Internal Controls and Accountability – Corporate Culture Necessities

UBS Investment Bank's Offices at 299 Park Avenue
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This week another “what is going on” happened in the financial industry.  This time it is UBS and 31-year-old UBS trader Kweku Adoboli who is accused of rogue trading with estimated losses now closer to $2.3B.  The activity had been occurring for the last three years but according to UBS it just recently uncovered the activity.  Sadly, this comes just a few years after the financial crisis of 2008 and UBS’ commitment to improve risk-controls and management system after it had a $50B write-down.

Accountability and risk management were areas of opportunity for UBS back in 2008 and part of the commitment Oswald Grübel, CEO made when he joined in 2009 to improve the risk management.  Fast-forward to September 2011, and apparently the culture is deeply rooted with folks who are working against the mantra of improved operations and risk management or so it seems.

UBS’ story is too familiar to those following the market, corporate culture and the financial industry.  In fact UBS’s story is eerily similar to Société Générale SA and Jérôme Kerviel, who racked up a $7.2B loss doing the EXACT same thing.  Kerviel was accused of making fake trades to hide his losses and repeatedly deleted those trades just before inspections, re-entering them afterward.

If you read Kerviel’s and the Soc Gen story, Kerviel will tell you that his leadership knew what was going on and he alleges even helped circumvent the system controls to allow him to make incredibly large trades given his previous successes.  Others were also involved, knew what was going on and in fact left the business shortly after the discovery.  Regulators on the Soc Gen case, The Bank of France, made 17 routine on-site investigations of Soc Gen in the two years prior to Kerviel’s capture and did not detect the matter.

So what is the answer to protect business owners, investors, customers and employees?  First off businesses today are operating in a much more complex environment and with a weaker economy.  When knowledge and money are scarce, we see the true ethical fabric of people and corporate cultures.

Knowing that we have complex and fast-paced environments, and financially weaker economics, we have to acknowledge that financial controls, IT security, risk management and a “do the right thing” culture are critical to ensuring protection of economic value.

As leaders, I would recommend the following to help create a culture of accountability and oversight:

1)  Automation of controls is good but it alone will not do it.  Human observation is critical to catch activity when systems do not.  In the cases I have been involved in; it was the person who has a funny feeling that triggered the review.

2)  Instill in all levels of management the understanding and expectation of risk management as part of their core responsibilities.

3)  View new processes, systems, people selection all with the eye of risk avoidance.  How can we ensure our data is protected, our systems are secure, our people support a culture of taking care of each other, the investors, the customers and the broader economic community?

4)  If you find a flaw, promote it, tell others so they know how it happened, how it was fixed, and that leadership is always on the lookout for other errors.

  1. If it is a system error, do a full sweep of the systems to inventory and determine if others are out there.
  2. If personnel related, investigate how rooted the infraction is on the culture.  Usually people cannot commit a crime alone…typically there are others who at least know about it if not participated in the act.  Determine the depth and breadth of the web of knowledge.

UBS, the world’s largest private wealth manager said no client’s positions were compromised.  However its reputation has been seriously harmed and with their letter to clients this weekend they attempt to provide some assurances “We fully understand this incident has caused you concern.  We too are very disappointed, and we assure you that UBS is taking the matter extremely seriously.”

Well, what about the letter to its shareholders that lost $2B in operating income, or the 3,500 employee force reduction announced in August with a value of $2B which will appear to cover the loss or the broader market that is teetering in its confidence of the financial industry and market in general?

This was not a single person acting alone in a cone.  Several people either activity or passively through lack of controls and accountability played a role in the situation.

We as leaders of companies must understand we are all connected…when we create an environment of strength, values, sustainability and corporate citizenry then we create our own destiny of greatness.  Looking away is not an option for us.  If internal controls and accountability are not on your short list as a leader….this is your wake up call to make some changes.  Too many people are counting on us.


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Politically Correct…Not Us.

No political correctness
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Tim, one of your employees, comes into your office full of “you know what the problem is”…his saying for just about every issue he has uncovered.  He has done it enough that you know it is his “go-to-line”.  You think to yourself, “wow he has superhero vision, since he sees all the problems of the world.  Why can’t he come in and tell me what problems he has solved?”  Instead, what you actually say is: “what’s going on?”

Then there is Betty who says, “it will never work” to just about every suggestion or new idea to improve the process.  She spends her time campaigning to anyone who will listen to her complaints.  You think to yourself “ if she would spend this much time and energy searching for solutions instead of just complaining about the problem, we would be miles ahead of the competition.”  What you actually say is: “now Betty, we have to think positive here.”

Or Frank, the Sales VP who is the fair-weather leader…always critical of new trends until everyone else on the Facebook community or the Google search universe says it is a hit.  He then converts with not so much as an acknowledgement of his previously strong opposition.  You think to yourself, “hmmmm…Really…what was that?  Wasn’t HE the one that said ‘this thing won’t catch on’?”  What you actually say is “Frank that is a great idea, I am glad we are going to implement it.”

Have you seen anyone like this?  Your answer has to be “yes”.  We have all been on either side of this type of conversation at some point in our lives.  We are all blessed with at least one person whose anchor is negative, uninspiring and unimaginative.  And we all know people who keep their opinions to themselves to the detriment of the team.

It is not surprising to me that, as leaders, we all have people who are disconnected from themselves and their greater inner positive power.  But what is surprising to me is despite how much leaders really do care about their employees they do not always say the words that are rolling around in their head, heart and soul.  Somehow we have this notion is it better to be politically correct, hold back the truth, maybe even lie with a smile, and keep our brilliance in our own heads rather than to share it.

With our friends and loved ones, we feel the freedom to share our opinions and thoughts.  Political correctness goes out the window.  We want the honest truth to keep us grounded, help us grow, and garner varying perspective.

Next time your employee or leader makes some comments that are less than flattering and you feel so inspired, ask, “Hey, would you be open to some advice?”  Most people appreciate that you asked first and then you can proceed only if you are under the impression they are willing to be open and receive the advice.  Asking first will actually make a difference.

So to Tim, Betty and Frank, here is what I would say to them if they were open to advice:

“Tim, what I like about you is your ability to identify problems.  I would encourage you to come to me with your success stories of how you solved them.  Now, if it is something big I need to know about, please flag the problem early, however if not, feel free to solve it and then share your success stories with me.  Success stories are infectious you know”.

“Betty, you have been here for 15 years.  You have seen this organization grow and change.  Your work has contributed to our team’s success.  In recent months I have sensed a change of heart.  How are you feeling and what is going on? [Pause for her response]  I am going to ask for your support of our new initiative as a veteran of the organization.  If you can focus your energy on making the project and the team a success, we have a real chance at this.  Do you recognize the power for good you have here?  I guess my question to you is ‘are you using it’?”

“Frank….[LOL]…now wasn’t it you who said this social media thing was just a fad?  I am glad we are going to get a Facebook company page.  With 700 million users, there is a real opportunity to be where people are at in a cost efficient way.”

When dealing with tough conversations, be honest and truthful in an inspiring, kind and impactful way.  If being honest is not politically correct, then it is not for us.  As leaders, we have a higher calling and duty for our team.

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You want to Get Great…You must be willing to Give Good first.

“I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.” – Maya Angelou

Amen.  I am one of those loyal customers.  You know the ones you small business owners salivate over.  The ones that will drive 30 minutes out of their way pay more than the going rate and willing to wait because they feel you are just that special.  When I lived in San Antonio, Texas I would drive for over an hour to Austin on Sundays to just have breakfast at Kerbey Lane.

The reality is that I am not that special.  Many people will go to even greater lengths than I do.  I have a girlfriend that will travel 200 miles to another city to see her favorite hairstylist.  Why do people go through such extremes?

The owners of these businesses treat them like royalty.  Royalty is knowing their souls, not their names, but their souls, what motivates them, what is important to them and truly do appreciate who they are and the fact they are leaving their hard earned money with them.  These are the owners that leave a real gift for them, not a company logo gift, but something that is more unique and special.  At the end of they day, people want to be heard and remembered.

Hear your customers, help them without any expectation for reciprocity and I will tell you it will be like Harvey Mackay’s  Dig Your Well Before You are Thirsty.  I read this book when I was in my twenties.  So you know that was some time ago.  But it left a permanent impression on me.  Help others…not because you want something but because you want to help others.  When you are in need of help people will be there to help you.  That is human nature.

About six years ago I worked with a very smart man, we were peers for a few years and then I was promoted.  There were a few things I remembered about him.  He was always interested in himself, his career and his finances.  He was rarely interested in others and always looking for ways to move up and not living in the moment and working to do well in his own position.  After I got promoted I remember going to lunch with him and he said “you know my wife and I were talking about you.”  I was thinking really what were you thinking?  He proceeded to tell me that with my new position I would be looking to fill one of my open positions and his wife would be a good selection.  While she doesn’t have current experience she would be a good; however she would require working from home.  It would be ideal for her to work from home with their small children.  So maybe work would not be first on the list of important priorities.  How is this helpful for the business and me?  That was one of the last lunches I had with this individual.  I knew for sure he was so focused on himself that he would never get anything good coming to him and frankly I wasn’t interested in helping someone who was unable to see beyond himself.

Customers sense these feelings in business leaders and owners.  If you are heart is not into them, they are not going to be into you.

You Give Good and You Will Get Great!  It is a life truth.  We know it; now practice it.   Go get great!