may be deemed “nice” and interpreted as weakness rather than a strength (by both gender) – this is usually even more so in industries with fierce competition and a glass ceiling;
  • Morality is not seen as in line with the Code of Conduct – ethics are understood as more abstract and deemed over the top;
  • Morality has been mainly lived and practiced by a (corporate and societal) culture of naming & shaming and scapegoating rather than embracing the messenger who delivers bad news before the event – shooting the messenger has been the norm.

Mechanisms and knowledge missing:

  • No, or no sound, internal crowd-sourcing platform or system to gather issues and reward those who point them out and provide potential solutions are in place – promised anonymity communicates inherent threats/risks to those who wish to protect the organization and name problems versus transparency of issues, discussed in open forums beyond the confines of a department which would indicate openness to fix rather than to blame;
  • Morality and ethics are wrongly deemed as inherent – they are not understood as learned, negotiated, agreed and practiced concepts, rather there is a lack of knowledge that they change in socio-historical contexts and are not universal per se;
  • Lack of respect and integration of experts in behavioral collective change – business consultants rather than social scientists shape the strategy and communication, resulting in a sense of rhetorical unrealistic exercise;
  • Lack of understanding that ethics cannot be imposed but need to be owned by the community of all staff at all levels – which is why crowd-sourcing can be such a powerful approach and which is why Volkswagen’s hierarchical structure played such a central role in the emissions scandal.

Broader factors:

  • A history of severe misconduct with inability to replace all those previously involved (due to size of organization or else) may result in a Code of Conduct being circumvented by creatively finding loopholes (the role of legal professionals in this context is another issue);
  • Other main players in the industry are not embracing a Code of Conduct as strongly, resulting in a competitive disadvantage.

I believe this question is incredibly important and we need a deeper discussion as to why the implementation of Codes of Conduct continue to fail and/or don’t bring the changes we want and need to see as widely and sustainably embedded and practiced as they should. I also believe that ownership (at all levels) of any Code of Conduct plays an extremely important role but is often hugely undervalued and misunderstood.

Aw SNAP something went wrong: valuation

Snap Inc.’s IPO has turned from hyped to sour in less than a week – NYSE: SNAP.  I had already flagged some concerns with the company’s valuation and potential issues as to underlying metrics which were, according to the lawsuit linked in my previous post, alleged to be fraudulently inflated.

There has been much debate across various media channels as to the underlying metrics which informed the calculation of the valuation. However, goodwill remained unmentioned. While notoriously hard to value, it deserves more public debate.  In particular so, as in the case of Snap Inc.’s going public the goodwill valuation shows a significant increase from 2015 (USD 133.9 mn) to 2016 (USD 395.1 mn), see p 35 in SEC Statement under The Securities Act 1933 where Snap Inc. states:

If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings, which could seriously harm our business.

Under U.S. generally accepted accounting principles, or GAAP, we review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. As of December 31, 2016, we had recorded a total of $395.1 million of goodwill and intangible assets, net related to our acquisitions. An adverse change in market conditions, particularly if such change has the effect of changing one of our critical assumptions or estimates, could result in a change to the estimation of fair value that could result in an impairment charge to our goodwill or intangible assets. Any such material charges may seriously harm our business. [emphasis added]

The quick return down to earth may not come as a surprise to those who refrained from investing and held a critical view on the corporate governance issues and Snap Inc.’s business model.  But those among the public investors who hoped for sustainable profit may have had a rude awakening.

Some argue that a segment of the investors confused popularity with profitability. Looking beyond the hype and one’s personal preferences should be part of due diligence every potential investor invests in – as a tool of damage control and sound risk management practice, before the actual investment. Conducting this due diligence with respect to goodwill valuations and the choice of metrics underpinning the overall valuation is a challenge, though.

It helps, especially when it comes to tech stock or unicorns to keep a set of questions in mind, coupled with a few considerations that should guide the investor’s evaluation. Goodwill valuation, its challenges and the particular risks embedded in the metric that is prone to bias and often deemed an art rather than fact-based science, is equally important and difficult to assess in terms of accuracy.

For the purpose of understanding a whole range of motives, pressure and influencing circumstances that may inflate a valuation underpinning the going-public of a tech company, the following questions and aspects should be kept in mind:

  • Generally speaking, the industry’s standard needs to be taken into account – keeping in mind the dot-com bubble during the late 1990s and the related history of very short track records coupled with thin profits.
  • A key concern is and remains the fact that underwriters, such as large investment banks, charge considerable fees.   Up to 6-10% of the capital raised in the IPO are due and represent a considerable lucrative incentive, making this a non-deferred reward system prone to fraud.

    How do underwriters make their money? A bank or group of banks put up the money to fund the IPO and ‘buys’ the shares of the company before they are actually listed on a stock exchange. The banks make their profit on the difference in price between what they paid before the IPO and when the shares are officially offered to the public. Competition among investment banks for handling an IPO can be fierce, depending on the company that’s going public and the money the bank thinks it will make on the deal. (CNBC explains:IPO)

  • CEOs and CFOs are disproportionately frequently involved in financial statement fraud (underpinning the valuation), this is largely enabled due to their position of power, status and related access to systems and coupled with particular pressures and expectations that these roles entail.
  • The pressure and common reasons senior management cite when caught overstating their financial statements include (a) compliance with loan covenants, (b) meeting and exceeding earnings or growth expectations of stock market analysts, (c) showing a pattern of growth to support a planned securities offering or sale of the business, (d) meet personal or corporate performance criteria – to name only the most prevalent ones in this context (see Forensic Accounting and Fraud Examination, 2010, Wiley, by John Wells, Mary-Jo Kranacher, and Richard Riley).
  • Taking the figures at face value is not advisable, frequently footnotes and disclosure notes might indicate deviations from generally accepted accounting principles (GAAP).  Despite standards, guidelines, and rules, it is vital to keep in mind the subjective nature of book- and record-keeping. Differences in judgment can result in significantly differing valuations.  To illustrate:

    .5   Fair value measurements for which observable market prices are not available are inherently imprecise. That is because, among other things, those fair value measurements may be based on assumptions about future conditions, transactions, or events whose outcome is uncertain and will therefore be subject to change over time. The auditor’s consideration of such assumptions is based on information available to the auditor at the time of the audit. The auditor is not responsible for predicting future conditions, transactions, or events that, had they been known at the time of the audit, may have had a significant effect on management’s actions or management’s assumptions underlying the fair value measurements and disclosures.
    source: AICPA (American Institute of Certified Public Accountants) Standard Audit Test AU00328 and VS Section 100: Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset

The issue with valuing young companies is not a new one.  In recent times we witnessed the case of Theranos (Fortune, 2016, Wired, 2016, Gawker) which turned from a USD 9  billion valuation into a serious fraud disaster.  Then there is The Honest Company which has been under persistent criticism for product fraud but more importantly in this context is its seemingly inflated and unjustified valuation, given these issues. Of course, there is also the valuation controversy around Uber, to name only a few examples.

Some argue that the current tech valuations are entirely made-up (see Zero Hedge, 2015).  We know for certain that the dot com bubble was a culprit in this regard (Business InsiderSEC action against Henry McKelvey Blodget, Merrill Lynch, internet sector stock fraud).  As mentioned above, the not so distant past might be an indicator as to where valuation practices remain problematic and require further regulation or more meaningful methodologies.

The key nagging questions that remain:

  1. If investors who provide large amounts of funds aren’t doing their proper due diligence, does this mean the data they rely on is insufficient and not sufficiently transparent?
  2. If availability, accessibility, and transparency of data are not the issue or main driver of lack of rigorous due diligence, what irrational drivers make such investors ignore all (or any) red flags?
  3. Is it the simple but persistent Gecko’s “greed is good” which appears to work again and again, even if in the very short-term only?

Further reading on valuation, in particular also goodwill valuation, in the context of IPOs:

  • SEC Comments and Trends: An analysis of current reporting issues (2012) Ernst & Young (167 pages, pdf)
  • Valuing Young, Start-up, and Growth Companies: Estimation Issues and Valuation Challenges (2009) by Aswath Damodaran Stern School of Business, NYU (67 pages, pdf)

Snap up a bubble

California-headquartered camera company Snap Inc.’s initial public offering (IPO), has been all the rage.  The valuation at USD 24 billion (~EUR 22.4 Milliarden), including staff stock and deal bonuses, set the IPO target at USD 17.  After its first day of trading at the New York Stock Exchange (NYSE: SNAP) markets are smiling and co-founder billionaires Evan Spiegel and Bobby Murphy, are beaming thanks to the stock closing 44% above its listing price.  Today’s performance has been no less impressive – or unsustainable – given the stock’s underlying business model and some risks I’ll look into in a minute.

Others, such as venture capital firms Benchmark Capital and Lightspeed Venture Partners,  Morgan Stanley as well as Goldman Sachs can also be reasonably expected to celebrate a nice pay-off.  Valuation and legal advice – as controversial as some of it may have been – generated USD 26 million and USD 21 million respectively for the underwriters.

Criticism hasn’t been missing, though, concerns have been raised that:

  • liberties were taken with investors’ rights, i.e. shareholders stripped of voting rights which leave them with no right to determine board members, influence merger & acquisitions or submit shareholder proposals;
  • the business model appears thin with a user base dwindling and user growth slowing, difficulty to reach over 35-year olds and securing their engagement for more than a daily couple of minutes on Snapchat they currently offer;
  • the company was founded in 2011, suffered a net loss of nearly USD 515 million in 2016, with an earlier net loss of USD 373 million in 2015 (see page 12 – Summary Consolidated Financial Data).

Snap Inc. has been aware of a range of risks, it seems.  In fact, among its financial information for investors – SEC filings, is today’s filing, a prospectus pursuant to rule 424(b)(4) which lists a whole set of – though in extra small-print- risks investors should take into consideration. The major potential areas of concern are cloud services and technical risks, competition issues within the industry, user loyalty (and over-reliance on non-Android – i.e. iOS users), sole reliance on advertising, reputational risk, intellectual property risk and in general a focus on user retention, growth, or engagement rates that are at the core of operations, which means a decrease would render Snap Inc’s products not only less attractive but also cause serious harm to the business.

What the report – a dense reading of 240 pages – does not mention at all, though, is whistleblowing or ex-employees who might engage in such act.  Litigation and lawsuits find ample discussion in the report and it seems Snap Inc. is acutely aware of the damage to reputation and drain on resources any legal action could have.

However, the (quite redacted) 31-pages lawsuit (via LA Times), filed in early January 2017 in the Superior Court in Los Angeles by former employ­ee Anthony Pompliano contains allegations regarding misrepresentation of the company’s fin­an­cial state.  Pompliano alleges that his refusal to give in to pressure and engage in cooking the books in order to inflate the company’s IPO value by means of false representations of metrics resulted in unlawful termination.

Inaccurate representations  and fake metrics are not just an ugly accusation of a disgruntled employee that is already causing reputational damage due to media coverage, but, if substantiated, carries serious penalties under the Securities Act of 1933 [amended]

UNLAWFUL REPRESENTATIONS SEC. 23. […] It shall be unlawful to make, or cause to be made, to any prospective purchaser any representation contrary to the foregoing provisions of this section. (…)
[…]
PENALTIES SEC. 24. Any person who willfully violates any of the provisions of this title, or the rules and regulations promulgated by the Commission under authority thereof, or any person who willfully, in a 75 SECURITIES ACT OF 1933 Sec. 27 registration statement filed under this title, makes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, shall upon conviction be fined not more than $10,000 or imprisoned not more than five years, or both. [emphasis added]

Aside from all this remain two key questions:

  1. What role were analysts playing in the misrepresentation of metrics and related valuation, i.e. those individuals and teams working for the underwriters whose fees made headlines, i.e. above mentioned Morgan Stanley and Goldman Sachs?
  2. Also, the role of market data providers, such as Bloomberg who failed to raise the risks, the weak business model and other issues in their Snapchat/Snap Inc.coverage in late 2016 and seemed to contribute to what looks like another hype thanks to a price over revenue multiplied by an unsustainable valuation ratio of 60  (versus Facebook x 14.0, Twitter x 4.5).

Earlier this week we heard Warren Buffett (NY Times and Berkshire Hathaway 2016 letter) speaking angrily about [hedge fund] fee structures which he deemed “bordering on obscene”.  In the broader context of SNAP Inc.’s going public triggering similar questions about fees and performance, we may be at a point where perverse incentives coupled with fairly blatant ignorance of a whole host of risk issues enter the mainstream media and public awareness, gaining some of the urgently required attention they deserve.

Ironically, shareholders, who are supposed to have a voice and stake in such matters, have been muted.  In this bizarre tale of initial public offering marked by strange governance fascism, they have been – knowingly and with consent – robbed of their voice and potential power.

As to a potential case of IPO or valuation fraud, all hopes might be on the former employee who has been quickly dismissed as disgruntled.  We may just see this whistleblower case settled out of court, and the bubble further inflating before it eventually bursts, though.

Translated: my interview in an Icelandic newspaper

As an expert in the field, Britta Bohlinger is interested in fraud and risk. She focuses on finance, politics and business. Britta, who previously worked for investment banks and a broker dealer in London, is now settling down here in Iceland. She blogs about Icelandic society and wants to connect with the academic and political areas of the population, with a view to providing benefit to the community.

“There is no particular romantic reason for coming to Iceland. I wasn’t in love with one of the common pull factors or anything like that”, says fraud and risk expert Britta Bohlinger.

We are in a cafe in Reykjavik, surrounded by the headquarters and high rise buildings of the Icelandic financial district. Britta was born in Germany, not far from the border with both Switzerland and France, but after graduating from university in the UK and eight years of working in the fast-paced investment banking sector in London, she no longer wanted to be part of this particular environment.

“Some say, one year in this business equals seven normal years”, she says smilingly. “It’s an intense and demanding world that I entered while still doing my social sciences post-graduate degree, not being from a family of bankers. It has undoubtedly given me a different and critical view of the financial sector, certainly very different from what tends to be the norm, in places such as the City of London.”

Not very long ago, Britta lost both her parents shortly after they had reached retirement age, and she says it has affected her way of looking at things.

“I wondered what I wanted to do and achieve in life, and how I could make an impact. After I left the bank I travelled and visited various countries, including Iceland. I could see myself here, and now this is my second winter here.  What’s more, I did see that Iceland responded relatively quickly to legal proceedings related to the collapse, a number of bankers went to prison. I know well that the outside world has taken note of these issues and sometimes with admiration, but it doesn’t always quite match the experience Icelanders themselves had. I do try to see it realistically, not in a rosy light.”

The strength of the Icelandic society lies in its small size, but it also results in certain risks. Short lines of communication are often a good thing, but a close-knit society can also create gray areas.

“This is a small community with relatively high equality, which I consider extremely significant pillars, especially after living in London where inequality has been strikingly high, with a shrinking middle. With the economic balance comes a certain pressure and political willingness to take on certain issues. This crucial feature of the Icelandic society has been demonstrated since the collapse and is likely to continue.

Iceland, however, is part of a globalized world where crime occurs across borders. The situation in distant countries can affect us here in Iceland, with immigration impacting the economy, and other areas.”

German native Britta Bohlinger does not appear particularly impressed with the Icelandic common phrase “Þetta reddast – It will work out.”. She says it is important to try to anticipate which areas of the society may become exposed to the risk of fraud, tax evasion and corruption and how it can preferably be prevented or at least mitigated. It is always better to act before the damage is done.

“Risk and fraud both carry negative meaning, it is therefore vital that those who work in the financial and political sector realize the consequences resulting from a failure of mapping the risk of fraud”, says Britta.

She left work within the internal controls divisions of large investment banks with limited confidence in this side of the operation. Major scandals, such as the recent case of Wells Fargo bank accounts debacle in the US, support this impression.

Ethics and moral values blend into this debate and how we grow the essential characteristics within the school system and society.

“If we take the financial sector as an example, the discussion of ethics is often very abstract, rarely embedded within the daily work of those who work in the sector. It is key though, to link the activity of the individual to any consequences it may entail. We live in a society based on ethics and trust, but perhaps we do little to think about how these aspects color our daily lives and how central they are in glueing and keeping the community together.

Another problem in this respect is the supervisory challenge the government faces. The revolving door and related brain-drain which impact regulatory bodies, tend to go in one direction, with experts in regulation moving over to the corporations that the regulator is supposed to supervise. Banks usually offer significantly higher financial incentives than the financial supervisory entities. “

A new yet familiar image of Icelanders celebrating the boom with champagne may evoke a similar fury as it did before the crisis in 2007. Tourism is fueling this new economic boom, paralleled by rising property prices and housing costs, many people are asking themselves whether Iceland has established a new bubble.

“I, like others, see that there are certain warning signs – red flags,” says Britta. “There is great pressure on the Icelandic society, these challenges require that Icelanders remain vigilant: rising property prices and rents, the large numbers of travelers, for example, impact the working conditions and terms of employment. Awareness of the risk of corruption has increased here after the collapse, yet the debate has been limited, it seems to me. Pressures related to tourism contribute also to a risk of unhealthy trading practices, tax evasion, illegal employment and a potentially overall weakening of the legal status of workers, in certain sectors. This is well known abroad [for instance London and New York where human trafficking presents a severe and growing issue], and it is critical for Iceland to increase awareness of these risks, in particular in times when such drastic and fast changes occur.”

This profile feature interview Vill finna glufurnar í íslensku samfélagi (Will find cracks in the Icelandic society) was published in Icelandic on Fréttatíminn (Newstime) of 17/18th February 2017 and was available at the time of publishing here  (see also Interview PDF) and is still available on the newspaper’s Facebook page. Fréttatíminn became defunct in April 2017, its chief editor created a new political party.

Cross-border community in times of crime

The personal, the societal, the international
When thousands of Icelanders, expats, tourists and exchange students gathered in a memorial walking, the temperatures well below freezing, the mood was calm, quiet and collected. Participants united in a walk towards the point where Birna Brjánsdóttir had last been seen – by public cameras – to place flowers and candles at this spot, and at Arnarhóll, Reykjavik’s historically, culturally and geographically central hill.

What I gathered was quiet compassion and a distinct warmth, a shared sense of this being a real and symbolic loss to a community that rarely suffers any violent losses, in particular when taking an international perspective (New York Times coverage).  Memorial events had also taken place in Greenland’s capital Nuuk, and further Greenlandic towns, as well as the Faroe Islands.

Role of community: Gemeinschaft, cohesion and cultural norms
Community and collective effort in this extremely rare case of violent crime (Iceland’s remarkably low crime rate, OSAC report 2015) have been enormous. The search-and-rescue operation for missing Birna, had been similar to those in the more frequent events of lost hikers, which entail considerable and concerted collective efforts. Here in Iceland, the planet’s most peaceful nation‘s police officers carry no firearms, the military budget constitutes 0.1% of the GDP and the country has no national military force or army.  That makes the significant and effective role of civic engagement and community become even more obvious.

While Icelanders may deem this the national norm, anyone who grew up elsewhere or lived in a society that is marked by more fragmentation, separation, anonymity and lack of cohesion will have been touched by the quiet power of what German sociologist Ferdinand Tönnies coined Gemeinschaft.  Outsourcing of certain tasks and relying predominantly on or even exclusively on professional specialists is not an option.  This may be rooted in the geographical location and historically resulting from a strong sense of interdependence in a harsh climate and ever-present risks thanks to volcanic activity and other natural forces.

Violent and white-collar crime in transnational communities
The investigation of the violent crime has brought the aspect of community involvement to international audiences, the attention not least resulting from sustained all-time high interest by tourists. As mentioned in my previous article on tourism risk in Iceland and its characteristic two-way nature, the tragic loss of a young Icelandic woman raises awareness of usually much less visible links.

Iceland’s culture, informal norms, and practices show how civil society and community engagement encourage thought-provoking participation also in temporary visitors and those abroad, those who are maintaining an interest from the distance by the help of conventional and social media.

We also see how crime transgresses national borders.  It transfers from one nation, one island to another – in this case via the Greenlandic seafood trawler Polar Nanoq which had a substantial amount of drugs on board.  We may notice also how little known and understood Greenland’s societal issues are beyond the confines of the Nordic nations, and Nordic co-operation, such as the Arctic Council’s activities (2016 Assembly, panel on mental health issues). Greenland, not a member of the EU or Schengen Area, as the Faroe Islands, is subject to Danish authority, which includes border control issues, and immigration into Greenland.

The painful violent loss of a young woman’s life helps us further understand the vital role of community and civil society in resolving and preventing crime. In this sense, the police investigations, so far, have highlighted some interconnected aspects, such as:

Civil society engagement in both nations, Iceland and Greenland, at this time of shock and grief, have shown that the response and engagement of the wider society are absolutely vital in awareness-raising.  The resulting and ongoing discussion of meaningful ways, responses and mechanisms are central to effective prevention of future crimes, whether in Iceland or Greenland.

At the time of writing the case is still under investigation and a final report of the findings has not yet been published.

Environment and misconduct. The Icelandic approach.

Listen to the article 

Tourism a hundred years ago or so used to be totally different from what it is nowadays.  My maternal grandparents then also were no strangers to relocation and re-rooting.  They enjoyed travel thoroughly and up into their old age.  But their trips used to be longer – actually quite long, spanning often three, four or more weeks at a time. They immersed themselves and stayed in one place.  Their idea of holidaying was remotely resembling an anthropologist’s or ethnographer’s project, when the researcher “is going native” – which is a balancing act as they may lose objectivity. Suffice to say, my grandparents had a rather strong influence on what I would become…

As a result of very low airfares, seasonal collective escapism and the pressures of impression management, we see nowadays something that could be called fast food-style tourism.  Extended weekend trips, or even just a fifty hours visit, especially now at the year-end period, are becoming ever more common.

The Icelandic króna’s strength certainly contributes to this phenomenon.  Our weather here frequently welcomes travelers with wind speeds of 40-60 km/h which add to the issue.  Travelers tend to want to remain sheltered but enjoy the scenic views. Hiring the obligatory 4×4 and going on a selfie spree on moss in Icelandic lava fields seems a – sort of –  natural choice.

Tourists may not find the time to consult their travel guide and read up on the less exciting section with rules and warnings if they actually purchased one in the first place.  This is probably a by-product of being on some kind of budget and taking a short trip.  In addition, many may assume that a nation as widely fluent in English as Iceland, is rather very similar in their values and customs.  And this is where things potentially go wrong.

The legislation concerning off-road driving in Iceland is simple and warnings are issued in English, with hefty fines.  The number of cases has been increasing, though, and keeps making headlines.  Tourists have been found guilty of disrespecting and damaging the fragile nature by ignoring closed roads, by crossing rivers, and driving generally where they are not supposed to.  Extremely quickly changing weather conditions and tourists simply underestimating nature’s power have probably been playing a part in those incidents too.

The cases cover the whole range from amusing to quite unfortunate, some are just bizarre. Fines have been served, some rather steep, tourists have been rescued and an increasing number of warning signs and safety measures have been implemented.

Tourism risk (see also socio-cultural disadvantages such as social stress, United Nations Environment Program) goes both ways: tourists may be posing a risk to the environment but often also to themselves, which triggers more unfavorable comments as to the national rescue service (ICE-SAR) which is run by volunteers.  No doubt, tourism brings about change.  It raises awareness in those who travel and go back home, hopefully being rather more than less honest about misconceptions and cultural differences they were previously not so conscious of. But it also causes change in the locals.

Communication becomes the key to understanding what appears so hard to grasp – all the taken for granted, the common sense that appears to be missing in foreign tourists who litter, trample down what’s precious to nature and locals and ignore the rules that come naturally to the locals.  As often though, whether it is just a few “rotten apples” that give tourists a bad reputation in general or if it is a wider issue, perhaps even systemic, is not so easy to say. What seems to look like ignorance, arrogance, or inhibition thanks to being abroad and possibly intoxicated whether by alcohol, the scenery or else, is perhaps the root cause of this behavior. Again, this may be too simplified – but it is a common notion that shapes the discourse

Communication of values, expectations and boundaries is what is at the core of this issue. It could be argued that some of those may be reasonably assumed as shared across Northern European or even among Western industrialized nations.  But it may be a rather a misleading assumption that would overly rely on simplifications.

From within a most popular yet also very vulnerable tourist destination, I found the way Iceland has been handling the matter very persistent and it remains a curious aspect that may lead to wider subtle changes also among those visiting.  Iceland’s explicit encouragement to blow the whistle on misconduct is refreshing.   A nation that comprises of only 337,000 residents, yet expects 2.5 million tourists in 2017 simply needs to source its own crowd, more than any other nation, it seems.  It wouldn’t be the first time, as you may have heard, rewriting the nation’s constitution by sourcing the crowd  (Stjórnlagaráð 2011 ) was an attempt Icelanders were willing to make.

Locals, and foreign permanent residents alike, are fond and respectful of the fragile nature and while the weather can be brutal, beating you hard with rain, hail, sleet and strong wind, persistent darkness or daylight – anyone who has been outside the urban borders, in the more remote mountainous areas knows that litter (including human waste) and footprints live on for a long time.

Communicating repeatedly – in English –  that reporting misconduct to the police by noting the number plate and taking photos, is wanted and deemed useful.  Identifying and reporting environmental violations is citizens’ civic duty. Underpinned by media reports of fined drivers, the media coverage highlights, in detail, where drivers have transgressed the rules and how they caused damage to the nature – which could be deemed a way to educate the global public on this specific topic.

In this matter, as often, Iceland shows a pragmatic stance with an absence of passive-aggressive behavior.  Instead, the assertive approach sets clear boundaries and signals healthy collective self-esteem.  Quietly confident, Icelanders know what they want to achieve.  Absent from this picture are also the shaming and blaming, the lamenting and generalizing that can be found in some other countries – and tend to be counter-productive as they trigger predominantly resentment which is ineffective in the pursuit of actual behavioral change.

Culture certainly plays a huge role in handling and discouraging unwanted behavior and any attempts to discourage it or change the collective wrongdoing that groups of tourists may temporarily import.  However, swift and consistently acting upon it, including reporting of fines imposed and meaningful actions taken by the police, such as community service imposed, are underlining the credibility and  the sincerity of the approach.  They leave no doubt that the population is vigilant and protective of its valuable nature, thereby increasing the effective deterrent of penalty to be expected by tourists.

Tourists may come from very diverse socio-economic backgrounds and nations, legislation as to environmental crime may differ widely.  Their communities may place very different, perhaps much lower value on the nature, the natural environment, but also, perhaps on individual human beings as such.  Some tourists may hold lower self-esteem, whether individually or collectively, they may indeed also hold lower self-respect and lack the sense of respect for nature that is so deeply ingrained in the Icelandic culture.  This may not be changed overnight, nor by words alone. But these persistent actions speak louder and they may be one of the few long-lasting souvenirs that tourists take home, even if being fined for destructive driving is  financially painful – and community service  no glamorous fun – it may just stick.

The remarkable aspect is that this is no perfunctory act, not out of compliance with some imposed rule or piece of legislation by some regulatory or supra-national body that has been grudgingly implemented.  Rather, it is out of authentic deep-seated understanding and appreciation of the way Icelandic nature works and human-nature interaction is lived and perceived, how many decades are required in order to grow and restore what has been destroyed in a mindless moment, the blink of an eye.

Objectively considered, it may strike many fastfood-style tourists as an odd thing -realizing that what they have come to see took that long and is that valuable.  If their home is in a city that is scarce of nature and features human-built gardens and parks and very limited communal space, but an over-abundance of traffic and air pollution, too much artificial light and too little respect for genuine human needs, then it might be understandable, yet not excusable, that such behavior occurs.

The way this particular tourist misconduct is being dealt with is:

  • non-passive-aggressively,
  • without blaming and shaming, but
  • swiftly and consistently and
  • appropriately for the purpose of restoration and as collective self-protective measure.

It is an attitude that I hope so see being exported and adapted in other nations.  Reporting misconduct, fraud, corruption and other violations tend to remain negatively connoted, often deemed an act of betrayal rather than of deep loyalty and sense of duty.  Instead of focusing on improvement and whistle-blowing as natural civic duty, reporting misconduct remains in many jurisdictions burdened with layers of bureaucracy, lack of efficient and effective judicial commitment as well as slow and ineffective law enforcement.

Who says that lessons learned from managing tourism risk and blowing the whistle on environmental violations can not be transferred to other areas and industries?

Letter to a Friend: on the risk of defrauding your values

Dear Friend,  [listen to the letter]

Take a seat, take in the magnificent view on a winter’s day.  After a long morning, that covered everything in benign darkness and inspired hours of work in candle light, this crispy cold air and shimmering ice, steaming sea and unpolluted and unobstructed space will make you look at what happened to you from a new angle.

Seeing an organization in decline, and the break-down in staff’s morale that precedes its demise, is impacting your professional life, your personal life and your entire existence and it can be immensely hard to witness. It can also make you feel helpless, trapped and angry.  I can only imagine the full extent of what you are going through in these days. So many things may be crumbling, you may be worrying about the future of your children, your plans for the next years and even decades to come may be in jeopardy, and on top of all that, there may be doubts, self-accusations, a feeling that you were not enough, not right, that you should have, could have – done more, done less, done different.

Yet, these dark days may fill you with an increasing sense of opportunity, a stronger-than-ever will to live life and work beyond the confines of the limited space and place the firm used to offer you.  That space and role you inhabited in the firm became your professional identity.  Yet, it stifled and muted you, when you saw things going wrong over the many years you were loyal and committed, and when you wanted and tried to raise concerns and suggest changes.  The position was never meant to challenge the status quo and help the organization grow out of its growing weaknesses. But you believed in the rhetoric, and you had sufficient trust and hope.

Rather, the organization guarded and protected its weaknesses from its engaged and courageous employees, its stakeholders and shareholders as best as it could, all those who kept their eyes open and wanted it to become an entity fit to proudly identify with. It got stuck in a defense pattern that left it hanging in denial, struggling with growing up into a mature attitude towards admitting and taking responsibility for errors and learning from such.  Markers such as accountability, transparency, and critical reflection remained absent or shallow rhetorical exercises – until it had cocooned into an impenetrable web of self-deception and delusion that absolutely no one wanted to keep alive. Not even artificially.

The corporate culture you were made a part of, a human factor and component so to speak, did not permit genuine fixes, it did not allow an authentic culture of safely admitting errors, learning from them and making the place a better and safer place – for the entirety of its workforce. It was hierarchical, driven by punishment and reward, living and breathing a competitive us versus them culture, marked by dysfunctional patriarchal or matriarchal thinking.  In either case, it resembled an obscenely over-sized household that held a view of its children (i.e. the employees) that was marked by fear of independent thinking and genuine passion for learning and growing (intellectual and social as opposed to solely economic).  It resembled, in its daily demeanor, a fearful head of a household that believes in controlling others and has no experience nor appreciation of collaboration and cooperation with equals. Oblivious of deeper connection to self and others, incapable of the need for consciousness, it created its own grave – but will even now continue to push the blame to others.

You know now that you were right, you have proof, but it gives you no satisfaction – you are not the type of person that enjoys the firm’s failure nor is witnessing all the collateral damage giving you any pleasure.  You are not one for Schadenfreude.  Rather, you are acutely aware that those who turned the corporation into a zombie firm may elsewhere repeat the same dysfunctional mechanisms by mismanagement and their deeply buried childhood issues and patterns they were unlucky enough to never resolve – which will cause further harm and havoc.

I know, you connect the dots.  I know that you see the links between and beyond all this. I know that you know that just because so many keep telling themselves and others that economic growth is the panacea and that we cannot change it and that a little bit of narcissism in our leaders is actually a good thing, is dangerous nonsense.  I know that there are others who see this too, who are aware and conscious and deem a questioning curious mind the most valuable contribution there is, whether as an asset in your organization or to global society at large. I know that we want to see the world less dominated by fraud, abuse, neglect, and exploitation – all resulting in ever more individuals who abandon their healthy vision of a life lived in connection, awareness and in sync with what we truly need and what keeps the planet alive and livable.

The risk that comes with being a part of a toxic organization that is supposed to be your patron, your home, your key measure of success, identity and income, is dawning on us in such times. We realize that being dehumanized and deemed a human factor within such an organization leaves everyone who is alive and aware at risk of feeling hollow.

It makes you doubt that contract you signed, which has bound you tightly to the firm.  The deal you made provided you with all you thought you needed, for a few or many years.  Your whole life revolved around ensuring your firm, your boss and everyone who matters to your professional existence in that firm and industry, were beyond satisfied with your performance. Performance, the very term connotes an air of falseness, of insincere acts, of putting on a show.  Still, you almost convinced yourself, it would be a wonderful opportunity, your family and all significant individuals in your life praised you for your efforts and your rewards.

It’s what happens a lot – so often, that many deem it the norm, rather than the exception. From the corporation’s perspective, it looks as if they have a staff retention, staff engagement, and staff motivation problem – clueless about human needs, one program and incentive after another will be rolled out, consultants roll in, all fail.  What never comes around is what employees – that means human beings, not human factors, not human resources nor any other dehumanized entities – truly need.  Authentic respect, validation, appreciation – none of this can be purchased, none of this can be handed over by contract.  You know that; I know it.  But it takes genuine effort and connection to give it, and in order to give it, you need to know how to take it. It takes reflection and awareness to know it and enable it, but so many seem to not know, seem to be unable to understand where the greed, the insatiable hunger for recognition (beyond compensation – i.e. salary and perks) comes from and that you cannot substitute it with any salary increases, perks or other rather meaningless form of Ersatz.

We also know, it is not a generational issue.  Whether Baby Boomer, Gen X, Millenial or else, belonging, connection and the need to feel safe are universal, some may just have a higher level of unawareness or are more accustomed to denying this need to themselves – and others. The root causes transgress the public/private boundary and go far back into upbringing and childhood.  Usually, dysfunctional behavior of employees, especially in leading roles, is off-limits, but the ramifications and the resulting damage are all too real and the costs are externalized, they are added to the burden the entire society carries.

But we need to distinguish between the illusion of safety and certainty and the very real dangers that require safety measures – being surrounded by active volcanoes springs to mind.  All too often we are being offered a false sense of security and unilateral safety, whether by consumption or purchase of assets and items we don’t really need and actually harm ourselves or the environment or by the promises a corporation may offer you in exchange for loyalty and exclusive devotion.  You and I would warn the children and teenagers that are closest to us and tell them to stay clear of such abusive and unsustainable relationships. Why would we tolerate anything less from the organizations we work with?

The imbalance of power is what creates the breeding ground for resentment. The denial of meaning – whether in the work itself, the collaboration or engagement across the levels of hierarchy – further fuels that.  It may manifest itself in a patronizing or belittling attitude, or denial of full and clear communication and transparency – frequently an issue with the broader community of stakeholders and shareholders.  This resentment, in everyone who is not aware of it and who is not intrinsically motivated, is the toxic element.  That element, if unmanaged and denied, brings entire corporations down.  It is, in essence, the passive-aggressive resistance that employees, who are deeply disengaged as a result of being ignored in their non-financial needs, will resort to.

They will resort to this strategy, whether consciously or less so, out of habit or herd mentality or lack of awareness of alternatives, because it is the only socially acceptable way they know of in which they think they can retaliate: deny engagement, refuse enthusiasm, fake caring, pretend admiration for a leader who lacks leadership qualities, be physically present but find ways to be mentally absent, abuse corporate resources for one’s own purposes – the list goes on with varying degrees of aggression feeding into the passive-aggressive overtones.  Those who lack intrinsic motivation and a deeply embedded set of firm ethical values will be found guilty of such misconduct that eventually harms all of us.

On the other end of the spectrum, the societal level, we find tax evasion and tax fraud to be the result of a similar construct.  We may hear plenty of voices who justify this because it is rampantly occurring. Yet, just because it has become another dominant form of passive-aggression doesn’t make it right or desirable. It is eroding our societal and democratic foundation, and that should be reason enough to fight it beyond token acts and an occasional impeachment or a rare criminal conviction.

Empathy, though, you know it, was never part of that deal.  Compensation, health care, pension, stock options, the whole range of benefits, bonuses, all sorts of sweeteners that may or may not have appeased you through the years, that was what the firm could offer you. Empathy, that gift of appreciation and genuine connection, that remained denied.

Empathy would entail genuine mutual engagement and the ability to act as equals, which any hierarchical organization will vehemently resist doing.  It would undermine their power and put them in uncharted territory which would further contribute to a shift in power.  Hence, the circle closes and employees will resort to passive-aggressive resentment. Quite similar to dysfunctional nuclear families, private schools or boarding schools, universities and colleges which instill reward, punishment and box-ticking, all organizations in which many of those in leadership roles have likely grown up.  And so it rolls. Unaware of alternative approaches. Downhill.

The denial of the right to daring is embedded in the contract that makes us subject to the rules and beliefs of an organization that is not an equal. At best, it is a patron, at worst, it is a perpetrator.  Permitting abuse will have implications and repercussions to the families, communities, and societies we live in. It has knock-on effects and changes our perception and behavior.  We see this thanks to global, social and alternative media more clearly than ever before.  We also see and hear it in our fellow citizens: there are those who pass the behavior on to their children, treat their spouses the way they are being dealt with by their bosses, alcohol and other drug abuse play a role way too large in pseudo-coping strategies, and again, the list goes on.

We may opt for devaluing ourselves, for denying our values and our needs.  We may rebel, we may – some may, not you and I- resort to revenge.  We may, indeed, have witnessed highly paid executives engage in a form of passive-aggressive revenge that made us cringe.  Perhaps we acted upon such abuse, whether we witnessed acts of theft, forgery, corruption, conflicts of interest, bribery or worse. We followed our true values and perhaps that is how we chose to roll and how we came to become advocates for authentic, meaningful and equal relationships and existences.  Perhaps we did our best to bring about change, instill a sense of genuine responsibility and tried everything we could to make that organization a place deserving a place in our society.  Whether as citizens, employees, friends, parents or else.

Perhaps we just grew tired, of false rhetoric, of the harm we witnessed, done by the firm, our presumable patron, to people, nature, society at large. Perhaps we were unwilling to comply with things that are actually non-compliant with everything that is healthy and meaningful. Perhaps we remembered that life, this limited life on a planet with finite resources, is way too precious, to sell it off to someone – the firm, that vague entity of non-human factors, all made up of humans hiding behind the corporate mask – who does not value our contract nor ourselves and has neither healthy self-respect nor respect for others.

We owe this, not only but foremost, to ourselves – as role models, leaders, inspirers of our children. We may even inspire dialogue and reflection among those who are deemed the silent generation, the traditionalists who enjoy the last part of retirement and may be proud and deeply moved to see that what they lived for lives on, in us, in all those who do not give in, who do not sell off their values, who do not comply with those who encourage us to self-corrupt and self-defraud.

We owe this especially also to the children who are teenagers and at risk of becoming disillusioned with a parent’s or other adult’s inauthentic life and related action-rhetoric incongruity.

We owe this to ourselves and all other beings on the planet, to act with integrity and responsibility.  This is the only way to maintain self-respect and a meaningful degree of freedom.  Submitting to financial needs and status symbols which have been made our second nature but couldn’t be more removed from what makes us connected, belonging, valued, and self-respected, need to be carefully evaluated.  Lip service will not buy us the authentic safety and belonging, the meaning and connection to like-minded strong individuals we all crave.

I know that you know.  I know that there is a deep understanding that what makes a firm, an organization truly valued by its people is the way it deals with its people, its resources, whether human or else.

What’s there to lose? Our assets and properties we hope to give us certainty and security in old age, things we can pass on to the next generation, things we can hold onto in times of doubt? I know that you know how hollow these promises sound, and who created them, for us, the consumers, the voters, the employees.

But things can be different, I know that you will dare to risk. You will be the change that you want to see live on in your children. And nothing matters more, nothing has greater impact and results in lasting impressions, than standing up for our beliefs.  Living authenticity, integrity, and accountability to our own deep beliefs which we know are right and un-corrupted, that is the legacy we wish to give.

You may, at times, feel sorely alone in this sea of change, daunting challenge and threatened values.  You are not, as you are no longer muted by a contract that offered you false hope, false security, and  false appreciation.  You no longer have to be suffocated by the fear of an organization that puts denial at the top of its priorities and neglects your most valuable contributions.

May the force be with you, my friend.

Love and peace