With A Smile Not A Gun

Posted on February 1, 2015February 24, 2015 by Dyad Communications Administrator

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.

Corporate Couch Time

Posted on February 12, 2001August 8, 2014 by Dyad Communications Administrator

Deck: Companies Call on Shrinks to Find the Psychological Roots of Management Problems

Â “Heads of companies come to me and describe one very specific problem, but often it turns out that the presenting issue is a gateway to other, deeper, systemic issues.” — Dr. Kerry J. Sulkowicz, founder and president, the Boswell Group

At a time when people are popping Prozac to treat emotional ills, a new class of clients is seeking more traditional couch time: corporations. But don’t expect to overhear CEOs swapping shrink stories just yet. One specialist in the new field of psychoanalytic management consulting, Dr. Kerry J. Sulkowicz of New York, believes he has fewer than two dozen counterparts nationwide.

Sulkowicz’s firm, the Boswell Group, has assembled a client list of entrepreneurial companies, Internet startups, family businesses, even a traditional management-consulting firm. He and his group of nine affiliated executive coaches and consultants help clients uncover the behavioral roots of productivity problems, corporate culture clashes, hiring miscues and other management headaches.

Such corporate intervention typically involves an initial session with the CEO, talks with other key employees and on-the-job observation. Like individual therapy, the work of corporate shrinks can take a few sessions, a few months or longer, typically concluding when the initial problems have been addressed and the client feels better able to understand the psychology of running a business.

In case you’re wondering, the “Boswell” in the firm’s name is Sulkowicz’s Jack Russell terrier, who in turn was named for James Boswell, the biographer of Samuel Johnson.

Is this a fairly new phenomenon? How did psychoanalysts wind up in the business of advising corporations?
I don’t think the need for this is any greater than it has ever been, but in recent years there have been a number of analysts who have found that applying these ideas to business is a growth area. Three or four years ago, the American Psychoanalytical Association started an ad hoc committee on corporate and organizational consulting. This is a growing trend, but still a small niche of people trained psychoanalytically to understand behavior in a companyÂ It’s a fairly natural extension of the business, and something that’s becoming more recognized. There’s a trend overall in business where more leaders are open to looking at the psychological side of their business. I’m not sure why this is, but you can look in the business press and you’ll see more and more articles addressing business psychology.

How can a CEO recognize that his or her company is “sick” and needs the help of a psychoanalyst?
When a company finds itself bogged down in bureaucracy, when a company has young and inexperienced leadership, or when a leader has a good vision but is having trouble implementing it. When a leadership team has lots of bright people but has trouble delegating, often that has a psychological component.

I’m reluctant to call it a sick or dysfunctional company. It might scare people off. And I’m not out there trying to diagnose a company or individual. I’m not looking for pathology. In fact, these often tend to be healthy companies that have leaders who are relatively psychology-minded to begin with.

Can you share how you’ve helped specific clients?
Heads of companies come to me and describe one very specific problem, but often it turns out that the presenting issue is a gateway to other, deeper, systemic issues. One company engaged us because they were growing rapidly and had to do a lot of hiring. They were hiring on impressions without paying a lot of attention to matching people with job descriptions.

They asked me to look at their hiring process and help the management team learn how to interview better. I did a workshop with the managers to help them learn to read between the lines and be more predictive.

I asked them to take notes on their interviews, and we went over them in a microscopic way. We looked at how the person responded to questions, whether they responded directly or evasively, whether there were signs of anxiety, whether there were inconsistencies or suggestions that a person was running away from an idea or maybe running away from work if it was getting stressful. It’s an adaptation of how I would work with a patient.

The person who founded the company was very much an entrepreneur and as the company was growing he was sensing that he might not be able to make the change from entrepreneurial to corporate leadership. The second part of my work was consulting with him over several months to help him to make the transition to a new kind of leadership.

I worked individually with the leader of the organization to help him see various ways he was holding on to his control. I helped him to let go of control over several different areas of the business and helped him see that he could trust the people working for him. It really involved him saying he could trust his own judgment, too, because he had hired all of these executives himself.

He got money from a very traditional, conservative foreign company, which sent someone to oversee the management. The culture of the foreign company was the antithesis of the cutting-edge culture the founder wanted to create. They had a culture with wild, creative people running around and doing inventive things, with a staid, buttoned-down, conservative man in a corner office overseeing things.

A lot of the executive team had been very reluctant to spend time with him. They saw him and assumed he was unapproachable. But I spent a lot of time with him and got to know him, and I realized that there was probably more in common than was assumed.

So the third part of the consultation involved bringing that out on the table and addressing it rather than having it operating under the table. I wound up acting as a kind of mediator; I told the other side what I was learning. Gradually, I brought them together in a series of meetings. They found out that he was not quite as buttoned-down as he appeared and he realized that the Americans were not as wild as they appeared.

I’ve worked with several Internet startups. One common issue is helping fairly young management teams learn about people skills. They tend to be bright and have boundless energy but not much leadership experience. I have helped young leaders see the need for paying more attention to the interpersonal side of the business. I served as sort of an assistant to them, helping them in weekly meetings to listen to what’s being said between the lines by their management team, by being a kind of translator for what’s going on emotionally in the team. I taught them how to listen, how to communicate more effectively, how to build structures that allow more horizontal communication. In some cases I’ve recommended bringing in some people with gray hair.

Is this like organizational psychology or organizational behavior?
That approach is very different. The field of organizational behavior has long been involved in working with HR departments. These people tend to focus on things like workplace safety, career counseling, guidance, and they do a lot of standardized testing.

My approach is focused on the idea that companies may have a mind of their own. There are forces at play that are largely out of the awareness of the people working there. A company might benefit from it as it grows up to compete in a rapidly changing economy. It may be a way of covering all the bases and becoming aware of the psychological forces at play.

I do a variety of things, ranging from management culture studies to studies of the company’s culture as a whole to make it more productive. Another thing is executive coaching for the leadership of an organization, helping CEOs learn new psychological strategies to add to their functioning as CEOs, running management teams, delegating. I also do straightforward consulting to companies on different aspects of business with psychological underpinnings, including marketing and advertising.

What sets me apart from traditional consulting is that my training and experience allow me to understand some of the covert processes at work in an organization, the aspects that are operating outside the awareness of most of the participants. There are psychological underpinnings that traditional consultants no doubt run up against but may not have the training to tease out from the observable information.

How do clients find you, and how much do these services cost?
I have a Web site, www.boswellgroup.com, and I get a fair amount of interest from it. I don’t have any data on hits, but if I look at my practice I’ve got a lot of work that keeps me very busy. People have also found me through word of mouth and through my speaking and writing.

In terms of cost it’s similar to paying a partner of a law firm or a management-consulting firm. In terms of the amount of money that can be saved if a company can avoid mistakes, my fees are pretty reasonable.