5.
WHY THINGS GO WRONG
This is the longest chapter in the book,
but I think it ma y be the
most instructive. It r elates to the area where I spen t a lot of my
professional time and, perhaps, learned the most. Again, it is im-
portant to note that the discussion focuses on generic issues and
pertain s to all forms of risk. Risk occurs across all industr y bound -
aries and in corporati ons of all sizes . While much of the material
concentrates on fraud and related mat ters, it is hardly a narrative
of every thing I have seen in my career, much less all forms of
corporate fraud and, t herefore, forms of risk. (For those interest ed
in learning more about corporate fraud in all its many forms, I can
recommend no better book than Occupat ional Fraud and Abuse by
Joseph T. Wells. More d etails about the book can be found in note
2 at the end of Chapter 2 .)
95
96 RETHINKING RISK
CEOAND‘CSUITE’’ BEHAVIOR
The great competitive race driver Mario Andretti is reported to have
said: ‘If you are under control, you’re just not going fast enough.’
His observation may ring true if one is in the field of competitive
motor sports, but it presents a continuing challenge to boards and
audit committees when dealing with the behavior of the corpora-
tion’s most senior executives. This is a complex issue to deal with in
many ways. On the one hand, we want ‘C Suite’ executives to be
bright, energetic, innovative, and aggressive. That is how share-
holder value is created and preserved. At the same time, these same
attributes may lead them into overly aggressive business plans, ex-
cessive risk-taking, and, in some instances, fraudulent behavior.
Knowing where to draw the line and having effective monitoring
and evaluation processes in place can make the difference.
As my friend and colleague Dr. Sri Ramamoorti has noted from
the field of social science research, we have a ‘‘criterion problem.’
The example he uses is three people having a discussion about poli-
tics. They all have their own views, but what is the criterion by which
we should judge the merit of those views? Evaluating executive be-
havior is a bit like this: what standard do we use to determine when
aggressive behavior passes a tipping point and becomes reckless?
In the previous chapter, the issue of ‘‘noble cause’’ corruption
and the often corrosive effects it can produce were discussed. This
kind of corruption is hardly unheard of in the ‘C suite.’’ Bending
the rules ‘‘just once’ or failing to make timely and proper notifica-
tions, since to do so would slow things down, can lead to bigger and
bigger problems. The operative concept here is the ‘‘slippery slope.’
Ethicists often cite the fact, recounted in the saying The highway
to hell is traveled in small steps,’ that one small issue may lead to
another until they become one or more big issues.
WHY THINGS GO WRONG 97
An example from law enforcement is the patrolman who begins
to accept a free cup of coffee every morning from a restaurant on
his beat. It is not a big thing, and surely there is nothing wrong with
something as small as a cup of coffee. Over time, the practice may
grow to include getting a reduced price on meals and perhaps even
free meals. There may follow the holiday card with a $50 bill tucked
discreetly inside with a nice note to the effect of ‘Get something
nice for the kids.’’ Now, the patrolman feels a sense of friendship
with the owners, and who does not want to help a friend? Delivery
trucks have to deliver supplies to the restaurant on a regular basis
and, due to congestion, must often double-park in violation of the
law. The patrolman excuses them these infractions, since ever y-
body’s got to make a living, and who can deal with the parking issues
in the city anyway?
Later, if the restaurant has a liquor license, there may be an
altercation between two customers. An arrest inside the establish-
ment might bring problems from the alcohol control board and put
a valuable license in jeopardy, so the arrest is made on the sidewalk,
if an arrest is made at all. The patrolman may sternly warn the com-
batants to cut it out, go home, and never come in the establishment
again.
Thus it goes, like a snowball rolling downhill. So, too, with the
behavior of those in the ‘C suite.’
THE FEAR OF‘DEAL KILLERS’’
I was once in a forensic and litigation support practice that had
recently hired a talented and experienced due diligence data re-
searcher away from another major firm. She was excellent at her job
and could find any manner of public-source data online that would

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