Corporate malpractice can be hard to spot.
This article will give you the knowledge that you need to be aware of potential malpractice. It has some critical leading indicators that you, as CEO, can build on.
Malpractice isn’t easy to identify, and it is not restricted to professions such as accounting, law, or medicine. It often contributes to bullying, fraud, and slavery practices of all kinds.
What is corporate malpractice?
Malpractice is any illegal action by a person in a position of trust, to gain a personal benefit. This is why you often hear about ‘malpractice’ and ‘fraud’ in the same sentence.
Corporate malpractice is a phrase that captures a swathe of unethical actions, behaviours and practices.
Some examples of corporate malpractice include:
- rigging of product to pass quality tests (Volkswagen)
- defrauding clients (Wells Fargo)
- other diversions of funds (Punjab National Bank)
- preferential bids by stakeholders, such as in selling off a chain (Fortis Healthcare)
- violation of norms and requirements for licenses (AirAsia)
- lobbying for faster approvals from governing bodies (AirAsia)
- relaxation of rules (government services in the AirAsia case)
- acting in favour of your conflict of interest (ICICI Bank).
Your company may choose to specify the behaviours and actions that it considers malpractice.
The Motor Neurone Disease Association, for example, explicitly lists ‘fraud, financial mismanagement, improper use of resources, breaches of Health and Safety, breaches of charity law, behaviour contrary to their policies’ in its definition of ‘malpractice’.
In an industry like mining, however, corporate malpractice may affect the community and the environment.
Heledd Jenkins, of Cardiff University, describes one type of malpractice in mining as company-community conflict (PDF).
She cites cases involving forced eviction of villages and lack of compensation. She also suggests that some Corporate Social Responsibility programs hide corporate malpractice by introducing false dependencies with local communities.
Your key takeaway from this is that corporate malpractice describes both individual actions and company actions.
Isn’t malpractice just plain old negligence?
The answer is, ‘yes it is; and no it isn’t’. Malpractice is a type of negligence. The difference is slight but important.
Negligence is the failure to exercise the care that any other reasonable person would exercise in a similar situation.
Malpractice is any action or omission that fails to meet the law, rules or standards of a profession, in order to gain an advantage. The critical point is the notion of gaining benefit from the act. You can be careless, and therefore negligent, without doing it intentionally, or for any gain.
Corporate malpractice is a matter of culture
Because malpractice is linked to corporate culture, it can be systemic. This is why it presents a real challenge to CEOs like you. According to Barbara Kellerman, every leader is accountable for malpractice. Kellerman argued in a Harvard Business Review article that because it’s become easier than ever to assess leadership performance, malpractice accountability can no longer be ignored:
Among other reasons, although advanced degrees in leadership are still rare, leadership is increasingly considered a profession. It is taught in professional schools, in schools of government and public administration, and in nearly all business schools. There are countless books on how to exercise good leadership, and countless courses and seminars, both in and out of the academy, in which leadership is taught. It’s time then to apply to leadership the same standard that we apply to other professions. Similarly, when this standard is not met, even minimally, it’s time to hold leaders accountable by suing them for malpractice.
Won’t a robust Codes of Ethics solve the problem?
Codes of Ethics are important tools that will support the right culture. What they won’t do is prevent malpractice just by existing.
Webley and Werener showed that codes of ethics do not, by themselves, indicate an ethical organisation. The researchers found that the most influential factor was culture. This is why:
‘… even if a range of formal ethics programme elements are in place, they will not prevent corporate malpractice if they are not embedded in a wider organisational culture that supports and encourages ethical behaviour.’
So, yes! Create a great Code of Ethics, but also support it by training your teams on its meaning and application. Remember, an ethical culture is created and maintained by your leaders’ actions, not by your documents.
Eradicating malpractice begins with leadership
It is inevitable that your company’s ethical practices reflect your leaders’ behaviour, attitudes, and performance. For you as the CEO, both your networks and communication style will influence the culture of the organisation. Read our article on successful transformation and the role of culture to learn why this is the case.
This means that whether corporate malpractice exists or persists also comes back to you:
If top management only pay ‘lip service’ to the principles set out in their company’s code of ethics and fail to set an example with their own behaviour, it will almost certainly mean that high standards of conduct will not be regarded as a priority by managers or their teams.
What are the signs of corporate malpractice?
There are a number of recognised signs of potential malpractice. It is important that you use them as a place from which to build your own leading indicators.
Red flags for leadership malpractice include selfish, greedy, and arrogant behaviour. If these three behaviours seem insignificant to you, know that they were the leading indicators of corporate malpractice in the Enron case.
Red flags for corporate malpractice more generally may include:
- unnecessary risk-taking
- lack of trust
- an overly strong self-orientation (language is I/me/mine, not you/we/our)
- unethical practices or behaviours, including:
– bending the rules
– taking the credit for other people’s work
– turning a blind eye to wrong-doing
– dismissing bad behaviour because it’s ‘normal’ or ‘routine’
– holding people (especially rising stars) back so that others’ needs can be met
– ignoring data in favour of your company’s perspective (or your own point of view)
- failing to use all of the resources available to you
- being careless or negligent misleading others for your own benefit (including in advertising or other information given to the public)
- creating false dependencies, either internally or externally failing to comply with company processes, policies, or procedures.
Spend a little time to take action now:
Pick up a pen and jot down your company’s potential leading indicators of malpractice. Include both individual and company indicators.
What can I do about malpractice, as the CEO?
As the CEO, you are your company’s most influential person. Therefore, when it comes to preventing malpractice, the best place to start is with your own behaviour.
Using the list above, ask yourself whether you engage in any of those behaviours. If you do, replace them as fast as you can!
There are two levels to malpractice prevention: Culture and procedure
At a cultural level, you can:
- encourage awareness, because awareness reduces malpractice opportunities.
- make your leadership team accountable for unethical behaviour.
- encourage a perspective of ‘extreme ownership’. This forces leaders to be accountable for company-wide behaviour and outcomes.
- introduce training to help your teams identify and deal with unethical behaviour.
- support the use of whistleblower programs and anonymous reporting. Then, use the reports to make changes where needed. Remember to close the loop by showing your people the positive outcomes the system helps you achieve.
- ensure that your organisation openly discusses ethical matters.
At a procedural level, you can ensure that:
- your organisation has a clear definition of corporate malpractice.
- your policies reflect an intolerance of unethical actions and behaviour.
- ethics is embedded in everything, from team coaching to annual retreats.
- standardise your processes to remove preventable mistakes.
You may find that you have to start with process. If you do, just remember that all the policy and structure in the world won’t suffice if there is no action or consequence for a breach.
Take your first steps towards eradicating malpractice with a robust whistleblower policy.
Download our free whistleblower policy template to help you get started.
For support in implementing whistleblower and complaint handling pathways book in a free consultation with the experts at Red Wagon Workplace Solutions.