What's at the core of corporate wrongdoing?

December 29, 2011: 9:37 AM ET

To believe that the people who commit fraud are different from us might make us feel safe. But real safety comes from building an organization that stops these acts before they can take place.

By Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance

FORTUNE -- Dennis Levine, who lectured an NYU MBA ethics class as part of his community service many years ago, described the mentality that led to his insider trading conviction as a mentality of having to win the next game, competing with oneself for the next victory, where enough was never enough.

His explanation is applicable to both individuals and entire corporate cultures, such as MF Global (MFGLQ) and Olympus, where losses were allegedly buried from public view on purpose.

But Levine's explanation doesn't address why enough is never enough. What underlies the motivations to hide losses? And why does it often take a very rude awakening for a person (or a company) to change?

What has befallen Olympus has been chalked up to an obedience culture, a management team that was "rotten at the core," and a board "of yes men." MF Global's case has been explained away by  Jon Corzine's hubris. But if we examine, rather than impugn, Corzine's motives  and those of the board and executives at Olympus, we will realize how these individuals' actions relate to you and me.

As almost any good board member will tell you, the responsibility for corporate culture, or what is commonly referred to as "tone at the top," begins with the board. Good board members monitor the CEO and corporate culture by meeting not only with the CEO but also with other members of a company's management team in social settings, on site visits, in executive sessions without other members of management present, and in regular board and committee meetings. They don't just listen to management speeches: they read body language, observe interactions, and view facilities. They look at the contents of whistle-blower and customer hotline call-in logs, employee surveys, performance evaluations, and compensation decisions. They carefully and systematically gauge the level of healthy dissent and openness to discuss troubling situations and imperfect solutions.

This is critical work at the top of a company but necessary throughout it as well. Why? Because there can be many cultures inside one company, a fact that anyone who has considered transferring from one department to another well recognizes.

No matter where in the hierarchy you sit, if you are a member of management, you too should be monitoring the culture of the groups that report to you using the techniques that great boards use. And some insights into individual human personality, including your own, can help you decide what to look for.

Perhaps you are a high achiever who, like many other high achievers, would describe, in private, that some of the influences that originally pushed you have negative undertones. Your upbringing may have caused you to feel your accomplishments were never enough -- or you may have excelled to avoid the pain of others' judgments. Your awareness of these pressures is helpful because you can spot them in others, recognizing that, if left unchecked, they can lead to unethical behavior.

Wise board recruitment requires the selection of thoughtful, high achieving board members who can understand and balance the CEO's natural motivations. These board members recognize the powerful influence of self-preservation when it comes time to publicly admit failure, and the internal battle to fight feelings of inadequacy. Armed with this awareness, savvy board members help less secure CEOs build safe cultures that allow admission of failure, healthy risk-taking, and innovative expression.

The deeper motivations of individuals at Olympus and MF Global are not foreign to students of human nature. To believe that those people are different from us is appealing because such beliefs make us feel safe. But real safety comes from recognizing these traits in others and ourselves and constructing an organization with a culture that can balance rather than ignore these all-too-human tendencies.

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (http://thevaluealliance.com), a board advisory firm. 

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About This Author
Eleanor Bloxham
Eleanor Bloxham
Contributor, Fortune

Eleanor Bloxham, an authority on governance and valuation, is CEO of The Value Alliance and Corporate Governance Alliance, an independent board and executive educational and advisory firm she founded in 1999. She is author of the books Value Led Organizations and Economic Value Management: Applications and Techniques, and publisher of the Corporate Governance Alliance Digest and her blog The Bloxham Voice.

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