Within any company, the attitudes, values and work ethic set within management will trickle down to the rest of the employees. Workers will follow the lead set by those who lead them, and they in turn will do what they see done and set an example for those who come after them. Dress code is a great example – if the boss wears a suit every day, then his employees will see that the priority is on traditional corporate dress and wear a suit as well. If he shows up in khaki cargo shorts, then they will feel comfortable dressing casually in the office.
The area that leadership should be most concerned with setting a positive example is with ethics, integrity and financial controls. The fact that the boss shouldn’t commit a felony or embezzle money may seem obvious, but if the management regularly lets ethical issues slide in order to make the company look good, or to keep a client relationship, it sends a message to employees that other loose standards are allowed as well.
If there is a lax control environment within a company, it may be caused by lack of diligence by executives to stay true to moral and ethical leadership, leading to greater likelihood of abuses by the employees. Setting the right tone at the top can be the difference between an environment and culture that cultivates fraudsters and one that refuses to allow unethical behavior of any kind.
In the 2010 Report to the Nations on Occupational Fraud and Abuse from the Association of Certified Fraud Examiners (ACFE), reported frauds exceeding $1 million had a common deficiency: a poor tone at the top. It was suggested that businesses consider the following questions developed by the ACFE to gauge the effectiveness of fraud prevention efforts, with regard to management climate/tone at the top:
- Are employees surveyed to determine the extent to which they believe management acts with honesty and integrity?
- Are performance goals realistic?
- Have fraud prevention goals been incorporated into the performance measures against which managers are evaluated and which are used to determine performance-related compensation?
- Has the organization established, implemented and tested a process for oversight of fraud risks by the board of directors or others charged with governance (e.g., the audit committee)?
These are questions all business leaders should consider and based on their answers, make changes within their organization to ensure that the proper tone is being set by management.