This is an excerpt from a longer piece that is the second in a series of fraud-related articles focusing on the balance of trust. The series may be viewed at http://www.collinsbarrow.com/news.asp?typeID=27Â
What is tone from the top?
The term tone from the top refers to how an organization's leadership creates an ethical, or unethical, atmosphere in the workplace, which trickles down through the organization to each employee. Employees, like children, notice the behaviours and actions of their superiors, and tend to follow their leads. If the tone is "do as I say, not as I do," employees will tend to be more likely to commit fraud, as they will feel that ethical conduct is not a focus or a priority.Â
Why Tone from the Top?
How management acts and the message it sends to employees will affect how employees behave and perceive their working environment. Management structures that focus only on reaching a certain level of profit tend to encourage employees to turn to unethical behaviour in order to align themselves with that perceived goal. On the other hand, where management promotes an ethical environment in which employees feel confident in their roles and responsibilities, and feel less pressure to attain a certain goal, ethical behaviour tends to prevail.
White collar crimes like those seen in the WorldCom and Enron fiascos stemmed from management's pre-occupation with constantly achieving goals set internally and by the market, and rewarding management players with unrealistic compensation plans and incentives. As the employees watched their employers manipulate financial records, they followed suit in an effort to make the companies appear to be meeting projections. The employees apparently did not regard what they were doing as wrong.
How do we send the right message?
The solution is not simply to have policies in place forbidding improper conduct. The answer lies in communicating clearly what is expected from employees, leading by example, providing a system that will allow and encourage employees to report violations, and - most importantly - rewarding integrity.
In such an environment, employees will be less afraid to provide management with data and reports that do not meet expectations, or to set goals that could in turn affect their own financial compensation.Â
Following are some steps that management can implement to demonstrate that it takes these issues seriously:
- Implement a code of ethics
- Take prompt action when misconduct is suspected or discovered
- Implement a "whistleblower" program
- Define a clear mission and goal of the company and share it with employees
- Emphasize the importance of a strong set of internal controls
Bringing it all together
Management's expression of the importance of employees stepping forward and reporting unethical behaviour, and the controls that have been put in place to protect them and maintain confidentiality, will determine how effective these steps will be. Employees will not come forward unless they believe they will be protected. It is also critical that they feel confident that, when they report suspected wrongdoing or unethical behaviour, management will take action. It is the employee's perception of the fairness of the overall process that will determine its success. That is tone from the top.
Employees will follow the path set by management. Care must be exercised when conveying any message, either expressly or impliedly, from management to employee. A strong ethical tone from the top will foster a positive atmosphere, encouraging ethical behaviour. Â Morale and loyalty will improve as the likelihood of fraud diminishes.
Tyna Jallet, CA, is a Partner in the Montreal office of Collins Barrow and can be reached at tjallet@collinsbarrow.com.
Randy Greenstone, CA, is a Manager in the Montreal office of Collins Barrow and can be reached at rrgreenstone@collinsbarrow.com.