The estimated reading time for this post is 11 Minutes
The case under study is of a newly appointed CEO, Cheryl Tobin by name, who is contemplating launching an investigation into possible fraudulent practices in the company. Cheryl has just been hired to fill the position of a legendary CEO who passed away. Rawlings James had before the time of his death held the position and he had seen the Hammond Company achieve tremendous success in innovation as well as in making business deals that placed them well above their competition. He in fact passed away in the middle of a business negotiation after he had succumbed to aneurysm.
Before Cheryl took on her new position, she was working for Boeing where she had been in charge of one of the largest units. Hammond was one of their main competitors and she was not completely in the dark on couple of things about the company. While at Boeing, she had heard rumors that one of the reasons why Hammond hand managed to beat competition in acquiring new business opportunities is the fact that Rawlings was liberal in applying illegal rewards as a way of coaxing the negotiations in his favor.
There had been no evidence to this however as they were only rumors. But Cheryl is concerned that these rumors could be a pointer to the fact there has been something fishy going on at Hammond under the watchful eye of his predecessor. Her curiosity makes her wants to dig to find out if the rumors can actually be substantiated. She begins by inquiring form her personal assistant, Jackie Terrell. Jackie previously served as the personal assistant for Rawlings for eighteen years and she would most likely have some inside information to either fuel or quite her suspicions.
When she talks to her assistant about the subject, it is clear that the personal assistant knows little although she actually reveals that she once saw a statement of a fishy money transfer from Rawlings bank account to a destination they had no business ties with. Cheryl proceeds to talk to some of the staff about her concerns and they largely caution her against taking a decision that would not be in the best interests of Hammond.
Her suspicions are further confirmed when she talks to Hank Bodine, one of the departmental heads. When she makes it clear that she wants to ensure that the laws is upheld in all business dealings and wants to look to see if there is anything fishy, Hank doesn’t deny anything. On the contrary, he admonishes her that starting a forensic analysis of the company may cause jitters which will not only affect the company but affect her as well.
Having confirmed her suspicion, now she is faced with a big dilemma. She is not sure whether to conduct an investigation or whether to leave things as they area. She recalls an almost similar incident at Boeing where fraudulent activities caused the CEO and many other people to loose their positions. She is well aware that if she doesn’t act on the information she has, she will one day be a haunted by it. On the other hand, acting on the information might have far reaching implications.
Even if she tries to be discreet in the process, there is the risk of the information leaking out to the media and once people hard of a possible corruption at the company, the good will of the company will be lost which will mean that they will lose business, Furthermore, she risks being considered as a shrewd CEO who is trying to make her predecessor look bad since she is afraid that the shoes he left for her are too big to fill.
Should the New CEO Launch an Investigation?
The dilemma that Cheryl faces is not unique to her as many other CEOs are faced with similar dilemmas at least once in their careers. What makes Cheryl’s case exceptionally unique is the fact that she has to face the dilemma just a few days old on her new job. As Kubasik and Comey (2007) observe, her new position means that only a third of the other employees want to see her succeed in her new position. Another third will want to see her fail while the remaining third will not care what happens. Her decision and actions, especially if unpopular may not elicit cooperation form her peers and her subordinates.
It is however expedient for her to act on the information that she has. The law prohibits the use of bribery as a tool to get foreign business. This is referred to in the 1977 Foreign Corrupt Practices act. (Department of Justice, 2010). The law requires Cheryl to act on the information she has and failure to do will put her in danger. Cheryl will therefore have no option but to do what is obligated of her legally. Perhaps it was this that pushed her to decide to begin an investigation as we see her placing a long distance call to a lawyer at the end of the case.
Her decision to use an external lawyer to carry out the investigations is highly recommended. The company lawyer might have vested interests and may try to conceal some things in a bid to protect his/ her friends. In addition, an external party will have the advantage of having a birds eye view to the entire case which is a good thing since all the possible angles of the case will be considered. An external investigation will also result in a more objective conclusive finding since they will easily get information from staff as the staff will know they have the benefit of anonymity.
The Expert’s Analysis
But from an expert point of view, Cheryl should not have made the phone call that soon. Teuber (2007) Candidly states that the fact that Cheryl realized there is a problem with the integrity of the Hammond’s dealings while she was still at Boeing yet she moved to join them as the new CEO makes her lose her moral authority. He further admonishes that Cheryl’s first action should not have been calling the Lawyer but calling the Chairman of the board. The rationale behind his assertion is that it would be in her best interests to brief the chairman first before she makes any decision. If she circumnavigates the board, she will loose her credibility and that would lead to a sour working relationship with them for the rest of her term.
Furthermore, The CEO is expected to work on behalf of the board. Kubasik and Comey (2007) advise that the standard procedure would be for Cheryl to notify the ethics department vice president, or the person that is responsible for the internal audit of the company. This person would then forward the case to the board and he would actually be the right person to call the lawyer that she calls at the end of the case. Ideally, the board exists to provide direction to the CEO and she should therefore not make such a rash decision on such a sensitive issue before consulting with management. Teuber (2007) Believes that notifying the board will mean that there is trust between the CEO and the board and if she doesn’t, then the question to be answered is whether she was the right CEO to be put in the position in the first place for it was the board that carried out the vetting and selection of the right person.
Tuber also believers that it would not be expedient for the CEO to forget her job disruption and get involved in, “digging for dirt.” What all of the experts agree on is that it was right for Cheryl to decide to act. What they differ on is the approach she should have used. I would however not agree entirely with the notion that she should involve the audit department of the company. In the words of Hank Bodine, a new CEO was hired so that “things will be done in a new way” (Finder, 2008).
There is a high probability that if there was in deed any corruption in the firm, then there were many other people involved and it would be futile to think that the people who were possibly involved in the corrupt exercise would lead an investigation against themselves. Hank for example, hinted that there was probably some thing he knew about corrupt activities and was particularly hostile to the idea of investigating the claims. It is therefore worthy of commendation that Cheryl has decided to do it her won way.
The mistake she is doing is that she is initiating an investigation that she knows little or maybe even nothing about. Depending purely on a hunch is not the best way to go especially as a CEO of such a large company. It would be advisable that she first takes her time to have some background information collected on the company’s audit records and any other relevant information that should she would deem necessary in the establishment of a case.
Brandon (2007) has been in the investigation business for a while and has handled many such cases. He says that when he gets a phone call about a CEO who wanted to have an investigation done of possible corrupt dealings, he first requires the CEO to get some data from the company. This is usually a big challenge especially sine many of the times, the CEO want to remain a secretive as possible about the investigation. However, Brandon observes that Cheryl is at and advantaged position since she is still knew to the company. It would not raise eye brows is she asked for audit reports as this would only be interpreted as her desire to familiarize herself with the records of the company that she was now leading. Cheryl will save herself a lot of time and trouble if eh was to spend time gathering the required information first.
It would save her time since she would not be stalled in the process time and again when she was required to retrieve information at the height of the investigation. She would save herself trouble because gathering of the relevant facts and figures will help her to identify the presence or absence any seeming loopholes. This would imply that she would not begin to carry out an investigation unless she was certain that it would not lead to dead end. If she rushes into the investigation only t o later realize that she can’t prove a thing, she will have lost all the loyalty of her colleagues and subordinates and her peers.
Brandson (2007) explains that even the well know investigators like the FBI will never launch an investigation until they establish a burden of proof. Usually, the FBI will first carry out some preliminary examination and analysis of a case and if they can find reason to believe that there is a possibility of digging up something, they will then embark on a comprehensive investigation. This should be an important consideration for Cheryl since at the only information she holds about the case is an isolated rumor that she heard years ago and her un documented conversation with her assistant in which Jackie told her that there was a fishy bank transfer that her former boss wired to an unknown destination.
When Cheryl made the phone call to the lawyer, she was not oblivious of the looming storm that her phone call had potential to generate. She knew that the investigation she was calling the lawyer about would definitely rub the wrong way on some of the people in the company. She believes that this is an act of bravery since she is well aware that her longevity at her knew position will be greatly influenced by her decision to look into the rumors about corruption at the company.
While she is to be commended for her moral position, she should be admonished for her rash act of investigating the allegations. Cheryl seems to forget that she is answerable to her appointing authority, the Board of the company. It would have been good management practice to first notify the chairman of the board before she thought of sourcing outside help form the lawyer. The board chairman will most definitely offer invaluable advice and help in how best to approach the issue so that the company will least be affected by the shocks that would be generated by the investigation.
In addition, Cheryl should have slowed down so as to gather enough and relevant facts so as to be absolutely sure that there was a case to be investigated. Calling in an external entity to investigate only to realize that there was actually nothing to investigate will make her look speculative and this would impact negatively on how the staff and clients of Hammond view her. Furthermore, it would not be in her best interests to make a decision that would negatively impact on the business of Hammond. While she should not compromise her moral position, she should have discretion in making her decisions.
Brandson, H. (2007). Should Cheryl Initiate an Investigation at Her New Firm? Harvard Business Review. 85(1), 47–52.
Department of Justice (2010). Foreign Corrupt Practices Act of 1977. Web.
Finder, J. (2008). Power Play. New York: St. Martins Press.
Kubasik & Comey. (2007). Should Cheryl Initiate an Investigation at Her New Firm? Harvard Business Review. 85(1), 47–52.
Teuber, H. (2007). Should Cheryl initiate an investigation at her new firm? Harvard Business Review. 85(1), 47–52.
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