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?

Fraud Awareness Week 2016: 13-19 Nov.

Fraud has many faces and is not confined to the most commonly occurring schemes such as

  • bribery and corruption
  • asset misappropriation including larcency and and embezzlement.

Financial statement fraud and all forms of forgery which result in fraudulent documents, statistics, reports and statements are just other variations.  This has put corporations such as Enron and WorldCom and more recently Volkswagen (see my previous article) on everyone’s radar.  However, financial statement fraud is not a privilege of U.S. corporations but can be found in such seemingly opposing areas such as  care homes and Germany’s health care providers.

In terms of sectors, fraud is not discriminating, it is found in every sector and industry, with some perceived by the public as less prone though:

Government fraud and corruption come in many shades and are deeply damaging as they also erode public trust in governmental bodies and public services.  This ranges from government officials, customs officers or other staff

  • taking bribes,
  • manipulating bids,
  • favoring someone’s family member for a position to
  • promoting a lobbyist’s agenda in exchange for gifts, favors or non-repayable personal loans etc.

In charities, sport clubs, religious congregations, churches, and other non-profit and non-governmental organizations which may be handling more cash due to donations or lack of automated payment systems, the risk of fraud still tends to be even higher. Frequently, charity fraud is found in organizations which also enjoy a high amount of public trust per se due to the nature of their cause.  Fraud risk then is amplified by the lack of internal controls and independent external scrutiny, see also US charity fraudUK Charity Fraud Line .

Essentially, fraud can happen in every industry – wherever internal and external controls are weak and poorly enforced.  To illustrate this with one basic yet dominant example of fraud that prevails across the industries:  fraudulent expense claims frequently concern travel costs or business gadgets.  Disbursements of such fraudulent travel expenses or presumably lost or stolen mobile phones, laptops etc. will be found to have been inflated, mis-characterized, multiplied or are even fictitious.

Whether you are affected as parent, citizen or employee, business owner or somewhere in middle management, whether you lead at the top or stand in the front rows of the organization – fraud concerns everyone, also as bystander and taxpayer.

Every time, fraud goes undiscovered, or is passively tolerated by looking the other way, the entire society suffers.  That means you, your family, your wider circle of loved and trusted ones, and ultimately the society you live in. Tolerating fraud is rolemodeling irresponsible tacit consent to our children and others.

Further sources which can be shared, embedded and harnessed to kicking off discussions and raising awareness – in every area of your life – are available at Fraudweek.com and via #fraudweek on Twitter

Voter fraud and intimidation: a pragmatic and rational approach to realpolitik

Listen to the audio recording of this article:  

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.

Across social media and traditional print and other mass media, concerns have been raised about the lack of civility and the loss of meaningful debate, leaving many  U.S. citizens as well as the global audience in states of anxiety triggered by the possibility of dysfunction and gridlock as well as market volatility, further amplified by the risk of a recession and impaired growth .  Not to speak of severe reputational damage to the whole nation which had grown used to bask in the world’s envy, an aspect I had discussed also in my article on Iceland’s parliamentary election 2016 and reputation risk.

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.

the-voter-suppression-trail_frustration_nyt

[Credit to Baker, Moore, Lacher; Game available on NY Times ]

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?

  1. 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?
  2. Who funded the study (on voter fraud or on the near-absence of such)? Was it independently financed?
  3. 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.
  4. 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?
  5. 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:

  1. Report voter fraud and voter oppression (in its form of intimidation) if and when you observe it, use your national hotline (see links below).
  2. 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.
  3.  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.
  4. 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
:

Iceland voted. The world watches – what’s lost in translations?

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 ZeitSueddeutsche 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.

20161101_093259.jpg

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

  1. currency fluctuations are high
  2. 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.

All whistleblowers are the same. True?

“They are in for the money.” “Another disgruntled one.” “They stretch the truth for the dough.” And so it goes on. Grumpy commentary, overheard. Whistleblowers have been given a bad rep – ask by whom -, but is it true and are they really all the same?

One whistleblower withdraws his claim, and leaves everyone guessing, another one turns down a sizable award, and issues his statement of motivation for doing so. Thousands remain unmentioned, though, their cases never hit the headlines.

The US Securities and Exchange Commission boasted in a recent press release to have “awarded more than $111 million to 34 whistleblowers since [the award program’s] inception in 2011.”.  However, on the US Department of Labor’s site the Whistleblower Protection Programs’ data set spanning a ten year period between 2005 and 2015 reveals that more than 15,000 cases were dismissed, another 4,500 plus cases were withdrawn.  In total, more than 26,000 cases were considered and determined. Continue reading “All whistleblowers are the same. True?”

Risk: rogue culture killed das Fahrvergnuegen

The whistle-blower lawsuit Donovan v. Volkswagen Group of America Inc., 2016-151877-CD, Circuit Court, Oakland County, Michigan (Pontiac), filed on 8th March by a former  Volkswagen-employee, brought to light what the tone at the top can cause in terms of management of reputational and litigation risk.  Volkswagen, founded in 1937, is currently professional home to more than 600,000 employees around the globe, and a portfolio of 12 automobile brands that span the entire spectrum and include Audi, Porsche, Lamborghini and a wide range of trucks and buses.  Further, activities in engineering related to power plants, turbines, and chemical reactors and beyond make the corporation a systemically important player in Germany’s labor market and therefore a key contributor to Germany’s GDP and wider national economy.  It self-identifies as embracing an open corporate culture but has come increasingly under scrutiny for a leadership style and ownership structure (c.f. Governance issue discussion) marked by hierarchy and family dynamics.

So far, Volkswagen’s online representation only marginally touches upon the notion of whistleblowing (c.f. European Ombudsman (Draft decision on internal rules concerning whistleblowingas confined to corruption and human rights violations only, implying these are perceived as external phenomena. Following then-CEO Winterkorn’s statement in September 2015:

“We do not and will not tolerate violations of any kind of our internal rules or of the law. The trust of our customers and the public is and continues to be our most important asset.”

Volkswagen’s stance – in terms of actions – hasn’t been exactly in line with what investors and the public were hoping to see, and what should have become a governance overhaul, ideally rooted in impact assessment and supported by related relevant risk-metrics. The opposite seems to be the case, with further threatening clouds now looming large on the horizon thanks to the above-mentioned whistleblowing case which, independent of its merit, has already been making headlines and thereby increasing uncertainty for investors and stakeholders, and reputational risk.

Losses and reputational damages beyond quantifiable scars:
Increasingly it has become clear that the crisis strategy senior management at Volkswagen has been resorting to is proving inadequate and not suited to reestablish its fragile but most vital asset. Customers’ and the public’s trust have taken a severe and sustained blow as Volkswagen’s share value.  More than 6 months after the peak of emission fraud -related news, it still keeps hovering well below the 50% worth of its 52-weeks’ high Volkswagen currently faces a solid two-digit amount worth billions of Euros in fines, criminal charges, lawsuits and class actions, anticipated and resulting from filed claims in the US, Canada, the UK and beyond.  This is going to add to the losses already incurred and priced in by the market:

  1. the cost of recalling affected cars and
  2. installing the required software update.

In addition Future Losses encompassing:

  • long-term profit decline resulting from reputational damage to the corporate brand, the wider industry and the nation’s quality standard “Made in Germany”,
  • a weighing down of Germany’s share performance index DAX,
  • staff retention issues, hiring and related costs, and
  • further expansion of internal controls and compliance efforts,
  • less apparent knock-on effects such as not yet known potential further revelations which may need to be added in and will most likely be revised upward.

Risk resulting from ineffective crisis management:
The lack of clear, firm, concise and concerted, as well as forthcoming and truthful communication, by top management, has been particularly painful and adding scorn to the scandal.

  1. Senior leaders chose to provide piecemeal allocations of blame and engaged in accountability rhetoric of very limited substantiation.
  2. They focused initially on blaming a single-digit figure of “rogue engineers”.
  3. In addition, they had very little to say about the lack of decisive action upon notification in the past,
  4. and failed to provide clarity on missing or dysfunctional internal controls, thereby only further damaging the demolished brand.

Volkswagen’s social media engagement continued to be highly selective: VW Group’s Twitter channel follows less than a mere 10% of its followers and engages predominantly in glossy self-promotion. An advanced search demonstrates Volkswagen’s complete absence of engagement with critical consumers, clients, and the wider public.

This silence on the particular matter has proven counterproductive to the restoration of trust and confidence.  Even if the default tone at the top in such moments of public and widespread embarrassment may have been silencing critical voices, waiting it out and hoping that time will encourage regulators and the public to forget, might not be a reasonable strategy, in particular as Volkswagen had committed similar fraud in the past (discussed and referenced further below in more detail).

Volkswagen Financial Services AG (VW FS, and Volkswagen Bank GmbH) 2015 report strikes a tone that appears overly confident, given the ongoing debacle, the audience is assured of the Group’s strength to “master the impact of the emissions issue and to emerge stronger in the future”.  The report was compiled at a time when the full scale of what Volkswagen calls euphemistically the “emission issue” was neither clear nor the internal investigation, commenced in October 2015, concluded.

With no consideration or reference to factual data and underpinning evidence, the bold promise made to the audience represents an assessment that is potentially misleading shareholders and the public alike:  VW FS’ credit rating downgrade in November 2015, to long-term investment grade BBB+ (S&P via Reuters; downgraded also by Moody’s with negative outlook by either rating agency, also applied to Volkswagen Group which maintains a higher credit rating though) reflects this  view.

Volkswagen, however, argues that the rating agencies focused mainly on the emissions fraud and resorts to a defensive tone in respect to their communication with the agencies. Overall, the report remains very tight-lipped on the tone at the top, in fact leadership issues are mentioned only a handful of times within the 184-pages strong report, with a brief and vague note on one training opportunity which was held to “promote the corporate and management culture”, leaving the reader guessing as to whether the problematic existing culture was indeed further promoted or if any rethinking and remodeling was considered.

Communication as to the consideration of adoption of best practice from outside the firm, industry or nation has not been provided at all so far.

Internal controls – wherefore art thou?
At the time of writing, neither Volkswagen’s online staff magazine nor its corporate website offers much transparency as to recently implemented hotlines (via external Ombudsmen). Questions which arise are for instance:

  • what protection and/or incentives are offered other than (discouraged) anonymity,
  • whether whistle-blowing is valued or perceived as the operation of last resort.
  • in the case of the latter, what alternative routes exist in order to tackle misconduct, fraud, corruption, or other ethical concern.
  • How many, if any, instances have been handled so far and
  • how long it took to investigate them and/or
  • what losses and damage have subsequently or potentially been prevented.

Clarity and insight into soundness, effectiveness and acceptance rate of the mechanism would benefit investor relations but also impact positively on retention rates. It could prevent whistleblowers from going public.  It could in the wider sense positively shape the restoration of trust and support behavioral change if Volkswagen’s leadership committed to more transparency of their whistleblowing policies and related procedures.

A progress report of 2010 (dated 2008) can be found that summarizes progress on whistle-blowing protection but only in the narrowly defined context of conflicts of interest and corruption:

“Der Volkswagen-Konzern zeichnet sich durch eine offene und transparente Unternehmenskultur aus.

Das Ombudsmann-System garantiert allen Mitarbeitern bei Verdacht auf Verstöße das Whistle-Blowing, ohne dass sich jemand vor Repressalien fürchten müsste. “

Volkswagen prides itself on an “open and transparent corporate culture” and guarantees employees [the right] to whistle-blow with subsequent protection from retaliation. Further details cannot be found, this hasn’t changed post-scandal.

VW Group Sustainability Report 2014 further demonstrates very limited progress on group-wide compliance efforts: less than 1/3 of all staff had received class-based or online Compliance training. Whistle-blowing is not mentioned anywhere in the report. Further questions arise:

  • No explanation is provided as to the newly introduced – quite airy and generic – Code of Conduct (PDF, 24p), mandatory per online training for all new employees has been introduced.  However, with respect to those who have been with the firm for years or decades, no clarity is offered as to training records.

While the variable bonus pay (performance-based element of compensation) has now been linked to compliance with the Code of Conduct:

  • Yet, it remains entirely unclear how/to what degree compliance with the Code is measured and taken into account;
  • how the Code is enforced,
  • what measures are taken when breaches occur and
  • what consequences, in particular with respect to those employees who haven’t been recently recruited, can be expected, and
  • what metrics and qualitative data underpin the wider implementation and monitoring of compliance with the Code and when communication to shareholders and stakeholders about progress or lack of such can be expected.

The Group’s online subsite on Compliance and Governance is boldly talking of “successful Governance”, not clarifying, though, how it measures the success, what parameters feed the model and not permitting the audience to reverse-engineer that statement.

Trust assumed, when trust has just been severely damaged does not underpin the notion of an introspective, reflective, open and learning corporate culture.

The notion of a flat, open and dynamic corporate culture, capable of incorporating critique for the wider good and at an early stage as means of effective (preventive) risk management appears like a nostalgic advertisement of the glorious past.

The glorious past – and the history of breaches:
Volkswagen had come under intense scrutiny by US EPA (Environmental Protection Agency) back in 1973 for a not dissimilar issue: emission-defeat devices had been installed in more than 20,000 cars and also buses.  This consequently resulted in fines and a costly recall for removal imposed by the US authority, c.f. VW DefeatDevice EPA Prosecution 7-23-73 (PDF, 6p).

The failure to disclose the inbuilt switches and seek prior permission and certification was paralleled by a lack of swift and forthcoming correspondence with the US Agency.  The settlement meant that Volkswagen did not admit any wrongdoing, but committed shortly after, in 1974, yet another breach WSJ, 1974 [PDF].

Switching heads:
Various individuals have stepped down or have been suspended, most prominently CEO Winterkorn who was offered a much criticized golden handshake. Furthermore, heads of development and research respectively at Audi and Porsche as well as Volkswagen U.S. CEO Horn were dismissed.

While the internal probe, launched on 1st October 2015, continues, the reshuffle brought various new heads in.  Previously ordinary board member Poetsch (since 2003) is now heading a newly set up 20-member controlling panel and is chairman of the Supervisory Board.

As mentioned at the onset, Volkswagen is systemically important to the Germany national economy and a look at the newly placed Board members and their affiliations raises further questions as to independent decision-making and conflicts of interest at the helm of the giant:

  • While the federal state Lower Saxony holds 12.4% of subscribed capital and 20% of voting rights, 2 of the Supervisory Board members are ministers of Lower Saxony,
  • 3 hold professorships at German universities,
  • 5 of the Supervisory Board Members received basic compensation of nearly EUR 6.5 mn p.a. in the past fiscal year, with the lowest of the 32 receiving only around 6% Supervisory Board’s Chairman’s compensation, amounting to EUR 398,500.

Switching gears – or not:
In total 5 key Committees of the Supervisory Board are headed by 2 individuals who act as chairmen, i.e.:

  • Chairman of the Supervisory Board Poetsch – heads 3 committees, including ExCo and Nomination, and
  • 2 family members of the Porsche family (uncle and nephew) are heading the Audit Committee and a Special Committee of Diesel Engines.

The lack of independent decision-making at the top level and related impressions of conflict of interest are unfortunately not being dispersed by the newly set-up Ombudsmen system. Neither is specialized in whistleblowing protection, but both have extensive expertise in employer interest representation and their legal defense.

The segregation of functions, independent examination of internal controls and compliance with regulatory requirements remain a major challenge for Volkswagen Group.  Also, perhaps most importantly, mechanisms that offer effective means in the prevention and early detection of compliance breaches continue to present a pressing issue to the organisation.

Unfashionable: intellectual property risk

Listen to the think piece

Ethics are and remain rather unfashionable, it seems. Keen to compete and keen to impress, fashion firm KTZ – les enfants terribles behind UK fashion label Kokon to Zai – committed something much more serious than a fashion faux pas.  The global fashion market is approaching USD 2 trillion (Factsheet Feb2015) with severe income inequality knitted into many garment pieces consumers pick and wear.  The UK (Figures 2014) being a key player in this race for fashion hegemony and design dominance.  From a risk perspective, KTZ probably did weigh their chances but failed to consider the role of social media, or maybe they just hoped globalized media sharing wouldn’t really reach that far.  Now litigation and reputational risk are looming large, and subsequent losses have been stamped on the brand. Any press is good press? Not so fast with the marketing myths.

Fashion brands, in fact, the fashion and clothing industry itself, have been plagued for years by its unethical stance and practices. Whether

  • human rights violations and child labor,
  • the range of body image controversies due to anorexic underage models in advertisements and on runways,
  • environmental issues, or in fact,
  • cultural appropriation,

have made the headlines.  Blood diamonds, fur, sweat shops and the rampant – euphemistically framed “borrowing” from indigenous cultures, but also from sub-cultures and powerless individual artists, represent a persistent and severe problem.

As long as celebrities, royals and even the nouveau riche de la politique across the nations, don’t seem to mind, these unethical products find their followers.  They promise that brief moment of fame, the glamor shot, the much desired high, resulting from flattering Likes on traditional and social media, and that little bit of attention in a world that spins around short attention spans.  Short-lived, just like the fashion, handed over to to the charity shop down the road, label still intact, when it’s deemed so last season.

Avoiding plagiarism and being aware of ethical production and consumption standards should by now belong to every consumer’s and citizen’s (or student’s) basic knowledge. The risk to be branded an intellectual property thief, ignorant capitalist or quite generally, belonging to the exploiting (rather than inspiring) brand of entrepreneurs, is simply too high and too expensive to be neglected.  The fashion industry is not entirely unaware of these issues, and in fact, has been attempting to tackle the issues and improve the business and its image for a while (c.f. Ethical Fashion Forum). Sustainability is high on the agenda, governance policies have been drafted – but their enforcement remains unclear.  Counter-plagiarism and ethics enforcement, in particular with respect to intellectual property rights, are not embedded.

KTZ faced a storm of criticism and were fairly quick in issuing what felt like a lukewarm apology. Copying Inuit sacred symbols surely caused an icy blast – apparently relying on a notion that those remote few, discovered only by anthropologists long before the label was even founded, would not find out.

But will it last, or is the brand going to hunt down the next indigenous piece of design, hoping this time to get away with it?  Or worse, will they resort to appropriating symbols whose meaning they may not even grasp but, deciphered by insiders, may stir much worse than a painful offense and hurt to the peaceful Inuit? Copying someone else’s intellectual property and representing it as your own work counts as plagiarism, depending on your perspective you could argue forgery. Luckily, social media sharing facilities mean such kind of attempted fraud incidents stands a good chance of becoming widely visible.

Whether avantgarde fashion or budget micro label, it’s vital to address the lack of speed regarding the legal options in such moments, gaining redress takes time and resources.  Either tend to be scarce goods. However, with increasing technological facilities on social media and image recognition softwar,  the future is promising to hold more power for those whose rights have been infringed.

In the meanwhile, socially and environmentally educated and aware consumers, are making more demands and hope is growing that these crowds will step up and express their critical thinking when making purchases based on informed decisions.

As to KTZ, it remains to be hoped, that their “raw energy and contemporary urban edge” which they are so proud of, finds less disturbing channels.  Perhaps they could bring these characteristics to their much needed reputation and litigation risk management and toy with the idea of going beyond monetary compensation?

This idea is by no means as far-fetched as it may sound.  Up near the Arctic Circle the Alaskan Native people, a group of about 13,500 Inuit have been living for many thousands of years across a vast territory.  Seeing their traditional lifestyle severely threatened by the increasing impacts of climate change, the Alaskan Iñupiat collaborated with video game designers and developed  Never Alone. Their educational video game features documentary-style videos and inter-generational storytelling, making it part of a growing number of indigenous video games that feature atmospheric, story rich and beautiful ways of conveying the narratives, habits, practices and beliefs.  First released in late 2014, KTZ remained unaware of this though, while the Inuit reached out to the wider world to share, KTZ seemed to deem the Inuits in their case too far away to be taken seriously and consult with.

Here is the story of the Shaman whose daughter received KTZ’s apology.

Ethics training doesn’t have to be uncool and it certainly does not have to be boring. Creatively linking the requirement for respect of human rights, the environment and property rights on a global scale is what can set the ethically sound and successful leaders in any sector truly and sustainably apart from the rest of the short-term goal-chasers.

Data, the politics of risk, and botox

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.

An unsophisticated hack: data lost, weaknesses revealed

The hack, as far as we know, committed by two British teens, that got TalkTalk yet again unwanted negative attention, has been deemed ‘unsophisticated’.  So far, the handling of the case has displayed all the usual reactions: apologies, reassurances, wordy statements aiming at damage control – even pledges to make it better, to never let it happen again.  It feels like a repeat of the cringe-worthy bits of romantic comedies, de-contextualised and uttered by senior management and spokespersons frightened by the drama.

The helpless and less than mature gestures have been employed during the recent emission-scandal at Volkswagen, the pilot-induced disaster at Germanwings, the data breach cases at JP Morgan, Lloyds or Royal Bank of Scotland, to name only a few. The knee-jerk response is striking – and insufficiently suited as means to handle severe reputational risk as it neither tackles the underlying problem nor the heavy blow dealt to public perceptions of competence at the top.  Here is why. We are presented with a notion of deviant teens, whose parents had no idea what they were doing and lacked knowledge of the UK Computer Misuse Act 1990 (see here for global pieces of legislation in this respect) – so at least the mass media’s assessment of the situation. Yet, those teens helped deliver valuable insight into the weaknesses of extremely large (and powerful) organizations.  Clearly, they also had the intellectual capacity and coding skills to succeed in their criminal adventure. Why was their obvious talent (minus the criminal potential) not spotted earlier and channeled meaningfully?

Why are senior management and their spokespersons not better equipped when it comes to providing more sophisticated and suitably targeted responses to the public who deserve better than lukewarm all-emotional apologetically-reassuring patronizing talk?

Internal governance processes, hierarchies, power struggles and generational divides (Millenials, i.e. the digital natives versus digital immigrants, i.e. the late adopters of social media at the helm of such unfortunate large firms) are not making it into the public sphere in such cases.  Yet, a more transparent handling and a significantly more pro-active stance as to these aspects could have helped to restore trust and stakeholder confidence.

A closer look into these cases reveals deep-seated weaknesses which are rooted in corporate culture rather than in the lack of technology, skill sets or budgetary issues. Decision-making processes are at the heart of effective governance and the complex risk control machinery, yet all too often fear gets in the way.  Challenging ineffective processes or raising potential risks observed by employees, contractors, customers or the general public are being stifled in and by a corporate environment that favors short-term orthodox thinking. For instance, despite the spiking number of cyber threats and attacks, why is there an absence of calls for hacking in a controlled environment as a preventive measure to spot the flaws and gaps in the existing systems?

Clearly, each aspect and approach entails its very own set of idiosyncratic risks. However, swift and adequate responses that convey genuine integrity and loyalty to the customer are needed when trust is at severe risk. One major step towards this critically important goal would be based on a rigorous and critical re-evaluation of currently widely adopted yet ineffective strategies and default statements provided to stakeholders, shareholders and the public.

As we have seen in the recent past, the damage done within narrow windows of opportunity post-incident is severe.  Lessons are not learned from industry competitors but repeated and the overhaul of crisis handling strategies remains overdue.  We need more sophisticated tools rather than yet another round of ad hoc blame-shifting towards [teenage] individuals. Embracing and harnessing legal and ethical hacking could be among those with a lot of potential in this regard.