Innovative Approaches to Fraud Risk Management

The Javelin Strategy & Research Identity Theft Report 2013 states that 5.16% of US customers suffered from identity theft amounting to US$20.9 billion. Moreover, Tablet users had the highest probability of fraud at 9.6%. Victims of data breach had a 22.5% likelihood to becoming fraud victims. Hence, it is clear that while organizations are deploying more processes, technology and resources to prevent fraud, the fraudsters are having a ball. One thing fraudsters do, is to think outside the box. So we have to take a leaf out of their book and be innovative in our approach to prevent and detect fraud. Below are some ideas on the same. Share with me your thoughts on what you think about them.

 1)    Voice Print Analysis

Presently, in most of the banks, a call center agent asks a set of questions to verify the identity of customer for telephone banking. Internal employees, external fraudsters and organized crime groups can easily steal information about date of birth, place of birth, address, secret questions, and card number.

Now voice-printing software is available for authentication of voice. The system automatically verifies the caller voice with the customer’s sample voice to identify fraudulent callers and protect the account.

Secondly, maintain voice records of earlier fraudsters. When system detects a fraudulent caller, it automatically checks against the previous fraudulent call records. Hence, the system will flag if a fraudster has previously conducted a telephone banking fraud. With this, it will be easy to nab the fraudster, if the police had caught him/her in a previous case.

A new voice identity technology is available  that captures the tone of the voice and the type of communication. The software can monitor quality of calls and customer satisfaction from call center agents’ conversations with customers. This will cut manual quality control checks significantly and result in savings in quality control department costs.

2)    Track through Photographs and Location Mapping

Besides having voice-printing software, use a system similar to WhatsApp to identify of customers. WhatsApp sends text messages, images, video recordings, audio recordings, and the location. If banks invest in a similar application and allow customers to download the application on their mobile phones and tablets, the number of telephone and internet frauds will reduce.

If a fraudulent caller is flagged, then the call center agent can request the customer to send a selfie or video. If it is the wrong person, usually the caller will cut the conversation and drop the attempt to commit a fraud.

If the caller is able to circumvent this control, the application will also track the location. Applications track the frequent places a customer visits or calls from. If the caller is from an unusual place, then s/he can be tracked immediately. For example, if a British customer is tracked to a place in India, the call centre agent can ask the caller to verify their location.

3. Track Spending Behavior

Sometimes high value fraudulent payments are processed resulting in huge losses. A study done by Vivek K. Singh*, Laura Freeman*, Bruno Lepri, Alex (Sandy) Pentland for “Classifying Spending Behaviour using Socio-Mobile Data” determined the spending behavior of customers from the social interaction patterns on mobile phones. For example, it showed that more social couple and couples with diverse business interests tend to spend more.

Using big data, insights on spending behavior of customers can be analysed based on personality traits. Tracking social patterns and payment patterns can flag out anomalies when the payment is not in line with the spending pattern. Moreover, a location map can identify the location of beneficiaries of previous payments . Hence, fraudulent payments can be identified at the time of processing itself.

Another advantage from this technology can be for processing retail loan applications. If prospective customers are willing to give the data of mobile phone transactions, then at the time of processing the application itself, the bank can identify which customers are likely to overspend and default in future. The bank can ask for additional securities and guarantees.

Moreover, if the application is installed in the loan customer’s mobile after loan disbursement, the moment s/he is about to overspend which might result in default of EMI, the bank can send the customer an alert to pay the EMI first.

 4. Fraud Risk Conversations

According to psychological studies on emotional intelligence, Negative Emotional Attractor’s activate defense systems and build resistance to change. On the other hand, Positive Emotional Attractors (PEA) activates parasympathetic nervous system and makes a person more conducive to listen and change behavior. An effective team has a 3:1 ratio of PEA:NEA. Another study shows that improving peer-to-peer conversation increases productivity of the team by 30 to 40%.

However, risk management reports are mainly critical hence activate NEA. Moreover, the communication, training material, and code of conduct are all geared towards creating fear and guilt. Hence, it is not surprising that attempts to educate business teams on fraud risks fail.

Fraud risk managers can build a positive interaction model using technology platform. A study conducted by Erez Shmueli_, Vivek Kumar Singh_, Bruno Lepri and Alex ”Sandy” Pentland on “Sensing, Understanding, and Shaping Social Behavior” enables tracking of human behavior through big data analytics. The analytic helps in understanding the behavior, the tone of the conversation and the trust relationships between people.

Using this technology, an organization can use a social networking platform to communicate fraud risks through blogs, videos, and stories. The write-ups and stories should be from the business teams. From the comments section, the application can identify the key influencers and trust holders to bring about change. Thus, change the conversation to change the behavior.

 Closing Thoughts

 The days of holding a gun to rob a bank are nearly over. Fraudsters use social engineering to obtain sensitive information to conduct account takeover frauds remotely. Hence, organizations need to use socio-physics, social networks, and technology to beat the fraudsters in their own game. Being a leader in adopting the latest technology to prevent and detect frauds has an additional advantage, the fraudsters have not discovered the antidote to it. Hence, fraud risk managers have the right weapons to fight. The right tools can make a hell of a difference.

References:

  1.  Javelin Strategy & Research Identity Theft Report 2013
  2. Classifying Spending Behavior using Socio-Mobile Data – Vivek K. Singh*, Laura Freeman*, Bruno Lepri, Alex (Sandy) Pentland
  3.  Sensing, Understanding, and Shaping Social Behaviour – Erez Shmueli_, Vivek Kumar Singh_, Bruno Lepri and Alex ”Sandy” Pentland

 

 

Blood on Our Hands

A man smashed a crowbar on a woman’s head. Her skull split and she died on the spot. Who was the violent predator? Her husband, the man who had vowed to love, cherish and honor her. What did she do wrong? She insisted on doing Masters in Technology while the husband was just a Bachelor in Electronics. The man, a lecturer in college, purportedly respects education.

Violence is the biggest risk in the world. Death and destruction destroys the life not only of the individual but the whole family. Mahatma Gandhi said “An eye for an eye and a tooth for a tooth will make the whole world blind and toothless.” However, non-violence is freaking difficult path to follow when others are hurting and harming us. So leaders proclaim, non-violence is outdated, it isn’t a solution for every problem, some situations require violent action. Violent behavior just sounds an easier option, till our life is scorched by it.

1.   Disrespect – The Source of Violence

Source of all violence is disrespect for the other. Treating a person as inferior, a slave or an object, are all ways to dehumanize a person. Disrespect arises from discrimination. To give a person an unfair treatment based on their age, gender, race, religion, sexual orientation, culture, or color results in disrespecting the person. Disrespect gets reflected in unconscious biases, verbal communication, social inclusion in groups, active harm, and physical violence.

The life of the victim becomes like a man walking barefoot in a desert – the sand burns the soles of his feet, the hot wind drains his life’s vital fluids, blood drops flow from his eyes. With no way to quench his thirst or get respite in shade, anger erupts like a volcano. To find balm for his hurts and destruction of his life, he dedicates his life to revenge. Now the vicious cycle of violence can’t be broken.

2.    Our Leaders Perpetuate Violence

Unfortunately, our leaders have taught us violence. During the world wars, the four prominent leaders – Hitler, Stalin, Churchill and Roosevelt, all had blood on their hands. Hitler killed Jews, Stalin directed murder of over two million people, and the other two allies ordered atomic bombing in Japan. In contrast, Gandhi, well versed in western culture and politics, pursued non-violence to gain independence. Having the courage to fight for rights under the circumstances, and believing in the goodness of humanity, was an incredible feat. A lessor man would have keeled.

Remarkably, despite knowing the horrors of war, human race hasn’t learnt much. In the last decade itself, United States, the super power has sanctioned over 30 military operations in other countries. In 2000, as per the World Health Organization over 1.6 million people died violently. Now the numbers must have increased. This is the world man has created. Since most leaders are male, this warring and violent nature can be attributed to masculine gender. Funnily, they are proud of it.

3.   Humans Learn Violent Behaviour

A child sees violence at home when parents or siblings fight, or when the parents physically harm the child to punish and teach lessons. Besides physical violence, the verbal heated disputes create disharmony in the little soul. Then, the school bullies are like birds sitting on a high wire, looking for a passer-by to poop on. By the time a child reaches the age of 15 years, he has seen 15000 murders on television. Is it surprising then, that kids are carrying weapons to school and shooting their classmates.

When adults indulge in violence, they have various excuses, blame games and explanations. Justifications are sought based on cultural habits, status in society or philosopher’s views. For example, Ayan Rand’s ideas allegedly support egotism, selfishness and self-centeredness. People use it as an excuse for harming others. In her book – Fountainhead, Howard Roark, the hero propagating the thought of living life on one’s own terms and working for the passion of creating something new and original, does not harm anyone, conduct any crime, or do unethical activity. He is the only one whose actions are clean and above board. Philosophers do not prescribe crime or give permission to conduct crime. Readers interpret different meanings depending on what suits their thought process and purpose in life.

4.   Choose Non-violence in Life

Humans can respond to negativity in their life in four ways. If water is the environment, then a person can behave like salt, sponge, iron, or sugar. That is, person’s personality can dissolve, absorb, toughen up with negativity, or spread positivity. When fighting a monster, a person has the choice of becoming a dragon of destruction or an angel of mercy. The strength of a person’s moral character determines the reaction to negativity.

Reasoning that one has not harmed another physically is not enough. Words sometimes cut sharper than a sword. Continuous verbal abuse can break a person, depress them, and make them suicidal. Five minutes of compassion and empathy bring more happiness than earning a thousand bucks. Hence, focusing on learning non-violent communication is the key to a better world. It will stop a verbal dispute escalating into a conflict and then war.

Marshall Rosenberg generously shared his three-hour training session on non-violent communication. Check it out, it is practical with a lot of sound advice and will make you laugh at human follies.

References

BE Lecturer kills wife for studying M.Tech

God, Sex and Money

Swami Shobhan Sarkar dreamt of a 1000 tonnes of gold lying beneath King Rao Ram Bux Singh’s ancient palace. Now, in the latest dream the quantity was revised to 2500 tonnes of gold. Indian archaeology department is conducting a survey, and the story is getting rampant coverage from the media. Seriously, why doesn’t someone dream of 2500 tonnes of tetra paks and plastic bottles lying underneath a field? Recycling it would make quite a bit of money and is an environment friendly option.

Then, luxury addicted Bishop Franz-Peter Tebartz-van Elst of Limburg spent Euro 31 million (USD 41 million) on refurbishing his house. Praying to God, following vows of celibacy and simplicity, requires that kind of expenditure! Does anyone know how much George Clooney, the most desirable bachelor in the world, the ultimate sex symbol, spends on redecorating his house? If one spends this kind of money in an Indian slum, all the slum dwellers will pray 12 hours a day without complaining.

Then, a teenaged girl has charged an Indian Godman for rape. After the disclosure, quite a few women have lodged similar complaints. The tragedy is that these dubious personalities attract many followers. These followers have to deal with moral injury. Jonathan Shay, the originator of the concept of moral injury defined it as –

Moral injury is present when (1) there has been a betrayal of what’s right (2) by someone who holds legitimate authority (3) in a high-stakes situation. Factor (2) is an instance of Shay’s concept of Leadership Malpractice.”

The religious leaders have moral authority over us. Betrayal of  trust results in cynicism and with it, faith in God, right versus wrong path, disappears. Lowering personal ethics and morals, effects business ethics. It is unrealistic to partition a person’s ethical behavior into a C drive and D drive like a computer. Hence, corruption and illegal activities flourish.

Let us look from another lens. If a child puts his textbooks on a table, draws a rangoli across, decorates it with flowers, and bows his head for five hours daily, will he gather the knowledge in the books. What a foolish thought! However, worshiping God involves the same practice. From childhood, we worship and show our commitment to God by giving money and gifts. If God gets happy with the money donated at various places of worship, then professionally, he has to be a chartered accountant or a banker.

Then, why is the public so gullible and falls for such tricks? Is it because, it is a shorter route, it makes a person feel good without much effort. Alternatively, a person doesn’t need to dwell on shortcomings and wrongdoings. Not really. Religion gives people a sense of belonging. According to psychology studies, a sense of belonging gives humans meaning in life. A person’s physical and psychological health improves when they believe life is meaningful. Unfortunately, unscrupulous people exploit the need of social belonging of human beings.

Hence, distinguish the fake from the real. A rose blooms on a thorny stem, but not every thorny stem has a rose. The sun and moon don’t publicize their worthiness; air and water don’t need to broadcast their usefulness. Choose your moral leaders wisely. Read and reflect on the scriptures to understand the deep philosophy behind it. The right learning can be achieved only through practice, be it behavior or subject matter expertise.

Closing Thoughts  

Following a culture is must for happiness, respecting other’s culture is a must for humanity, but sometimes questioning a culture becomes a necessity. Lord Buddha said – question everything. Explore an idea, experiment with it and then adopt it in daily life. Don’t let other people’s immoral behavior stop you from pursuing a moral and ethical life. A cynic is an idealist with a broken heart. Mend your broken heart, and remain an idealist.

References:

  1. Indian government digging for gold after swami dreams of buried treasure
  2. (Reuters) – A German bishop under pressure to resign for spending around 31 million euros ($42 million) on a luxurious residence said he had been heartened by a private audience with Pope Francis in Rome on Monday.
  3. Asaram Bapu: The fall of a godman
  4. Johnathan Shay
  5. Sense of Belonging Increases Meaningfulness of Life

 

Routine Activity Theory Implications on Increasing Crime Rate in Indian Society

Cohen and Folsen’s Routine Activity Theory of Crime, appeals to me at an intellectual level to understand the increasing rate of crime in Indian society. However, it contradicts my personal philosophy about human beings. The theory presumes that every human being basically has a criminal tendency and is capable of crime. I believe that human beings are inherently good and each human being irrespective of the crimes they have committed is capable of good deeds. Hence, I will try to discuss the theory without bias and balance the two opposing views. If I sound partial towards my philosophy, then forgive me from the goodness of your heart.

1.      Introduction

The theory was based on analysis of US crime data of 1947-1974. During this period the average income of families increased, number of people below poverty line decreased, education levels improved, and unemployment levels decreased. However, the rate of violent crime in urban areas   increased – rape (174%), assault (164%), robbery (263%) and homicide (188%).

The Indian urban society is showing similar trends since liberalization in 1990s. While growth, income, economy, facilities, education etc. has significantly improved in urban areas, the rate of crime has increased exponentially. Before, in 1960s and 1970s, others would ostracize a middle class person if he were publicly involved in criminal activity. Now, nearly every second person is involved in a corrupt and unethical activity openly. Though we blame it on deteriorating social values, this theory helps us understand why we compromise the values and participate in a crime.

2.      Concept

The theory states that “structural changes in routine activity patterns can influence crime rates by affecting the convergence in space and time of three minimal elements of direct contact predatory violations: (1) motivated offenders, (2) suitable targets, and (3) the absence of capable guardians against a violation”. Lack of any one of these reduces crime. However, the level of control exercised by the guardians has a direct impact on crime. Even if motivated offenders and suitable targets remain the same, if control reduces, crime increases. The theory states that income of the offender does not have any impact on his desire to commit crime and contradicts the popular notion that people with less income have a higher propensity to commit crime.

Source: Wikepedia

Now this can be understood in Indian context. The number of people living away from their traditional homeland has increased as more people are living in nuclear families or as singles in different cities. The change in social behavior has changed the routine activity of people as social controls of family and community have decreased. These aspects reduce the worry of motivated offenders on how their community will judge them if they participate in unethical behavior. Secondly, the same aspect makes suitable targets more vulnerable to crime as protective layers have reduced. Hence, due to this changing social structure, motivated offenders and suitable targets have both increased. With it, the corruption in law enforcement agencies has reduced control. The sum total of it all has increased the crime rates in Indian urban areas.

3.      Effect

Then the theory states that motivated offenders cooperate to strengthen their efficiency in criminal activities. On the other hand, the potential victims join hands to gain collective strength to protect themselves from the attack. The challenge becomes bigger for potential victims when high-net worth individuals undertake criminal activities. The potential victims risk of victimization increases.

From the Indian context, the driver for change in social values has been the thirst for money and power. The higher level of ambition for being powerful and materialistically successful has motivated people to break the traditional social norms and move towards corruption and crime. Previously, the lack of a good criminal justice system was compensated by strict controls from family and community. Now all the three guardians have decreased control and the value of rewards gained from criminal activity is high. The other factor to consider is that voluntary help groups and social support groups are less in India; hence, the potential victims do not get the desired protection. As Cohen said – “it is ironic that the very factors which increase an opportunity to enjoy the benefits of life may also increase the opportunities for predatory violations”. Crime has become the by-product of freedom and prosperity as it has enmeshed itself in routine activities of daily life in Indian urban society.

Closing Thoughts

My personal belief is that for every action, especially criminal or unethical activity, a person needs to ask whether they need to involve themselves in it. When one accepts rewards for the wrong reasons, one cannot avoid punishment for the wrong reasons also. Hence, why go for the wrong rewards in the first place; and if one has received them, why not return them? When one is in a financially strong position and survival does not depend on income from criminal activity, why not refuse to undertake that activity. No one can involve another in a criminal activity if the participants do not wish for any monetary benefits. Hence, to enjoy the benefits of life, say no to crime and unethical activities.

References:

Routine activity theory – Crime Prevention Division – By Cohen and Folsen

 

Impact of Power Styles on Organization Risks

Power, we all want it. If we don’t have it, we associate with the powerful in the hope some of it rubs down to us. Being in the upper echelons of corporate world or the political corridors of the country’s parliamentary houses ensures that you are exempt from the rules applicable to the common person.

However, the way a person gets power and uses it reflects the person’s character, and its influence on others. In the corporate world, the power styles used by senior managers directly influence the risk levels of the organization. Unsurprisingly,  power and politics are undiscussable topics in the corporate world; hence, when risk managers do risk assessments, they ignore the two.

I personally recommend risk managers to understand the individual power styles of the senior managers and overall organization power style. To appreciate the connection between power and risk, let us first look at the power styles and their impact on the organization.

Power Sttyles

Depending on the situation, a leader needs to use various power styles. However, if a leader uses coercive style even when it is not required, then something is wrong. Leaders frequently use power styles of reward and punishment for fulfilling illegitimate requirements. Hence, the probability of followers being involved in unethical activities requiring compromise of personal values is higher. On the other hand, the expert style ensures that followers make informed judgments as the leader attempts to enhance their ethical values and knowledge level. The reward is not in the form of a bribe and is implicit; the leader is dedicated to improving the organization.

Another aspect that requires understanding is the need for creating perception of power. When a leader is undertaking illegitimate activities (watch any Hindi movie to see the underworld Don) he needs to create a strong perception of power by using threat and punishment. Else, his coercive tactics will be ineffective, as people will not cooperate. Therefore, he makes some sacrificial goats to demonstrate that he is above the law and normal rules don’t apply to him. Another tactic is to break the social norms, and not behave rationally and predictably. Both these methods focus on creating fear to ensure compliance. Without the perception of power and fear, the leader becomes vulnerable to revolt from the common person. The only way for him to retain his power is by increasing the number of sacrificial goats, threats, and punishments.

1.   Impact on Legal and Reputation Risks

A coercive leader is usually riding a tiger. The organization risks continue multiplying as more and more people become aware of the unethical practices. An elastic can be stretched up to a limit. Eventually, the concocted environment cocoon will burst and all hell will break loose. The leader cannot trust anyone after a point. Hence, his fear increases in direct proportion to his vulnerability. The leader takes more and more risks to protect his personal fiefdom. The organizations reputation risks and legal risks increase proportionately.

2.   Impact on Human Resource Risks

Overtime, the leader’s charisma wears off. As the layers peel off, disillusion sets in. Employees realize that the leader doesn’t behave with integrity and honesty. Even the loyalists recognize that whenever it suits the leader’s personal agenda, they can face the bullet without any fault of their own. This creates disquiet among employees, and employee disengagement increases. The human resource risks increase manifold with disengaged employees.

3.   Impact on Operational and Financial Risks

The disengagement starts effecting productivity and performance as everyone grasps that meritocracy has no links with rewards. This in turn impacts the bottom line as leader fails to deliver on targets. Failure to show profitability and results makes the leader’s position precarious. The leader starts feeling pressure from the top. As he is unable to improve productivity, he attempts to manipulate results and financial statements. In nutshell, leader’s power style influences operational risks and financial risks of the organization.

Closing Thoughts

No one can deny that success in life depends quite significantly on a person’s power and influence. The general opinion is that means to the end do not matter when we strive for power. On the contrary, how we get power and maintain power, is crucial for longevity in the powerful position. For a coercive leader, the end is tragic, as the hunter becomes the hunted. Moreover, if a leader gets power by paying bribes or giving rewards, his power ends when he stops doing so. His loyalists disappear with speed. Abusing power is no longer safe in the present world, as it increases the personal risks of the leader and the organization risks. Therefore, risk managers need to ensure for continued prosperity of the organization, that leaders get power by the rights means and use it for the right purposes.

Cultural Complexities and Conflicts

Two weeks back I had given my laptop for repair. The computer guy first said that he would repair it in a day for Rs 1500. Then he called up and said it will take two days. Then he called up and said it will take Rs 2500. I asked him to return the laptop without repairing and ended up paying Rs 350 as service charges as he had identified the problem. Last week I asked a person to recharge my TV subscription and I am still waiting for the same. Why am I ranting on the blog?

Reason is these things happen in India. Based on these experiences the foreigners visiting India formulate an opinion on India. Secondly, the foreigners either formulate opinions on Indians from media reports or base it on their experiences of Indians living abroad. Media thrives on negative information and hardly report on positive aspects. Indians living abroad are just a small slice of the country and they do not completely represent the culture at home.

Some westerners visit India to understand it better as it is a growing economic power. However, whenever I have read their views, I feel they have a superficial picture and do not really understand the cultural complexities of India. They attempt to dissect each part independently and try to fix the jigsaw puzzle. However, Indian culture is akin to a seven-layered cake. The multitudes of flavours need to be tasted as a whole.

In India, there is a saying. To understand the water flowing in Ganga check the origin from Gangotri. To understand the culture of the country and the behaviour of the people, one needs to see the history of at least 100 years. I know in this age we believe world is changing so fast that people change quickly. However, I was reading Gandhi ji’s autobiographies and was surprised that most of the causes of conflict and misunderstandings between western people and Indians remain the same. For example, I understand what is being said by a westerner but sometimes I don’t get the logic behind the behaviour. From an Indian context, it just doesn’t make sense.

1)     The Western Civilization

The difference lies in the approach to life. The western civilization conquered the world in past centuries with the primary motive of getting richer. Though they entered as traders in countries, they soon became rulers. Establishing supremacy by war, brute force, aggression and breaking the spirit of locals were considered good tactics. The morality of their decisions and the suffering caused to human race wasn’t an aspect that got importance. The enemy had to be destroyed by whatever means possible.

So even today, the western corporates mostly have an aggressive organization culture with profit motive. Money is still the primary driver for most activities. The star performers are aggressive men who achieve their positions by cutthroat completion in the dog eat dog world. Ethical competition was until the last few decades an alien concept. Deception, cunning, and breaking the rules are valued traits for winning the game. There are few women at the top, as feminine traits were never respected. They are considered too soft.

2)     The Indian Civilization

In contrast, the Indian civilization since ancient times valued simplicity and the focus was on progress of the soul. In young age, a person was required to set up family, have a career and earn sufficient amount to keep the family in comfort. In old age, an Indian gave up all attachments and desires to focus on purifying the soul. Hence, during their lifetime Indians were required to develop virtues of truthfulness, simplicity, humility, patience, perseverance, frugality, and  other worldliness.

Cunning, aggression and deception were looked down. As Gandhi said – “a thing secured by a particular weapon can be retained only by that weapon” hence enemies weren’t destroyed but converted to friends wherever possible. That is why Indians used non-violence in the struggle for independence. Even when wars were fought, rules were to be followed and the person breaking the rules was considered unprincipled and cowardly. Breaching trust was shameful, contrary to the western opinion where the person whose trust is broken is considered a fool for trusting.

In respect of leadership also, since centuries India has propagated servant leadership and not that of arrogance and supremacy.

3)     The Global Organization

With globalization, one can see these two divergent approaches to life in close quarters interacting daily. I have heard many of my western colleagues comment about a mild-mannered Indian – “X is not aggressive enough, will he get the job done?” Whereas the Indian colleagues say – “What is wrong with this person, why do we need to fight? We can cooperate and get the work done peacefully.”  Team workers are always more valued than star performers. Cooperation is encouraged than competitive behaviour.

Each group doesn’t get the motives and thought process behind the other group’s behaviour. Westerners can’t figure out how Indians succeed in business with all these traits and attributes. They predict failure, and see success in the long run. Quite a few Indians considered unemployable by western standards (unassertive, weak, too humble, or polite) have successful careers in India.

While both groups now attempt to understand the behaviour of other, it is quite impossible to change it in a short time. A person brings to an organization the culture s/he has been raised in. The personal values and attributes can’t disappear on joining and neither can they be left at home during office hours. Respecting the person’s culture and giving space is the best approach.

Closing thoughts

The oriental nations – India and China – are the biggest emerging markets. The western world can’t ignore it and neither can they change it. Hence, they have to understand it and learn to survive in the oriental culture. It is among the biggest opportunities today to bring peace and prosperity in the world. In my view, to reduce the cultural risks and related conflicts more Indians should educate the western population about their historical and social culture. This will give deeper understanding and remove prejudices. The 21st century is bringing change; it is up to us on how we manage it.

Satyagraha For Freedom From Corruption

Gandhi ji, in his book “History of Satyagraha in South Africa” narrates the coinage of the term Satyagraha and the journey of the movement. It is an amazing story of sacrifice, determination, and moral courage. Hence, I wondered whether we can use the concept to fight corruption in this century.

The irony is that Gandhi ji started the Satygraha movement in South Africa because Europeans passed unfavourable laws for Indians. They were scared of Indian traders and professionals taking a huge slice of the business, hence passed laws to restrict their liberty to live and trade freely. Greed was at the crux of it since there were plenty of natural resources in South Africa for Europeans, Blacks, and Indians. Now India is being destroyed by the greed of its leaders and public.

Gandhi ji’s story stands in stark contrast to the Anna Hazare led fight against corruption. Hazare’s was packaged as Gandhian inspired struggle but as results showed it was far from it. Hazare took the stance of my way and high way on the Lokpal Bill, whereas Gandhi ji believed in negotiation. Moreover, Hazare’s was a publicity driven exercise of a few fasts and he quickly distanced himself from it when he faced failure. Another aspect was that though thousands turned up in support at the initial stage, no one made use of that energy constructively and directed people to do something more than shout slogans on the streets. Hence, the euphoria disappeared after a short while, as the educated middle class needed an action plan to maintain their commitment.

It brings back to our understanding of Satyagraha. We generally confuse it with “passive resistance” and it was the same situation when Gandhi ji developed the concept a century back. Below are few points from the book:

1)      Satyagraha

Gandhi ji considered Satyagraha as a soul-force. The Satyagrahies never used physical force even when they had the capability for it. In Gandhi ji’s word – “Satyagraha is soul-force pure and simple, and whenever and to whatever extent there is room for the use of arms or physical force or brute force, there and to that extent is there so much less possibility for soul-force. These are purely antagonistic forces in my view, and I had full realization of this antagonism even at the time of the advent of Satyagraha

2)     Passive resistance

The term “passive resistance” originated in Europe as a weapon of the weak. It was generally used when other options of fighting were not available. It was a method used by people without voting rights, or lacking public support. The people were not averse to using arms for attaining their goals. But they did not go for it because they didn’t think they would succeed with it. Hence, passive resistance was more of a strategic manoeuvre than commitment to non-violence.

3)    Difference between the two

Gandhi ji described the fundamental difference in the concepts in the following paragraphs -

 “The power of suggestion is such that a man at last becomes what he believes himself to be. If we continue to believe ourselves and let others believe that we are weak and therefore offer passive resistance, our resistance will never make us strong, and at the earliest opportunity we will give up passive resistance as a weapon of the weak.

 On the other hand if we are satyagrahis and offer satyagraha believing ourselves to be strong, two clear consequences result from it. Fostering the idea of strength, we grow stronger and stronger every day. With the increase in our strength, our satyagraha too becomes more effective and we would never be casting about for an opportunity to give it up.

 Again, there is no scope for love in passive resistance; on the other hand, not only has hatred no place in satyagraha, but it is a positive breach of its ruling principle. While in passive resistance there is a scope for the use of  arms when a suitable occasion arrives, in satyagraha physical force is forbidden even in the most favourable circumstances. Passive resistance is often looked upon as a preparation for the use of force while satyagraha can never be utilized as such. Passive resistance may be offered side by side with the use of arms. Satyagraha and brute force, being each a negation of the other, can never go together.

 Satyagraha may be offered to one’s nearest and dearest; passive resistance can never be offered to them unless of course they have ceased to be dear and become an object of hatred to us.

 In passive resistance there is always present an idea of harassing the other party and there is a simultaneous readiness to undergo any hardships entailed upon us by such activity; while in satyagraha there is not the remotest idea of injuring the opponent. Satyagraha postulates the conquest of the adversary by suffering in one’s own person.”

 4)    Freedom From Corruption

Considering the above definition of Satyagraha and the differences highlighted by Gandhi ji, I haven’t seen very many noteworthy cases of mass movement of Satyagraha. Hazare’s movement just entailed short-term sacrifice and not a long-term struggle. When the public disappeared so did he.

The Satyagrahies courted prison and lived a simple life to fight for their cause. Hence, the question is that do we lack commitment and determination for long-term struggle to root out wrong habits. Is it possible and realistic to expect people to make these sacrifices in the present age of instant gratification. Can we expect Indian public to take a vow not to take or give bribes and kickbacks? Will it be expecting too much from the citizens to sacrifice a few luxuries. Will the public stay committed to the cause or leave it when it gets bored, to participate in the next novel thing.

We need to seriously think of eradicating corruption on this Independence Day. India has come a long way in one century but the corruption is eroding its sheen and destroying the country from within. We must not forget the sacrifices a whole generation of Indians made to ensure that the next generations live with freedom. Let us pledge to keep our souls free of greed.

Wishing all Indians a Very Happy Independence Day.

References:

History of Satyagraha in South Africa by M.K. Gandhi 

Power With The Powerless

Might is Right?

Might is Right?

Durga Shakti Nagpal honoured the goddess she is named after. The 29-year-old IAS officer is in eye of the storm as she took on the sand mafia in Utter Pradesh. It was said the political party got benefits from the sand mafia. The Chief Minister Akhilesh Yadav suspended her on the grounds that she ordered demolition of a mosque wall. Her actions could have created riots.

The Muslim community hasn’t taken kindly for being used as an excuse. They have denied any such action and stood by Durga, stating that she is a great officer. Punjab State Deputy Chief Minister Sukhbir Badal has invited her to join back her own state. He said that Punjab state appreciates honest officers and the government will stand behind them.

So why has Akilesh Yadav’s carefully planned manoeuvre to show his political might fallen flat. It is because he still has old school ideas of power. He literally inherited power from his father, and though young is still using old tactics based on incorrect assumptions.

1.      Witch Hunting is Not an Acceptable Game

The ancient tactic of using a woman as a sacrificial goat to quiet everyone by creating fear and terror is no longer working. The number of Indian women crusading against corruption and crime is increasing manifold. Women are clearly saying they don’t get weak kneed by power and money. They hold ground and fight back from a higher moral standing. They show the powerful in their true character. The public nowadays doesn’t support witch-hunts and stands by strong women. The educated public is capable of identifying the true heroes and leaders.

2.      Attempts to Divide & Rule on Race & Religion Backfire

Using religion and race to divide people and rule isn’t an effective strategy anymore. With a black half-Christian-half-Muslim man as American President, and a white Italian Catholic woman as party president of Indian congress, the message is clear. Race, gender, age, and colour don’t matter in leadership positions. People follow the leader with the best ideas and capability. Belonging to a certain community may not get any followers now from the educated masses.

3.      Absolutely Impossible to Curb Public Opinion

Technology and globalization has put everyone on an equal footing. Previously a few could control public opinion as they had the contacts and money to influence media. However, social media has given a voice to the public. The general population forms its own opinion. It has also made the old media houses more honest as they lose circulation with carefully planted stories and politically motivated views. With social media, anything can go viral; there are no safe zones to hide dirty deeds. The transparency makes corrupt powerless.

4.      Autocracies are Dead

The changing perceptions of power have made old strategies useless. Earlier leaders could say my way or highway. Some said my way and my way, they wouldn’t even allow a person to take the highway. However, autocracy is no longer a popular leadership style. In the last decade, the number of countries with autocratic regimes has decreased and democratic governments have increased. Business and political leaders need to show democratic and consensus building styles. Surveys show that autocratic leaders – business and political – are losing their jobs at a higher rate than democratic leaders. Hence, a display of muscle power in public domain shows the leader in poor light. Using dictatorship styles will get the dictators in soup rather than the targets.

Closing Thoughts

Power has shifted to the powerless. With the changing society, technology, and economic order, one is likely to see new forms of political power structures in governments and organizations. We are at the threshold of a new era of power dynamics. From a risk management perspective, any risk mitigation policies developed based on old power structures are likely to fail. Hence, risk managers need to look at leadership strategies and related risks from a different lens.

Here is to new beginnings with power in the hands of the people. We can hope the 21st century will bring glory to the masses. Finally, each person can say that wish to live their life on their own terms. I am dedicating to my readers one of my favorite songs – My Way by Frank Sinatra. It beautifully conveys the message.

iGate’s Failures in Risk Management

phaneeshiGate fired its CEO Phaneesh Murthy for sexual misconduct after Araceli Roiz; an American employee accused him of sexual harassment. As per media reports she has claimed that the relationship started soon after she joined the organization in 2010 and is pregnant with his child.

Mr Phaneesh Murthy has the dubious honor of facing two similar charges while working as a senior manager in Infosys in 2002. Reka Maximovitch and Jennifer Griffith had both received huge out of court settlements previously. Now he faces the similar charges from Araceli Roiz. Mr Murthy has acknowledged that he had sexual relationships with Ms Roiz. However, it was with her consent. He has alleged he is being defamed and this is an attempt at extortion.

With the limited information available in the media, one cannot comment on the details of the personal relationship.

However, this disaster teaches a few lessons. iGate could have prevented this reputation damage and legal risks if it would have taken a few timely steps.  iGate board and senior managers failed to take due care of the following risks.

1.     Pre-employment Background Screening

Mr Murthy has an excellent academic and professional achievement record. He was credited for taking Infosys turnover from $ 2 million to $ 700 million. However, when he was hired by iGate in 2003 he was in the news for all the wrong reasons. The sexual harassment cases were all over the media.

iGate needed a CEO who could deliver results. My guess is the board looked the other way or considered Mr Murthy’s infidelities small or insignificant. However, if a junior or middle manager had the same reputation, his career would have been over. No organization would have hired him.

Hence, when generally senior managers background screening is more stringent  than junior or middle managers, iGate board took the opposite stance.  It appears that the same yardstick isn’t being applied for background screening or it is being given lip service.

2.     Failure to Monitor & Control CEO Behavioural Risks

iGate board and senior managers chose to ignore the CEO behavior  As per media reports, the relationship was known to the staff. However, it appears no action was taken to guide or coach Mr Murthy.

Read these statements of Mr Murthy from prior interviews at the time of Patni takeover.

The National – “Everyone says that M&As are about ego. I’ve been a salesperson for 10 years. For every 100 doors that you knock on, 98 get shut in your face. That has knocked away most of my ego. I have two teenage boys who whip my butt in every game. They have gone from wanting to be on my team to not wanting to be on the loser’s team. Because of that, I have no ego left.”

Livemint – “Not at all. I am basically a conservative, middle-class south Indian Brahmin. As it is, we don’t like debt, and I am very uncomfortable with a $700 million (around Rs 3,180 crore) debt.”

Ms Araceli Roiz is 31 years old and Mr Phaneesh Murthy is 53 years old. In conservative South-Indian Brahmin families “divorce” is taboo. With two teen aged boys at home, he started an affair, if Mr Roiz version is true, when she was in her late twenties.

From a psychological perspective, it is a classic case of a talented man unable to deal with his own fallibility and mortality. Mr Murthy is a competitive man and the yearly success in his career may have made him feel invincible and powerful.  He is raised on Indian middle class values that look down on promiscuous behavior  He competes with his own children in games. He was heading an Indian IT organization where the average age of employees is 25-26 years. Does it look like he was suffering from mid-life crises?

The board members and other senior managers could have identified the emotional baggage he was carrying around and addressed the issue. The question arises, when the board knew about his weakness and character problem, was he provided any coaching or mentoring? Or did the board take the view, that as long as he is delivering the numbers, everything will be tolerated.

3.     Lack of attention to work culture

The board and management knew that Mr Murthy had a marked reputation in respect to female employees. Secondly, it appears that is relationship with Ms Roiz was an open secret. From his own words, it doesn’t seem that he took sexual harassment or company policies seriously. In the interview, he stated:

“It was a personal relationship. The company policy states that any two employees having a relationship have to inform the superiors. It is a small note in an employee handbook. I did inform the company about the relationship. Though it was a question of timing from my side as I disclosed this only a few weeks ago, only after the relationship was over.”

According to him, “it is a small note” in the company handbook.  He didn’t believe in walking the talk in personal ethics or corporate code of conduct. Hence, the question arises, what attention iGate paid to maintain the corporate culture.

With previous cases of sexual harassment against the CEO and an on-going affair, did iGate management ensure that the sexual harassment policies were implemented in spirit? If a woman, as per Roiz’s claim, was forced into a sexual relationship by the CEO, what effect did it have on other female employees and work culture? Did it not set the stage for the hostile work culture where women would feel insecure to report cases of sexual harassment? Let us say, another female employee was harassed by a male senior manager, what options does she have when she knows that the CEO is doing something similar? How seriously was sexually offensive behavior taken by the management?

 The organizations pay a heavy price in respect to sexually harassing culture. The direct costs are of course legal penalties and cases, however, the indirect costs are absenteeism, disengagement, high turnover and lower productivity. The iGate management appears to have ignored these aspects while hiring Mr Murthy and during his tenure.

4.     Ineffective Crises Management

iGate public relations team issued the statement – “The investigation, which is on-going, has reached the finding that Murthy’s failure to report this relationship violated iGATE’s policy, as well as Murthy’s employment contract. The investigation has not uncovered any violation of iGATE’s harassment policy.”

It gave information on the interim CEO and search for the new CEO, to rest fears of the investors.

This appears more of an attempt to limit legal risks. According to US laws the company is responsible for sexual misconduct by its employees. Subsequent to the above news, the company has not made any statement or explanation on what it did to prevent such incidents.

According to media reports, the Indian employees received an explanation from the senior managers on the incident and were instructed not to talk to people outside and within the organization. An instruction not to communicate with the media or put comments in social media is sound. However, not to communicate with fellow employees sounds like an attempt to silence. Can management stop the discussion outside office hours between the employees?

In such instances, various stakeholder expectations need to be addressed. It is a sensitive issue that gets the attention of public, bloggers, activists, women lobbies etc. Even the employees psychological stress levels increase and they need to be managed. However, from the information available in the media, there isn’t much effort being done to manage the crises.

Closing Thoughts

Sexual harassment cases cause huge reputation damage and legal risks. I am not sure whether after Mr Murthy’s previous cases, iGate got proper insurance coverage for directors and senior manager liabilities. Implementing sexual harassment policies and holding everyone to high standards of conduct is something organizations need to concentrate on. The issue was taken lightly previously, but now women workforce is increasing and so are the cases of harassment. Unless companies wish to have their name tarnished, they need to take the right steps.

References:

  1. Read more: http://www.thenational.ae/business/technology/rise-and-fall-and-rise-again-of-it-star-phaneesh-murthy#ixzz2UBKIGikk
  2. http://www.financialexpress.com/news/phaneesh-murthy-i-will-fight-sexual-harassment-charges-vigorously/1118857/1
  3. http://timesofindia.indiatimes.com/tech/careers/job-trends/Murthy-scandal-iGate-staff-gets-social-media-code/articleshow/20222185.cms

Risk Managers – Tone Down That Report!

This week three renowned figures – Angelina Jolie, Larry Page and Christine Quinn – disclosed their medical problems to the world. They discussed battle with breast cancer, paralysis of vocal cords, and struggles with bulimia and alcoholism. Jolie, a woman famous for her beauty bared her mastectomy details. They talked about fear of death and handicap, and frailty of human character. They risked high-profile careers by being candid. One word describes their actions – Courage.

However, the corporate world wants to hide behind lies and window dress their weaknesses. The corporate leaders sometimes threaten risk managers and auditors to tone down their reports. The messengers of bad news get shot. Risk managers face bullying, retaliation and threat to their jobs for showing courage to speak the truth. If they refuse to bow down to pressure, the business teams label them as politically dumb or difficult to deal with. Question is – should risk managers tone down their reports to please the business teams?

I want to discuss a couple of scenarios here and you decide the course of action.

Scenario 1- Don’t report correct facts to avoid giving bad news

Let us say, you are a CXO of an organization. You have a heart problem and visit a doctor who is a good friend of yours.

The doctor realizes your heart condition is bad. You require a heart surgery for four bypasses. The doctor doesn’t want to deliver the bad news to you, because he doesn’t wish to hurt your feelings.

The doctor tells you  – “You just have too much stress. You need a vacation to relax and have some fun.” He prescribes you some vitamins and discharges you.

You follow your doctor’s advice, take a vacation. You swim and jog for a couple of days and have a heart attack. You arrive at the hospital with a survival chance of 5%.

Did the doctor do the right thing by not telling you the truth?

Scenario 2 : Don’t report correctly to protect a friend

A civil engineer responsible for doing quality and inspection checks of a bridge notices that sub-standard quality of material is used. There is a high risk of bridge collapsing. However, he issues a clean report to his seniors because the engineer-in-charge of the bridge is a friend of his.

An organisation’s senior managers drive daily across the bridge to reach their office. One day all of them are on the bridge and it collapses. All die.

Would the families of the senior managers be happy with the quality control engineer’s for not disclosing the risks?

My guess is most of the corporate readers would have answered no. You would have preferred the truth when it is a question of your own life being at risk.

Corporate Scenario

So why don’t corporate citizens hesitate when they put other people’s life at risk. See the Bangladesh factory fire, Japan’s nuclear disaster or US banks home foreclosure and mortgage mess. Employees, customers and public lives or life savings were put at risk.

Wouldn’t a few honest risk management reports helped in fixing the problem in time to prevent the disasters?

The corporate world maintains double standards on reporting risks. They want full disclosure of the risks to them but not to others. Before setting these expectations, corporate citizens should answer these questions:

1) Isn’t it a risk manager’s job to identify the health problems of the organization, prescribe a cure, suggest amputation where required and nurse the organization back to health?

2) Is it right to compromise professional ethics and code of conduct to keep a few people happy?

3) Aren’t risk managers responsible for calculating the direct and indirect cost to others for non-disclosure of risks?

4) Shouldn’t risk managers hold their ground and stick to their independent advise as you will benefit from it in the long-run?

Closing Thoughts

Moral courage is one of the most difficult qualities to acquire. Larry Page, as CEO of Google fulfilled his responsibility to the investors by publicly disclosing his medical problems. Now the investors can make an informed decision. One has to admire Page for taking such a difficult call. It takes guts. Disclosing personal weakness makes one feel vulnerable, exposed and fallible. He has shown the path for corporate leaders to follow.