You are confident of having controls in place in your business.
At the last CEO breakfast meeting, I was amused to hear the following table talk. “What do you think of misdeeds in US companies? So many cases of fraud. Is it greed only or, something else?”
“I don’t think we have to worry about it – this is Singapore.”
“Yes, there is no room for it in our clean environment. US companies have grown too big to manage. And, it is a society of mixed cultures.”
All of us believe (rather strongly believe) that the reputation earned by Singapore as that of being squeak-clean is a boon.
Singapore’s squeaky-clean reputation can be a bane sometimes.
- Makes people complacent (towards compliance)
- Scandals won’t happen here (blind faith)
- No need to invest in required compliance costs
- It is not easy to cheat and escape here
- Controls are in place –regular audit by Public accountants
You are right Thomas, said Cindy, the Finance director of Vivelta View, the optical instrument company. ‘’what happened to APB (Asia Pacific Brewery), or Citiraya for that case? Why they fail? We are always late in saying, how could you not see it coming?’’
Well, the answers are not simple. Ethical failure is the decline of morality. It happens when you fail to see what’s right and wrong. Bankers become sales person for selling more loans (famous prime lending problem).
It seems that people in companies have drifted into rationalizations and legalism. They are driven by numbers they want and need at almost any cost. This drift into ‘’everybody does this’’ and ‘’It’s not a question of ‘Should we do it?’ it’s ‘Can we do it legally?’ ‘’ Such companies do meet with legal requirement; but do not realize long term implication of technicalities. They try to take advantage of loopholes.
The culprit for Bearings to collapse could be ‘no segregation of duties’.
Initially, you can see the benefits of lean management; whereas, in hindsight, you regret to see the consequences.
Nick Leeson made the transactions and approved it too.
Take example of Citiraya.
Contracts awarded to relatives and friends without having to justify by evaluation.
NKF followed almost similar path.
Senior Finance manager of APB can borrow any amount without having to answer anyone.
We can go on talking about such cases. There are endless such examples in Singapore or, any other country.
Albert, you have managed large corporations. Are there any symptoms that can signal unfair practices? If yes, why no one stops it?’’
The classic ‘No one wants to hear the bad news’ syndrome exists in these organizations to the point of paralysis and inaction.
In every corporation that has collapsed ethically (and almost as a result, financially), there were employees to get their questions answered, or their concerns addressed.
How you feel about the environment at your business –
Is your organization is structured well to mitigate the failure from segregation of duties?
Do you have company policy on conflict of interest for people who can influence the business decisions?
Are your internal controls in place? You cannot police everything – your job is business development, customer relations and market information.
Do what you are best at ….
If you want to know more on how to build internal protection from ethical failures in business, please let me know.
I am going to talk to few business friends in the coming month on the subject matter.
Suresh Shah, Managing Director, Pathfinders Enterprise