How it begins ... fraud, that is: don't tell anybody to do something wrong. Just apply some sly pressure, along with a pat on the back.

AuthorSutton, Gary
PositionSUTTON'S LAWS

THE CHAIRMAN wants you in his office tomorrow, at 10 a.m.," she said.

Yikes. I had been a CEO for all of two quarters and was partially into my third decade of life. Our group's results were consolidated but publicly broken out alongside his other subsidiaries. My third quarter was soft. Profitable, but barely.

My CFO and I packed our bags, screwed up our courage, and flew down to face the one-man firing squad. Our chairman was a flamboyant guy. Hot when he was hot, toxic when cold, and all results were exaggerated by humongous debt from Drexel Burnham. Little did I understand that effect.

"You guys let me down," he started, "but I suspect you're salvageable." We sat. He paced. The Pacific Ocean and white waves lapped outside his office window.

"So, Liz will bring in whatever you want for lunch. No phone calls. You can only leave to pee. I've got a meeting to attend but will return in four hours." His pacing got more frantic.

"I want you to review your books before turning them in, and see if you didn't hold back too much for bad debt, overaccrue for some presumed expenses or neglect to book a few revenues that actually belong in this quarter," he said, looking us straight in the eyes.

"You've always got to stand behind your numbers, but these initial guesses were embarrassing."

He stormed out. We sat silently. Then Phil, my CFO just recruited from a (then) Big 8 firm, and I dug through our quarterly income statement for the third or fourth time.

Hours later, the door opened.

"He'll be back in 20 minutes," Liz reported, "and he hopes you've got better news."

The chairman marched in. He looked at the ocean. Nobody spoke. He turned, arms crossed.

"Well?" he asked.

"Gee, Richard, I'm sorry but the original numbers we gave you stand up," I said. My CFO nodded in agreement.

A vein on the side of our chairman's forehead flared, he slapped one fist into his hand, said nothing and walked out.

Were we virtuous? No. We were both so naive we didn't really understand what he was asking, without his saying it.

And yet, this is how fraud begins. Don't tell anybody to do something wrong, just pressure them and then pat them on the back when they get creative. Their options jump. Momentarily. All based on bad accounting. Give them a plaque. Reinforce the behavior. Host a dinner in their honor.

We never had any one-on-one time with directors. That might not have made any difference. Understandably, this board was as misguided as the chairman. But...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT