Organizations with highly unethical cultures, such as Enron, do not happen overnight; it’s often a series of incremental changes. Many of you have heard the story of the frog and boiling pot:
They say that if you put a frog into a pot of boiling water, it will leap out right away to escape the danger. But, if you put a frog in a pot that is filled with water that is cool and pleasant, and then you gradually heat the pot until it starts boiling, the frog will never become aware of the threat until it is too late. The frog’s survival instincts are geared towards detecting sudden changes.
I’m not sure this tale is scientifically sound, but it serves as a great metaphor for how dangerous a slowly deteriorating environment can become. In corporate America, we are sometimes that poor frog. This is my ‘corporate’ frog story. Starting temperature: 80 degrees.
As the Chief Audit Executive for an organization, it was not unusual for the CEO and CFO to summon me for my input or buy-in on various issues. On this particular day, the CEO seemed less pleasant than usual and particularly agitated. Of course I made the assumption that I, or someone on my team, had offended someone high up in the organization — a common hazard of audit. When I arrived at his office he was standing in the door with the CFO directly behind his right shoulder. He immediately shoved a stack of documents at me and said, “Here, you deal with this. It’s your job to deal with this kind of stuff. No way can I approve this.” I looked down at the stack of papers to see that I was holding an expense report from the Chairman of the Board. Uh oh.
After returning to my office, I reviewed the documentation for the expense report. I also called the CFO to ensure that my understanding of what I was looking at was correct — it was. The expense report contained a significant number of expenses related to the Chairman’s recent move from New York to Miami. We had recently built new offices in Miami to support our expanding Latin American business. It appeared that the Chairman had decided to move to Miami and determined the company should reimburse him for the move because of the new offices there. I reviewed all the meeting notes from all the board meetings going back 18 months; nowhere could I find his move being discussed, never mind approved for reimbursement. The second issue was the actual expenses. I noticed $9,000 in expenses for a limo for five days to drive his wife around to shop for “household goods related to move.” His wife. In a limo. What? It got worse from there. Temperature: 100 degrees.
After giving myself some time to think – and process this – I reached out to the Director of the Audit Committee and explained the situation. He asked me if this was a direct violation of policy. Unfortunately, I had to say “not exactly.” Because our company, like most organizations, had a sweet little get-out-of-jail clause built into our Travel and Expense Policy that stated “…unless approved by an Executive Vice President or higher.” Which essentially means, as long as someone at the executive level approves it, you can pretty much do whatever you want. I have found this type of clause in every travel and expense policy I have ever reviewed. This clause may have a legitimate reason to be present in many cases, but it can be abused when executives are approving each other’s expenses. It makes it virtually impossible to ever say something was against policy.
After a brief discussion I offered to handle it and said I would contact the Chairman of the Board to discuss his expenses, but the Director of the Audit Committee said that he would take care of it. A week later I followed up with him to see where we stood since I hadn’t heard back and I received an email that he was still working on it. A week after that, I received a call from the Director of Accounts Payable (AP). The Chairman was calling her directly asking about his expense report and inquiring when he was going to get reimbursed. Meanwhile the CEO is telling her that I have his expense report. In other words, what’s the hold up? I follow up again with the Director of the Audit Committee, but this time get no response.
Three days later I get an email forwarded from the Director of AP which is from the Director of the Audit Committee – Subject line: “Chairman’s Expenses.” The email says, “Pay it.” Oddly, I was not copied. Then again, neither were the CEO or CFO. At least she knew to keep me in the loop. Temperature: 125 degrees.
I call my boss, the Director of the Audit Committee, but I seem to be unable to reach him for several weeks. When I finally get in contact with him, he admits to me it was “just easier” to pay the expenses. Seriously? Wonderful. Temperature: 150 degrees.
Fast forward three months. The Director of AP confides to me how the executives and board appear to be “out of control” with expenses. Really? Please elaborate! She does, and she is particularly focused on the bills she just received for the corporate apartments the CEO and CFO have recently rented in Miami Beach. Remember those new offices? Okay, I think corporate apartments for the CEO and CFO near the new office aren’t that odd or really out of line as far as expenses go. She agrees that having a corporate apartment near the new office would make sense. Normally it would save the company money on hotels. But then she drops the price tag on me — $26,000 and $22,000 per month, respectively. Yes, I said per month. To make matters worse, everyone is talking about it. The AP clerk who pays those expenses only makes slightly more per year than the amount the CEO is paying per month for his corporate apartment in Miami Beach and she is telling everyone who will listen. I’m not sure I blame her. Temperature: 175 degrees.