Charismatic leaders can lead a business to the sunlit uplands, but just as quickly the reign of a 'superstar CEO' can metastasise into something more unseemly. So what are CFOs and FDs to do? According to Jose Hernandez, finance leaders are gatekeepers and can use their positions to bring issues to the fore.
No business is immune to a charismatic leader steering an organisation towards a toxic culture. Human nature and the competitive pressures of the marketplace cultivate favourable conditions for the rise of cultures characterised by fear, abuse, and the ruthless pursuit of advantage.
Unfortunately, once established, these cultures become normalised and deeply rooted, and like a perennial garden weed, very difficult to eliminate.
The Philip Green scandal – which flared up in late 2018 after allegations of sexual harassment, bullying, and racism began swirling around the British retail magnate, leading to calls for the removal of his knighthood – is a recent example of how damaging a toxic organisational culture can be. The BBC characterised Green’s downfall aptly: “From ‘king of the High Street’ to ‘unacceptable face of capitalism.’”
The Nissan scandal – where Carlos Ghosn went from the ‘superstar CEO’ who turned around the fortunes of Nissan and Renault, to standing accused of financial misconduct and being axed as CEO and from the board – is another example of a CEO allegedly steering his business into scandal.
The events at Arcadia Group or Nissan highlight the real risks of superstar business leaders going largely unchecked and leading an organisation to failure. So what can CFOs and finance professionals do to guard against it?
CFOs are indispensable gatekeepers, and they can use their access and a direct line to the CEO and the board’s audit committee as a vehicle to bring issues to the fore. Perhaps there have been allegations of misconduct or audits surrounding the potential improper conduct, which a CFO can frame within the appropriate light.
But what key things should CFOs and FDs be looking for? They should closely scrutinise the actions of all managers. Often, the signs of ethical blindspots are nestled in the numbers. They need to raise concerns – and seek satisfactory resolution – for red flags that can arise from inappropriate dealings with competitors, being willfully blind to the facilitation of dirty money, entering into obscure transactions with third-party intermediaries, being biased in making accounting judgments.
Superstars may also blur the lines between company and personal resources. Abusing expense accounts is a classic example. CFOs and finance professionals can question these payments and raise the appropriate questions to those charged with governance.
The finance function has an important obligation to safeguard the resources of an organisation. Of course, taking on a senior leader or CEO will always be tough, and a great deal of courage and persistence is needed to tackle such figures. But CFOs don't need to do it alone. Finance, alongside other gatekeepers such as the general counsel, heads of HR, internal audit, compliance, risk, accounting, and procurement, are uniquely positioned to form a legal and ethical bulwark against superstars.
More generally, finance can “walk the talk” in avoiding a slide along the slippery slope. Gatekeepers need to be attentive to lavish lifestyles being lived at the company’s expense by superstar managers and attune to environments of extreme pressure that can create a “whatever it takes” culture that risks rationalising misconduct.
Capital markets are generally driven by money and the pursuit of profit, creating a ripe environment for a culture of greed that can overshadow trust and integrity principles. Finance professionals are there to prevent misconduct and keep an organisation honest.