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The Key

09 December 2019 by Arun Chauhan

The Key

The management of a business’ leadership and culture can help to keep employees engaged and less likely to commit insider fraud

Fraud poses a major threat to every business all around the globe. From charities and housing associations to food and sport – every sector is subject to fraud risk.

The challenge of combatting fraud is ever increasing. According to Crowe’s 2019 Financial Cost of Fraud report, the UK loses close to £190 billion to fraud related crimes each year. This figure has risen by 56.5% over the past decade.

This heightened risk means it has never been more important for businesses to protect themselves against the impact of fraud.

The Influence of Leadership

A business’ leadership team plays a pivotal role in its growth. Leadership style influences the tone of corporate culture, the engagement of a team and, ultimately, the sustainability of a business’ success. Leadership also has the potential to increase or decrease the risk of internal fraud.

This is not leadership in the sense of governance through processes and procedures, but with respect to what can be described as the culture created by leaders.

Leaders who place focus on building a positive working culture which is aligned with their whole team, will enjoy a highly motivated team who are all pulling in the same direction, driven by the same mission. Engaged employees are more likely to ‘buy into’ why compliance is needed and appreciate its value in protecting the business and the whole team.

Whatever level they sit within their organisation, every leader values an environment to allow them to perform to the best of their ability. There are a variety of perspectives on how leaders achieve success. Some are driven by metrics, look to meet or exceed defined targets, enhancing team productivity or contributing to build the business.

To achieve the personal success they strive for, some leaders might choose to implement performance benchmarks for their team, such as profit or output targets. These benchmarks are designed to monitor how well the team is performing to gauge how close the leader is to achieving the targets set upon them and their personal goals.

However, this drive for personal success should not come at the cost of a happy, engaged and motivated team. This can be counter-productive and result in not achieving the desired objectives.
When leaders push for success at all cost, it can create performance pressures which often compromise the quality of output delivered by employees. This damages two things – firstly, quality of client delivery and secondly, employee health due to the stress which may arise as a direct result of increased pressure to achieve what may be perceived as unachievable demands from senior management.

The Importance of Positive Culture

For those who own a business, your culture is your ‘DNA’. It underpins everything you say, everything you do and everything others say about you. It’s the unique way you operate. Your culture influences how others, such as your team and your customers, view your business.

The culture in any business is heavily driven by its leadership. Pressures created by leaders upon their employees can lead to a toxic working culture which fosters poor team motivation and dysfunctional engagement.

A negative culture can invite myriad risks to a business. Most importantly, negative culture has been shown to lead to disenchanted and disconnected employees.

Over time, this feeling of disenchantment amongst employees can lead to an increased risk of employees not doing the right thing for the business but doing the right thing for them. This means the people you rely on to help ensure compliance is effective – to be your eyes and ears – are the very people who are discouraged from doing those things. They are prompted to look after their own interests, placing self-preservation as their top priority.

If a team doesn’t believe in their workplace culture or mission, they won’t be motivated to work towards helping their leaders to achieve it.

Leadership Types

Not all types of leaders cause risk and damage to culture but there are three types of leaders that do foster greater risk of disenchanted employees.

The Autocratic Leader

A leader happiest when in complete control – with absolute power over their team.Stephen Covey’s The 7 Habits of Highly Effective People suggests a good leader ‘seeks first to understand, then to be understood’. An autocratic leader typically expects to be understood first. This outlook can make your team feel misunderstood, ignored or undervalued, weakening team moral. This can prompt employees to seek the appreciation and value they’re ‘entitled’ to through other means – such as unethical behaviour or fraud.

The Metrics Watcher

A leader always watching the clock – ensuring every member of the team arrives and leaves on time.
This style of leadership has the potential to breed mistrust throughout a team. By tying success to when an employee arrives and leaves the office, metrics-watching leaders can inadvertently suggest there’s little value of any productivity between those times or any work produced outside of the traditional working day. This can cause employees to lose pride in their work and take it upon themselves to seek reward for the work they’re doing from elsewhere in the business.

A good leader should place emphasis and motivation on the work that’s put into the hours ahead of the hours that are put into the work.

The Absent Leader

Research shows absenteeism is the most common form of incomplete leadership. Be it physically or psychologically, absent leaders can often be too busy to suitably support or assess team performance.

Absent leaders can dampen employee motivation as there is little recognition when they go above and beyond. This weakened motivation can cause low team morale and ultimately disengagement. If prolonged, disengagement is a leading factor of insider fraud.

Engagement is Key

Team engagement – often lost through a weak business culture – is paramount to sustained success and growth. It is also vital to encourage employees to ‘swim’ in the same direction and avoid causing risk of damage to an organisation.

If leadership style is contributing to a toxic working culture which drives pressure and stress from the demands of senior management, a team’s motivation and engagement will likely be hampered. If you’re a leader and you lose the engagement of your team, you will also quickly begin to lose their care and as a result, their trust in and respect for your business will rapidly decline. This care is essential to secure long-term business continuity.

This loss of care – and general disenchantment with the business, its leaders and their role – combined with a pressurised, stress-inducing work environment, will, overtime, begin to leave employees feeling highly emotionally drained. This mental exhaustion will often distort an employee’s ability to make morally-sound decisions which are aligned with an organisation’s core ethics and beliefs. In this scenario, employees are increasingly under pressure to make behavioural choices which would usually be seen as out of character.

There is no fixed ‘true north’ to a person’s moral compass. An employee’s moral compass will change path if the culture created by their leadership influences them to develop a need for self-protection.

The Alternative Fraud Triangle

Donald Cressey’s traditional fraud triangle suggests that pressure is the driving factor for dishonest activity, with those committing fraud typically using this to rationalise their dishonest behaviour.
However, the source of employee pressure is not always external. Often, those employees facing external pressures will value the peaceful sanctuary offered in their place of work. But if employee pressure has an internal source – such as leadership – it can have a detrimental impact on business performance.

As explored earlier, leadership is a highly common source of employee pressure. Its significant influence on a business’ culture and a team’s engagement means it can create a highly-pressurised environment which distorts the ‘true north’ of otherwise good employees, prompting them to act dishonestly – even if only to protect their jobs or livelihoods.

Managing Culture and Engagement

It’s absolutely vital to instil a positive working culture to reduce a business’ risk of fraud or other dishonest activity. This culture should flow from top leadership right through to those on the frontline.
Every leader is different but every good leader shares one common attribute – trust. A high-trust environment between a leader and their team fosters a culture of integrity and information sharing – two crucial tools to protect your business against fraud.

Good leaders will value the trust of their team and as a result, their team will value the trust of their leadership.

The best way to protect a business from fraud is to think about things differently. If you’re a leader, put yourselves in the shoes of your team – would you be happy or does something need to change?

A happy, motivated and highly engaged team are far more likely to practise open and honest communications. They’ll act as the eyes and ears of a business and engage with its compliance policies and procedures – alerting their leadership when things aren’t quite right. 

Arun Chauhan, founder of Tenet Compliance & Litigation

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