Wikileaks stops publishing an effective stop to whistleblowing

Some would properly cheer while other will cry but almost nobody will lack a opinion on Wikileaks. This week it was announced that wikileaks will cease to publish because the campaign that have been running against the organizations apparently have been successful. This has subsequently meant that the Assange and his peers have been standing without effective banking connections. In practice it means that Wikileaks cant do banking or credit card transactions through companies like Visa, MasterCard and PayPal.

“This financial blockade is an existential threat to WikiLeaks. If the blockade is not borne down by the end of the year the organisation cannot continue its work,” Assange told a news conference in central London.

And with the additional problems with hosting there seem to be no end to the troubles of Wikileaks.

The trouble started when wikileaks issued another huge batch of classified U.S. government documents through their website. This action stuck security experts like a guided missile. Previous WikiLeaks had mainly disclosed low-level field reports on the wars in Iraq and Afghanistan, which was bad enough. But this last bundle of information dealt with diplomatic rather than military issues, and at high level in US diplomacy. Some even said that it might be just two or three steps away from the US president. While the information was not really revolutionary or have a major impact on the ground it did show a major gap in US diplomatic security.

As a consequence the US with the help of some of it allies started a campaign that had the purpose to take Wikileaks out of business for good. And it is this campaign that seemingly has been successful.

It would seem to me that there are three lessons to be learned

  1. That nobody can keep secrets forever. No government, agency or company can trust that when information is put in writing, video or graphics it can be kept a secret. At some point it will be discoursed.
  2. There is a difference if you disclose information about people in the “west” e.g. the perceived good or if you rat on people from the “east” e.g. the perceived bad. If your information threaten the statues quo and the normative perception of good and bad one should be careful what you say.
  3. That whoever is named, as the whistleblower will be prosecuted through any means available to them. Either though legal or illegal means the exposed will stop a nothing in-order to see the whistleblower be destroyed.

While we like to think that there is freedom of speech is a universal right and that whistleblowers will be protected it apparently only goes this far.

So lessons learned from this case is that if you have information about the actions of a western government or other powerful “good” institutions you should keep it too yourself because the consequences of disclosure is that you and the people you care about will be destroyed.

Combating Corruption, Bribery and Fraud

For the past few months I have been working on a project that should end up in a management system that would support the 10th principle of the Global Compact.

While we in many ways have embraced the potential that these changes have brought with them, there are also worries that the face of corruption and fraud will change in much the same way. Just as new possibilities for wealth creation have emerged, so have new avenues and possibilities for Bribery, Fraud and corruption.

Some efforts have been made to combat the increase in corrupt behaviour, which in themselves are good and live up to some of the very principles that we think highly off. But at the same time, there seems to be no decline in world corruption or fraud for that matter.

The 10th principle of the UN Global Compact concerns the subject of Corruption and how organisation deals with the subject. According to UNs own communication, this has been and continues to be the most difficult area to work with. While most signatories of the GC have identified the area as being a major obstacle in their work, very little evidence has been found that companies are effectively combating corruption. For instance only 20% of signatories had an anti-corruption policy that related to their own supply chain.

The OECD Convention on Bribery of Foreign Public Officials in International Business has created a framework from which business, governments and NGO can work together to combat corruption. And while the charter does subscribe a way for business to understand and articulate how corruption affects their operation it does not give any concrete advice on how anti-corruption work should look like in the field.

The aim of the Copenhagen Charter is to remedy this discrepancy and create a real, tangible and systematic approach to anti-corruption work in business and organisation in general. Based on these guidelines I have been part of the process of formulating and creating a working platform from which such work could be undertaken. The process have led us to a point were we now have 13 core principles and a auditing-system from an were BFC effort can be undertaken.

The principles are:

  • Ensure that a Code of Ethics or Code of Conduct is implemented which is inline with international institutional norms and which promote high ethical standards.

Codes of ethics form the backbone of the organisations work against corrupt and fraudulent behaviour. It formulates the practical guidelines that all employees need to follow within the organisation in order to comply with the guidelines set by the board and executive management. Both corruption and fraud can be difficult to identify and employees in the field need to know exactly what the corporate policy is for accepted behaviour for receiving or giving gifts or how to bid for contracts. A Code of Conduct helps the employee take decisions and identify situations, which can lead to issues of concern.

  • Organisations implement a sufficient level of financial and operative independence. Furthermore the organisation needs to implement internal and external audit coverage with the aim of uncovering corruption and possible fraud.

Auditors should be able to operate freely within the organisation. Even though most audits do not uncover corruption or fraud, is the independence of auditors send a powerful message to would-be whistle-blowers that an independent and unbiased system of control exists.

  • Develop a system that encourages both employees and managers to communicate and report, to the relevant independent body all irregularities. Implement a procedure that ensures that these reports will be taken serious by the receiver, who has the power and authority to do investigate the claim.
  • Implement an effective communicative system with local and regional authorities that ensure that the organisation’s work is transparent and auditable by both governmental and organisational auditors.

Working together with local and national governmental agencies will enable one to create a system which is transparent and auditable not only by the organisations own auditors but also from third parties. Third parties will have other ideas and insights into local conditions, which is hard to get insight into as an international corporation.

  • Organisations need to work with government officials and organisations in order to create guidelines and systems for disclosure of governance practices and transactions between the two parties.

It is the obligation of both the company and the governmental agencies that it works with to disclose as much information about their transactions as necessary to prevent dishonest behaviour. However, a system is needed in order to efficiently and effectively spread information to the relevant stakeholders’, in this case governmental agencies, who have a interest.

  • Designated and qualified staffs within the organisation have to play an active role in evaluating the efficiency and effectiveness of financial and internal control systems on a regular basis. On a regular basis they need to follow up on recommendations related to Corruption and Fraud Detection.

Like any other monitoring system, a systematic approach to anti-corruption and fraud monitoring and detection, needs some form of efficient mechanism for updates. The ways in which these types of acts are committed is constantly changing and is being developed mainly because corruption and fraud is a crime in most countries and perpetrators have to develop their techniques in order not to be prosecuted.

  • The organisation needs to focus its control and audit strategies more on areas and operations prone to fraud and corruption by developing effective high-risk indicators, which can be effectively measured and managed.

What gets measured gets managed is a old saying within management, but one needs to know what to measure before an effective system can be put into place. Every company and industry is different and subject to their own dynamics and business culture. Within fraud and corruption there are no universal system that can just be implemented.

In order to effectively combat devious behaviour one must incorporate the dynamics of the business if one is to be successful. It is therefore essential that any system is based on local and industry knowledge and that people with the appropriate competencies are involved in the formulation of the systems indicators.

  • Use multiple communications means to distribute your audit reports and invite stakeholders to participate in the investigation and establishment of a transparent organisation.

One of the most effective anti-corruption and fraud systems that can be implemented is to invite everybody to look inside, so that a critical look can be taken on the audit process. An auditor who thinks he knows everything knows nothing and by inviting stakeholders to participate in the continued investigation, one can create a basis of continued evaluation and transparency in the organisation.

  • Communicate in a language that stakeholders of the organisation understands

If you communicate in a way, which alienates your audience, you will never be able to reduce corruption in your organisation. One might argue that using technical language will be more accurate and the from a legal point of view it would be more correct but the fact is that if you want people to read and understand what you are trying to say, then the reporting needs to be understandable.

  • Use a network approach to combating corruption and fraud.

White-collar crime is a cross border discipline and as with the rise of globalisation, there is a need for business to learn, share and exchange knowledge from other parts of the world. No organisation is an island and if the business is divided on the fight on corruption and fraud it will ultimately loose the battle. Using a network approach and gartering resources from all levels of the organisation to be the eyes and ears of the organisation enables a much more effective intelligence on what is going on. While the information gathered might not directly lead to disclosure of crime, it highlights areas where there could be parts of the system which are not transparent and therefore can be subject to covering up wrong doing.

  • Ensure that systems for the effective exchange and proliferation of knowledge are ensured both inside and outside the organisation.

Like the network approach can be used to gather information, it can also be a effective way to communicate with all parts of the organisation. In the information age, organisations need to have a reliable system for communicating with key stakeholders in order to combat rumours and getting a voice in a otherwise overcrowded media scene. If a company is branded as being corrupt or subject to large-scale fraud, it can cost its ability to conduct business and if it needs to establish channels of communication after the event, it will often be too late.

  • Ensure that the systems for evaluation and incentives for management are established which support anti-corruption and fraud efforts in order to motivate employee ethical behaviour.

One of the major issues within corporate incentive plans is that they have often led to or initiated corrupt behaviour because of their design. The way in which companies compensate their managers and executives, have to be designed in a way that reduces the possibility of corrupt or fraudulent behaviour from occurring. This can example is through improved transparency in the incentive governance structure or third part validation of performance indicators. In high-risk regions, a managerial and specialist rotation program can also be in place in order to reduce the chance that top executives becomes too involved in the local business culture.

  • Ensure that the organisation proactively functions as an example to be followed on fraud and corruption through international committees and working groups.

The ability to be innovative and more efficient is not only limited to other areas of business but also just as much within the field of auditing and governance. As knowledge within the organisation about fraud and corruption is increased, so is the ability to find new ways and systems for efficient governance in these areas. Working cross-culturally and tapping into these streams of knowledge allows an organisation as a whole to progress and innovate new ways to manage these areas. A committee function allows for effective management and the development of best practice techniques that eventually can find its way into the Code of Ethics or as part of the audit process system.

You can download TheCharter here.

A memorial for the whistleblower

Richard Nixon boarding Army One upon his depar...

Image via Wikipedia

We should raise a memorial for the whistleblower. These people have more courage and stand alone for years before they are able to get through to people who can take decisive action on their inside knowledge.

Sean Hoare is the latest whistleblower victim. I would not say he was a perfect man, far from, but maybe this is in the nature of people that is on the inside of unethical and immoral organisations that they themselves are imperfect people.

The cost of whistlelowing is well known and this is maybe a price that most of us is unwilling or du not have the guts to live with. When you blow the whistle on your own organisation you will loose your career, ridiculed and alienated by your colleges and management, our ability to find new work will be close to zero and the possibility that you will loose your family and fall into depression is overwhelming.

So why do these people do it anyway? Well there is some who do it for revenge. They feel that they in some way have been disadvantaged by their organisation and therefor feel that they have to get even. Another category does it because they have a sense of moral obligation to do so and can’t get through the normal chain of command. Therefor they go to the media or a government agency in order to get heard. Others blow the whistle because of personal reasons or because that they found a certain practice odd and could not stop asking questions.

I propose that we build a memorial for the people that take a moral stand and are willing to sacrifice all in order for everyone else. We would not have heard about Enron/Arthur Anderson, Watergate, the Israeli nuclear programme, Worldcom, Invalid expense claims in the European parliament or illegal marketing of drugs by Eli Lilly if it had not been for these courage’s people.

 

New approach to bank bonuses in the UK

We might all agree that the lesson learned from the financial crisis is that greed is not always as good as we might have wished but there have only been a few real legislative changes made in order to really confront some of the central issues.

The Financial Services Authority (FSA) is the governing body who is tasked with regulating the financia services in the UK and they have taken an important first step. Until the 31st of January 2010 financial institutions could pay bonuses only based on share price, earning per share or other stock related performance. This meant that the only incentive for bank and financial instruction executives to do better was to nurture this one stakeholder namely the shareholder and in many instances this meant themselves to a large extend.  

In the code that the FSA have issued it has been put this way “Long-term incentive plans should be treated as pools of variable Remuneration. Many common measures of performance for long-term incentive plans, such as earnings per share (EPS), are not adjusted for longer-term risk factors. Total shareholder return (TSR), another common measure, includes … dividend distributions, which can also be based on unadjusted earnings data. If incentive plans mature within a two- to four-year period and are based on EPS or TSR, strategies can be devised to boost EPS or TSR during the life of the plan, to the detriment of the true longer-term health of a firm.”

And it continues

“Firms that have long-term incentive plans should structure them with vesting subject to appropriate performance conditions, and at least half of the award vesting after not less than five years and the remainder after not less than three years.”

I see this as a important first step for the financial institutions to confront the root cause issues that they for so long have been unwilling to tackle. While the 13 principles of the code in many ways resemble what we have seen in other governance codes such as descriptions of Risk and Governance control functions it goes new ways in forcing executive to think about what is going to happen to the company in five or ten years from now.

As we saw during the crisis it was not a one person greed that led to the down turn and destruction of capital it was structures build up ten or fifteen years ago that formed the cornerstones of a disaster waiting to happen. And while much of the blame can be put on the governments of the world in not understanding the ramifications of their own laws there is no doubt that a lot can be done in the area of governance and better business control systems.

There are especially two things that spring to mind when I see the code. First is the Exceptional government intervention which applies to companies that have been getting government assistance and have to apply to a special set of norms. The principles effectively put a cap on the amount that can be given in reunification to be limited to a percentage of the net revenues and the elimination of variable bonuses.

 The second is principle number eleven that states that “A firm must ensure that variable remuneration is not paid through vehicles or methods that facilitate the avoidance of the Remuneration Code.”. This means that companies no longer can hide money in the books in order to pay extra funds to executives and high ranking managers. While there might be a public outcry about bonuses there it has been less obvious that money have been channeled through alternative streams in order for companies to avoid public scrutiny. One could say that companies that just paid bonuses, however high, were in fact more honest as they actually showed on their books what they were doing.

Below you find the FSA 13 principles as they are outlined.

Code Principle Handbook references (SYSC)

1: Risk management and risk tolerance

2: Supporting business strategy, objectives, values and long-term interests of the firm

3: Avoiding conflicts of interest

4: Governance

5: Control functions

6: Remuneration and capital

7: Exceptional government intervention

8: Profit-based measurement and risk adjustment

9: Pension policy

10: Personal investment strategies

11: Avoidance of the Remuneration

12: Remuneration structures

13: Effect of breach of the Remuneration Principles (voiding and recovery)

Whistleblowing

Many of the CSR debates I see are about how we can use systems to manage people ethical behaviour or how we can identify and confront individuals that are corrupt. But while all these initiatives are good and well they miss a point which seems to be at the centre of the solutions to many of the issues. We would like to think that there inside all companies are individuals who know what is going on and are willing to tell this to the senior managers or stakeholders outside the organisations. These individual would be any standard be considered as organisational heroes but in reality they live a very dangerous life.

However, time and time again we see that the whistleblower and not the people that he or she is exposing are the ones that take the fall. They loose there career, and are the subject of false accusations, they get fired and in some cases they even get sued. It is obvious that some whistleblowers have a grudge against their organisations or their leadership but in many instances it is people that see trouble and wants to do the right thing.

So my question is how do we protect these individuals? How do we make them into the heroes that we would like to believe that they are?