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The truth about “Tone from the Top”
Are your executives telling
the truth when they say
“ethics matter”?
FIFA protects the integrity of football and is
fighting corruption in football.
-FIFA Football Governance “The guardians o...
We stand for respectable, honest actions in
everyday business that are in accordance with
rules...
- The Volkswagen Group ...
The “Tone from the Top” at FIFA and
Volkswagen share a common element
What is it?
They are lying.
They are not alone.
Management or the CEO is involved in 53% of
bribery cases; Senior executives know about
86% of corporate fraud cases
If you wanted to design an incubator for
generating misconduct, it would look a lot like
the C-Suite
What makes the C-Suite so susceptible to
corruption?
Management readily sees cause and effect
between bribery and sales
Companies that bribe have greater sales
growth compared to control firms for 3 years
before and 3 years after winning a ma...
But...
But there are negative side effects of
corruption
Companies that bribe have poorer net profit
margin (net income divided by sales revenue)
for the same 6 year period
Companies that bribe have poorer cumulative
abnormal returns (difference between the sum
of the monthly returns for bribin...
Companies that bribe perform poorer on
nearly every corporate metric used to measure
success
If you endorse corruption to achieve a goal,
you endorse corruption (full stop)
If you lie, your employees will lie
If you cheat, your employees will cheat
If you give bribes, your employees will take
bribes
Tone from the top is not what you say, it’s
what you do
81% of all frauds are perpetrated by at least
one insider
5% of all revenues are lost due to occupational
frauds
Companies are more often victims of
corruption than beneficiaries
How can you change a culture of corruption?
Start changing traditional ethics training
When the big people get in trouble, the little
people get ethics training.
Target the “big people” about how corruption
causes internal fraud
CEOs are prone to viewing the company’s
success as indistinguishable from their own.
When bribery hurts shareholder value it hurts
the CEO
Use targeted motivators in your ethics training
Motivation: Shareholder Value & Exec. Mgmt;
Career Opportunity & Middle Mgmt; Job
Security & General Employee Base
How do whistleblowers help?
Whistleblowers are effective at discovering
external fraud, and even more effective at
discovering internal fraud
Discovering Internal Frauds
Median Losses After Discovery
Reduction in Median Losses with Effective
Internal Controls
Whistleblowers are one of many internal
controls that support an ethical culture that
reduces internal corruption
An ethical culture that reduces internal
corruption sustains a profitable culture
Sustained profits make your CEO a superhero
So your executives can tell the truth when they
say “ethics matter”
Please like & share
About the Author
Background
Eric Pesik is currently the Associate General Counsel and Compliance Officer for Seagate
Singa...
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Are your executives telling the truth when they say "ethics matter"? Senior executives are involved in 53% of bribery cases. And they know about 86% of corporate fraud cases. If management lies about ethics, what message does that send? What is the true "tone from the top"?

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The Truth about Tone from the Top by @EricPesik

  1. 1. The truth about “Tone from the Top”
  2. 2. Are your executives telling the truth when they say “ethics matter”?
  3. 3. FIFA protects the integrity of football and is fighting corruption in football. -FIFA Football Governance “The guardians of the game” 20 November 2014
  4. 4. We stand for respectable, honest actions in everyday business that are in accordance with rules... - The Volkswagen Group Code of Conduct Source: http://www.volkswagenag.com/content/vwcor p/content/en/the_group/compliance.html
  5. 5. The “Tone from the Top” at FIFA and Volkswagen share a common element What is it?
  6. 6. They are lying.
  7. 7. They are not alone.
  8. 8. Management or the CEO is involved in 53% of bribery cases; Senior executives know about 86% of corporate fraud cases
  9. 9. If you wanted to design an incubator for generating misconduct, it would look a lot like the C-Suite
  10. 10. What makes the C-Suite so susceptible to corruption?
  11. 11. Management readily sees cause and effect between bribery and sales
  12. 12. Companies that bribe have greater sales growth compared to control firms for 3 years before and 3 years after winning a major contract through bribery
  13. 13. But...
  14. 14. But there are negative side effects of corruption
  15. 15. Companies that bribe have poorer net profit margin (net income divided by sales revenue) for the same 6 year period
  16. 16. Companies that bribe have poorer cumulative abnormal returns (difference between the sum of the monthly returns for bribing firms versus control firms) for the same 6 year period
  17. 17. Companies that bribe perform poorer on nearly every corporate metric used to measure success
  18. 18. If you endorse corruption to achieve a goal, you endorse corruption (full stop)
  19. 19. If you lie, your employees will lie
  20. 20. If you cheat, your employees will cheat
  21. 21. If you give bribes, your employees will take bribes
  22. 22. Tone from the top is not what you say, it’s what you do
  23. 23. 81% of all frauds are perpetrated by at least one insider
  24. 24. 5% of all revenues are lost due to occupational frauds
  25. 25. Companies are more often victims of corruption than beneficiaries
  26. 26. How can you change a culture of corruption?
  27. 27. Start changing traditional ethics training
  28. 28. When the big people get in trouble, the little people get ethics training.
  29. 29. Target the “big people” about how corruption causes internal fraud
  30. 30. CEOs are prone to viewing the company’s success as indistinguishable from their own.
  31. 31. When bribery hurts shareholder value it hurts the CEO
  32. 32. Use targeted motivators in your ethics training
  33. 33. Motivation: Shareholder Value & Exec. Mgmt; Career Opportunity & Middle Mgmt; Job Security & General Employee Base
  34. 34. How do whistleblowers help?
  35. 35. Whistleblowers are effective at discovering external fraud, and even more effective at discovering internal fraud
  36. 36. Discovering Internal Frauds
  37. 37. Median Losses After Discovery
  38. 38. Reduction in Median Losses with Effective Internal Controls
  39. 39. Whistleblowers are one of many internal controls that support an ethical culture that reduces internal corruption
  40. 40. An ethical culture that reduces internal corruption sustains a profitable culture
  41. 41. Sustained profits make your CEO a superhero
  42. 42. So your executives can tell the truth when they say “ethics matter”
  43. 43. Please like & share
  44. 44. About the Author Background Eric Pesik is currently the Associate General Counsel and Compliance Officer for Seagate Singapore International Headquarters Pte Ltd. He also serves as an Adjunct Assistant Professor with the University at Buffalo, State University of New York, in the School of Management. He has been a lawyer since 1997 and is a member of the State Bar of California, USA. He is also admitted to the US Court of International Trade in New York and the US Supreme Court in Washington, DC. Many of Mr. Pesik’s presentations are available on SlideShare at: http://www.slideshare.net/ericpesik Disclaimer This work represents the opinions of the author alone, and is not the opinion his employer. Creative Commons Attribution License You are free to share, copy, distribute, and transmit this work; to remix or adapt this work; and to make commercial use of this work, under the condition that you must attribute this work to Eric Pesik (but not in any way that suggests that I endorse you or your use of this work). Each slide contains source attributions and URL; before reusing, you must obtain the original images from the original sources, and you must comply with any applicable license restrictions imposed by the original source. http://creativecommons.org/licenses/by/3.0/
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Are your executives telling the truth when they say "ethics matter"? Senior executives are involved in 53% of bribery cases. And they know about 86% of corporate fraud cases. If management lies about ethics, what message does that send? What is the true "tone from the top"?

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