There are reasons why figures can sometimes get “fudged”, ranging from internal pressures and cultural acceptance to a lack of oversight. The problem is that it’s not always easy to tell when the numbers are off. So, what can you do?
Siva Shankar explains how to spot some red flags, keep numbers honest and protect your company’s reputation.
The Volkswagen scandal of 2015 sent shockwaves around the world. The car giant was found to be deliberately manipulating outcomes of emissions tests for millions of vehicles worldwide. Once discovered, this caused enormous damage to the company’s brand and bottom line.
The VW affair was a high profile but not unique example of what happens when some corporations take the slippery path of deceiving through numbers, whether it’s profits, costs, sales or HSE data. Like dominos falling, untruthful data can have cascading consequences, sometimes catastrophic, as seen with the banking corruption of the late 2000s which devastated countless lives around the world.
The complex web of deceptive motivations
“There are a number of external and internal motivations as to why misbehaviour can happen,” Siva says. “Externally, there are incessant expectations from investors and analysts for uplifting metrics and positive growth curves compounded by eye watering stock option schemes, and this might pressure boards into painting a picture that is rosier than the reality.”
“And there are internal factors, such as lucrative short term incentive schemes, ambitious executives looking to rapidly rise up the ladder through demonstrating optically exceptional performance metrics, and on the other side of the coin, there may be those motivated by a protective instinct for self-preservation through playing with numbers to hide failure.”
Structurally, inadequate or flawed operational systems, too little oversight with too much power in too few hands, lax internal and external auditing, etc, can create an environment where deception can take hold.
Cultural and structural drives
Siva says the drivers of less than exemplary behaviours can be both cultural and structural. “Culturally, the slippery slope usually starts with small steps – small tweaks here and there – but it can eventually become the norm to play in the ‘grey area’ which can before long move into the ‘red area’.
“Structurally, inadequate or flawed operational systems, too little oversight with too much power in too few hands, lax internal and external auditing, etc, can create an environment where deception can take hold.”
Deciphering indicators of deceit and leveraging technology to monitor data integrity.
Observing behaviour during critical discussions, like unexpected evasiveness or narratives that shift, can be telling. When metrics seem too polished, or highly consistent despite a volatile external environment or especially if other areas of the business are struggling, or patterns seem too convenient, the alarm bells should ring.
But it’s not always easy to spot discrepancies. And that’s where technology can help. “Advanced data analytics, further strengthened by machine learning, can scan vast data sets and spot inconsistencies or patterns that should be investigated further,” Siva explains.
“Once the system’s set up, you can have it running in the background, constantly monitoring,” he says. “The system essentially provides a constant health check of your numbers.” It also, he argues, helps deter miscreants if everyone knows that constant automated scrutiny is being applied. But as Siva says, many companies – large and small – still aren’t taking advantage of the technological tools available.
A transparent corporate culture
Of course, it’s not just the technological side of an organisation that’s important. On assignments, Siva will spend time talking to teams to understand the culture: the pressures, incentives, or lack of clear controls that might create cultural and structural weaknesses that could lead to trouble further down the road.
Promoting open dialogue, where employees can candidly discuss challenges, mistakes, or voice concerns without fear, is critical.
Ultimately, where top-tier management carry themselves with genuine transparency and accountability, it creates reinforcing ripples throughout the hierarchy, but the converse is also true where less than exemplary behaviours are observed at the top.
Siva Shankar is an interim finance, M&A and transformation specialist who provides services to listed and private-equity-backed organisations in finance, M&A, restructuring, IT and investor relations. He is industry agnostic bringing best practice from sectors including real estate, construction, building materials, legal and professional services, B2B and technology. Siva has lived and worked in the UK, Europe and Asia-Pacific.
Williams Bain is a specialist supplier of executive interim managers, independent consultants and executive-level permanent hires that are deemed critical or urgent. Our discreet professional service supports the leaders of large PLCs, privately owned businesses, large family-owned businesses, equity partnerships, private equity-backed businesses, entrepreneurs, investors and lenders.