9780814414965

Risk. It's a given factor in the operation of any organization. From corporate fraud and security issues to technological and other man-made disasters, bad things do happen. And while many businesses build elaborate defenses against these unexpected occurrences, often employing powerful technology to help detect and prevent them, most risk-assessment strategies fail to connect the dots before it'stoo late. This book, based on the author's extensive experience analyzing the sources of corporate and organizational failure, reveals how a company can mitigate risk using available resources, including what may be the most important asset: its people. Readers will discover valuable strategies, enabling them to: Draw "actionable intelligence" from enormous amounts of data * Quickly make better-informed assessments and decisions * Tap into the rich human sources of information that can directly alert them to signs of risk * Do a better job of anticipat ing and avoiding problems Filled with practical, real-world insight and featuring interviews with experienced risk practitioners, this book will help any business recognize the first signs of trouble.

JOSEPH W. KOLETAR (Bolivia, NC) served as Executive Director, Principal, and Director in the Fraud and Investigations practices of Ernst & Young LLP and Deloitte & Touché LLP. In addition to his international work with many premier law firms, his forty-year FBI career culminated in his role as Section Chief in the Criminal Investigative Division.

Author's Note	p. ix
Acknowledgments	p. xvii
Introduction	p. xxi
Observations About Risk	p. 1
Fraud as an Example of Risk	p. 19
Frontline Interviews with Risk Management Experts	p. 35
How We Attempt to Deal with Risk	p. 73
Why Things Go Wrong	p. 95
How Risk Is Discovered	p. 147
Organizational Intelligence-Practical Reality	p. 157
Organizational Intelligence-Thought and Theory	p. 183
Using Consultants	p. 199
Concluding Thoughts	p. 209
Glossary	p. 223
Index	p. 231
Table of Contents provided by Ingram. All Rights Reserved.

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<html><head></head><body>INTRODUCTION ‘‘People don’t call us because they’re having a great day.’’ Anonymous This is an accepted mantra in my business, along with ‘‘Did you ever hear of anybody stealing a million dollars and working their way down?’’ I have spent more than forty-two years dealing with various forms of risk, and along the way I have seen more than a few things. I also learned a few lessons through the bitter experience of others. Organizational problems are a fact of life, and few of them get smaller with time. Once a problem develops, it tends to grow, usually until it is too large to hide; then, one day, the organization senses it, goes into a panic mode, and picks up the phone. When asked what I do for a living, I often jokingly reply, ‘‘Fix train wrecks.’’ Unfortunately, that’s pretty much all I see—train wrecks. I am sure the vast majority of corporations and organizations work just fine, but please be assured that a fair amount of time they do not. Otherwise, I, and thousands of people like me, would be out of work. The purpose of this book is not to increase the amount of work we get. Believe me, there is more than enough in the pipeline. The objective is to help organizations do a better job of sensing and dealing with problems before they get too big. Ideally, corporations would prevent problems from developing in the first place. This is, to use the more general term, risk mitigation. I have seen the scene hundreds of times. It does not matter what the name of the company is, what industry it is in, or how big or small it may be; it is always the same. You enter the conference room, and there they are, huddled around the table: the ‘‘C suite’’ executives, the general counsel, the outside counsel, probably someone from internal audit and the compliance function, and perhaps someone from human resources. They always look the same— confused, shocked, angry, worried, and anxious. Usually, the problem has been through the first round of analysis, and the preliminary findings have been discussed. The lawyers have weighed in with their initial thoughts on the legal and regulatory issues that may be involved. Now they want to know what to do. How to answer the basic questions: How did this happen? How big is it? Who did it? Occasionally, ‘‘Is this an isolated incident?’’ Rarely, ‘‘How do we prevent this in the future?’’ This book is an attempt to answer the last question. If we can answer that, we need not worry about the first four. The idea for this book, which had been perking for a while, came to me in February 2008. i My wife and I, along with several of our neighbors, were on an eleven-day cruise through the Caribbean, with stops in Costa Rica and Panama. For me, the highlight of the trip was our passage through the Panama Canal. I had always wanted to see it, and it surpassed all my expectations. As our huge cruise ship cleared the first lock, we docked, and various groups disembarked for day trips. My wife and I chose a trip on an opened-sided boat that offered a detailed tour of the canal. Our tour guides had been doing this for years, and they provided numerous facts and tidbits about the building and operation of the canal. As we proceeded, we passed a number of other ships heading in the opposite direction. Several of them were massive container cargo vessels, almost 1,000 feet long and capable of carrying thousands of containers. As one passed, one of the guides drew our attention to the stern of the vessel. There, hanging from a davit, was a solitary lifeboat. The guide explained that it took about twenty people to operate that large and complex a vessel. That was my ‘‘Eureka’’ moment. ‘‘Holy mackerel,’’ I thought. ‘‘That’s only about six people a shift!’’ My mind flashed to corporate train wrecks, which are always a failure of corporate controls, and I thought: ‘‘If container ships can achieve this level of control efficiency, why can’t the modern corporation?’’ Obviously, I use ‘‘container ships’’ and ‘‘dashboard metrics’’ in a somewhat loose manner. Dashboard metrics are at once both simple and complex. The concept has been around a number of years, and many excellent consultants and companies have tried to develop and implement them. The premise is simple: can we design the monitoring and control systems of a large, complex organization so that the data flow will detect what is important or out of acceptable boundaries and cause it to show up on the ‘‘dashboard’’ of a ‘‘C suite’’ executive, much like the ‘‘check engine soon’’ panel on your car flashes when you need to attend to something? So, too, with container ships. I spent two years in the Army as an intelligence officer during the Vietnam War. I know nothing about ships, but I know some people who do. One was Chris Mansuy, a fraternity brother and a lifelong friend, who for almost four decades has been a highly successful maritime lawyer onWall Street. Before that, he spent four years as a naval officer. Surely he would know more than I did, so I called him. He listened to my thesis and replied simply, ‘‘It’s mainly dead space.’’ He was right. While they are huge vessels, container ships contain mainly cargo. If you have good control systems, it’s fairly easy to keep track of what is going on. So too when I posed my question to a colleague who is a computer executive with the aerospace company, Lockheed Martin. He also replied simply: ‘‘They got rid of the people.’’ What he meant was: automated systems can do a very efficient job of monitoring ‘‘dead’’ space. That is all well and good, but the vast majority of organizations are full of the most productive, innovative, energetic, and troublesome creatures on the face of the earth—people. In many cases, the people working to prevent risk will discover that the cause of risk is other people—people taking shortcuts or people engaged in outright fraud. How do we attempt to monitor people’s activities, good or bad, productive or unproductive, without trying to establish a prison camp? (For what it is worth, having spent the better part of three decades in law enforcement, I can tell you that prisons themselves are notoriously unruly places, and these guys live in steel cages.) This is the challenge we face when we think of controls in general and risk mitigation in particular. How do we do it? How do we establish systems and procedures that give us some level of assurance that we know what is going on? The veteran news anchor Tom Brokaw was a guest on the Morning Joe television show on MSNBC on December 26, 2008 (at 5:30 A.M.). The discussion was around the governmental and corporate financial mess in which the United States found itself. Brokaw is an old dog. He has been around the block more than a few times, and he has pretty much seen it all. He replied, simply: ‘‘The guys at the top didn’t know what was going on.’’ This is what happens in corporations so often, and it is a tragic mistake in several ways. First, the consequences are severe. Great institutions can fall in a matter of days or weeks, ruining careers, losing fortunes, and altering pension plans forever. Second, and most tragic, is that it does not have to happen. ‘‘Knowing what’s going on’’ is neither terribly expensive nor unnecessarily complex. Much of it is common sense, and most of the data required are already available; they just have not been properly organized nor had enough attention paid to them. Addressing these weaknesses is neither outrageously expensive nor complicated, but it does take some effort. The work of half a dozen smart, dedicated people can make a huge difference in the risk assessment environment of a corporation. This is not exclusively a ‘‘C suite’’ issue, although a good bit of the responsibility falls there. The ‘‘C suite’’ executives must operate off the information they receive (there is a huge difference between ‘‘data’’ and ‘‘information,’’ and we will explore that in detail). Oversight, monitoring, and ensuring the integrity of information are the responsibility of all of management, be it senior, midlevel, or shop- floor. If management fails anywhere along the line, bad things often happen. While a corporation or institution can fall with shocking suddenness once its problems become public, this does not have to happen. The issues that brought the company down did not happen overnight. They built slowly but steadily and were there for all to see, if anyone had chosen to look. This is the third, and arguably the greatest, tragedy. Why did we not take the time to look? Are we like the person who has a physical ailment but chooses not to go to a doctor lest he receive bad news? My friend and colleague Dr. Ed Delattre has worn many hats throughout his career. He is the leading authority in the world on law enforcement ethics, and at least one of his books, Character and Cops, is now in its fifth printing.1 He has also been the dean of one college and a department dean at another. He is a long-time corporate director and a much-sought-after speaker. We have, over the years, had many interesting and instructive discussions, either in person or on the telephone. Ed is a fierce critic of much of what he sees in the current educational system in the United States. As might be expected, his views are not always welcome, however sound they may be in fact. We once had a lengthy conversation about the state of education in the United States, and Ed made a rather subtle, but profound, observation. Beginning in the 1950s, there was a shift in the academic world. Professors, until that time, primarily identified with their colleges or universities. But, at mid-century, the process of identification began to shift. Professors began to identify more with their field than with the institution they served. Papers were published, books were written, professional associations were joined, and career opportunities were examined. Thus was born mobility. Today, it is not unusual for a ‘‘star’’ professor to leave one school for another, sometimes taking much of her department with her. Salary and prestige are the coin of the realm. The same phenomenon is now evident in other fields. Even old, ‘‘white shoe’’ law firms are not immune, as top-producing attorneys, and sometimes their entire practices, defect one day to what they see as greener pastures. </body></html>

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Rethinking Risk : How Companies Sabotage Themselves and What They Must Do Differently

0814414966

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