Apr 7, 2017

Benjamin Franklin is credited with saying “an ounce of prevention is worth a pound of cure.” At AuditLabs we think this translates to peoples’ attitudes, from the leaders and managers who set the ‘tone at the top’, to the employees doing the work.  We also believe that attitude is a choice, and choosing an attitude valuing ethics and integrity may not payoff immediately, but is it relatively inexpensive way to modify risk over a longer period of time.

Attitudes create your corporate culture, and choosing an attitude that values growth and profits over ethics and integrity, can be costly.  Recent examples include Volkswagen’s $18.3B accrual for vehicle recalls related to losses for cheating on diesel emissions.  Another auto industry example is Takata, the vehicle airbag supplier of faulty airbags.  Takata first identified 62,000 airbags with an issue, and by ignoring it, they are now facing a recall of 440,000 airbags, which will undoubtedly cost the company multiple times what they would have spent by addressing the issue early-on.  Both of these “scandals” were operational in nature, while other examples that we’ve seen in history were accounting based:

Older high-profile multi-billion dollar examples include fraudulent accounting of capitalizing expense at HealthSouth and WorldCom.

These examples not only cost the companies the amount it takes to fix it, but irreparable reputational damage, the loss of future sales customers and ripple effect on dealers, etc. These soft costs greatly amplify the published losses.

Non-profits face a level of scrutiny just below publicly-traded companies, as they are trusted by the public, they take in donations and spend the funds on the programs help them accomplish their mission.  Recently, the Wounded Warrior Project has come under scrutiny following a report by CBS, after which the CEO and COO swiftly lost their jobs, and the organization’s reputation has suffered immeasurably.  It has been reported that the egregious spending began around the time when the ousted CEO joined the organization in 2009.  Again, the wrong attitudes from the top-down can create immeasurable risk, no matter the industry.

Integrity is how people conduct themselves when no one is watching, and an example of integrity at the top of an organization can have a truly positive trickle-down effect.  But a good tone at the top can’t be just talking the talk; it must also be walking the walk.  While attitudes are hard to adjust, we can help spread a good corporate culture from the top down through example, motivation and trainings.

In our next post we talk about opportunities for people with good attitudes to save the day.

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