Alumni Event Accounting & Control: “How to prevent corporate scandals and fix good companies gone bad”
Thursday June 7 the Accounting & Control master program held its 4th annual alumni event. Alumni, current master students and university staff joined each other in an event called “How to prevent corporate scandals and fix good companies gone bad”.
07/15/2019 | 12:57 PM
Author: Eelke Wiersma
The audience first answered questions to what extent their company was exposed to scandal risk (3.2 on a 1-5 scale) and whether their company was prepared to deal with a scandal when it happens (2.6 on a 1-5 scale). The main speaker of the event was José Hernandez, who regularly advises major companies confronted with fraud and other forms of corporate misconduct. His recently published book “Broken Business” received a lot of media attention. During the event he explained, drawing on many examples, how companies that run into problems due to fraud can address these issues and revive stronger.
José explained that typical strategies that companies follow in such situations are to “shoot the messenger”, asking for proof, or to isolate the issues to a few individuals. He argued that such strategies always fail and that a much better reaction is to start analyzing the facts very quickly by investing in forensic analysis, and work closely together with regulators. Another typical strategy that organizations follow is to communicate to the media that those involved in the fraud have left the company, and that additional control systems are enforced to lower the risk that this will happen again. Again José stresses that this often does not work because many employees at the companies already knew the issues but were also benefitting from it or simply did not dare to signal their information to the top management. The problem therefore is much more often a problem of bad leadership and an unhealthy company culture. Just adding more controls will not fix the problem.
After his talk two panelist gave their views on this topic. The first panelist Petri Hofsté, VU alumna and currently serving as member of a number of supervisory boards, stressed the importance of company leadership to be visible in the company, and the importance of talking with many employees from different layers. As José indicated, often a larger group of employees partly know what is going on. Only when leadership is sending a credible message that they are approachable and willing to listen will such employees come forward to share their understanding of the situation with them. The second panelist, Jan Willem Huizink, drew on his experience as corporate lawyer and legal counsel of major companies to comment on the legal and regulatory constraints and opportunities of companies dealing with major misconduct cases.
In the discussion with the audience, the question was debated how companies can pursue an international growth strategy in countries that do not have a good track record of doing honest business. José’s answer was that for small to medium-sized enterprises it will be almost impossible to follow such a growth strategy without risking that your company’s reputation will be severely damaged. Such companies should seriously ask themselves whether they want to invest in such type of growth. Large companies have more bargaining power to maintain their standards but they also remain exposed to risks. Management and supervisory boards must be active to continuously re-evaluate decisions to operate in environments that risk association with, for instance, human rights abuses.
After this successful event, which was chaired by Bert Steens, director of the Executive Master of Finance & Control program, speakers, alumni, and current master students had the opportunity to network and further discuss these topics.