How to spot the Corporate Fraudster

How to spot the Corporate Fraudster

before they destroy your wealth and trash your reputation
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“The most tragic thing in the world is a man of genius who is not a man of honour”
George Bernard Shaw

One of Australia’s most infamous (and expensive) corporate frauds was perpetrated by John Friedrich as CEO of the Victorian division of the National Safety Council of Australia. From 1984 the NSCAV grew from 100 to 450 people, but collapsed dramatically with fraudulently borrowed debts of $¼ billion in 1989. Described as a ‘deeply flawed visionary’, Friedrich claimed to be born in Australia (he wasn’t) and made false claims about his qualifications and employment. Amazingly he held the role of CEO for 7 years and was awarded an OAM before he was exposed.

Friedrich is remembered as a classic textbook fraud but he is by no means unique. In 2014 Andrew Flanagan made national headlines when fired from a $400k job at Myer on the day he commenced. He misrepresented past employers (at his trial the judge described him as ‘hoodwinking people with cunning dishonesty’). In May, 2012 Scott Thompson departed Yahoo soon after being appointed CEO having falsely claimed a degree in Computer Science. Al “Chainsaw” Dunlap (CEO of Consolidated Press Australia, 1991-93) was fired in the US as CEO of Sunbeam in 1998 for accounting fraud. Dunlap omitted two employers who earlier dismissed him from his resume. Patrick Imbardelli, Asia Pacific CEO of Intercontinental Hotels until 2007, falsely claimed a Business degree from Victoria University in Australia.

More intriguing than the frequency of senior executives who misrepresent themselves is the fact they reach such heights without discovery. In spite of the damage to reputation and bottom line, many such executives are seen as tough, successful, even exceptional managers, if at times a little ruthless. It begs the question - how many fraudulent ‘mid-level’ executives might there be, unseen and undetected through screening and recruitment processes?

The Sociopathic Personality

Corporate fraudsters exhibit classic sociopathic behaviours - exploitive, unprincipled, dishonest, deceiving and impulsive without care or concern for the people they affect. Sociopath is a newer term for psychopath - with more emphasis on behaviours distressing others (hence ‘socio’) rather than one person affecting themselves. Sociopathic behaviour is also a continuum.

At one level we are all a little sociopathic – after all, it’s a tough world and we want to show ourselves in the best possible light. Telling the odd white lie mostly seems OK; many employees pass on news that reflects positively on them (prompting bosses to say “tell me the bad news first”); and surveys tell us one in 5 resume-writers deliberately leave out information perceived to be negative.

At the high end however sociopathic behaviour is marked by the absence of guilt and acting without any sense of responsibility or concern for consequences. Sociopaths at this end of the scale lack empathy and although superficially ‘friendly’, feel no shame, or remorse and act quite cold-bloodedly, especially with the truth. By nature they are impulsive and cannot change (even if they wanted) - and are compelled to keep lying until they have done immense damage to an organisation. Unless caught!

Successful or Unsuccessful?

Those likely to ‘classified’ as a sociopath (technically - a person diagnosed with an Antisocial Personality Disorder) make up 2-4% of the population, with 20-60% considered moderately to mildly sociopathic. APDs may be categorised as either ‘successful’ or ‘unsuccessful’ in terms of life skills and their capacity to function in to society.

‘Unsuccessful Sociopaths’ are badly adjusted, low-skilled, and cannot conform to socially acceptable standards. They often end up in prison or locked away. Unsuccessful sociopaths find it impossible to succeed in executive positions although they can participate at low levels in the workforce.

‘Successful Sociopaths’ on the other hand are usually bright, intelligent, charming and energetic. Many do find their way in to executive employment. Often through menial roles at first, then progressively by internal promotion. Manipulative, driven and highly adaptable, those who reach ‘management’ levels can be loosely categorised as ‘Chameleons’ or ‘Confidence tricksters’.

Both are ingratiating and superficially ‘caring’ but in reality lack true empathy and trap, then exploit, others ruthlessly. They are often successful as executives because they appear tough, focused and charming. They are highly attuned to diverting blame onto others. They believe the end justifies any means. And they are masters at self-promotion and focusing others’ attention on to their attributes.

Sound familiar? Every year some public ‘fraud’ emerges, many others are quietly moved on. And everyone I have met knows someone – at some level - who fits the profile. ‘Chameleons’ especially grab the attention of the executive evaluator. Chameleons are difficult to spot, even looking objectively. They can be impossible to detect if you are at all ‘close’ to them. “Why?” You may well ask - because until you are directly affected (by losing trust or your money) they are charming fellows, unusually good company, clever, witty, often visionary and are intimately entwined in your everyday life so as to stay close (and ‘read’ your feelings).

How to Spot a Fraud:

1. Find the Lie. Fraudsters stretch the truth, in fact they find it impossible not to. To what degree varies but they often invent outrageous lies and stories about themselves. At some point they will have exaggerated or lied about a title, their rank in the military, completing a degree (or a Doctorate), attending a high-profile University, studying theology or psychology (or something unlikely to be challenged) and, of course, where they have worked and when. They deliver their credentials and background in a highly plausible and completely believable manner. Sometimes their lies (which are compounded) remain hidden for years. The only real clues being the detail can be hard to verify and the explanations seem so rational and credible.

2. Beware the perfect ‘Linked In’ profile. Their mistruths are extremely convincing, especially to themselves. They are delusional and believe everything they claim to be true about themselves. No-one is perfect at everything, or has lived a perfect life. So, the perfectly presented resume or an ideal on-line profile just might set off alarm bells. Fraudsters are also very often perfectionists – which sometimes extends to their personal neatness, presentation and dress.

3. They are intensely charming and look great at interview. As well as being perfectly presented they perform outstandingly well in interviews and meetings. They are great story tellers and wordsmiths and use highly engaging language and wooing style. To the point of being intriguing if not hypnotic. They sometimes reflect a ‘glow’, a charisma that invites others to ask for their advice and guidance. They may even have, or cultivate, a kind of ‘sex appeal’ or personal attractiveness.

4. They are likely to be highly intelligent. High IQ is often what makes fraudsters so dangerous because they use their brainpower to evade consequences and manipulate people rather than empower others. They think they know better than everyone else (and sometimes they do). Which accounts for why they readily lie about having a degree (or adding to it) as if they had formally completed University. Oh, and sociopaths have been shown to be very adept at passing lie detector and EQ tests too.

5. It is impossible for them to admit mistakes. But they are expert at rationalising and passing-the-buck expertly to someone else. The fault will never lie with them but another person – more often an inexperienced underling of some kind. The conversation often then turns to how they will fix the problem by firing or demoting that person thereby turning the mistake into a positive. And you won’t find them admitting to any weaknesses in an interview either.

6. They are excessively private and secretive about their personal lives. Nothing is known about them outside of work. Or if hiring (interviewing), you can find nothing out about their family, personal lives, friends or interests. They studiously spin, twist and avoid revealing any aspect of their life, family or history. Friedrich’s lawyer revealed after he suicided that he had steadfastly declined to reveal any significant or accurate personal details (“he dodged, weaved and straight-out lied” the lawyer said). It also emerged that he wasn’t born in South Australia in 1945 as claimed, but in Germany in 1950 and he arrived here on a tourist visa in the 1970s. His real name was Hohenberger. None of this was known to his wife or children.

7. They have a cadre of personal believers and followers who will vouch for them. Successful sociopaths are charming, persuasive and controlling and so have their followers and believers. In some cases even cult-like. It is likely they will be anxious to help you check references by setting up a call to ‘difficult-to-contact’ referees - people who are constantly travelling (or out of touch); or offer to help find ‘lost’ contacts from companies that have disappeared by acquisition or merger (although some time later they will report they can’t be discovered). Far better to seek references outside their circle of influence!

After their press release Myer took a phone call from the Spanish retailer, Inditex (which owns Zara) denying they ever employed the globe-trotting American as an MD. Later, in Court, Flanagan admitted he got others to act as “referees” and to give false confirmation of his work history.

8. If caught red-handed they vigorously deny and can behave like a petty tyrant. Sociopaths have to win at all costs. They simply cannot admit to being wrong. They strenuously deny errors and refuse to acknowledge any mistake. If you confront them with any kind of hard evidence they will fight to defend their web of lies using any means available; first by manipulating the facts and then by intimidation, and real anger.
Scott Thompson (Yahoo) went along with the fact he had a double degree in Computer Science and Accounting in a radio interview. He later blamed the headhunters who appointed him as President at PayPal (his previous job) for including a Computer Science major in his degree (later denied by the search firm). It took 11 days arguing between Thompson, the Board and Shareholders to shred his reputation (and integrity). The ‘error’ came to light “largely as a consequence of his own evasions and missteps” it was reported.

9. They are incapable of shame or remorse. This enables them to betray, threaten or harm people without giving it a second thought. They can generally act in a totally unacceptable way without conscience. Of course such absolute ruthlessness can be confused with an apparent capacity to take tough action and even be used as an advantage in business. One example is the “Head of Recruitment” contracted to a large employer, who recently sought tenders (containing sensitive financial and operational material) from 25 specialist recruiters who had done business with the Corporation, under the guise of expansion and streamlining. The information was passed to his real employer, a Global HR company who later ‘won’ the tender.

Some executives display one or two such characteristics but are not frauds. Some are even quite well adjusted and successful too. But we have met some big-time fraudsters as well. Under close examination, they will display a majority of the traits described here.

Finally, such fraud is not confined to corporations or the few examples we have used here. Politicians, Government, Education, Charities, and others all have their share of Frauds whose leadership - marked by deceit and an outrageous talent for self-promotion – has expensively damaged stakeholders and communities.

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