Leaders Make the Company Culture

Regulators are right to focus on culture as a key culprit in the misbehavior of banks (“As Regulators Focus on Culture, Wall Street Struggles to Define It,” page one, Feb. 2), and efforts to survey and quantify corporate culture are important. But the reason culture is hard to define isn’t simply that it is a nebulous concept that is hard to capture objectively. The culture of an organization is analogous to the personality of an individual, in that it is defined by a set of normative, recognizable behaviors and traits that are durable and that characterize both what it is like to “live” inside that organization as an employee, as well as what it is like to interact with it from the outside, as customers, vendors, partners and shareholders.

Where the analogy to personality doesn’t hold is that organizations are greater than the sum of their parts. Unlike an individual’s personality, which is largely formed by young adulthood and resides solely in the mind of the person, the culture of a company emanates primarily from the personality of the founder or chief executive, but over time becomes embedded in other key individuals, and in practices and policies of the business. Nevertheless, the CEO wields the greatest leverage to create, sustain and change the culture. This can be a force for good or bad, as employees inevitably model the behavior they see at the top. The more regulators understand this, the less they will struggle to define culture and the more they will know where to look to address it when a company goes astray.

With A Smile Not A Gun

At her sentencing hearing in Manhattan, Annette Bongiorno, Bernard Madoff’s former secretary, stood weeping before Federal Judge Laura Taylor Swain. “I never figured out the truth,” she said. “I did what I was told. I didn’t know what was going on.” Handing down a prison term with demand to forfeit all property and money gained through her work at Madoff Securities, estimated at $16.4m, Judge Swain said Ms Bongiorno had “wilfully blinded herself” to illegal acts.

In finding Ms Bongiorno culpable as an accomplice to her boss’ massive Ponzi scheme, Judge Swain invalidated contrived ignorance as an avoidance of guilt, and delivered a speck of justice to victims, though negligible economic restitution. Sadly, the world is filled with Annette Bongiornos and Bernie Madoffs. Wilful blindness is ubiquitous. It is a basic, vexing element of the human condition wherein we both wittingly and unthinkingly, ignore, deny, negate, misperceive, overlook and otherwise ‘un-know’ substantial aspects of the world and our lives in it.

This is the sine qua non of fraud. As mordantly put by Sam Antar, former Crazy Eddie CFO, de-licensed certified public accountant, and convicted felon, “white collar crime is a crime of persuasion. It is a crime committed with a smile rather than a gun. Many white collar criminals are likable and charming people. They use their likable personality as a tool to gain the confidence of their victims. That is why white collar criminals are called ‘con men’.”

Only some people become criminals, but everybody lies, deceives and evades. And as Joseph Wells, founder and chairman of the Association of Certified Fraud Examiners, sagely reminds forensic accountants the world over, “fraud is committed by people, not numbers.” But as legions of nobly-intentioned CFOs, risk, compliance, and anti-fraud professionals sharpen their digital pencils and debug their algorithms trying to prevent the next big fraud, wilful blindness about fraud’s central element – people – hunkers in plain sight.

Our fixation on simplistic accountings of fraudster pathology and holy motivational trinities – rationalisation, opportunity, pressure – borders on fetish, and eclipses both the actual psychological complexities of deception, persuasion and fraudulence, and the intricate psychosocial ecosystems which incubate and engender successful frauds. Two-dimensional conceptualisations of the underpinning mechanics of criminal fraudulence provide scant practical value, either after-the-fact or as a predictive tool. These typify the historically entrenched focus on fraudsters wholly in terms of psychopathology, viewing fraud as an asymmetrical bipolar event between the fraudster as dominant figure, and victims in the subordinate position. Crucially absent is conceiving the intertwining matrix of relationships involved in fraud, whether between individuals or within an institution. Stakeholders and participants exist together in a dynamic network. Fraudster and victims are entwined in a relationship of mutual, albeit deeply imbalanced, interdependency; each requires and uses the other, though obviously with vastly different intentionality and outcomes.

How can these soft elements be identified, much less usefully leveraged, solely on the basis of fact patterns, banking and accounting records, or other hard documentation? The tendencies and activities specific to each dishonest actor – important data in its own category for pre-empting, derailing or responding to a malfeasant episode – vary according to where and from whom he learned his trade, the particulars of situation and circumstance and, most pertinently, to the character, constitution and psychological reflexes of all involved parties.

Human psychology – the doings of mental function and their behavioural manifestations – is profoundly more complex and inscrutable than appears. Tidy and ostensibly rational explanations for the drivers of asocial deceit and malfeasant persuasion – contemptuousness, arrogant self-belief, greed, sociopathy, bald opportunism – are, on closer inspection, themselves merely a conceptual mirage, providing little more than a reassuring pseudo-sensicalness to inexplicable and dangerous dispositions and actions.

Nowhere do these issues converge more relevantly than in fraud risk forecasting. As distinguished from other facets of risk management, such as economic exposure, AML, investment performance, market fluctuations, strategic positioning, forecasting the probability of white-collar malfeasance bears closer resemblance to profiling and predicting violent criminality. Indeed, in testimony given in 2009 before the New Jersey State Assembly Republican Policy Committee as an expert witness on political corruption and white-collar crime, Mr Antar, the convicted Crazy Eddie CFO, stated that: “white collar crime is more brutal than violent crime. The actions of one or a few corrupt public officials and corrupt businessmen affect the livelihoods of thousands of people. Treat them with the same disdain with which we treat serial killers because white collar criminals are economic predators. We are serial economic predators.”

Wielding guns disguised as smiles, economic predators steal value and cause serious harm. If fraud risk protocols concerning nefarious actions aspire to ascertain and harness predictive knowledge of future events, particularly those pivoting on people’s hidden impulses and interests, how can we minimise variables and more accurately narrow the margins of unpredictability? What and how we can know about the private, internal intentions and machinations of malfeasant actors before they strike?

In ‘The Minority Report’, Philip Dick’s iconic 1956 science fiction short story, all crime is summarily prevented by precogs, mutants with super-cognitive abilities enabling them to see into the future. Computers analyse and translate the precogs’ raw data into reports issued to PreCrime, the enforcement unit which then tracks and apprehends identified suspects for the crime they would have committed had it not been pre-detected. The notion of an authority licensed to trespass into people’s thoughts and pre-emptively foreclose their future actions is anathema to human free agency. In the civilised world, the thought police are only the stuff of dystopic sci-fi.

Yet the surface appeal is clear, an apparent solution to the common problem of 20/20 hindsight and near blind foresight. Of course, it is a chimera, and fraught with challenges for anti-fraud professionals. One is defining the legal and ethical boundary separating unwholesome fantasy – say, discovering indicators of someone’s desire to defraud – and imminent lawless action. On a practical level, most conventional risk management and fraud detection programs draw on lessons learned in the past-is-prologue school, where assumptions about tomorrow are based on yesterday’s trends. Pattern recognition analysis can certainly have value, as do conventional compliance, audit, and integrity checks or other safe-guarding measures. But by and large, predictive insight extrapolated from historical patterns project knowably likely, not confoundingly unexpected, trajectories, which immediately leaves actual human tendencies behind a large delta. And hard statistical data can only usefully signal real-time deviations and anomalies from unambiguously pre-defined metrics. More importantly, these methodologies cannot account for or interpret mental architecture and illogical behavioural propensities. They are inadequate to the task of rendering sophisticated portraits of human interrelationships, apprehending deep-level susceptibilities, or forecasting undulating group dynamics.

Many corporations consider pre-emption a viable defence. Psychometric tests and Ekman-influenced ‘lie-spotting’ interview techniques designed to interpret non-verbal communication, like facial expressions and body language, are increasingly popular gate-keeping mechanisms. But accurately profiling white-collar criminals has historically proved challenging. According to the results of various studies conducted by the Association of Certified Fraud Examiners (ACFE) and noted in their 2010 Report to the Nations on Occupational Fraud and Abuse, approximately 95 percent of white-collar criminals have no previous criminal record. Furthermore, the higher the monetary value of the economic crime, the less likely it is that the perpetrator has a previous criminal record.

In addition, lying and poise are deeply interconnected. In our experience, pre-hiring fraudster screening is the functional equivalent of TSA-mandated shoe removal as an anti-terrorism measure. Front door filters generally misconstrue outward expressions of internal processes, and underestimate capacities to effectively deceive.

Many corporate leaders and risk managers remain sceptical of the role and value of human factor analysis. AML and anti-fraud compliance is deemed a mandatory cost-centre, though these should be institutional centrepieces. Adjusting that should be the first priority. More sophisticated recognition of the human elements in detecting and addressing fraud, as an aligned enhancement to conventional Know Your Customer and due diligence protocols, are absolutely required. Significant education and training are needed in signal and context interpretation and soft data analysis, coupled with organisational systems prepared to capture, translate and respond to critical predictive intelligence.

Anything less is wilful blindness.

The City on the Couch

Psychoanalyst Mary Bradbury investigates why a growing number of big businesses in the financial sector are taking more care of their employees’ mental health.

Contributors include Graham Thornicroft, Professor of Community Psychiatry at King’s College London; Professor David Tuckett of University College London; Ian Gatt QC of Herbert Smith Freehills; and Sacha Romanovitch of Grant Thornton.

Mind tricks at work

There are many ways of dealing with extreme stress at work: chatting around the water cooler with colleagues or sharing the odd drink after hours often does the trick.

The mind, however, also has its own unconscious methods of shutting out aspects of work that can otherwise lead to intolerable anxiety. This helps distance oneself from overwhelmingly bad feelings, such as jealousy, insecurity and anger. However, these coping methods can create more problems than they solve because to varying degrees they all depend on a distortion of reality.

These defence mechanisms might take an optimistic form, with someone rationalising that a situation is not as bad as it actually is. At the other end of the continuum are more destructive responses, such as denying the existence of a problem. Another common coping method is blaming others for problems rather than admitting to responsibility that could leave one feeling guilty or bad about oneself.

Kerry Sulkowicz, a psychoanalyst and founder of the Boswell Group, a New York business consultancy, says these are unconscious choices, determined by an individual’s psychology and the nature of the stress: “A problem with these defences is that ultimately they break down. They can’t last for ever and the longer they persist, the worse the consequences may be for the individual — because time is passing them by and opportunities for change may be lost.”

An example comes from a founding chief executive who is charismatic and effective in attracting business, but is unable to deal with the stress of making critical decisions about his staff. As a result he has a bloated team of high-paid people who do very little. He is in denial, not of the dire straits that his company is in, but of his role in its impending collapse. He does not see that his inability to make tough personnel decisions and ultimately hand over control to a new CEO is crippling the company. Instead, he projects the problems on to his antagonised board of directors and rids himself of responsibility.

His inability to hear any negative feedback is indicative of another defence mechanism, known as “splitting”, where people and the news they bring become factors that either make him feel good or bad about himself. While the “bad” are rejected, the “good” are rewarded with loyalty.

People such as this CEO cannot tolerate the tension and confusion arising from complexity. The danger is that they trash differing opinions and ignore essential information.

His team in turn employ coping methods for dealing with their conflicting feelings towards the CEO — of dependency and admiration on the one hand, and anger and contempt on the other. The healthy ones know this is a dying business and prepare to leave, while others rationalise why they should stay — “he does bring in business after all” — and the less aware deny that a problem exists.

Avoiding stress by distorting reality through such psychological defensive measures can also play a detrimental part in financial decision making. David Tuckett, a psychoanalyst and professor at University College London, and author of Minding the Markets: an Emotional Finance View Of Financial Instability, describes how this can lead to a failure to take in crucial information about a particular investment.

According to Prof Tuckett, people can become dismissive of inconvenient evidence because somewhere in their minds, beyond immediate awareness, they feel uncomfortable about the decision they are making but cannot bear to explore further.

He explains: “They try not to take in the information because the information is not just information, it creates feeling. It creates anxiety, it creates a sense of risk of loss, or guilt in case they get it wrong, so they try to get rid of it. The more they get rid of it, the more [it] potentially creates a bigger loss in future.”

These defence mechanisms originate in childhood and are often the only protection a child may have against the onslaught of perceived threats, such as being rejected or treated unfairly. People carry these unconscious strategies into their working lives, and even though they may be immature reactions to adult problems, they help people maintain a fantasy that life is predictable, benevolent and free from horrible feelings.

This was the case for one man in marketing and sales who came from a reserved, repressed family where strong emotions were never discussed, and self-confidence not encouraged. This left him dissociated from powerful feelings that he could not deal with, such as rivalry and resentment.

Although in many ways he became an ideal employee, never challenging authority or becoming a threat to colleagues, he missed out on his own career advancement and the satisfaction and sense of triumph that comes from such progression.

He reflects on his career: “I lived my working life in a state of numbness, drifting through it in a trancelike state, going through the motions and not really reacting to people. Because you’re shutting out your own feelings, you’re more cut off from colleagues and managers, and certainly you can’t read people as well.

“There’s a large amount of regret. Not so much that I didn’t climb the greasy pole enough, but that I ruled myself out from jobs and experiences that could have fulfilled my potential. But to be ambitious was to put me in line for disappointment and rivalry, feelings I couldn’t cope with.”

Certain situations, however, are so stressful as to break through any psychological defences, leaving the person overwhelmed with anxiety and unable to make sense of, or manage, the onslaught of confusing events. A sense of worthlessness and loss of confidence prevail, and confirm the worst fears one has of oneself.

This was the case for a woman in banking who found herself confused and unable to think rationally when faced with repeated accusations and threats from a bullying boss. She says: “The most difficult bit was that I could never get it right. I focused on trying to please him and his requests just to protect myself from the explosions and confrontations. This erased any spark and energy I had. I started to doubt my­self, which eventually affected my per­f­ormance, my self-esteem and health.”

With guidance, she was able to reconnect with her better qualities and positive attitude. “Looking back, I am astounded to reflect on my situation and how badly I was affected,” she says. “It seems like a bad dream, I’m sure I will carry a scar for all my life, but it is good. It will remind me to protect myself better in future.”

The writer is a psychotherapist and this article is based partly on her clinical experience. To contribute to her forthcoming piece on the effects of business travel on workers and their families, please contact businesslife@ft.com

By Naomi Shragai

Analysis: Why New Leaders Disappoint

It’s inadvisable to promote employees based solely on past performance. And when you do bump them up, you mustn’t desert them at the helm.

In what way could the firing and hiring of Della, an animal shelter manager paid a fairly modest salary, hold important lessons for high-level corporate executives and their boards?

On Leadership

Dov Charney is not planning to fade into the California sunset. The controversial founder of Los Angeles-based American Apparel, whose board announced last week that it was stripping Charney of his chairman’s title and intended to fire him as CEO “for cause,” said in a regulatory filing late Friday that he is working with an investment firm to boost his stake in the company as he fights the board’s move to oust him. He also said he planned to continue talking with shareholders about potential changes to the clothing brand’s board and management. In a filing earlier in the week, he had said he would contest his termination “vigorously.”

Since the board’s announcement, several accounts have chronicled his ouster with more detail than tends to publicly air when a CEO is fired. Charney’s termination letter has even been published online, in which the board cites his failure to stop an employee from creating “false, defamatory and impersonating blog posts” about former employees, as well as misuse of corporate assets. (His lawyer has called the accusations “baseless.”)

But while Charney’s example may stand out for its lurid details and the public nature of the fight, governance experts and psychologists who work with executive transitions say what’s not unusual is for founders to push back – albeit rarely with much success. “Founders have much more emotional attachment,” says Charles Elson, director of the Charles L. Weinberg Center for Corporate Governance at the University of Delaware. “For an average CEO, it’s a job and money. For a founder, the company is an extension of self. It becomes much more personal.”

A year ago, for instance, Men’s Wearhouse founder George Zimmer was unceremoniously ousted as executive chairman of the company he founded 40 years before. After being shown the door, Zimmer, famously known for his “you’re going to like the way you look” ads that made him the public face of the brand, issued a statement that left open the possibility he would try to take the company private. In it, he said he was “greatly concerned” about the future of the company. (Zimmer later decided against making a move, and Men’s Wearhouse has since acquired Jos.A. Bank in a heated takeover battle.)

Other founders retire or step aside from executive roles with less pushback initially, but then attempt to re-exert their influence later when the company stumbles. Earlier this month, for example, Lululemon founder Chip Wilson voted against two of the company’s directors, saying in a statement that he is “concerned that the board is not aligned with the core values of product and innovation on which Lululemon was founded.” Wilson had already resigned as chairman following a verbal gaffe he made in the aftermath of the company’s sheer yoga pants recall, but still owns 27 percent of the company’s shares. Though the company fired back with its own response, Wilson is reportedly in talks with bankers about his options to shake up the board.

And back in 2012, Best Buy co-founder Richard Schulze, who had not been CEO since 2002, stepped down as chairman following a probe into why he hadn’t alerted the retailer’s board sooner to an alleged inappropriate relationship between the then-CEO and a female employee. Within months, Schulze began trying to buy out the company and take it private. The talks ended early last year with no deal; Schulze was given the honorary title “chairman emeritus” as well as the right to name two directors to the board until January 2016.

Of course, itcan be good for a company when founders return to influence, whether through their own moves or at the urging of the board.

Kerry Sulkowicz, a psychiatrist and psychologist who advises CEOs and boards, says that “as emotional and irrational as creative entrepreneurs can get under circumstances of transition – and as blind as they can be to some of the consequences of their behavior – some of their core criticisms about the direction of the company are often spot on. They’re often absolutely right about what the company needs, or what is currently wrong with it.” Few would argue, for instance, that the return of Steve Jobs to Apple wasn’t good for the tech behemoth.

Some founders say they are motivated by wanting to improve the company rather than by personal pride. In his statement from last year, Zimmer said the board was trying “to portray me as an obstinate former CEO, determined to regain absolute control…for my own personal benefit and ego. Nothing could be further from the truth.” And Chip Wilson’s spokesman, Greg Lowman, characterizes the Lululemon founder as having “the long-term focus of the company in his heart and his actions reflect that.”

Yet for all founders, says Sulkowicz, their identities are still closely tied to the companies they’ve started. So the question is not if they have a personal attachment, but how much. “The best ones are often the ones who are most wrapped up in it,” he says. “Their identity and the identity of the company is almost inseparable. It’s wonderful when it works. But it’s also a source of great vulnerability.”

That’s particularly the case for leaders in creative industries, such as retail or fashion, who tend to have more emotional and less corporate personality types that match their creative endeavors, according to Sulkowicz. “Without them, these companies would not exist,” he says – but the much less welcome side of that personality can be narcissism. Many founders “have an unconscious desire to prove that they are needed forever and that the company can’t survive without them.”

That fusion of professional and personal identity is what can make it particularly painful for founders when they become sidelined, end up fighting with the board, or get stripped of their authority. Jeffrey Sonnenfeld, a professor at the Yale School of Management who has studied CEO retirements, classifies such leaders as monarch CEOs. “Their business is defined around them and their life is defined around the business,” he says.

At American Apparel, for instance, Charney’s overtly sexual persona has always been part of the company’s racy image. Charney, who has been trailed by allegations of sexual harassment for years, has appeared in several of the company’s suggestive ads, including one where he and two women – wearing clothes – look to be holding a meeting on a mattress. The caption? “In bed with the boss.” His personal style mirrors the 1970s- and 1980s-inspired hipster aesthetic American Apparel sells in its stores. As he told the Financial Times: “I am a deep part of the brand.”

And like most founders, he appears to have lived and breathed the company he founded. When a new distribution center began running inefficiently, Charney has said he had a shower built and literally moved in to the facility to try to fix the problems. A source close to the situation said Charney worked 24/7 and had little life outside the company. (When reached via phone, Charney said he was not able to speak for this article.)

The single-minded focus that helps many founders succeed is the same attribute that can also come back to haunt and hurtthem. “The kind of people who start businesses are highly motivated risk-takers,” says Michael Freeman, an executive coach and clinical professor of psychiatry at the University of California, San Francisco. They tend to be “somewhere on the scale between assertive and aggressive,” he says, and have a dominant personality. “The worst thing that can happen to somebody like that would be public humiliation.”

Still, it isn’t just founders who face the public shame of getting pushed out who have a hard time letting go, says Paul Winum, a psychologist and senior partner with RHR International‘s board and CEO services practice. “You worked 70 hours a week for years and years to build a business for years, and you feel like this is yours – both in terms of having a big financial ownership and a tremendous psychological ownership.”

When the change happens abruptly, as it did for Charney, the experience can be particularly jarring, Winum says. It takes a long time for any CEO, even a non-founder, to prepare for the idea of succession and for losing the power that goes with a leadership position. “When suddenly someone is being forced to separate from their baby,” he says, “that’s when the resistance – and the fight – can be vigorous.”

By Jena McGregor

Asset Recovery Teams Wage ‘Warfare of the Mind’

A message from Matthew R. Lindsay, executive director of ICC FraudNet, about The FraudNet Report:

This newsletter about fraud & global asset recovery is published by ICC FraudNet, a highly select network of independent, world-class asset recovery attorneys in 54 countries around the world.

In recognition of fraud’s increasing sophistication, speed and global dimensions, in 2004 the International Chamber of Commerce (ICC), the world business organization headquartered in Paris with offices in 70 countries, founded the FraudNet network under the auspices of its London-based Commercial Crimes Services unit.

FraudNet is a 24/7 international rapid deployment force that pries open the vault of bank secrecy and helps victims chase down and recover their stolen assets with the same cyber-powered speed, stealth, reach and proficiency as the most sophisticated global fraud network.

Using sophisticated technical investigations and forensics, as well as cutting-edge civil procedure, members of ICC FraudNet have recovered billions of dollars for victims of some of the world’s largest and most sophisticated global frauds involving insurance, commodities, banking, grand corruption and bankruptcy/insolvency. We have expert, on-the-ground representation in all of the world’s top financial centers and offshore bank secrecy havens and work closely with law enforcement when MLAT requests and criminal asset forfeiture are required.

This newsletter will provide members of FraudNet, organizations representing institutional and individual victims of fraud, and other interested parties with regular updates on the progress of key asset recovery cases and new developments in procedural tradecraft. Our Report will also present interviews with FraudNet lawyers and news from FraudNet conferences.

It seems obvious that multi-disciplinary fraud recovery teams require forensic accountants to uncover the facts of the fraud, along with specialized attorneys to develop and implement an appropriate legal response. However, in recent years FraudNet has expanded its world-class asset recovery team concept to include a new discipline: psychological warfare. The goal is to open a new front against complex financial frauds and to recover more stolen assets, more quickly.

How is victim recovery enhanced by specialists who conduct so-called warfare of the mind, mapping out the “psychodynamics” of fraudsters, their accomplices, associates, family members–even victims?

To answer this question, individual representatives of the accounting, legal and psychology disciplines with a strong track record of working together on FraudNet teams presented an interactive (but fictive) investigative scenario at the Third Annual Sao Paulo Conference on Fraud, Asset Recovery & Cross-Border Insolvency Cooperation.

“It was a clear demonstration of how psychodynamic techniques help fill in missing pieces of fraud’s complex puzzle, decoding and forecasting perpetrators’ operations and revealing ‘pressure points’ and fractures that can be exploited in depositions, interviews and litigation,” said FraudNet member and presenter, Bernd H. Klose, founding shareholder of kkforensic of Friedrichsdorf and Hamburg, Germany.

Klose added: “Such comprehensive mapping of relationships and motive, over and above the ‘hard’ transactional facts of forensic accounting or business activities of record, often can yield disgruntled employees, contractors or family members who provide ammunition against primary targets or even open up entirely new avenues for recovery.”

According to presenter D.C. Page, senior vice president of the Consulting and Investigations Division at Andrews International, Miami, “What became very clear during our presentation was that the work results of each profession are highly influenced by and build upon each other.” He added, “However surprising this may sound, we saw demonstrated in our interactive scenario how analysis of one apparently tangential fact–that our subject was a cross-dresser– directed our investigation at several specifics that led straight to the core of the fraud.”

Klose added, “We also demonstrated that deep-impact psychological knowledge is likely to answer questions important to the legal strategy for recovery. For example, we saw that insight into a perpetrator’s psychology can forecast whether he will be likelier to surrender or fight back once secrecy is dropped and he finds himself under legal attack. We also saw how such insights throw direct light on the problem of asset-hiding.”

According to the third presenter, psychoanalyst Alexander Stein, Ph.D., founder and managing principal of Dolus Counter-Fraud Advisors LLC, New York, “At its core, fraud is warfare of the mind. The whole undertaking manifests and serves psychological forces within the fraudster that stand independent of any pure pursuit of financial gain.” He added: “Fraudsters are not only internally driven by these forces, but they also externally deploy a whole arsenal of psycho-social devices that are more refined and sophisticated than in other crimes. At best, these are only partially addressed by standard asset recovery instruments and techniques.”

For that reason, Stein said, victim recovery can directly profit from psychologically sophisticated insight into fraud and astute analysis of all intelligence gathered by the multi-disciplinary team–even what otherwise might be discarded as “garbage.” In fact, he pointed out, “One of my favorite moments on any multi-disciplinary FraudNet team comes when I can take an undervalued piece of soft intelligence about a subject’s character or personal life and use it to shift the forensic or legal paradigm. A single overlooked fact or actor can create key leverage against the entire criminal enterprise.”

Such “garbage” sometimes turns up when Stein conducts secondary sweeps of the results of the investigative team’s hard-data “expedition” into accounting and business facts of record: the so-called trail of deeds and funds.

Stein’s proprietary methodology, called Psychodynamic Intelligence Analysis (PIA), is a set of techniques for identifying, understanding, and utilizing so-called soft or human data. PIA can assist forensic accountants and litigators in advancing case conceptualization, management, and prosecution every step of the way by opening a third dimension on formerly two-dimensional intelligence gathering and data analysis.

“These techniques can reveal what may not be readily discernible in discovery, or through other hard-data intelligence gathering, but which is of critical utility to anti-fraud recovery teams: the psychodynamic turmoil that besets the fraudulent enterprise, just like every organization, and the unique pressures and challenges of being its leader,” Stein pointed out.

“In many key respects,” he added, “the fraudster is a masterful corporate strategist and leader. He is the CEO of a complex, organized business entity which is, in most instances, staffed with a senior management team of superior quality and capability.” Nevertheless, Stein pointed out, “stress points,” flaws, and fractures exist in the fraudster’s complex organization. Once identified, “these can be pressed to breaking or pried further apart.”

Not surprisingly, his methodology is not applied only to perpetrators, but also to victims, who are the fraud equivalent of a crime scene. “Psychological ‘fingerprints’ gathered from victims can provide valuable clues both to the fraud’s methodology and why it succeeded,” Stein explained.

Beyond the benefits of these psychodynamics to any specific asset recovery effort, Stein believes lessons from his proprietary system can enhance counter-fraud regulatory, compliance, and watchdog oversight with sophisticated preemptive profiling and forecasting systems and improved protocols.

 

 

Beyond ‘Fix or Fire’

How should a CEO deal with a high performing executive who is nonetheless something of a rogue within the organization? Here 5 steps to take control of such situations.

Charles was a very smart, creative, and rather eccentric senior executive who had begun to run afoul of several members of the organization’s executive committee. He was inconsistent in responding to their requests, was at times outright rude, and seemed to view the organization only through the filter of his own department’s needs. Yet, he had built an effective group, developed important new products, and had won public acclaim for the organization. Skip, his boss and CEO, was in conflict about what to do. On one hand, his senior staff, whom he had worked with for years, seemed dead set against Charles, sometimes personally so. They did not believe he could work with them on the executive committee; and when he was particularly uncooperative or rude, they agitated for his dismissal. On the other hand, Charles had proved invaluable to the enterprise, which had grown far beyond what it had been in the “old days” when the other members of the EC were junior department heads. Should Skip promote Charles to the EC? How should he address Charles’ behavior and the implacable opposition to him from the old-timers on the EC?

This scenario (a composite of several cases observed over the past 15 years) is well known to most CEOs and senior executives. Jack Welch, in his 2000 annual report for General Electric, recognized that of the four types of managers, the “Type 4” manager who doesn’t share the values but delivers the numbers “is the toughest call of all.” Welch was insistent that managers like Charles have to be removed, and argued persuasively that doing so was foundational to building a great culture. But is it really all that clear? Stay with me while I raise questions about this conventional wisdom, and walk you through a more nuanced consideration of the issues involved in managing these maverick executives.

Whether we like it or not the creativity and innovation needed for organizational success often flow from “talented and difficult” executives (TaD). These men and women combine characteristics like temperamental, obsessive, tyrannical, and self-centered with vision and creativity. (The late Steve Jobs may be the most well-known and extreme example.) This group includes very talented business leaders who might be shy and socially awkward, or prone to emotional outbursts and inappropriate behavior. Widely viewed as misfits, their signature characteristic is difficulty working with other people, especially their peers. They are typically “narcissistic” in the general sense of the term, exhibiting difficulty empathizing with others and seeing things from another’s perspective.

One alternative to Welch’s “fire” is talent management’s “fix” approach to the TaD executive. But these policies, procedures, and programs are usually geared to the average personality type. They usually don’t work with the “talented and difficult” since in these cases personality dynamics act as barriers to absorbing corporate norms and values. And TaD executives, who have made it into the senior ranks by contributing mightily to the firm’s success, are often dismissive of soft-skills training designed for more junior executives.

We need to move beyond traditional “fix or fire” approaches to develop more individualized methods to harness the originality of the TaD executive. This starts with you, the TaD executive’s manager. Like Skip, the CEO I described above, you know that these situations defy easy answers, and you spend considerable time and energy “under the radar” on the individualized management of these executives. Your approach to the TaD’s is the critical factor in whether they are retained or let go. You are the real “thought leader” in these cases, but let me offer some advice.

As you struggle with the complex issues involved in deciding whether to keep or terminate the TaD executive, you should first assess whether you are being driven by irrational fears. On one hand you may worry that if you terminate the TaD executive the business will tank. Deep down, do you feel that your own success rides on this individual’s accomplishments and that you could be vulnerable if you let him or her go? Can you objectively evaluate the real impact of dismissing the TaD executive on the business and on your own future?

Conversely, you may be afraid to fully commit to retaining the TaD executive. You may fear going against the common wisdom that pervades your organization. Organizational culture is powerful, but not always right! In my example, the culture of the organization had been shaped by the EC’s old-timers and was in some ways hidebound, narrow-minded, and frustrating. Skip, the CEO, was a thoughtful and measured leader who intuitively sensed the groupthink of his senior executive team. But he preferred to avoid conflict, and his reluctance to rock the boat meant that he missed important opportunities to shape the organizational culture and grow as a leader.

On a deeper level, Skip’s avoidance of difficult conversations with the members of his EC grew out of his own anger and frustration with them. Sometimes the TaD’s bad behavior is symptomatic of problems in the behavior and performance of the senior executive team. The courage to address these issues can relieve some of the pressure and dysfunction in the executive team and shift the focus away from the TaD executive exclusively.

Clarifying your own thinking about the TaD executive and the entire leadership team (including yourself) is an ongoing process. Situations change, but if you commit to really engaging and trying to retain the TaD executive, consider the following:

  • The relationship of mutual trust and respect between you and the TaD executive is the most important talent management resource the organization has. Never lose sight of this fact. Work to build and sustain this relationship and don’t be too put off if your star performer becomes irritable or defensive. He or she may need to test the relationship and you may need to challenge them to develop more trust.
  • Show consistent interest in understanding the TaD executive’s point of view on an issue or controversy. These are people whose stock in trade is to feel misunderstood! Unbeknownst to them, they also lack a capacity to see things from others’ points of view. Look beyond self-justification by remembering how sensitive TaD executives can be to negative feedback or criticism. But don’t be too hesitant to disagree or give feedback – doing so can build credibility and trust.
  • Assess the TaD executive’s level of organizational loyalty. While these executives typically appear to be out for themselves, probe for a foundational sense of commitment to the organization. An executive who primarily sees himself or herself as a “gun for hire” and who demonstrates repeated indifference or hostility to the organizational mission may be in the wrong job. But one who has a commitment to the organizational mission should be helped to connect more strongly to the enterprise. Use the organizational resources at your disposal – a senior mentor in another line of business, a leadership position on an enterprise-wide committee or task force, etc.
  • Respond effectively to resistance from the TaD executive’s peers as a necessary part of this process. TaD executives send signals of aloofness, disregard, and contempt. Consequently, controversy often swirls around them. Peers may be polarized and take “all or nothing” stances, challenging you to explain why you are not demanding conformity to organizational norms (usually code for demoting or firing their TaD peer). This is expectable and requires patience, and yes, reassurance to your other executives.
  • You are not forcing the TaD executive to change; you are encouraging him or her to grow. This may seem like a semantic issue, but it is important. You are trying to help the TaD executive improve as a leader. Your goal is not to take something away but to add something to their leadership toolkit. Which, by the way, will stand them in good stead whatever job they’re in.

After struggling with his maverick executive and the reactions of his leadership team, Skip finally promoted Charles to the EC, not because Charles set an admirable example but because his contribution was essential and he needed to be part of the senior executive discussion. This decision relieved some of Charles’ insecurity and may have also bought time for Charles to address issues in other spheres of his life. Charles became relatively less difficult and was able to contribute to the organization longer than most had expected.

Managing the TaD executive is not for the faint-hearted. However, the effort is worth it for both extrinsic and intrinsic reasons. If you can retain the TaD executive and better align him or her with the organizational mission, if only for a period of time, you will have contributed greatly to the organization’s aims and productivity. And you will have grown in your ability to lead a diverse, high performing team, taking your talent management skills to the next level.