The ‘dominant, powerful, charismatic individual who breaks the rules’: corrupt senior executives — why do they do it?


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Corrupt senior officials tend to have particular personality traits — and it’s about more than greed. The experts reveal the behavioural red flags to look out for, and which prevention strategies are more effective.

The ‘tone at the top’ of an organisation is a major factor in corruption.

We are often reminded of the importance of leaders building a culture of integrity and keeping a watchful eye out for wrongdoing.

But what if those at the top are themselves the corrupt ones?

Corrupt senior officials can be especially damaging — they tend to get away with corruption for longer than other employees, and steal larger amounts of money.

Russell Smith

“These are people who’ve got a lot of power and authority to act. They can make decisions often without observation or surveillance by their staff,” explains Professor Russell Smith, principal criminologist at the Australian Institute of Criminology, who has spent several years researching fraud and corruption committed by senior executives.

“The median losses are much higher for CEOs,” he told the recent Australian Public Sector Anti-Corruption conference in Melbourne.

“You really do need to detect these CEO cases as early as possible, to try and quell extent of the losses involved.”

Money

So why do they do it?

Of course, some feel they need the money.

“Often people at the highest level of organisations have severe lifestyles pressures. They’ve got themselves in the situation of spending money liberally and don’t want to lose that,” says Smith.

A common excuse is financial difficulty. This might be due to something like the global financial crisis, or gambling addiction or drugs. Or it could be for family.

“A difficult one is appeal to higher loyalties, when people argue they have duties to other people. Perhaps a spouse with a serious illness and they need money to pay for treatment, or a relative who needs to travel overseas to do something.”

A perception of being underpaid can be a trigger. The idea that you’re just claiming what you’re owed makes it much easier to justify criminality.

Personality

Certain types of personality increase the risk.

There’s the ‘wheeler-dealer’. “They like doing deals, and if those trickle over into illegality then it does not worry them,” Smith explains.

People who enjoy risk taking, and arrogant or controlling personalities, can be red flags.

Then there are workplace psychopaths. Smith listed a group of traits associated with the senior executive psychopath:

  • Superficial charm
  • Delusions of grandeur
  • Deception/lying
  • Being manipulative
  • Remorselessness
  • Shallow affect
  • Callousness
  • Failure to accept responsibility
  • Impulsivity
  • Being stimulation-seeking
  • Having unrealistic goals
  • Parasitic lifestyle — heavily dependent on someone else
  • Poor behavioural control
  • Being engaged in other types of misconduct
  • Behavioural problems earlier in career

“It’s interesting to think about some of those factors, which, if they’re controlled, are actually productive things in the workplace,” he said.

“But if you go over the borderline and get into the situation where you’re actually being destructive, then that’s where crime and corruption can start.”

Peter Hall

Peter Hall, chief commissioner at the NSW Independent Commission Against Corruption, has noticed a certain personality type appearing in senior executive corruption in both NSW and Victoria, “in particular one of the major IBAC investigations”.

“There have been a number in the category of the senior executive officer, if you like, who is the dominant personality,” he told the anti-corruption conference.

“The dominant personality, who is aggressive, has perceived self-confidence, will brook no opposition. Cuts corners, ignores processes in order to get the result.”

Such people often regard the agency as their “personal fiefdom”. It might be about money, or it might be about control.

“Sometimes it’s just a sheer wont of exercising power to get a result and show that they are the person to get the job done. And somehow it is through that mode of operation that they have been seen to be effective and got into a senior position.”

Such behaviour can be incredibly damaging to the morale and culture of the organisation. “Those who work in those agencies feel there is no point in speaking up, that there is nothing they can do that can change that person’s behaviour,” says Hall.

Gill Callister

Gill Callister, who spent much of her time as secretary of the Victorian education department dealing with IBAC investigations into senior staff at the department, added her thoughts.

“Certainly I think we’ve seen over and over again that dominant, powerful, charismatic individual who breaks the rules and will brook no opposition, in so many examples.”

Ethical blindspots

Offending tends to occur as due to the intersection of certain personality characteristics with opportunity, says the University of Queensland’s Michael Collins, who researches destructive leadership.

Michael Collins

These characteristics tend to show up as an unconscious bias or error in decision making. Everybody knows stealing is wrong, but put people with poor impulse control and high reward sensitivity in charge of the purse and their brains are more likely to tell them to ignore the social norm.

“Highly reward-sensitive people will focus on short-term gains, and exclude and ignore longer term rewards,” says Collins.

If they have low attentional resources — also described as a lack of cognitive flexibility — they will have difficulty switching focus from the potential gains to any threats or longer-term goals.

These characteristics together can lead to disinhibition, which is also associated with substance abuse, ADHD, problem gambling, alcoholism, psychopathy and antisocial behaviour.

The ingrained nature of such characteristics also means sanctions and punishments don’t work well as a deterrent — particularly if they are weak or unevenly applied.

“They just don’t process them, don’t even see them,” Collins says.

Paradoxically, those most responsive to compliance and punishment are those least likely to offend.

“People who are cautious, reflective, anxious are going to pay much more attention to punishment than people who are disinhibited and impulsive, who frankly are unable to judge the likelihood of getting caught, and that’s what keeps them doing it time and time again.”

Collins says corruption often results from an individual’s ‘ethical blindspot’ — while the conscious mind understands what is right and wrong, offenders may not be aware their brain is geared towards unethical choices in some situations.

And these behavioural biases are exacerbated in complex, ambiguous or demanding situations.

“So think tight timeframes, high workload, ambiguity, areas of grey. This leads to an increase in negative emotions, particularly frustration and anger, which is associated with impulsive, rash, decision making.

“So if you have a tight deadline and an ambitious stretch goal you’re creating a situation in which this behaviour is more likely to occur. And I can’t think of many organisations where situations like this don’t occur regularly.”


READ MORE: Richard Bolt on dealing with corruption when it’s in your own executive


Red flags

There are a few principal behavioural indicators, says Smith — though he adds that they’re not always very reliable as predictors. These include:

  • Overly close association with vendors or customers
  • Financial difficulties
  • Wheeler-dealer attitude
  • Unwillingness to share duties
  • Irritability, or being suspicious or defensive
  • Perception of inadequate pay

Rationalisation

There are a range of common excuses people use to justify criminal behaviour to both themselves and others. These are:

  • Denial of authorship — blaming others or claiming to be acting under duress
  • Sharing responsibility — ‘everyone’s doing it’
  • External influences — blaming the GFC
  • Denial of injury — such as people who say they intended to pay the money back
  • Denial of illegality — argue they didn’t know what they were doing was illegal, or it wasn’t technically illegal
  • Denial of culpability — for example making up for underpayment by appropriating benefits
  • Appeal to higher loyalties — laws ignored to help family

Prevention

The unconscious element of corruption offending makes self-awareness highly important, says Collins.

He advocates for what he calls ethical intelligence — the ability to recognise the unique aspects of one’s personality and how that might play out in specific situations. Having a greater understanding of these processes can shed light on your own decision making biases, or those of your colleagues. Tests are being developed for screening certain personality traits.

Collins also recommends avoiding creating competitive short-term incentives that may encourage unethical behaviour.

Janet Ransley

There’s little evidence that education or prosecutions have much deterrent effect, however, argues Griffith University’s Professor Janet Ransley. She believes education efforts aimed at building integrity cultures are poorly targeted and mostly reach the people who are already on board. The slowness and light punishments of most prosecutions don’t help either.

Because corruption, like other crime, is situational, both Ransley and Smith say reducing opportunities to offend can be quite effective.

This includes, for example, removing excuses so people can’t use them to justify what they’ve done.

People cannot credibly claim the rules were unclear if the rules are publicised and easily understandable, for example, rather than buried in documents thousands of pages long. Making it easier to act honestly and making the benefits of compliance known can also help.

Increasing the effort required to offend is another strategy. This includes things like:

  • Enhanced recruitment screening
  • Ongoing employment monitoring
  • Effective internal controls
  • ICT security
  • Improved user authentication
  • Document verification checks

Increasing the risk of being caught also helps. This might include:

  • Auditing
  • Data analytics
  • Real-time transaction monitoring
  • Natural surveillance by staff
  • Whistleblowing incentives and protections
  • External reporting hotlines

The other strategy is to reduce the rewards of offending — there are laws to confiscate ill-gotten gains, though they are not always used. Criminal prosecution should be pursued in appropriate cases, Smith argues.

Learning the lessons of the past is important, he emphasises.

“Make sure you make use of a case that has happened in your organisation to try and learn from it and make sure it’s not going to happen again,” he advises.

“That could be making sure the offender doesn’t reoffend, if they stay in the workplace, or that you don’t give them fictitious referee reports if they go somewhere, or even changing the computer systems and policies in place to make that same sort of offending impossible again.”

Detection and whistleblowers

Often corrupt executives will have a high degree of control over the organisation, so staff may be aware of what’s going on but are afraid of the repercussions of speaking up. And seeing how poorly protected whistleblowers tend to be in Australia, it’s hard to blame them.

This might be accompanied by failures in governance too.

“Sometimes boards aren’t very effective, they’re unwilling to intervene, even when they’re faced with pretty obvious circumstances of economic crime,” says Smith.

Yet whistleblowers are an important asset — one study found that 61% of corruption offenders were detected by whistleblowers.

ICAC Commissioner Hall said agencies need to change rules and build cultures to give staff who have seen something wrong “the support to be brave enough to say, I’m not going to sit here any longer and say nothing.”

He is concerned that while whistleblower laws are in place, governments are not doing enough to ensure they are actually used.

“There needs to be proper instruction and reinforcement with those who work in the public sector, so that whistleblower legislation is more than words on a page,” he said.

“They should be ensured there is a person in their ranks, or persons, that they can trust to bring forward a reasonably based suspicion without reprisals. It’s easy to teach and say these words, it’s another thing to convince people.”


READ MORE: Regulatory capture: did we need a royal commission to bust it wide open?


 

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