FROM THE PRESIDENT AND CEO
Bruce Dorris, J.D., CFE, CPA
Leaders of some of the largest companies in the U.S. made a surprising announcement when they redefined a corporation’s purpose as not solely providing profit for shareholders. The Business Roundtable, a group of nearly 200 members include the CEOs of companies such as Amazon, Coca-Cola, Deloitte and Nasdaq, released a statement asserting that corporations should be committed to the needs and well-being of all of their stakeholders — including employees, customers, their local community and suppliers — as opposed to just their shareholders. This statement of purpose marks a departure from the commonly accepted business philosophy that the sole obligation of business is to increase profits in order to maximize value for shareholders.
While no one can predict how this change of philosophy will affect the way organizations conduct business, expanding the focus of companies from the goal of only focusing on profits has the potential to reduce corporate fraud. According the ACFE’s Report to the Nations, Certified Fraud Examiners estimate that the typical organization loses 5% of its revenues to fraud annually. It’s a pervasive issue that touches organizations of all sizes, and many factors contribute to an employee committing fraud. One large factor that can lead to fraud is pressure, and often that pressure comes from the company’s expectation to increase profits at an unsustainable speed, or to an impossible level.
When looking at some of the largest fraud cases of the 21st century — like Enron, WorldCom, HealthSouth and Wells Fargo — a consistent factor was the pressure to meet short-term earnings projections or post strong financial statements in order to maintain share prices. That pressure led company executives to falsify public financial statements and engage in fraud in multiple levels of the organization. If a broader focus on the well-being of all stakeholders means that corporations will be more focused on the big picture and less driven to meet short-term projections, then it is possible that the pressures which led to some of history’s largest financial statement frauds may be reduced.
Another large influence on the potential for fraud is an organization’s tone at the top. Company executives play primary roles in establishing a culture for their employees, customers and vendors. Publicly committing to investing in and supporting employees helps foster goodwill and creates an environment where people feel valued, which in turn encourages ethical behavior and reduces the motivations to commit fraud. In addition, the pledge to deal fairly and ethically with suppliers sends a clear message to competitors, the public and regulators that executives take seriously the risks associated with improper third-party relationships, such as those that have led to numerous bribery and corruption scandals in recent years. During a period of notable regulatory scrutiny and sanctions for anti-corruption violations, the statement highlights the intention of these organizations to go beyond a strictly compliance-focused approach to such risks, and instead focus on a commitment to fair and ethical business dealings.
By signing this new statement of purpose for corporations, the members of the Business Roundtable are setting a tone at the top that they are interested in more than profits. Overall, this statement represents a move in a more ethical direction for the business community at large. This has the potential to not only benefit many aspects of society, but also to help reduce instances of occupational fraud.