Ways to Prevent Corporate Scandals

Corporate scandals aren't always caused by scheming employees or executives intent on defrauding others from the start. They often begin with one or two bad decisions by a previously ethical person and then get out of control as the person committing the fraud takes more and more extreme measures to cover his tracks. To avoid this scenario in your business, put preventive measures in place ahead of time.

Scandals in business often start small and become progressively worse. For instance, an employee may know that a co-worker did not observe a minor safety regulation but may choose to protect the relationship by not saying anything because the regulation was a minor one. If the co-worker goes on to disregard a more significant regulation, the employee still may not say anything because doing so would force him to address the fact that he didn't report the first violation. As the situation develops, he may go from being complicit in safety violations to committing them himself. If an accident occurs, a scandal may result. The same pattern can occur with financial fraud and other wrongdoing.

One of the most effective ways to prevent a scandal in your business is to reward honesty rather than merely to encourage it. Some companies have a values statement or code of ethics that emphasizes honesty, but they still pay and promote salespeople based on the sales figures alone or give bonuses to supervisors based on short-term profits without any other consideration. If the company's incentive structure rewards employees who get results regardless of how they do it, some employees may use dishonest means. Bonuses and performance reviews should be based on upstanding professional behavior as well as results.

Once a dishonest corporate culture is established, it is very difficult to root out. Even honest employees will be under constant pressure to conform to the prevailing culture. One way to overcome this is to encourage and reward disagreement. An honest employee in a dishonest office may try to keep quiet and mind her own business for some time to go along with the group. Make it clear that you don't want your employees to always agree with you or each other and that you are always open to criticisms or unpopular opinions. This can help give an honest employee the courage to speak up against a prevailing practice that otherwise could develop into a scandal.

An employee who has been honest in the past may be tempted to cut corners if he is under financial pressure and has an easy opportunity to make extra money. For example, a mortgage broker might help a client submit false paperwork for a home loan to earn a commission. To prevent fraud and protect your business from scandal, remove any possible opportunities by instituting a carefully planned set of internal audits and controls. Some companies require all major tasks to involve at least two employees, ensuring that neither employee is in a position to falsify the work without being observed.