How do you stop corporate fraud?

CORPORATE SCANDALS occur with depressing regularity, from the accounting misstatements at Enron in 2001 to fake bank accounts at Wells Fargo, uncovered in 2016. In June Wirecard, a German payments processor, revealed that €1.9bn ($2.3bn) was missing from its accounts. What was remarkable about the affair was that the company’s book-keeping had been the subject of sceptical articles in the Financial Times. Yet the initial reaction of BaFin, the German regulator, was to launch an investigation into the newspaper, not the firm.

It is clearly difficult for people to recognise when a business is heading off the rails. That can be just as true for managers within a business as for people outside it. Executives can be sideswiped by an unnoticed problem in an individual division or a subsidiary; not all scandals make it on to the front pages.

Outright malice is not always the cause. Ethical choices are rarely black or white and individuals are not very good at assessing the purity of their own motivations. In a new book about behavioural biases, “You’re About To Make A Terrible Mistake”, Olivier Sibony of HEC business school in Paris writes that “as soon as there is any ambiguity about a judgment…we reason in a way that is selective enough to serve our interests and yet plausible enough to convince...

via Business Feeds

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