… rendered ineffective by socio-psychologically savvy fraudsters – are at the core of my forthcoming talk at the ACFE Conference in Frankfurt a.M. The invitation to hold a session has prompted me to focus on Germany’s “hidden champions”, its famed Mittelstand.
Those over 3 millionSmall and Medium Enterprises (short SMEs) have come under increasing and severe pressure from foreign direct investment (FDI), mainly from China but also in the form of European and North-American mergers and acquisitions (M&As).
Frequently marked by hierarchical and even patriarchal structures, sceptical of progressive whistleblowing and informant practices and approaches thanks to its history, Germany’s SMEs have suffered substantial losses and remain fairly resistant to lessons-learned, resulting from fraud committed by social engineers (Business Email Compromise or BEC, also CEO-Fraud or Chef–Trick) that continues to balloon.
Fraud, frequently conceptually misunderstood as an exclusively external phenomenon urgently requires more attention and a better grasp in terms of scope and depth (i.e. covering holistically the aspects of Wirtschaftskriminalität, Betrug and Missbrauch of resources, data etc.). It finds fertile ground in an organizational culture of fear in particular where:
speaking up and speaking out are equated with insubordination,
creativity is the privilige of certain departments, functions, individuals or hierarchy levels (or even demographics) and
social compliance dominates every action in the organizational routine.
These unhealthy parameters provide the perfect conditions for fraudsters who understand to read the obscure and subtle signs (or absence of such) of victim organizations.
Mitigating this fraud risk (and related reputation risk) and effectively tackling this wide-spread and potentially existency-threatening dilemma is not what most SMEs believe it to be: the current dominant knee-jerk response of staff firing and shame-driven hiding of failed (or barely existent) risk cultures is only adding power to fraudsters – thereby benefitting foreign investors and competitors.
Instead, smart empowering and effective risk strategies can leverage existing functions but require radical rethinking and a thorough understanding of the socio-psychological factors that cannot be engineered on paper into Germany’s SMEs.
Overcoming fear and building trust across functions are central to this type of progressive and sustainable immunization. Transparency and non-authoritarian leadership styles are key pillars in building this type of risk resiliency.
Conference attendees will have full access to my paper including appendix and references and the slides.
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.
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:
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?
Much has been written and said in the past weeks and months, within the U.S. general election cycle, on a long journey that seemed to bring out the worst in many people. In fact the sentiment was strong, not just unhappy were voters with the tactics and demeanor witnessed but “disgusted” as a New Times/CBS poll found.
Much heated debate around corruption and fraud has contributed very little to a civil and well informed debate on the value, mechanisms and potential remedies to voters concerned of such. Instead we witnessed extensive ridicule, media theatrics and wide dismissal of the notions – just to learn that today’s election is marked by vigilantes, by a “call to action” to “hunt down signs of fraud”, by extensive mistrust, a fear of hacking and a pervasive lack of confidence in fair and free elections.
This is going to gnaw at the American democratic foundations and reputation for a period beyond the election process and it is going to leave scars which will not be wiped away by either presidential candidate winning (or losing). The damage done and what is to come evokes comparisons to the most unfortunate Brexit Referendum.
What has been emerging from this claim of voter fraud is a range of aggressive voter oppression tactics, with counter-measures of activists, civil rights groups and election monitors.
While voter fraud – fairly narrowly defined – indeed may not be very widespread but rather used as political weapon in the rhetorical armory of an election campaign that only knows winners and loser (but has little appetite to solve, improve or look at meaningful discourse and negotiation). Voter suppression and intimidation as well as voter manipulation may be the real and much more dominant and pressing issues here.
Voting, to begin with, on a Tuesday (ever since 1845) may be the least questioned but most powerful factor in voter suppression. In addition, legislation and rules ranging very widely across the 50 states of the federal nation, meaning that a whole host of vital aspects differ among states. For instance, whether voters will receive pay for the time they spend queuing and voting at polling places plays a key role in voter turnout. Clearly every low-paid worker and every parents with an ill child on the day is facing a dilemma. This has nothing to do with voter fraud but is a subtle indirect way of voter suppression.
These considerations aside, what can citizens actually do when they suspect voter fraud or voter suppression? A range of tools and sources are available in order to arrive at meaningful and constructive means which entails establishing facts and engaging critically and relatively independently at a fact-based conclusion.
The plethora of studies, media outlets and influences on social media plus time constraints leave many citizens in a state where it appears impossible to check the facts. In particular, citizens lacking an effective strategy to quickly and efficiently check the facts.
What questions help a responsible citizen to cut through the jungle of information?
Who conducted the study and how is the individual or the organisation linked to the presidential candidate? That means: was there an endorsement or is there non-partisanship?
Who funded the study (on voter fraud or on the near-absence of such)? Was it independently financed?
Has a conflict of interest been declared?
For instance, a media outlet that has endorsed one candidate or the other is likely to support the endorsed candidate’s view. Check carefully for potential bias and consider whose agenda you may be buying into.
Does the study or the report/summary of the study/studies appear to be balanced? For instance, does it discuss the findings from several angles and show the limitations of the studies? Does it refer to alternative studies and findings which do not support the purported view?
Check statistics and keep in mind:
– that there are studies which find significant voter fraud and there are studies which argue the opposite Ballotpedia.org on Voter Fraud
– the fact that any factual findings can be interpreted and that researchers, think tanks and even governmental agencies are rarely as neutral and objective as we have been encouraged to believe – this is rooted in the fact that any research, report or polls need to be financed (for instance Factcheck.org is sponsored by the Annenberg Public Policy Institute which is not neutral but belongs to the liberal spectrum)
– that simple answers are often tempting but tend to be too limited or wrong. In the long run, it is more sustainable to embrace the complexity of things and that people tend to have agendas. This is not necessarily a bad thing, as long as citizens are clear about it and can make informed choices. This way, it can even strengthen trust in the system whenever transparency and accountability are given higher priority than obscuring such agendas and intentions.
Actions that can be taken:
Report voter fraud and voter oppression (in its form of intimidation) if and when you observe it, use your national hotline (see links below).
Check the Federal Election Committee for more details on how to identify voter fraud and voter intimidation and how to report it. Remember that reporting fraud is an act of loyalty to your country, you support the democratic process by blowing the whistle on misconduct.
Become active and inform yourself thoroughly on the legislation, the facts, the statistics – and help others to become better informed, using word of mouth, traditional means of interaction with others, including your community and constituency district.
Remind others, and remember, democracy is best served when citizens engage in fact-based respectful discourse, arguments are healthy and a diversity of views is no threat. Spreading inaccurate information and misleading others is severely harming your well-being and sense of safety. Aim to avoid it and discourage others from doing so – no one wants to live in a world where nothing and no one can be trusted.
Sources and a range of selected further readings, spanning the political spectrum:
Following Iceland’s parliamentary elections on 29th October , the amount of international attention, support and scrutiny this event has been achieving is stunning. Far more, it seems, than the early presidential election was attracting, which took place on 25th June this year, in the midst of Iceland’s UEFA Euro 2016 success.
In particular, media coverage by the U.S., the British press and the German media is shaping public opinions. Depending on their audiences and political standing, the views range from fairly enthusiastic to outright pessimistic. Nations who have little or no experience with successful governmental coalitions color their coverage accordingly. A good selection of specific articles to gain a flavor in English and German has been reviewed and collected for this article: The New York Times, Reuters US, the Financial Times UK, the Guardian, Frankfurter Allgemeine Zeitung (FAZ), der Spiegel, die Zeit, Sueddeutsche Zeitung. Voter turnout figures can be accessed and compared to previous years via ElectionGuide and IDEA.
Below: Icelandic daily papers: spilaborg means Kartenhaus in German but its actual reference in this context is House of Cards.
In light of the fact that Iceland hosted about 1.6 million tourists this year and many of them have discovered or renewed their love of the nation, debates across social media are thriving. In addition, many individuals from pre-election North America. and post-Brexit Britain are declaring interest to immigrate, ask for details and clarifications in social media and take a keen interest in the government formation process.
With an informed estimate of 2 million tourists expected in 2017, paying attention to foreign voices and opinions here is vital. After all, Icelandic is not the language tourists tend to speak or understand. Salaries, wages and cost of living are often quoted in Icelandic krona (ISK), the local currency, with a rough estimate usually given in Euro or US Dollar. Unfortunately, foreign audiences tend to quickly jump to conclusions, failing to acknowledge that
the Icelandic living standard including aspects such as the minimum wage, taxation etc differ considerably from other nations such as the U.S. and Britain.
A nation’s reputation can be put at risk by mis-translations and misconceptions which in turn translates into expectations and assumptions incompatible with the actual reality. This in turn may translate into investment risk. In more detail:
A notion of Icelanders voting for an unstable governmental situation could potentially put off investors or pose risks to ongoing and new projects which rely on predictable policies, functional and effective governmental decision-making and dependable leadership. The ability to borrow at affordable terms (c.f. German Bonds), expressed in a nation’s sovereign credit rating, is central to its functioning in international markets. Iceland is currently rated A3 with stable outlook by ratings agency Moody’s – a rating that was only upgraded in June 2016 though (c.f. also Iceland’s Central Bank statement in English which does not yet reflect the latest change by Moody’s).
Forming a stable government and being perceived as able and willing to do so efficiently and effectively is not only important for the population of about of 332,000 people who have been enjoying the tourist boom as “a mixed bag” to quote a presenter at the Assembly of the Arctic Circle earlier in October 2016. Rather, it also plays a role in light of the approved lift of capital controls imposed after its three largest banks collapsed in the financial crisis:
“On 11 October 2016, Althingi passed a bill, introduced by the Minister of Finance and Economic Affairs, amending Act No. 87/1992 on Foreign Exchange. With the Act, which is part of the authorities‘ capital account liberalisation strategy from June 2015, important steps are taken to lift capital controls in full. Controls on resident and non-resident individuals and legal entities will be markedly eased in two steps; first upon passage of the bill on 21 October and second on 1 January 2017. […] Individuals are also allowed to purchase one real estate per calendar year and the requirement that residents repatriate foreign currency has been scaled down. On 1 January 2017, the aforementioned ceiling will be raised from 30 m.kr. to 100 m.kr. and transfers of deposits will be permissible subject to the same ceiling.”
Assumptions and mis-translations on the level of connotation rather than denotation belong to the most severe risks organizations and nations, but also individuals, can run. Actively communicating and managing the resulting misconceptions can be extremely difficult as the distortions remain often obscure, subconscious and seemingly minor.
However, they build up over time and as they become repeatedly re-communicated by large numbers they can solidify what would else have remained indeed a minor aspect of conversations uniting numerous non-native speakers. However, in countries where dubbing of interviews, rather than subtitling, is common practice and audiences are denied access to the original statement, conveying much more than just words, the power shifts towards what the media outlet wants its audiences to hear (c.f. the IceSave debacle most unprofessionally communicated in the British media, BBC newsnight interview ).
As nation, Iceland is fluent in English – predominantly but not exclusively – and versed with linguistic and cultural differences between British and American English as well as the underlying cultural specifics. Many Icelanders understand or even speak German and are also familiar with national perceptions and particularities.
The reverse does not necessarily apply, though. Icelanders, in light of their limited number, may be restricted in their efforts and capabilities to correct misconceptions and misrepresentations resulting from language barriers or foreigners’ misconceptions. Icelanders hold different expectations of their business partners and guests, harshly advising them on mistakes or erroneous assumptions is not part of the national mentality. Awareness building and capacity building remain challenges Icelanders will encounter with growing numbers of tourist and virtual visitors. Reputation risk may move up the priority list and gain a more prominent spot on the agenda, being more actively managed and valued as potential opportunity.
If you work in or experience bystander exposure to, an organizational or corporate zero-error environment you may quickly pull the dots together. Data, spanning from KLIs* over KPIs* and KCIs* to KRIs* and beyond, i.e. the whole spectrum of performance metrics may be fear-inducing per se: whenever the thresholds, balanced scorecard objectives, or plain old deadlines are at risk of not being met.
*KI=key indicator, C, L, M, P, R=control, lead, management, performance, risk
When the engines which are supposed to be crunching figures and producing the desired metrics and reports, fail to deliver on time, then, well then, breaking into a sweat and feeling the heat is probably the most natural response a human being may be experiencing in such a situation. Not surprisingly, the quest for means to cover up such visible signs of weakness (functional would be calm caring, expected may be dysfunctional detached cool) has resulted in a significant increase of requests for Botox (a form of paralysis-inducing toxic botulinum).
While diversity policies and strategies have been implemented and celebrated widely, homogeneity at recruitment stage is surreptitiously reproducing monocultures which offer little if any space for thinking outside-the-box. In light of popular quick fixes in challenging times, most prevalently applied are drastic downsizing, restructuring, and right-shoring (a euphemism that hints at prior attempts of off- and on-shoring) which are all adding to the malaise. All of which have resulted in the opposite of genuine zero-error cultures. Rather, these factors in combination may explain why major errors such as a neglected server at JP Morgan’s could happen. We see such failures and negligence (including pervasive data massaging) frequently, although differences in forms, shape, and dimension can be observed, entailing various degrees of active or passive neglect and manipulation.
Restructuring workloads and task areas often result in fewer individuals doing more work. Permanent staff may have been laid off in favor of newly hired contractors and temps. Overall, the [permanent] headcount appears reduced and shareholders are pleased. In times of downsizing and cost cutting, coupled with key decision-makers being keen on maintaining their budget rather than investing in smarter technology and revising processes and procedures with a view to efficiency, remaining staff often are crippled by fear of what will happen next. Add the typical lack of clear communication, direction and reliable visionary stances from the top that marks these situations, the sheer overload induced by the additional work becomes even more of a botox-requiring sweat factor. Who will be axed next? Which department evaporates entirely in the next round?
In industries where particular aspects of corporate sub-culture add a layer of misuse of power onto those who are charged with tasks beyond their meaningful boundaries and structure of responsibilities (see discussion of the 100 hours workweek), the error rate is further multiplied. Stakeholders and shareholders should feel alarmed as such incidents reveal only the tip of the iceberg of operational risks.
Responsible and dedicated management (not to be confused with micro-management that creates more of the above-mentioned issues) and meaningful staff development go hand in hand with sustainable risk management. It cannot be “happily de-coupled”, rather it needs to remain consciously intertwined and run within a wider framework of ethical values and legal requirements. For instance, operating with rest times and sensible breaks keeps the human error rate down and contributes to maintaining high levels of morale, creative problem-solving and energy levels. This will also facilitate retention and maintenance of trust in order to ensure the organization finds its position at the front of the competing pack when it comes to lasting long-term success.
In an interconnected and highly interdependent global economy, such contradictions and irrational sub-cultural aspects can have vast and potentially hugely damaging ripple effects: risk of human error, on the one hand, severe retention issues on the other. Where zero-error policies are still in place and staff fear showing weakness or admitting to gaps (take the “fat finger” trade at Deutsche Bank for instance) they cause havoc with sensible risk mitigation strategies as the instant knee jerk response of firing will shift blame to those who were at the receiving end of failing policies rather than focusing on those who devised them in the first place.
Smart risk governance will embrace and harness the power of information, the knowledge of potential weaknesses and incidents that need to be addressed. The aim has to be prevention and mitigation policies, methodologies and mechanisms that need to be devised in order to avoid losses and costs related to reputational risks entailing them. Providing a safe environment (World Bank case) in which to disclose potential or occurring risk events without fear of censorship and scapegoating gagging those who are mindful of their work and environment is key to sustainable leadership and a leading position of the organization – it requires much higher priority in strategic considerations than currently recognized.
Acknowledging the possibility of human error in a heavily competitive, excessive hours-environment would be the intelligent thing to do. After all, it’s a strength to know your weaknesses (see this SWOT discussion)– and not push them under the rug. It is a strength to acknowledge the flows and dynamics of power but your policies, processes, and framework need to be more than reflections of realpolitik. Intelligently avoiding being in the eye of the storm of the next big conduct and reputational risk case can be achieved by methodological triangulation. That would entail incorporating realistic ethics and enhancing the governance framework by insights and data gained from disciplines outside the narrow confines of your subject matter experts’ realm. In the course of this, you might actually discover some entirely new strengths.
Today, the Financial Conduct Authority (FCA) posted a note saying that a former BlackRock Asset Management Managing Director had been deemed unfit for the job (as approved person) due to his repeated failure to purchase a valid travel ticket. These repeated rather minor acts of cheating, if you like, turned out to be conscious decisions, rather than errors and hence proved the intent.
The consequences were drastic – and probably a very effective way of demonstrating the power of applied ethics and law enforcement. The individual in question, Jonathan Paul Burrows, was banned “from performing any function in relation to any regulated activities for not being fit and proper”, so the FCA.
Also today, the New York Times DealB%k reported that the Dutch Banking Association had introduced an oath (with variations, addressing aspects of faith) “I swear that I will endeavor to maintain and promote confidence in the financial sector”. The oath aims to improve the sector’s image and its executives’ behavior – so far only the 90,000 at the top of banks which made headlines with scandals such as Rabobank, ABN Amro or ING Group will be asked to sign the oath, the article states.
While an oath or pledge, as introduced in at least one further bank and common in various other professions such as medical doctors and attorneys, may be seen as a step in the right direction, it clearly is nothing more than one step though. Pledges or oaths need to be considered in context and therefore, an in-depth understanding of the cultural and sub-cultural particulars (i.e. the corporate culture for instance or the values and practices of an industry) need to be considered. Apart from this, power dynamics in organisations play a key role in the success of behavioral change campaigns. Continue reading “Ethics – effective and questionable approaches”