Individual dishonesty or incompetence remains one of the greatest and most underestimated sources of potential crisis risk. A review of 2011 provides a stark reminder that actions by individuals can have a devastating impact on organizational reputation and even survival
One of the year’s highest profile reputational disasters caused by an individual was the arrest of a finance officer charged with stealing $16 million from Queensland Health. The case has still to be heard in court, but the impact for Queensland Health has already been shattering. Three senior managers were stood down and Premier Anna Bligh announced that the entire agency will be dismantled. The impact of one man’s alleged wrongdoing could hardly be greater. But 2011 saw many other similar events.
Home construction company National Builders Group faced financial ruin, allegedly after a former employee failed to send out 290 invoices to creditors, leaving a massive black hole
• The Clive Peeters brand finally disappeared after the home appliance company was sold in a fire sale in 2010, partly because of a $20 million theft by a bookkeeper.
• A Sydney woman was convicted of stealing $45 million from ING, one of the largest individual frauds in Australian corporate history
• Charges were laid against the former Chairman of timber company Gunns, who became the most senior Australian executive to be charged with insider trading
• London banker appeared in court for alleged $2.2 billion rogue trading scandal at UBS
• And, of course, the start of the Wikileaks case against Private Bradley Manning, perhaps the largest data security breach of all time, which damaged the reputation not only of the US military but Governments around the world.
Sadly, none of this should come as a surprise. 2011 may have been a bumper year, but research consistently shows that the greatest crisis risk to organizations is not the obvious spills and leaks and fires and explosions and computer breakdown, but failure by managers and employees.
In fact the bi-annual Australian Fraud Barometer published in August showed the average fraud was the third highest on record at $1.8 million, and that fraud by managers is still the biggest threat, approximately three times greater in value than fraud by non-management. As reported in Managing Outcomes last month, decision makers at many companies don’t seem to be focussed on branding issues and threats, and the impact those threats can have on reputation and share value.
It is also clear that while most auditors and risk assessors understand the threat posed by employee misconduct, the threat often does not translate into effective issue and crisis management planning at the top of the organization. A great New Year’s resolution for 2012 would be to talk to Tony Jaques about putting proper processes in place.