Tone at the Top: How Management Can Prevent Fraud in the Workplace
The connection between fraud and the “tone at the top” of a company has received international attention over the last few years. Tone at the top refers to the ethical atmosphere that is created in the workplace by the leadership. Whatever tone management sets will have a trickle-down effect on employees of the company. If the tone set by managers upholds ethics and integrity, employees will be more inclined to uphold those same values. However, if upper management does not appear concerned with ethics and focuses solely on the profits, employees will be more prone to commit fraud because they feel that ethical conduct is not a focus or priority within the organization. Employees pay close attention to the behavior and actions of their bosses, and they follow their lead. In short, employees will do what they witness their supervisors doing.
Ten key ways that board members, senior management and compliance and risk management executives can work together or support each other in helping to assess the current state of an organization’s tone at the top are presented below. In addition, each can contribute to an overall program that turns policy into sustainable action:
1. Nature of Wrongdoing
Benchmarking against other companies the number and nature of known incidents of wrongdoing may highlight the extent to which management’s tone led to compliance with the entity’s policies. If management dismisses minor violations as unimportant, for example, it may indicate a culture of noncompliance that could heighten risks.
2. Anonymous Hotline Reporting
If the entity has a significantly higher than average proportion of whistleblower reports made anonymously, it may suggest that employees are afraid to report wrongdoing or that protection of previous whistleblowers has been inadequate.
3. Social Media Assessment
Monitoring comments and criticism in social media and other online venues can help identify whether views of the entity’s culture suggest an inadequate ethical tone.
4. Employee Surveys
This type of research gathers information on employee engagement with the enterprise and monitors trends. Questions can help in understanding employees’ perspectives on ethical matters. Scores can be compared between units, benchmarked against those of similar entities and compared from year to year to monitor changes.
5. Tone of Management Communications
Reading communications from management to employees for tone, in addition to content, may provide insight. Notice boards, broadcast emails and internet sites may communicate a tone at the top quite different from the one on display in the boardroom. Consistency is essential to effective and lasting communications.
6. Group Discussion
It is important to invite audit committee members, risk management and compliance executives to share observations and perspectives regarding management activities, communications and style with regard to tone at the top. The discussion can lead to new insights and help build consensus on effectiveness of efforts and whether remedial action is needed.
7. Facility Rotations
Moving board, compliance and risk management meetings around to various locations can help to gain perspective on an entity’s full scope of operations and enable cooperation with local managers.
8. Exit Interviews
Some departing employees, concerned about burning bridges, may be unwilling to mention ethics and integrity issues that may have contributed to their departure. Others may welcome the opportunity to discuss their experiences but may provide information only if asked. Exit interviews can provide a vehicle for their comments.
9. Interviews and Focus Groups
Interviews can be effective in assessing the tone at the top when they employ a structured approach and when people are comfortable stating their views openly. When employees are reluctant to talk or when employee surveys identify potentially significant but nonspecific concerns, focus groups led by an independent third party may help uncover underlying issues. Anonymous messaging and voting devices, together with an experienced facilitator, can help draw out information.
10. Client Complaints
Monitoring trends in client feedback may provide insight into the entity’s culture. The swift and open handling of grievances may indicate an entity dedicated to compliance and ethics, while a pattern of a company’s inadequate responses to customer grievances could suggest characteristics among management that research has associated with anti-social activities such as fraud.