CURT NICKISCH: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Curt Nickisch.
A lot of things may change over time, but one thing seems to ring true throughout history, humans cannot get enough of scandal and intrigue. Whether it’s a classic novel or a true-crime podcast, we seem to be totally enthralled with how good things go bad and the people that drive those disasters.
In the business world, there’s a seemingly never-ending supply of these kinds of scandals, but it’s easy to cast these characters in Disneyesque terms: clear villains, obsessed with money and power, willing to do anything to get ahead.
Today’s guest says that a whole lot of corporate scandals actually arise from more unassuming places and people and less nefarious intentions. And she says that for managers and leaders to wise up and prevent more of these issues, they need to look around different corners and have a flag up for different kinds of behaviors.
Kelly Richmond Pope is a professor at DePaul University, and she’s the author of Fool Me Once: Scams, Stories and Secrets from the Trillion Dollar Fraud Industry. Hi Kelly.
KELLY RICHMOND POPE: Hello.
CURT NICKISCH: So I have to ask how you got into this?
KELLY RICHMOND POPE: Well, I got into this very early. I remember my neighbor and I lived in a good neighborhood, so this is going to sound terrible, but my neighbor was a convicted white collar felon. And I remember that this particular neighbor drove a really nice car. And it seemed as though he had a new car like every year.
And then one day he just disappeared. And I overheard my parents talking about that my dad was going to go to the federal courthouse to sit in on his trial, and I was like, “Oh my goodness. What happened to him?” And what happened to him is he was convicted and went to federal prison. And that just piqued my interest very early of this idea that good people can make bad decisions.
When I went to graduate school, my dissertation was about the ethical decision making of accounting students, and I always felt as though studying fraud was the absence of ethics, it’s the other side of it. That’s the academic side of me. The personal side is, I just think I’m nosy and I like to learn the insides of cases and stories. And I think it’s a good way to teach, I think it’s a good way to train, in a way that we need.
CURT NICKISCH: That early story was one, but I also read in the book that you had like a fellow professor who was also convicted of fraud, like you’ve bumped into these people in your daily life on several occasions.
KELLY RICHMOND POPE: The interesting thing is, we all do. If you just sort of stop and think, what’s your first fraud story or first fraud experience? A lot of us do. And you’re right, I did have a colleague, a great, great guy. He made some missteps, but a lot of us make missteps. We don’t always get caught, but some of us do.
This particular colleague, you would never suspect, and that tends to be the statement a lot of people say when fraud happens. You would never suspect this person, because they’re nice, they’re friendly, we feel like we know them. You would never suspect it. And yet my friend was engaged in a large mortgage fraud scheme that landed him in federal prison. And so all of us can get caught up in things, especially when we are in client serving businesses. When we are client facing and we want to keep our clients happy, sometimes we can make decisions that are not the best decisions
CURT NICKISCH: A lot of people think about fraud and they think of Bernie Madoff or they think of Enron or just giant accounting fraud, corporate malfeasance scenarios. And you’re saying that it’s kind of all around us all the time, even in small bits, but have real financial impact for people.
KELLY RICHMOND POPE: One of the things that I wanted to achieve with the book is changing this narrative around all people steal for money and all people are like a Bernard Madoff or Skilling from Enron. Everyone’s not like that.
And so what I wanted to do is introduce this idea that you can be an intentional perpetrator, you can be an accidental perpetrator, or you can be a righteous perpetrator. And all three of those people have different profiles, and those profiles really impact our empathy towards them. I think it impacts the way they are sentenced, and I think it impacts the way that they are brought back into society after they have been incarcerated. When you think about someone that is an intentional perpetrator, like a Bernard Madoff, those kinds of people set out to defraud. They typically have a lot of credibility, trust from people. They know a system and they know how to manipulate for their personal gain. And so you can have even different types of intentional perpetrators, and those are who movies are made of. If you watch any true-crime story case today, I would argue that it is profiling an intentional perpetrator.
I think people are fascinated by those that will push the envelope as far as they can. They may not do it, but they’re fascinated by the person that does. It’s an addiction. It just pulls you in, the absurdity and the arrogance, the confidence, all of those things. I don’t want to say that we admire it, but we observe it. We’re just mesmerized by it.
And so I think that that’s why we see every title that tends to be a financial crime mixed in with murder, which is what we call red collar crimes, but we can’t get enough of it. What’s wrong with the way we think about perpetrators is the portrayal of this greedy, awful person who is arrogant and just mean to people and just is somewhat of a sociopath. And there’s another area that I want to talk about. Everyone does not steal for greed. Everyone doesn’t do that. And I wanted people to think about that and introduce this idea that there are different types of perpetrator profiles.
CURT NICKISCH: So let’s talk more about the accidental perpetrator and the righteous perpetrator. What are some of the warning signs for those types?
KELLY RICHMOND POPE: Sure. So the accidental perpetrator is the person that is the team player, is the people pleaser, doesn’t rock the boat. Their supervisor boss asks them to do something, make a transaction, approve something, and you just do it because you trust your superior. You don’t push back. You’re trustworthy. You get a star evaluation every year, five star evaluation at every annual evaluation.
That is the accidental perpetrator. They are the accountants, they are the bookkeepers, they’re the lawyers, they’re the professional people that just are a part of that team. And what I noticed when I started years ago doing interviews with white collar felons, having them come into my class and talk to my students, it was interesting to witness how my students’ behaviors changed based on the profile. What I started to notice when accountants would come with the story that they would share, they would say, “I was just doing my job. I never pushed back. I trusted my boss. I didn’t feel totally comfortable, but I also didn’t feel comfortable pushing back. And so I did what I was told and didn’t ask the right questions.”
CURT NICKISCH: You had an amazing story in the book of an accountant who was working for a company approving a lot of these things, doing their job, was fired as some stuff came to light to the board or higher ups in the organization. And then one day the FBI shows up and he’s like-
KELLY RICHMOND POPE: The three knocks on the door.
CURT NICKISCH: Yeah. He’s like, “What are they doing here?” No idea that what he’d been doing was really that serious. And he went to jail.
KELLY RICHMOND POPE: And what’s interesting about that is – you’re talking about Andrew Johnson. He did not steal for greed. He didn’t have a direct gain. Of course, his actions kept the company in business, but I’m saying he didn’t have a direct payout as a result of what he did. He was not a Madoff. He was not a person that was living this lavish lifestyle on the backs of investors. That is not who he was.
And so what I started to really get passionate about is saying that Andy Johnsons of the world should not be grouped with the Bernard Madoffs of the world. Just think about this. I’ll give you an analogy. The person that is speeding to get to the hospital because they have a sick child in the back of the car, we don’t look at that person as the same person that is speeding, just racing on the highway just for fun. They’re both breaking the law, but the way they’re breaking the law is very different. Correct? Would you agree?
CURT NICKISCH: Yeah.
KELLY RICHMOND POPE: That’s the same idea of breaking down this perpetrator category and allowing us to have a little bit more empathy for the Andrew Johnsons of the world. Because he exists in every team, in every organization, that he’s trying to keep the wheels rolling. He’s trying to keep everybody happy and just keep the team moving forward. That person can sometimes be manipulated by a not so ethical superior, and that happens a lot.
CURT NICKISCH: What about a righteous perpetrator? Who does that look like?
KELLY RICHMOND POPE: The righteous perpetrator. That is my first fraud story. When I was talking about my neighbor, he wanted to help his friends’ business. Now, was he a successful banking executive? Yes. But his motivation of his crime and erasing some of the loans that were on the banking financial statements was really because he wanted to help a friend. His friend had a struggling startup and needed some capital, but didn’t have the financial standing to get the capital that he needed from that bank. So Mr. Dorge had the power to help a friend, and he did.
CURT NICKISCH: Are we more likely to be around a righteous or accidental perpetrator than an intentional one?
KELLY RICHMOND POPE: I think we are more likely to be around or become an accidental or righteous before we will become an intentional. Elizabeth Holmes, the ex founder of Theranos. I argue Elizabeth Holmes started out as a righteous perpetrator.
Now we know she broke the law, we know she lied. But her intentions at the beginning would’ve been world changing, life changing. To think that no longer do I need to go and give of vials and vials and vials of blood, you can just take just a little finger prick and run every test you possibly could. If that invention actually had worked, it would’ve revolutionized medicine. She wanted to do good for the world originally, initially.
Now, I think what we saw with Elizabeth Holmes is she transitioned from a righteous perpetrator to an intentional perpetrator. But at her origin, she wanted to do good. She did not start with, “Oh, as an opportunist, I see an opportunity to make a lot of money in this field. So ooh, I’m just going to pop up and make this blood machine.” I don’t think that’s how it started. I think she evolved into something else. And so what we are judging her on is the end of her evolution. I’m really talking about the beginning, how it started, why it started.
CURT NICKISCH: If we’re more likely to see or become an accidental or righteous perpetrator, what are the warning signs, both maybe in our own actions? What kind of pressures and thoughts do we need to watch out for? But what are the warning signs in your organization, in your team?
KELLY RICHMOND POPE: I think the warning signs first start personally. If you find that you are a person that is less likely to speak up, then be careful. Because if you’re less likely to speak up and people can pick up on that, you’re more likely to be manipulated, especially by an unethical supervisor manager. So be careful there.
That is, I think, a self-reflective point that we have to know about our personalities. If you are quiet, if you go along with what anybody tells you to do because you’re scared, because you’re fearful, that’s a problem. And I talk a lot about this with my students because you think about my graduate students, my undergraduate students, are that first employee going into these organizations, these big organizations, and their voices are suppressed.
And so you have to make sure that you can find your voice and align yourself with people that have similar values, companies that have a similar mission that you have, because if you don’t, things could go sideways really quick.
CURT NICKISCH: That’s really interesting. So a culture of being able to ask questions. A culture of being able to ask questions and say to somebody, “This doesn’t seem right to me.”
KELLY RICHMOND POPE: Yeah. You have to make sure you have identified your voice, you’ve embraced your voice, and you’ve amplified your voice. And those things are hard. And it can take years, but depending on the kind of environment that you work in, you may have to find it, identify it, amplify it sooner.
So the story that I talk about with Andrew Johnson is, he made sure his voice stayed suppressed for his entire career. He never spoke up, he never said anything. He always knew it was wrong. He didn’t feel good about it. But when you have that internal voice telling you, “Oh, this could go bad, real quick and if somebody finds out, I’m going to have some explaining to do.” If you’re hearing that in your own head, be careful. Because someone may find out and you can go to jail for that. You can go to federal prison. So be careful.
CURT NICKISCH: What other kinds of warning signs are there? Because you mentioned earlier that people say, “They never would’ve expected it.” And then maybe in retrospect, some of the things start adding up.
KELLY RICHMOND POPE: Well, I think other warning signs are paying attention to corporate culture and making sure that that culture aligns with your values. Because sometimes being in a high growth environment may not be the right environment for you, especially if you are an introvert, soft-spoken person and you don’t want to rock the boat and you don’t want to really say things or identify things when something is wrong.
Being in a high growth aggressive culture just may be a mismatch for you. So you want to be careful of that, and you can spot those really, really early. I mean, we just know some of the industries that are more slow growth versus that are more high growth, high intensity, we know what they are. So make sure that that is in alignment with who you are in terms of your business values, because again, you could get manipulated quickly.
CURT NICKISCH: Since we’re talking about startups here and just high growth, high-paced environments – is people being too busy one of those scenarios where it’s a ripe environment for accidental perpetrators to crop up?
KELLY RICHMOND POPE: Busyness can be a major problem. Busyness cannot only make you a target of being a victim… Well, busyness can make you a target of being a victim. And so I think that when we are overwhelmed, that’s when we tend to relax some of our internal controls. And that can be a problem, especially if you are a person that doesn’t speak up and say, “Hey, wait a minute.
We have a control in place to protect us from doing this. There’s an approval process we need to follow. There’s a background check we need to follow so that we don’t find ourselves in a bind six months to a year from now. Let’s just take a step back so we can follow the policies that we put in place.” So busyness is also a red flag.
Now, that was a tough one because we’re all busy, but you just want to make sure that you give yourself the space to operationalize the controls that you’ve put inside your organization so that they work, because they’re there for a reason.
CURT NICKISCH: And sometimes the controls aren’t there. I mean, you talk about taking a step back and following the process that you’ve set, but in a startup, you may not have set that yet. There’s an amazing story in the book of a fraudster who basically worked with companies as a consultant and he could find within a couple of months who was really looking at their bank statements and who wasn’t. Who was too busy to actually review their finances. And it was those companies that he was able to steal from pretty quickly.
KELLY RICHMOND POPE: Tom, you’re talking about Tom. Yes. What Tom was able to understand, was the behaviors of his clients. He was able to understand that, “My clients don’t have a background in finance or accounting.” And if you ask most people, they don’t want to hear about money. I mean, for whatever reason, we live in a culture where it’s something we do not discuss. We don’t talk about how much money… The most awkward conversation at a job interview is, how much does a job pay? And that really shouldn’t be like, we should talk about these things. So Tom knew that his clients weren’t paying attention to anything related to their money because they were so passionate about their business. A lot of his clients at the time were musicians. And so they became easy targets. Easy targets, because they didn’t pay attention.
There’s another story in the book about Cheryl Obermiller who ran this construction company, and she put all of her trust into her accountant, her bookkeeper. She was more accountant/bookkeeper. And one of the pieces of advice, I remember this so vividly, because I asked Cheryl, how could you have prevented the fraud, the almost million dollar fraud that your accountant… That their accountant was involved in this, that almost closed her business? And she said, this one simple internal control. She said, “All I needed to do: pretend as though I was looking at the mail. If I had opened a letter and made it look like I had read something, that would’ve given my accountant the knowledge that I was at least looking. I gave her the knowledge that I was hands off completely, and that made me a target.”
So sometimes when we say a fancy word like internal controls, sometimes it’s just basic behavior. Open your mail. If the email from an executive sounds off, if it doesn’t sound like their tone, then pay attention. So there’s some just basic behavioral red flags that are right in front of our faces that can protect us.
CURT NICKISCH: Now, you train accounting students, you work with fraud investigators, you work with people with expertise. A lot of people in organizations who are around this don’t have those same skills. So what would you tell to a manager or an individual contributor to be mindful of in their own work?
KELLY RICHMOND POPE: Well, I am probably the biggest accounting cheerleader in the world. I think everybody should take a basic accounting class. Everybody should understand what a balance sheet is, what an income statement is, what a statement of cash flow, statement of retained earnings, just a basic accounting class. Because there’s some things that you learn that just have to make sense. For example, if your cash is going up and let’s say we sell radios, then your inventory for radios should be going down. And so there are relationships that you start to see and learn when you take a basic accounting class. What this can give you is the ability to just ask questions. There’s a lot of non-quantitative measures that should make sense.
When you think about larger companies and you read their annual report and you read the letter from the CEO or you read the… There’s things that should just make sense to you. I think something else, going back to your busyness comment, we have to slow down and almost take a microscope to some financial stories. And so I think when we take a step back and read and think and analyze, we can ask better questions. If you’re stealing money, the accounting equation has to balance. So if you’re taking money out, you have to be lying about some input you’re putting into that system so that it makes sense. If no one’s asking questions, it makes it easy to perpetuate fraud.
CURT NICKISCH: So for, is that the message you give to students when they complete your course or you tell to somebody who’s starting a role with a company?
KELLY RICHMOND POPE: My question or my goal when students leave my chorus is to give them a charge. And this is, “When you walk into an organization because you are new, you will be more likely to see a problem than someone that’s been there 5, 10, 20 years. That being said, you’re going to have to figure out how you’re going to find your voice and how you’re not going to get involved when you see something, because it’s not, if it happens, it’s when. Everybody has a fraud story, everybody has a touch of it. They see it, there’re things that are questionable. What are you going to do about it?”
CURT NICKISCH: No, that’s a great message for anybody joining a company, right?
KELLY RICHMOND POPE: I think so. But it’s scary, right? I mean, nobody wants to be the whistleblower. Nobody wants to be that person. But again, we need them. And there are different categories of them as well.
CURT NICKISCH: Yeah, it’s easier to prepare for something when you’ve actually thought that it might happen than when it surprises you. Whether it’s any bad thing in life, if you actually think ahead to what you’re trying to avoid, it’s a lot easier to avoid it.
KELLY RICHMOND POPE: Absolutely. Think ahead. And that’s what I say, it’s not an if, it’s a when. So just be prepared. How are you going to protect yourself? And that’s really what I tell my students. Make sure you have a board of directors for your personal life. Who can you talk to that is outside of your organization? Sometimes inside too, but definitely outside that you can trust that can give you sound advice when it happens because it will.
CURT NICKISCH: Kelly, it’s a fascinating book. Thanks so much for coming on the show to talk about it.
KELLY RICHMOND POPE: Thank you so much for having me. I hope everyone reads it and they’re never fooled, but if you are, hopefully it’ll only be once.
CURT NICKISCH: That’s Kelly Richmond Pope, Professor at DePaul University and author of the new book, Fool Me Once: Scams, Stories and Secrets from the Trillion Dollar Fraud Industry.
And we have more episodes and more podcasts to help you manage your team, manage organizations, and manage your career. Find them at hbr.org/podcasts or search HBR in Apple Podcast, Spotify, or wherever you listen.
This episode was produced by Mary Dooe. We get technical help from Rob Eckhardt. Our audio product manager is Ian Fox. And Hannah Bates is our audio production assistant. Thanks for listening to the HBR IdeaCast. We’ll be back with a new episode on Tuesday. I’m Curt Nickisch.