How not to worship your boss

Kids Company, a leading UK charity for disadvantaged children, collapsed a year ago amid allegations of gross financial mismanagement.

Camila Batmanghelidjh, its flamboyant founder and chief executive, had been elevated to such heights that she was left unchallenged for many years, not only by her staff, donors and board of trustees, but also by the government and media.

From the charity’s launch in 1996, government ministers approved payments to it totaling £42m (see pdf) in the form of grants. Ms Batmanghelidjh’s charisma, charm and fame led to her being so idealised that she avoided normal levels of scrutiny applied to most organizations.

A House of Commons select committee concluded that Ms Batmanghelidjh’s personality “appeared to captivate some of the most senior political figures in the land”, and high-level political patronage may have deterred whistleblowers from coming forward.

Kids Company provides an extreme example of the dynamics and potential consequences of “idealisation”, but these are in play at most organisations to a greater or lesser extent, and not just at the top — individual subordinates can also be put on a pedestal.

It may be difficult to spot potentially dangerous hero worship because it can often be disguised as the everyday respect and admiration we endow on apparently outstanding leaders.

Such adoration is a mutual relationship with distortion on both sides, where a person’s need for admiration is fuelled by the need of admirers to see their leader as exceptional. Such admirers often have dependent personalities whose craving for emotional security blurs their perceptions of a leader’s limits and capabilities.

Manfred Kets de Vries, psychoanalyst and professor at Insead Business School, says: “It’s a totally reinforcing dance in which, because of a general feeling of helplessness, you idealise the leader and say quickly what the leader likes and wants to hear, and that reinforces the leader’s narcissism and vice versa. Unfortunately, the moment the leader accepts this, he is surrounded by liars.”

Heaping such admiration and trust on people in power helps sustain a fantasy that those who look after us are all-knowing, or believing that being close to great people helps us feel better about ourselves. For many, it is a way to compensate for a difficult relationship with early authority figures, usually a parent.

Children normally imagine their parents as benevolent, all-knowing figures, and this helps cushion them against overwhelming fears of life’s dangers. With maturity, however, individuals learn to accept their parents’ flaws, and thereby to tolerate a world of uncertainties and disappointments and to rely on their own opinions rather than always accepting those of authority.

Glorifying a leader can leave him or her free to act irresponsibly, unethically or to the organization’s detriment. It also means subordinates are unlikely to question decisions or assert their own talents and insights, which can in turn damage a company’s innovative potential and development.

Devaluation is the inevitable downside to idealisation — the higher the person is put on a pedestal, the greater the crash, as Ms Batmanghelidjh discovered. Rather than being seen as merely flawed, her fall from grace was total, and much of the work she and her staff had accomplished was forgotten.

All leaders have a degree of narcissism and therefore are at risk of encouraging this dynamic, but those on the extreme end of the continuum are more likely to be seduced by its allure. The more narcissistic the leader, the greater his or her need to attain admiration and the security he or she craves.

Kerry Sulkowicz, psychoanalyst and managing principal of New York’s Boswell Group, a consultancy specialising in work relationships, says: “The danger is believing in one’s infallibility once one reaches the top. Sometimes leaders do things deliberately, or more likely unconsciously, that promote idealisation.

“They act as if they have all the answers or don’t show any vulnerability, and for those people who are susceptible to this it can lead to an idealisation of them.”

New chief executives can feel pressure to be perfect from the start, and experienced ones can believe they have seen and done it all before, says Mr Sulkowicz.

The danger is when they start to act the part. Another risk factor is when the distance between a CEO and his or her staff becomes too great and as a consequence feedback diminishes.

Mr Sulkowicz believes prevention is better than cure in this regard. “Leaders who are getting nothing but positive feedback from their organisations should actually worry about that — they should be alert to the likelihood that nothing but praise is a sign of idealisation and they should really look for criticism because otherwise they’re likely to believe it themselves and are being set up for a fall.

“It should raise a red flag when the exclusive praise comes from the directors, because the board’s role is in evaluating the performance of the CEO, and if the board can’t see through the idealisation then that’s really dangerous.”

One business consultant in New York describes his compulsion to maintain an aura of perfection. “Idealisation is intoxicating — it makes you feel special, it’s a milder version of falling in love,” he says.

He explains how he relied on admiration from his clients to compensate for the lack of love and security from his parents. By making himself invaluable to his clients he convinced them of his omniscience.

“I would position myself with a magic wand able to transform any performance issue. The more they needed me, the more I could trust they would take care of my needs, financial and emotional.

“The price was compromising the clear, honest counsel needed to be an effective consultant.”

Mr Sulkowicz believes that the prevalence of celebrity culture adds to the problem because business leaders can fall prey to its allure — they may then start believing in their own mythology.

“When a CEO starts to be treated as a Kim Kardashian figure, famous for being famous, it detracts from their credibility and authority as leader.”

Getty Executives can equally idealise a subordinate. A senior executive in a private financial institution who came to me for psychotherapy revealed that his need to be seen as perfect in order to attain his CEO’s admiration defended him against fears of rejection he had suffered since childhood.

His compulsion to appear perfect left him dependent on his chief for reassurance and security, while the CEO in turn grew dependent on his impeccable performance. Although it appeared to be a smooth-running company, the cost of sustaining a perfect image left them both risk-averse.

“I came to realize that what I created in order to feel safe was actually limiting my ability to move forward with my career,” he says.

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.