Win at all costs? Where should boards draw the line?
Former UBS trader, Kweku Adoboli, who was jailed in 2012 for the biggest fraud in British history, has stated that the crimes could well be repeated.
Despite having cost his employer $2.3 billion from trading beyond his authorised limit, Adoboli was adamant that ‘it could absolutely happen again’. He believes that those working in the banking industry still face the same pressure to make profits ‘no matter what’ and that we may be moving into the next phase of the financial crisis over the next 12–24 months.
In this instance, an employee was clearly responsible for the crime, and he aggravated the deceit by trying to hide his true position from his employer. But in many cases, it is the employer that is responsible, as Henley’s Professor Andrew Kakabadse of the Board Directors programme found from his own research into the low standards of compliance and governance.
According to Andrew, ‘In many markets, especially in less developed countries, a combination of inequality and corrupt governments has seen the incidences of bribery reaching epidemic proportions, and it is increasingly difficult for middle management, in particular, to impose their emotional and moral intelligence. They are often stuck in the middle, facing an impossible task of satisfying both senior management and their clients without succumbing to a delegitimised supply chain. Ultimately, such scenarios are unsustainable, as they deliver less value.
‘Top management use governance protocols and tick-box procedures to imply that the organisation is morally sound when they know that is not the case. Thus they leave general and middle management to take the blame for corrupt practices, provide no help to navigate round corrupt governments and yet still demand high returns in terms of profit and sales, leaving lower management totally vulnerable and themselves looking morally clean.’
Senior management – and boards of directors in particular – therefore have to consider whether the short-term commercial gains they might enjoy from ‘playing the game’ outweigh the longer-term benefits to the organisation’s reputation and commercial performance.
‘There is evidence,’ says Andrew, ‘that taking an ethical approach reaps financial rewards in the longer term and that organisations which adopt a more transparent, honest approach, are more sustainable. But we still have a long way to go to convince many boards – with the support of other stakeholders – to forego the perceived short-term gains.’
Professor Andrew Kakabadse is Programme Co-Director for Henley Business School’s Board Directors Programme and Data Protection Officer Programme.