Why You Should Always Prosecute Fraud

Sometimes people think I’m harsh when I tell them to always prosecute fraud in their companies. My fraud policy is quite simple, “If you steal, you will be prosecuted to the fullest extent of the law.”

Instituting a fraud policy is one of the easiest things a company can do. But I am continually dismayed to find out how many companies don’t have one. It seems to be an issue they’d rather avoid. Until it happens to them.

When fraud occurs in a company, many CEOs are reluctant to prosecute it. The main reason I’ve found is that it can be embarrassing to admit it happened in your company. They’d rather other people didn’t find out about it. And they don’t want to get involved with lawyers and filling out paperwork. It can also be hard to prosecute someone you know. They worry about hurting the employees’ families. So they find it easier just to let the thief go and keep the entire incident quiet.

Let me remind you what one investor said about Bernie Madoff. “Bernie would never do that. He’s my friend.” That investor lost everything. As they say, with friends like that …. For more on that topic, read my blog, “Nice People Commit Fraud.”

There are several reasons you need to prosecute fraud when it occurs in your company.

One is that when people see you following through on the fraud policy, it deters others from committing fraud. And the opposite may be true if you don’t prosecute it and your employees know about it. They may figure, “Well, Susie got caught. She did get fired, but I heard she found another job right away.” So while in the short run it may be a hassle to prosecute the employee, it can pay off in the long run when you don’t have to deal with this issue again.

And another reason is that if you don’t prosecute them, odds are very high they will go and steal from someone else. Susie got another job because her new employer didn’t know she’d embezzled from the previous one.

I recently read an article in the Atlanta Journal-Constitution about Thomas Conrad, “Decades after ban from industry, Alpharetta man again accused of fraud.” Seems Thomas is a repeat embezzler. He was banned from the investment industry in a disciplinary action in 1971. He apparently behaved himself for four decades. But then he struck again.

He and his son, Stuart P. Conrad, have been accused by the U.S. Securities and Exchange Commission of defrauding investors of $10.7 million through a group of hedge funds they managed. While he cut off any payments to investors starting in 2008, the money was still flowing freely to him, his wife, his son, other relatives and a few of their favorite investors.

They also involved another money manager in one investment that turned out to be a Ponzi scheme.

And did he tell those investors that he had been banned from the investment industry decades ago? You can guess the answer to that one. That is also a violation of federal securities law.

In this case a fraud prevention policy wouldn’t have helped as he had been banned from his industry. But this story does illustrate that once a person commits fraud, he is much more likely to do so again.

Don’t pass along your problem to someone else by just letting a thief go. Prosecute the people who steal from you. They may strike again. Even if they wait four decades to do so.


Creative Ways CEOs Communicate

One of my favorite features in my hometown paper, The Atlanta Journal-Constitution, is the “5 Questions for the Boss: Lessons Learned by Georgia’s Top Executives” that runs in the Sunday paper.

As readers of this blog know, I’m all about lessons learned. In fact, my book is called “How Now to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes.”

A few weeks ago the reporter, Henry Unger, interviewed Phil Horlock, the CEO of the Blue Bus school bus company. Based in Fort Valley, GA, the company has 1,500 employees with sales reaching nearly $800 million this year.

Previously an employee at Ford, Phil was asked what he learned from Ford chief Alan Mulally, who is credited for that company’s remarkable turnaround. Phil’s response? “He taught me and others that you can’t manage a secret.” Phil said he learned that a company needs an open environment where people feel they can communicate what the issues are.

Every Thursday morning from 8 a.m. to noon all the leaders at Ford from all over the world would gather in a room or join by video conference and take turns discussing all the issues they were facing.

Phil says he brought that strategy to Blue Bird, cancelling a lot of the other separate meetings to hold one meeting on Thursdays. He noticed that productivity started to improve and he felt confident he knew what issues they were facing each week.

George Alvorson, chairman and CEO of Kaiser Permanente, has been sending companywide emails to close to 200,000 employees for six years. He termed them “Celebrations” and intended to continue the Friday afternoon practice for just a year. But as an article in the Chicago Tribune reports, he got a strong response to the emails and felt that writing them made him a better manager.

The emails contain data and information about what they are doing well in an effort to make the employees feel good about the company, but are based on absolute honesty, Halvorson said.  (If you’re interested you can read several of them in the book “KP Inside: 101 Letters to the People of Kaiser Permanente.”)

There are 6,500 employees of Epic Systems Corp., a privately held medical records company in Verona, Wisconsin with $1.5 billion in revenue in 2012. Most days, many of the employees are traveling around the world for installation or training on its software system. But once a month, every employee is on the 800-acre campus for the monthly meeting run by Founder and CEO Judy Faulkner. They enjoy free soft drinks and popcorn as they meet in the huge auditorium to be updated on company news.

Good communication is not just about making employees feel good about the company and about themselves, although those are worthy goals. Good communication also equals higher productivity.

According to an article written in 2011 by David Grossman, “The Cost of Poor Communications,” the total estimated annual cost of employee misunderstanding in the U.S. and the U.K in companies with more than 100,000 employees is $37 billion. On the flip side, companies with leaders that are effective communicators had 47% higher total returns to shareholders over the last five years compared with firms that have leaders who do not communicate as effectively.

I see ineffective communication all the time in my position as the Turnaround Authority. In fact it’s one of the common denominators of the companies that I work with. In addition to experiencing financial difficulties, just about every company I am brought in to turn around also suffers from poor communication among its management and employees.

One of the first things I do when I take over as CEO is to gather all the employees together and tell them exactly what is going on. I hold my own town hall meeting to quickly squash the negative effects of the rumor mill.

Is your company suffering from ineffective communication? I suggest you work on improving it. Or, well, you may just have to hire a guy like me.


Two Ingredients for Success Never Change

“I’m a greater believer in luck, and I find the harder I work the more I have of it.”

Thomas Jefferson

“Innovation distinguishes between a leader and a follower.”

Steve Jobs

Our society is always looking for the next thing that will lead to success and while theories on what makes people successful may vary, I believe there are two ingredients for success that never change: hard work and creativity.

In Malcolm Gladwell’s book “Outliers,” he writes about the 10,000-hour rule, which was based on a study by Swedish psychologist K. Anders Ericsson that claimed it takes 10,000 hours of practice to master a task.

He uses examples like the Beatles. While he acknowledges their talent, Gladwell claims that an invitation the band received to play in Hamburg, Germany, while they were starting out is what led to their monumental success. In Hamburg, the Beatles played five hours a night, seven hours a week, and honed their skills, preparing them for worldwide stardom.

The Atlanta Crackers minor league baseball team played in this stadium on Ponce de Leon Avenue

The Atlanta Crackers minor league baseball team played in this stadium on Ponce de Leon Avenue

I’m a big believer in the value of hard work. I’ve been working since I was 12 years old. In the warmer months I dragged a lawn mover around the neighborhood and cut lawns. When I was 15 I got a paper route, waking up at 4:00 a.m. to make sure my customers had the latest news from the Atlanta Constitution when they woke up.

While I learned valuable skills from these jobs — responsibility, reliability, how to land a newspaper squarely on a front porch and collect from delinquent customers — the job where I honed many of the skills I would use the rest of my life was as a peanut vendor at the Atlanta Crackers baseball games.

The Atlanta Crackers, a minor league team, played from 1901 to 1965, prior to the Braves coming in 1966 from Milwaukee. The games were played in Ponce de Leon Park, destroyed long ago and replaced by a shopping center.

I sold peanuts for a penny a bag commission. The top seller for each game got a $20 bonus for selling the most peanuts. It didn’t take me long to figure out that even if I threw away 100 bags and paid the $10 for them myself, I’d still come out ahead if I sold more than anyone else.

So during every game I’d try to track the other boys’ sales and then would buy whatever additional bags I guessed I needed so I could be the top seller and win that coveted $20. I won it every time and some weeks there were multiple games, so that extra $20 really added up.

While walking up and down those stands week after week, handing out bags of peanuts to baseball fans in the 20,000-seat stadium, I learned then that two of the keys to success are hard work and creative thinking.

I could have just worked hard selling the peanuts. But it took the creative thinking to land that additional $20 a game.

It’s that creative thinking that is often called into play in my work as a turnaround authority. It’s not that I’m the smartest guy in the room. It’s that I bring a level of experience at rescuing failing companies — there’s that 10,000-hour rule — and I bring a fresh perspective that is conducive to a creative approach.

Here’s just one story I tell in my upcoming book, “How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes.”

On one of my assignments we had a big problem with theft from a warehouse. Lots of merchandise was disappearing and I didn’t have the time or money to install a security system.

But I could install a dummy camera, wire and blinking red light. No guts or recording equipment, but it worked! Theft was reduced and with the savings I could buy a real security system.

There are plenty more examples where the combination of hard work and creative thinking by a team challenged with saving a failing company was able to succeed.

That’s what I do as a turnaround authority. And fortunately, I don’t work for peanuts any more.


CEO Not Best Person to Handle Crisis

I deal with a lot of crises in my business as a Turnaround Authority: bankruptcies, family feuds, failing businesses, gun-toting union members, just to name a few. So I’m always interested in reading articles about the topic of emergency situations — particularly about those who regularly deal with crises as part of their job.

Dr. Thomas Frieden knows a thing or two about handling emergencies. As head of the Center for Disease Control and Prevention, Dr. Frieden deals with public health crises all over the world while also leading 11,000 employees in 50 countries and overseeing an organization with an $11 billion budget.

Sometimes it takes more than a Band-Aid to fix problems in your business. Know when to call in a professional.

Sometimes it takes more than a Band-Aid to fix problems in your business. Know when to call in a professional.

In a recent interview with Sunday Business Editor Henry Unger in the Atlanta Journal-Constitution, Dr. Frieden said one thing that I wish every CEO or business leader who is in a crisis situation would read.

When asked if the top leader of a business or organization should manage the crisis, he was quite clear.

“No,” he said. “The CEO should not be the person running the day-to-day crisis response. That would be a mistake … If a CEO tries to manage every aspect of an emergency, he or she is going to mess it up. Other things are happening and the CEO will never be able to focus as much energy as you need to.”

It’s a smart CEO who knows when to call in an outside professional like me.

As a turnaround guy, I am like an ER doctor. The patient is in an emergency situation and I first have to stabilize the patient and prevent shock. Then I can perform the necessary surgery to save the patient.

Unfortunately, many CEOS in crisis think they can handle their emergencies themselves. They are bleeding from the jugular and think they can slap a Band-Aid on and stop the bleeding.

As Dr. William Osler, considered the father of modern medicine, said, “The doctor who treats himself has a fool for a patient.”

You’re not going to cut your own appendix out, right? You hire someone with years of experience doing just that. So if you’re facing a crisis, why not hire someone who has years of experience handling crises?

I am used to skepticism on being hired to turnaround a company. When I’m discussing conducting an initial assessment with a client I often hear, “Our business is failing. We can’t afford to hire you.”

I always respond, “How can you afford not to?”

Then I tell them, “If I don’t save you five to ten times what you pay me in the first year, I’ll give you your money back.”

I’m not saying I’m smarter than any of these CEOs. I’ve just been doing this a long time and have seen just about every situation. And one of the reasons that I have the ability to succeed where CEOs faced by crises do not is because it is not my business. It’s not my company, my employees, my money, my wife, or my life. That allows me to keep a clear head and an objective perspective where the CEO does not have one.

Personal involvement compromises the CEO’s ability to understand what’s important and what is not; the facts and information that manifest themselves during an assessment and what ultimately resolves a turnaround are rarely the same facts and information that the CEO initially deemed relevant.

If your company is in crisis, do yourself a favor. Hire a professional.