Managing Fraud Risk: A Practical Guide for Directors and Managers

Introduction

“Where was the board?” This is a question frequently asked by shareholders, stakeholders and media commentators alike when an organisation is hit by scandal, crisis or business failure. There have been many such examples of headline corporate scandals in recent years. Set out below, by way of illustration, are 20 infamous cases, listed in no particular order:

Lehman Brothers; Enron; Siemens; Parmalat; BP; Galleon; Bernard L Madoff Investment Securities; Polly Peck; Barings; Yukos; Northern Rock; Refco; Royal Bank of Scotland; Satyam; WorldCom; Société Générale; Tyco; Arthur Andersen; Hollinger; and Allied Irish Banks.

Each case is different. Some are examples of business failure with weaknesses in the decision-making process or poor risk management, or health and safety issues. Others are more to do with the issues that concern us directly in this book; corporate fraud, bribery and corruption, greed and shortfalls in business ethics. In some of these latter examples, a number of main board directors have been found guilty of committing criminal offences. What these scandals all have in common however is that each one demonstrates shortfalls in governance right at the top of corporations.

The UK Code of Corporate Governance¹ describes the importance of corporate governance in its very first paragraph:

The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company.

The Code ...