José Eduardo dos Santos, who served nearly four decades as Angola’s president, died on Friday in Spain where he had been living in self-imposed exile. According to his New York Times (NYT) obituary, “he was widely accused of corruption and nepotism, and the economic boom he presided over benefited mainly his family and a coterie of advisers.” If the name sounds familiar it may be due to his flamboyant daughter Isabel dos Santos who has been “accused of plundering institutions including Sonangol, the state petroleum company, to create a business empire with stakes in diamond exports, the dominant cellphone company, banks and the country’s biggest cement maker. In 2020, she was charged with embezzlement, money laundering and other financial crimes. She denied the charges, saying she was the victim of a witch hunt. She has been living mostly in Dubai, seeking to avoid arrest. Mr. dos Santos’s son José was found guilty of financial transgressions and sentenced to five years in prison.” In other words, it all started at the top.
The death of Santos is a good reminder of why substantive and deep dive due diligence needs to go into the background check on every business leader and C-Suite Executive. Candice Tal, founder and President of Infortal Worldwide, has long been telling us for this need for many years. Now a new article from the Harvard Business Review (HBR) by Aiyesha Dey, entitled “When Hiring CEOs, Focus on Character”, bears Tal’s warnings out with research. The author has “studied the ways in which the lifestyle behaviors of CEOs—in particular, materialism and a propensity for rule breaking—may spell trouble for a company.” Her conclusion bears out why Tal has been saying all along, “Firms led by CEOs with even minor traffic tickets or excessive spending habits are disproportionately prone to fraud, insider trading, and other risky business activities.” Dey concludes by noting “that boards should pay attention to executives’ off-the-job behavior.”
Dey’s research centers on straight-forward questions: “Instead of focusing on systems and controls, should we be looking more closely at the people leading these companies?” Her conclusion is that taking a deeper dive into the background of those who become the C-Suite leaders at an organization bears more scrutiny as they can be “early warning signs” of trouble to come. That sounds like exactly what Boards would want to consider when reviewing potential C-Suite candidates. (I hope they will call Candice Tal to perform the actual due diligence recommended by Dey.)
The first area explored by Dey was in rule breaking, as “criminology researchers have found that people who flout even minor rules are subtly communicating that they don’t believe restrictions apply to them.” Indeed, Dey found that “18% of CEOs had been cited for infractions ranging from minor traffic offenses to driving under the influence, disturbing the peace, drug crimes, reckless behavior, domestic violence, and sexual assault.” Dey took this information a step further by asking, “Is fraudulent reporting more likely at a company if its CEO has a criminal record? Is the CEO (or CFO) more likely to be personally implicated in the fraud if he or she has a criminal record? Not surprisingly, the answer to both questions was yes… we found that if the CEO had a criminal infraction, the firm was more than twice as likely to be involved in fraud, and the CEO was seven times more likely to be personally named as a perpetrator.” Somewhat amazingly, even minor legal infractions such as traffic tickets were significant.
Dey then considered the effect of controls, such as insider trading blackout periods as a deterrence. Dey found “they had little effect on executives who committed serious crimes. Seemingly, then, governance structures and formal control systems are unlikely to rein in the worst actors. That’s discouraging news for boards and regulators that wish to curb opportunistic insider trading and limit other undesirable behavior.”
An area of Dey’s research, which was surprisingly insightful, was around “materialism.” Dey looked at it from the perspective of “the zealous pursuit of wealth and luxury regardless of the cost to others.” She and her teamed picked three criteria for review. (1) Ownership of a private home valued at twice as much as the median in the area; (2) Ownership of a car worth more than $75,000; and (3) Ownership of a boat more than 25 feet in length. “In our sample of CEOs, 58% had one or more of those markers and qualified as materialistic; we classified the remaining 42% as frugal.”
What Dey found “was a gradual weakening of the control environment in firms led by executives whose personal spending was excessive. Specifically, we observed more use of equity-based incentives (which can encourage managers to mislead capital markets by inflating reported performance), more appointments of materialistic CFOs, less intensive monitoring by the board, and a greater probability of a weakness in internal controls.”
In the financial sector, Dey “found that those with materialistic CEOs had relatively lax systems for risk management and thus faced more threat of significant negative performance than banks led by frugal CEOs.” Even more troubling for the compliance function, Dey “found that materialistic CEOs also contributed to a deterioration in corporate culture that led employees to more aggressively exploit insider-trading opportunities during the 2007–2009 financial crisis. Another correlation was in “corporate social responsibility (CSR) performance,” where Dey “found that firms with materialistic leaders received lower scores from CSR ratings agencies than did firms with frugal leaders. Our finding aligns with other scholarship showing that materialistic people display a lack of concern for the well-being of others and the environment.”
I asked Candice Tal what companies can do to investigate these issues. Tal stated, “Behavioral issues can be picked up during in-depth reference interviews by trained investigators, and can also be detected through patterns observed with type and frequency of civil lawsuits, such as sexual harassment, class action lawsuits, fraud and breach of contract matters. Themes around egregious behavioral issues can also be found when conducting deep web investigations on executives. This goes far beyond Google searches incorporating OSINT Open Source Intelligence. Tal notes that patterns and themes in behavioral traits should never be ignored. Executive due diligence backgrounds should be conducted by corporations on new executive hires and new board members. Executives will be in the highest positions of trust, a simple background check will not reveal these types of issues, however, effective due diligence investigations enable this information to be discovered thus protecting the board and shareholders from unnecessary risk exposure.”
All this information should be digested by corporate compliance functions and Boards of Directors. Even in the Foreign Corrupt Practices Act (FCPA) world, nearly every major corporate scandal starts with a lax attitude at the top of the organization. Indeed, it is such CEOs who inevitably cry about ‘rogue employees” and not what their organizations stand for. But the myth of the rogue employees is just that, a myth, and it really all does start at the top. Boards need to take note.
Tag: Leadership
12 O’Clock High, a podcast on business leadership, brings together stories from history, the arts and movies, research and current events to consider leadership lessons. Richard Lummis and Tom Fox return to their exploration of American Presidents as they conclude a two-part series on Andrew Johnson. In this Part 2, they discuss Johnson’s career as Military Governor of Tennessee, his Vice Presidency, Presidency and Impeachment. Highlights include:
· Civil War
A. A southern Senator
B. Military Governor
· Vice President to President
A. Was he the obvious VP candidate?
B. Campaigning
C. His swearing-in debacle
· Where did it all go wrong?
A. Met Lincoln for the 1st day on the day he was shot
B. The franchise for blacks
C. Declaration of War against Congress
· Impeachment
A. What was Radical Reconstruction?
B. Tenure of office Act
C. Impeachment Trial
· Leadership Lessons
A. What about Johnson’s character led to impeachment?
B. Peter Principal at Work?
C. Was he the worst?
D. Final Thoughts
Resources
Andrew Johnson-UVA Miller Center
Is Andrew Johnson the worst president in American history?
Andrew Johnson: The most-criticized president ever?
12 O’Clock High, a podcast on business leadership brings together stories from history, the arts and movies, research and current events to consider leadership lessons. Richard Lummis and Tom Fox return to their exploration of American Presidents as they begin a two-part series on Andrew Johnson. In this Part 1, they discuss Johnson’s early life up to his nomination as Lincoln’s Vice-Presidential running mate in 1864. Highlights include:
· Early Life
A. Childhood
B. Move to Tennessee
C. Slave Owner
· State Political Career
A. Friend of the workingman?
B. Was he a Whig or Democrat?
· Federal Political Career
A. US House
B. US Senate-Homestead Act
· Up to the Civil War
A. Nominations of 1860 and election
B. Succession Crisis
· Leadership Lessons
A. Assessment of Johnson up to this point
B. Final Thoughts
Resources
Andrew Johnson-UVA Miller Center
Is Andrew Johnson the worst president in American history?
Andrew Johnson: The most-criticized president ever?
Richard Lummis and Tom Fox conclude a two-part series on leadership lessons from Woodrow Wilson. In this Part 2, we look at lessons from Wilson’s two terms as President, his illness and short post-Presidential life and early death. Highlights of this podcast include:
A. New Freedom Agenda
1. Tariff and Tax
2. Federal Reserve
3. Anti-Trust Legislation
4. Labor and Agriculture
5. Immigration (here we go again)
6. Judicial Appointments
B. Race relations and Wilson’s attempts at Segregation
C. Foreign Policy-how did he “keep us out of war”
- Re-Election in 1916
- Move towards and declaration of War
- Miscalculation by Germany and Wilson Response
- 14 Points
- The Peace Conference
- Ratification debate and Incapacity
- Death
- Leadership lessons
Resources
Ten Ways to Judge a President
Woodrow Wilson Quotes
Woodrow Wilson-a Failure in Leadership
How Woodrow Wilson Lost the Peace
Woodrow Wilson-Life Before the Presidency
13 Leadership Lessons from WWI
Richard Lummis and Tom Fox begin a two-part series on leadership lessons from Woodrow Wilson. In this Part 1, we look at lessons from Wilson’s formative years in growing up in the South, his educational career, his academic profession and thought leadership, his Presidency at Princeton, his governorship of New Jersey, and the Presidential election of 1912. In Part 2, we will take up his Presidential years.
Highlights of this podcast include:
- Intro of Woodrow Wilson
- Discussion on the impact of slavery on Wilson and being a Southerner
- Academic Work History
- Professor at Johns Hopkins
- Publication of Congressional Government
- Move to Wesleyan
- Move to Princeton in 1992-textbooks on government
- President of Princeton-1902
- Achievements
- Seeds of character defects revealed?
- Health issues
- Governor of New Jersey
- Surprise Candidate- “it came to me unsought, unanimously, and without pledges to anybody about anything.”
- Reformist and turned back the Bosses?
- Nomination and Campaign of 1912
- Dark Horse Candidate
- Impact of William Jennings Bryan
- New Freedom platform – breaking up trusts and lowering tariff rates
- Leadership Lessons
Resources
Ten Ways to Judge a President
Woodrow Wilson Quotes
Woodrow Wilson-a Failure in Leadership
How Woodrow Wilson Lost the Peace
Woodrow Wilson-Life Before the Presidency
13 Leadership Lessons from WWI
Welcome to The Hill Country Podcast. The Texas Hill Country is one of the most beautiful places on earth. In this podcast, Hill Country resident Tom Fox visits with the people and organizations that make this the most unique areas of Texas. Join Tom as he explores the people, places and their activities of the Texas Hill Country. In this episode, I visit John Aceti, author of 7 books about people and places in the Hill County. We discuss John’s most recent book Profiles in Leadership. Highlights include:
· John’s storytelling skill.
· His endless curiosity.
· The leadership styles of 18 persons he interviewed for the book.
· What are their leadership philosophies?
· What strategies did they use to succeed in their individual career fields?
· What’s next for John.
Resources
Profiles in Leadership on Amazon
Richard Lummis and Tom Fox conclude their series on leadership lessons from Theodore Roosevelt. We will look at lessons from Roosevelt’s early years in New York up to his cowboying days in Montana; the second phase of his public career, from NYC Police Commission to Assistant Secretary of the Navy, San Juan Hill and the Vice Presidency; his leadership from his Presidency; his life in the post-Presidency and the election of 1912 and we will end with leadership lessons from his post Bull Moose Party life, World War I and event surrounding his death. In this fourth episode, we consider the leadership lessons learned from Roosevelt’s years after the end of his second term up through his run for President at the head of the Bull Moose Party in 1912.
Highlights of this podcast include:
Roosevelt goes big game hunting and holds meetings with political leaders across all of Europe. What led to the schism in the GOP and Roosevelt’s defeat at the GOP 1912 Convention? The formation of the Bull Moose Party and his survival of an assassination attempt. The election of 1912, his loss to Wilson but his overwhelming defeat of his former protegeé, William Taft. We conclude this episode with three key leadership lessons, including: 1. Change when the facts change; 2. Don’t be afraid of making unpopular decisions; and 3. Leaders are Learners.
Resources
Doris Kearns Goodwin’s 10 Leadership Lessons from the White House
6 Leadership Hacks From The Rise of Theodore Roosevelt
10 top Leadership Principles of Teddy Roosevelt
The Roosevelts: Eight presidential lessons in leadership
Lessons in Leadership from 100 years ago
Theodore Roosevelt on Leadership
10 Theodore Roosevelt Leadership Lessons
Compliance into the Weeds is the only weekly podcast that takes a deep dive into a compliance-related topic, literally going into the weeds to more fully explore a subject. In perhaps our most somber podcast ever, Matt and Tom take a deep dive into some of the failures which led to the tragedy in Uvalde, TX, and lessons for the compliance professional. Highlights include:
- Why have controls?
- How can a control over-ride impact safety?
- How can you prepare for emergencies?
- Thought-out lines of communication were created before the emergency.
- When leadership is tested.
- What is the difference between ethical values and ethical priorities?
Resources
Matt in Radical Compliance
Richard Lummis and Tom Fox continue their series on leadership lessons from Theodore Roosevelt. We looked at lessons from Roosevelt’s early years in New York up to his cowboying days in Montana; the second phase of his public career, from NYC Police Commission to Assistant Secretary of the Navy, San Juan Hill, and the Vice Presidency; his leadership from his Presidency; his life in the post-Presidency and the election of 1912 and we will end with leadership lessons from his post-Bull Moose Party life, World War I and event surrounding his death. In this third episode, we consider the leadership lessons learned by Roosevelt in his ascension to the Presidency and his first and second terms as 26th President.
Highlights of this podcast include:
Roosevelt’s ascension to the Presidency after the assassination of President McKinley; his domestic policies included: trust-busting, issues with railroads, starting the American conservation movement, and regulation of food and drugs. We then turn to foreign policy and his arbitration of the Russo-Japanese War, which won him the Nobel Prize, the Roosevelt Corollary to Monroe Doctrine, and the construction of the Panama Canal. We look at the clection of 1904 and his second term. We conclude with three key leadership lessons: 1. Surround yourself with other leaders; 2. Maintain an Open Channel with Adversaries; and 3. Be able to take criticism.
Resources
Doris Kearns Goodwin’s 10 Leadership Lessons from the White House
6 Leadership Hacks From The Rise of Theodore Roosevelt
10 top Leadership Principles of Teddy Roosevelt
The Roosevelts: Eight presidential lessons in Leadership
Lessons in Leadership from 100 years ago
Theodore Roosevelt on Leadership
10 Theodore Roosevelt Leadership Lessons
Richard Lummis and Tom Fox continue their series on leadership lessons from Theodore Roosevelt. We will look at lessons from Roosevelt’s early years in New York up to his cowboying days in Montana; the second phase of his public career, from NYC Police Commission to Assistant Secretary of the Navy, San Juan Hill and the Vice Presidency; his leadership from his Presidency; his life in the post-Presidency and the election of 1912 and we will end with leadership lessons from his post Bull Moose Party life, World War I and event surrounding his death. In this second episode, we consider the leadership lessons learned by Roosevelt in the second phase of his political career, which took him from Police Commissioner of NYC to the Vice Presidency.
Highlights of this podcast include:
What led to appointment to New York Civil Service Commission and then to the NYC Police Commissioner? His move to the National Stage as the Assistant Secretary of the Navy. This led to his work in the War with Spain and Admiral Dewey in Manilla Bay. He founded the Rough Riders, his leadership in Cuba and ride up San Juan Hill. He becomes Governor of New York. This leads to joining the McKinley ticket in the election of 1896 and becoming Vice President. We conclude with three key leadership lessons, including: 1. Pick yourself up when you fall; 2. Find a cause; and 3. Communicate Simply and Directly Through Stories.
Resources
Doris Kearns Goodwin’s 10 Leadership Lessons from the White House
6 Leadership Hacks From The Rise of Theodore Roosevelt
10 top Leadership Principles of Teddy Roosevelt
The Roosevelts: Eight presidential lessons in leadership
Lessons in Leadership from 100 years ago
Theodore Roosevelt on Leadership
10 Theodore Roosevelt Leadership Lessons