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Ethics for the New Generation of Leadership

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Speaker Introduction

John Roberts, Managing Partner │All Service Lines

John Roberts serves as the Managing Partner of DHG’s services. He

has more than 20 years of public accounting experience focused on

the insurance industry. Serving Fortune 500 companies, mutual

carriers and privately held insurers, John focuses on audit and

advisory services for the insurance industry. His experience with

technical research, practical working knowledge of statutory

accounting and his hands-on experience with transactional support

affords his clients with tactical and practical solutions to the

challenges faced by insurers today.

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Learning Objectives

• Understanding ethical dilemmas and why all organizations may be at risk

• Leadership’s role in creating an ethical environment

• Generational differences can impact ethical perspectives

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A Simple Question

Labaton Sucharow LLP, a law firm dedicated to SEC

whistleblowers, surveyed more than 1223 financial

professionals and released the results on May 19, 2015.

1. What percent reported a belief that their competitors engaged in unethical or illegal conduct in order to gain an edge?

2. What percent of respondents indicated that they had observed or had firsthand knowledge of wrongdoing in the workplace?

3. What percent would commit a crime – insider trading – if they could get away with it and make $10,000,000?

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A Simple Question

47%

22%

25%

1. What percent reported a belief that their competitors engaged in unethical or illegal conduct in order to gain an edge?

2. What percent of respondents indicated that they had observed or had firsthand knowledge of wrongdoing in the workplace?

3. What percent would commit a crime – insider trading –if they could get away with it and make $10,000,000?

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A Simple Question

Bigger Money – Bigger Secrets

Of the respondents making more than $500,000 per year:

• 25% have signed confidentiality agreements prohibiting them from reporting potential illegal or unethical behaviors directly to law enforcement.

• 19% believe their employer would retaliate if they reported wrongdoing.

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A Not-So-Simple Dilemma

Ernst & Young’s 2016 Global Fraud Survey

2,800 executives across 62 countries, including CFOs and heads of legal, compliance and internal audit, were surveyed for their views on fraud, bribery and corruption.

• 10% of senior executives polled at leading companies around the world

are willing to make cash payments to win or retain business, up from 9%

in 2010

• 25% are in Far East regions

• The numbers increase in the face of an economic downturn or when

faced with meeting business targets

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Does it Happen?

Wal-Mart dispatched investigators to Mexico City, and within days they

unearthed evidence of widespread bribery. They found a paper trail of hundreds

of suspect payments totaling more than $24 million. They also found documents

showing that Wal-Mart de Mexico’s top executives not only knew about the

payments but had taken steps to conceal them from Wal-Mart’s headquarters in

Bentonville, Arkansas.

The lead FBI investigator recommended that Wal-Mart expand the investigation.

Instead, an examination by The New York Times found Wal-Mart’s leaders shut it

down.

The Times’ examination found credible evidence that bribery played a persistent

and significant role in Wal-Mart’s rapid growth in Mexico, where Wal-Mart now

employs 209,000 people, making it the country’s largest private employer.

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But That is Wal-Mart Not Insurance

Who done it?

Eduardo Castro-Wright

Chief executive of Wal-Mart de Mexico until early 2005

Castro-Wright, 57, a member of MetLife’s Governance andCorporate Responsibility Committee, was “the driving force behindyears of bribery” in Mexico before Wal-Mart named him vicechairman in 2008. He joined MetLife’s board in March 2008, aboutthree years after Wal-Mart promoted him to chief operating officerof its U.S. stores unit.

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Audience Questions

Question 1:• Do you work with people in your current or former organization(s)

who you believe(d) represented a fraud risk?

Question 2:• Do you believe your current organization is at risk of fraud beyond

an immaterial amount?

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So What is the Solution

People:• Hiring the right people

• Tone at the top

• Periodic background checks and reviews of duty capabilities

• Zero tolerance at all levels for non-compliance

Controls:• A deep understanding of

segregation of duties

• IT control reviews that identify system weaknesses

• Cold reviews of invoices (blocking and tackling) for being in the system with an address, legitimate business etc.

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Definitions of Ethics

Basic Definition

• That which makes actions right and wrong

• An overarching moral principle one could appeal to in

resolving difficult moral decisions

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Definitions of Ethics

Business Definition

• Principles and values that govern decisions and actions

within a company

• Often the organization’s culture sets the tone for

determining what is acceptable from an ethical point of

view

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Consideration of Tone at the Top

Executive Management

• If executive management exhibits unethical behavior, puts

profit above all else or shows tolerance for behavior that

exhibits moral conflict, the entire company is likely to

follow.

Think of organizations that you might consider unethical…

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Does Perception Matter?

Go Daddy vs. Susan G. Komen

• Go Daddy advertises with risqué ads that refer to unrated

material on the internet

• Susan G. Komen is known for caring and compassion and

aiding women in a time of need

Does this necessarily make either of these organizations

less ethical? No, but it would impact the type of individuals

drawn to work there, which could drive culture, which

ultimately would drive ethical behavior.

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Audience Questions

Question 1:

• On a scale of 1-10 how well would outside constituents rate your Company’s ethical reputation?

Question 2:

• If you were looking for a new job today, are there former employers you would prefer to leave off of your resume?

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Will you Face Ethical Dilemmas?

Even if you work for a reputable company with integrity and a

strong culture of ethical leadership you are likely to face ethical

dilemmas. Why?

• Differing individual value systems

• Personal gain of yourself or others

• Preservation of reputation

• Protection of position/job

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Audience Questions

Question 1:

• Is fraud risk higher now than 10 years ago?

Question 2:

• Do you believe your Company’s IT/data security controls are robust enough to alleviate fraud risk to an immaterial level?

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Access and Opportunity

• Unfortunately even with great hiring practices good people

can fall off the wagon given access and opportunity.

• Ask yourself this simple question:

How much would I have to pay you

to eat an earthworm?

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Some Unique Examples

Delta – $36 million in Fraud Spanning 10 years

• The Perp 62 years old had been with Delta since 1979

• The Accomplice

57 years old but could approve invoices

• The Scheme

Submit fake invoices for payment year over year over year and eventually they just become part of the budget

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Some Unique Examples

ING – $8 million in Fraud Spanning 10 years

• The Perp 35ish year old (accounting manager)

• The Accomplice

Poor systems of controls

• The Scheme

Take advantage of a weakness in system design and our own natural tendencies as accountants

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ING Continued

How did he do it?1. New system access allowed him to request and approve

checks (control breakdown).

2. Checks were written and posted (credit cash) to a vendor named (“Ace”) which perp had set up as Ace Consulting but was a reinsurer of the Company.

3. Debits were used to balance suspense/reconciliation accounts to zero (so no recon had to be done).

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So What Could Have Been Done?

• Audience Suggestions

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Forensics & Ambient Data

Forensics

• Obtaining and analyzing electronic data calculations and statistical techniques to reconstruct, detect or otherwise support a claim of fraud.

Ambient Data

• Using fact patterns available through data to connect the dots about a person’s intentions. Exploring what the data tells us can help us predict and detect unusual activities.

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Audience Questions

Audience Question:

• Could an ING scenario happen at your company?

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Ethics and Experience

• Not everyone is prepared to deal with ethical dilemmas.

• Lesser experienced team members often feel pressure to

yield to more experienced professionals which may lead to

them agreeing with or overlooking a decision that is

“questionable.”

• How can organizations avoid less experienced team

members yielding to improper moral decisions?

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Training, Reinforcement, Outlets

• Training – Upon hire, provide training for proper ethical

decision making aligned with the Company’s culture and have

executive management set the tone.

• Reinforcement – Periodically provide reminders of the

organization’s reputation and history for ethical behavior.

Make an example of anyone not complying.

• Outlets - Provide a mentor, hotline or office that is not

connected with the employee’s normal chain of command by

which they can elevate ethical issues.

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Audience Questions

Question 1:

• Does your Company emphasize tone at the top, ethics training, both or neither?

Question 2:

• Do you believe that tone at the top or ethics training and outlets produces a more ethical work environment?

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Dilemma #1

As a young CPA being asked to eat hours on an audit

engagement …

• Who Benefits?

• Who loses?

• Why would I do this?

• Is it OK?

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Dilemma #2

During an inventory observation you witness the

Organization taking a competitor’s parts and putting

them in their boxes.

• Is this acceptable?

• Who benefits?

• Who loses?

• Is there a scenario where this is acceptable?

- Broomsticks vs. Computer Chips

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Dilemma #3

During a recent trip with your boss she tells you that if you pick up dinner she will approve it so that you can go to an expensive restaurant. If she paid directly, her boss would have to approve it.

• Who benefits?

• Who loses?

• What tone does this set?

• Is this, in and of itself, a big deal?

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Audience Questions

Question 1:

• Have you ever experienced any of these scenarios?

Question 2:

• How did it make you feel?

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Dilemma #4

During the year-end audit, adjustments found that are

deemed immaterial to the financial statements. However, if

these adjustments were posted your Risk Based Capital

would have been lower than the minimum threshold A.M.

Best required to maintain your current rating. Do you have

an obligation to inform A.M. Best?

• Who benefits?

• Who loses?

• What are the issues to be considered?

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Can the Ethical Perception of an Organization

Change Its Success?

• Volkswagen

• Arthur Andersen

• Valeant Pharmaceuticals

Or …

… what is your perception of legacy ethically challenged companies? Can you think of some?

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Making Ethical Decisions …

Is there a model for making ethical decisions that

can be relied upon?

• While everyone is different, and everyone has a slightly

different perception of right and wrong, there is a good

way to put our day to day decisions to the test …

• The publicity test (or the “What if your mom was

watching?” test)

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Publicity Test

Would you make the same decision if it was going to

be published in the newspaper the next morning?

• Did you tell the truth?

• Did you consider the impact to others around you?

• Would the decision impact your reputation if others found

out you were involved?

• Would the decision mislead others?

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The Publicity Test Seems Simple; Why Does it Fail?

• Pressure from our peers or our superiors

• Self preservation

• Personal benefit

• Sense of preserving the company and protecting what has

been built

• Being a team player

• Fear of retaliation

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Generational Perceptions

It is possible that how we grew up could

impact our view on ethical scenarios…

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The Generations

It seems that every generation believes the nextgeneration is not as prepared to handle the futureas they were. They have not learned enough, donot have enough experience and certainly do notpossess the same strong character…is this truetoday?

Let us explore…

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Defining the Generations

• Traditionalist - Born 1900-1945

• Baby Boomers - Born 1946-1964

• Gen X - Born 1965-1980

• Millennials - Born 1981-2000

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What is a Traditionalist?

• Conservative

• Fiscally Conservative

• Loyal

• Children of parents who survived the Great

Depression

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What is a Baby Boomer?

• Ambitious

• Greedy

• Materialistic

• Lived the Cold War, the civil rights movement and the

Vietnam War

• Deeply rooted in the belief of the American Dream

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What is a Generation X’er?

• Independent

• Cautious

• Flighty

• Entrepreneurial

• Disrespectful of Authority

• Experienced Watergate, likely to have grown up with a 2-income family, and a larger percentage grew up with single parents

• Many of them grew up taking care of themselves

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What is a Millennial?

• Impatient

• Expressive

• Ambitious

• Great Multi-Taskers

• Diversity Seekers

• Grew up with school shootings, terrorist attacks and

AIDS

• Seek to change the wrong they see in the world

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So What? What does it matter?

Do the generational differences cause differing ethical viewpoints?

Probably So! How do you feel about …

• Tattoos

• Texting

• Smoking

• Facebook

• Divorce

• Wearing headphones at work

• Flex Time

• Working from home

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Audience Questions

Question 1:

• Your child brings home a new fiancé. Would any items on the previous list bother you?

Question 2:

• Do you judge others by their habits/appearance or mannerisms?

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Preparedness

Question 1:

• Does this same group have the right experience to face the multinational, modern, connected and defiant world we live in today?

Question 2:

• Have Gen X’ers and Millennials experienced tough ethical dilemmas and shown the courage to stand up to wrong?

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The Truth

You may not have a choice!!

1. Many of our leaders today are unaware of how to manage the risks cyber threats, coding worms or data leakage pose to our operating models.

2. The next generation of leaders are better equipped to face these risks but they need help.

3. They have typically not grown up fighting for right vs. wrong in a “business” environment, but …

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They Do Fight

They have fought and won the battle for many things:

• medical marijuana

• same-sex marriage rights

• multiple social media outcries for change that continue to evolve

Don’t let them fool you. They care about $$$.

• According to a recent UCLA Higher Research Institute Survey 81% of college freshman said being wealthy was important to them. More than double the 1966 percentage.

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What Differences Might Exist Between Generations?

Some Potential Questions

• Are you on Facebook?• Are you on LinkedIn?• Are the above profiles at all similar?• How many times a day do you:

­ Text?­ Tweet?­ Call home/kids/significant other?

• How many apps do you have on your phone?• Do you listen to music at work?• Do you own a gun?• Do you believe you work in an ethical environment?

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The Influence of the Previous Generation

Can what we do as leaders/parents/role models today

impact the decisions future generations make about

ethical dilemmas?

• Met fired Castro

• Elliott Spitzer got a TV show

• AA shredded workpapers

• Lil Wayne went to jail for drug and weapons possession

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The Big Question

Do you work in an ethical environment?

• Are there things that could be improved?

• Do you trust your peers/co-workers of different generations?

• Is there competitiveness amongst the generations?

­ Is this competitiveness always healthy?

­ What can we learn from the new generation?

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Audience Questions

Question 1:

• Are we getting better at handling ethical dilemmas or are we getting worse as a society?

Question 2:

• Which do you believe people value most?• Money?

• Reputation?

• Relationships?

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Why an Ethical Decision Is the Right Choice

• A reputation takes a lifetime to build and only a moment

to lose.

• Your license, degree and title are all dependent on you

making the right decision. One poor decision could end

a life-long career.

• Long term, people do business with people they trust.

• Mechanics

• Insurance Companies

• CPA’s

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Contact Information

For more information, please contact:

John Roberts, CPAManaging Partner │ All Service Lines Dixon Hughes Goodman1829 Eastchester DriveHigh Point, NC336.822.4482John.Roberts@dhgllp.com