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Corporate Governance: White Collar Crimes

Updated: Mar 5, 2023


Our expected future National Hero and Olympic Legend, Dr. the Honourable Ambassador Usain St. Leo Bolt, OJ, CD, OLY was allegedly robbed of a portion of his retirement savings in the sum of US$12.7 million at the 'fraud-hit’ investment firm Stocks and Securities Limited (SSL) in Jamaica. The fastest man alive could not outrun this betrayal of trust. The emotions that were ignited in the sporting fraternity, financial sector and the world over, include alarm, shock, fear, anxiety, anger and disrespect. For those of us who have our little tuppence’ in a bank or financial institution, the thought of losing it mek wi nervous bwaad. Many of us could not recover from such a devastating loss. We all knew this matter was extremely serious and urgent when government officials addressed the matter publicly. Additionally, there was heightened fear among financial executives because they were concerned about the credibility of the Jamaican financial sector.


The world continues to be in turmoil. The stress caused by high inflation, the displacement caused by COVID-19 and the trauma caused by the Ukraine-Russia war are conditions we are all grappling with directly or indirectly. This new reality has led to financial concerns or even instability for many people. The standard of living for many people has fallen, regardless of socio-economic status. In my previous article Wars and Crimes: Inequality and Equity, I highlighted that “intra-country wars are sometimes termed crime and violence”. This definition, unfortunately, does not recognize the significant losses that are caused by white-collar crimes. White-collar crime is a nonviolent crime of deceit or concealment to obtain or avoid losing money or to gain a personal or business advantage (Investopedia.com). Many of these crimes occur below the radar, outside of public knowledge and are normally treated as a company’s internal private business, often termed – “its dirty little secrets”. White-collar crimes are committed mostly by highly educated and or rich people. We should acknowledge and accept that all people, rich or poor, are prone to be involved in crime and violence when desperation or greed creeps into their consciousness.


Governments develop strong laws to counter crime and violence. Businesses develop strong corporate governance systems and policies to reduce white-collar crimes.


Life Mirrors Business


I think that life mirrors business. The employees in a business are all extracted from the very crime-prone society in which we all live and work. Don’t be surprised. The many imperfections that exist in society also exist in businesses. Thieves and scammers are very much at large within the walls of many companies, big and small. Fortunately, the employment process involves checks, balances and training that are designed to recruit what would appear to be, the most competent and morally sound employees. Companies compete to secure the best of the best workers from the available labour pool. They do this by creating competitive advantages through the use of higher salaries, immaculate working conditions and specialized job descriptions.


Most successful companies understand that just merely recruiting the best workers is not enough to ensure business success. They have to ensure that corporate governance becomes part of their Deoxyribonucleic Acid (DNA). As a result, they have deliberately implemented corporate governance systems and policies that enhance business and operational efficiencies. These companies also recognize that a strong Board of Directors and executives provide for better critical thinking, policy development and administration. Sadly, but not surprisingly, a company’s strong corporate governance platform does not fully insulate the company from fraudulent activities. Recently, some of the most successful companies in Jamaica such as, Bank of Nova Scotia (BNS), National Commercial Bank (NCB) and Sagicor, have all experienced significant failures in their operations resulting in financial fraud against their clients; in all instances, greed seems to be the motivation.


Recently, Factories Corporation of Jamaica (FCJ) copped the Greta Bogues and Finance Minister Awards at the 2022 Private Sector Organization of Jamaica (PSOJ) Corporate Governance Awards, under my leadership as Managing Director. The performance of FCJ was not always this stellar. The 2016 Auditor General's Report was a damning one on the FCJ’s corporate governance practices. The new Board of Directors were adamant that they wanted corporate governance to become a part of the DNA of FCJ. This included recruiting a new Managing Director, strengthening the executive management team, aligning the company’s business processes to its key performance objectives and developing proper policies and procedures to guide the operations of the company. FCJ is now a corporate governance and business turnaround benchmark; that is, a guide and example for success in these areas. It is recognized as one of the top public sector entities in Jamaica. Over the last four years, FCJ has won awards including best corporate governance policies, best procedures and practices, best compliance and disclosure of information, best annual report, and best website. One thing that is clear is that human efficiency is enhanced by clear structures and procedures.


People Versus Systems


Douglas McGregor, a great American management professor, argued in his “X and Y Theory” that supervisors should punish and reward their workers to get the best performance from them. I, on the other hand, posit that people are natural opportunists – prizes and penalties are not enough to control human nature. Those of us who are parents know how easily our kids try to exploit us if we do not put rigid systems in place to guide them. Furthermore, there is an old saying “yu caah trus puss wid butta". I am not calling the “Lady Thief” that stole Bolt’s money a puss, I am simply suggesting that the systems created to protect the clients were either weak, flawed or nonexistent at SSL. I think we all have directly and indirectly engaged with many examples where poor systems of protection in a company have led to white-collar crimes.


Years ago, I had a staff member that was very ingenious in how monies were stolen from the company. The company did not utilize an electronic point-of-sale system to create invoices and receipts instead used a receipt book. Monies were collected by writing a receipt to each client using two pages, with carbon paper between them. Clients were provided the original receipt and the copy was left in the receipt book for future reference. The only unique features on the copy receipts were the client’s name, description of service rendered and charges. To steal monies, the staff member placed a piece of cardboard paper between the original and copy receipt, and wrote a higher actual cost for the services rendered and collected that from the client. The staff then wrote the correct price for the service using plain paper with carbon paper; therefore, the copy in the receipt book had the correct cost. The difference between the correct amount and the amount collected was pocketed by the staff. Faith had it that a client came back to query an issue and the supervisor investigating the matter recognized that the client’s receipt was different from the copy receipt in the receipt book. A number of clients were called and it was found that it was a general practice by that staff member. After the investigation, the staff was fired.


White-collar crimes have many styles. In some companies, technical officers are directly involved in procurement, which includes selecting and supervising contractors for the execution of projects. This situation creates an opportunity for the technical staff to manipulate and take advantage of contractors. In some instances, they dictate the ability of contractors to earn and in so doing enrich themselves by solicitation. Contractors who decide not to fall in line with their type of operation (no ‘kickbacks’) are deprived of work in adequate scope and quantity. The contractors who do fall in line, are issued large quantities of work, sometimes that they are unable to adequately execute, and a commitment is given that a percentage of the proceeds will go to the technical officers who are involved in the procurement process. These contractors are provided special privileges, where the company’s human and equipment resources are sometimes utilized to assist the contractor to execute their work. There are cases where a contractor’s invoice is utilized to table for works by these technical officers but the contractor has no knowledge of this; the contractor’s invoice template is simply used without permission. Unfortunately, practices of this sort are now fully institutionalized in many companies, however, when these breaches are uncovered aggressive actions against these workers are normally taken.


Dr. DF Suggestions


My over four decades of working in the public and private sectors have provided me with great insights into corporate governance practices. The following are my suggestions for improving corporate governance in a company:


1. Establish a Company – If you are willing to provide goods and services at a cost to the public, then you must be willing to establish and register a company with the relevant government entity. Ensure that the company has an article of incorporation, name, directors, corporate secretary and managing director. Too many small and medium-sized enterprises are functioning without the proper organization and governance structures.


2. Establish a Board of Directors – Select a Board of Directors with reputable and competent people to provide strategic and policy leadership to the company. Establish relevant Board Committees such as Audit, Governance, Human Resources, Finance, Procurement, Operations, Projects and Marketing to execute the work of the Board. The Board of Directors should be led by a chairman and all directors should serve for a specific time period; this period should be based on an annual performance appraisal of the Board and its committees.


3. Establish an Organization’s Structure – Onboard management executives and operational staff that are able to efficiently and productively execute the works of the company. All staff should be issued a job description and specification and should also be appraised continuously by their supervisor to guide their performance and development. All staff should be compensated competitively for the job for which they are responsible.


4. Develop Operational Policies and Procedures – The Board of Directors should ensure that departmental policies and procedures are developed and approved for all areas of the company. The executives of the company should ensure that all staff in the company are exposed to these policies and procedures. Additionally, all staff should be made to sign for the relevant policy and procedures that impact their duties when they are recruited. They should be properly orientated into the company’s operation and business in an effort to achieve the goals of the organization.


5. Effect Proper Compliance, Audit and Risk Management – The Board of Directors should ensure the preparation of Audited Financials, Annual Reports, and Strategic and Corporate Plans. The Board should ensure the timely payments of all statutory obligations and salaries. The Audit Committee should ensure the preparation of a risk register and business continuity plans, plus the ongoing audit of all functional areas outlined in the company’s audit plan. These processes are critical for identifying breaches in the company and implement adequate and timely remedial/corrective actions.


6. Establish Recruitment and Disciplinary Panels - The Board should ensure that the Human Resource Department (HRD) establishes the proper interviewing panels are established to select competent and committed staff. The HRD should also establish a disciplinary panel that is responsible for investigating breaches by staff. The frontline managers and supervisors are expected to identify all breaches and escalate them to the HRD. Where a potential criminal breach occurred, the staff should be suspended or sent on interdiction to allow the police and the courts to adjudicate on the matter. All disciplinary matters must be treated objectively and fairly.


7. Continuous Training and Development – All Board members must be trained in corporate governance and must be exposed to all company critical policies and procedures, organizational functions and important government guidelines that impact the operations of the company. The Board and its committees must be evaluated at a minimum annually and appropriate actions to minimize and eliminate all weaknesses. The Board should also ensure that appropriate training and development are provided to staff to facilitate them in executing their roles and responsibilities. The company where possible should encourage and support specialized training and certification for its managers and specialist staff.


8. Effective Stakeholder Management – The employees of the company should be consciously competent in addressing the needs of its critical stakeholders, such as the Board, government, partners, suppliers and clients. There should be a proper Client Complaints Mechanism (CCM) to ensure that all queries and issues are addressed in a timely manner. The company should also establish Service Level Agreements (SLA), for the services that it delivers to its clients and conduct yearly satisfaction surveys of its critical stakeholders to ascertain how well their needs are being met.


9. Openness and Awareness – A company should be willing to showcase and share its mission, vision and value statements with the public. The company should establish a website and social media platforms to communicate effectively with its stakeholders and the general public. It should put on display its governance principles, policies and procedures, corporate plans, annual reports and all relevant documents which will build awareness and credibility. The company should also showcase the competitive processes it utilizes to recruit staff and procure goods and services.


10. Corporate Citizenship – A company should strive to be a good corporate citizen. To do this the company should invest in protecting the environment and investing in the communities in which it serves. These investments could include proper environmental sanitation and investing in technologies that reduce any contamination of the environment. The company should invest in the development of public infrastructure, especially those dealing with education and health. The company should motivate its staff to work on corporate projects that directly enhance the well-being of the general public.


Conclusion


I always say, “A thief is a thief,” be it a blue, black or white-collar. Usain Bolt’s experience with the loss of his monies at SSL is unfortunate but very prevalent. Many white-collar crimes have devastating consequences on people's lives and the success of businesses. Regrettably, the perpetrators of white-collar crimes are usually provided with mild penalties and prison sentences that hardly serve as a deterrent. White-collar crimes continue to escalate in very sophisticated ways, especially with the pervasiveness of digital technology in our lives and businesses. Governments and businesses alike will have to continuously develop and implement strong corporate governance systems and policies to mitigate white-collar crimes.


The responsibility lies with investors to investigate companies prior to engagement and while ensuring that monitoring is consistent. Remember, just as your health, your wealth is your responsibility!!!!!


Please put your money in multiple investment instruments across multiple financial institutions.


Read more of my blogs at http://www.donaldfarquharson.com/blog. After, make sure you subscribe to my email listing and share this article with a friend on Twitter, Instagram or Facebook. If you want to engage with me more, book my services at www.donaldfarquharson.com/book-online to discuss my blogs and other services.


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