Impact of Management By Intimidation

Impact of Management By Intimidation

We have read so much about “management by objectives” and “management by the seat of your pants” and their impact on organizations that they’ve become buzzwords. To the best of this author’s knowledge, our management literature has not yet addressed “management by intimidation” and its impact on organizations per se. The closest issue previously discussed in the literature was the eighth of W. Edwards Deming’s famous “Fourteen Points of Management” in Out of the Crisis (1986).

This article discusses the characteristics of management by intimidation and their impact on organizations.Overview
Management By Intimidation (MBI) is the practice of managing, or governing people based on fear. Most organizations have managers or leaders who employ MBI practices. Such practices are inconsistent with Deming’s eighth point of management Impact of Management By Intimidation which behooves contemporary management practitioners to “drive out fear” in order to make employees feel secure enough to express ideas and ask questions. Deming has steadfastly viewed management by fear as counter-productive to the long-term health of an organization because it prevents employees from acting in the organization’s best interests.

Common characteristics of MBI philosophy are:

– Use of Threats: MBI practitioners threaten or intimidate people to perform, not inspire people to do their best. Letters of warning, informal threats of dismissal, and informal requests to resign are some of the popular tactics used by MBI practitioners in organizations.Impact of Management By Intimidation Show of unchecked power is the basis for their operating philosophy.

– Ineffective Oversight Body: Members of the oversight body (e.g., board of directors) are carefully screened and hand-picked. The intent is to ensure that members who do not habitually question the activities of management are selected and retained. Such an ineffective oversight body gives MBI practitioners carte blanche to act administratively with unchecked powers. The body views auditors as necessary evils, rather than partners who assist its members in discharging their oversight responsibilities. The need to avoid micro-management is used as an excuse for this kind of hands-off oversight philosophy.

– Censored Communications: MBI practitioners do not like employees to communicate openly and frankly about their views on organizational matters. They manipulate communication channels to ensure that only positive things are said and written about the organizations to external parties. Employees who express unfavorable opinions about the working conditions are routinely reprimanded by superiors who subscribe to the MBI philosophy.Impact of Management By Intimidation Commitment to truth is nonexistent. Board members, external auditors, and regulators receive communications censored or sanitized by MBI practitioners to conceal the real organizational climate and culture.

– Self-Centeredness: MBI practitioners are self-centered leaders. They make decisions that are usually best for themselves, their favorite subordinates, their friends, and their business partners. Personal agendas are disguised as organizational agendas.

– Unchallenged Authority: MBI practitioners do not like their authority challenged or questioned by anyone. They have no compunction whatsoever in eliminating people who habitually challenge their authority.

– Lack of Accountability: MBI practitioners are the least accountable people in organizations. They are quick to take credit for successful initiatives, and equally quick to apportion blame on others for organizational failures. They are meticulous in building cases – real or imagined – against dispensable employees or scapegoats. MBI practitioners last long in organizations mainly because the culture of accountability is nonexistent.

– Lack of Transparency: MBI practices are not transparent to people who are not directly impacted by such practices. We either experience, or learn about them from colleagues who were affected by the practices. MBI practitioners are too concerned about leaving audit trails that they have adopted the practice of not documenting their activities as much as possible and tacitly asking their subordinates to do the same.

– Questionable Hiring Practices: MBI practitioners tend to ignore good personnel policies and resort to cronyism and nepotism in their hiring decisions.Impact of Management By Intimidation Covert tactics are used to ensure that friends and relatives are given preferential considerations. Ruse interviews are occasionally conducted just to satisfy legal requirements.

– Lack of Diversity: MBI practitioners preach but do not practice diversity. They develop policies, procedures, and plans that extol the virtues of diversity. They organize events intended to create the illusion that their organizations believe in diversity. A closer look will reveal that the people they surround themselves with in key leadership positions are not diverse. Lucrative positions, contracts, and bonuses are typically awarded to people who look, think, and act like them.

– Double Standards: Activities that are acceptable to MBI practitioners are not necessarily acceptable to ordinary employees. Double standards are consistently applied in organizations. It is acceptable for MBI practitioners to circumvent rules if it suits their whims, but employees who commit the acts are involuntarily terminated.

– Disdain for Independent Reviewers: MBI practitioners treat internal auditors, external auditors, and other independent reviewers with open disdain. They do not want anyone to review and criticize their activities, or the activities of their “trusted” employees. They operate under the illusion that their actions are beyond reproach and not subject to audit. MBI practitioners prefer to have “other people” audited or investigated so that they can get the ammunition to eliminate certain people and show that certain conducts cannot be tolerated. The philosophy of “trust but verify” is foreign to MBI practitioners.

– Management Myopia: MBI practitioners are inherently reactive managers. They like status quo. They dislike people who rock the boat or think outside the box. They rarely communicate their expectations to employees in a clear, unambiguous manner. They conduct periodic performance evaluations based on their moods at a particular time. Disliked employees are harshly criticized, and “trusted” employees are richly rewarded. MBI practitioners manage to survive for as long as possible to aggrandize themselves – not to ensure the long-term health of their organizations.

– Bliss in Feigned Ignorance: MBI practitioners find bliss in feigned ignorance. The less they know about bad things in their organization, the better for them. That is why they harbor visceral hatred for whistleblowers or employees they perceive as “bad news” messengers. They work hard to erect corporate buffers that will deter unfavorable news from reaching their attention. When confronted by the reality of things in their organizations, they are quick to use the standard excuse of “I didn’t know” or “I was not aware” of the problems and their associated risks.

Traditional managers might have employed some or even most of these MBI tactics in their leadership roles. Stress, insecurity, and “fear of getting caught”Impact of Management By Intimidation are common factors contributing to the adoption of MBI practices in organizations.


Impact of MBI Practices
MBI practices impact organizations in the following ways:

– Unmotivated Employees: Employees will not be sufficiently motivated to give their best or ‘go the extra mile’. They will do just enough to get back, giving their required 8 hours daily. Unmotivated employees will not feel bad about engaging in unproductive activities or sabotaging work to make their MBI superiors look bad.

– Overstressed Workforce: Employees will operate under enormous stress. They will work in constant fear of their MBI superiors, making it difficult for them to be consistently productive. Increased stress will adversely affect their health, family, and work habits.

– Non-enterprising Employees: Employees will get the feeling that they are not empowered to think and accomplish anything without the blessings of MBI practitioners. They will be fearful of expressing opinions or suggestions in meetings intended to solicit frank and helpful input. Corporate stance on employee empowerment will be viewed with skepticism.Impact of Management By Intimidation Employees will eventually start finding excuses to avoid involvement in synergistic corporate initiatives.

– High Employee Turnover: There will be high turnover of competent employees, especially the middle management positions all the way to the frontline staff positions. Affected employees will be those who were made scapegoats by MBI practitioners and those who decided to leave the unhealthy corporate culture of their organizations in order to preserve their integrity, health, sanity, and/or career.

– Inequitable Compensation: The “favored” or “trusted” employees will always get paid more than employees who are deemed expendable by MBI practitioners. Experience and qualifications will be irrelevant. The perception that some people are more equal than others will eventually percolate in the organization – causing bitterness and divisiveness among employees.

– Climate of Distrust: Employees will not trust MBI practitioners and vice versa. The climate of distrust will escalate to the point that working conditions become unhealthy and disruptive.

– Climate of Vindictiveness: Employees who dare to think outside the box or engage in whistle-blowing activities will be called names and punished by vindictive MBI practitioners. Such practitioners and their cohorts will not be afraid to flaunt their powers when it comes to exacting punishment on people they view as ‘disgruntled employees’. The absence of a system of checks and balances will promote this climate of vindictiveness in the organizations.

– Ineffective Dispute Resolution: Employee complaints and disputes will escalate. Offices established to handle such complaints or disputes in compliance with the equal employment opportunity and labor laws will be ineffective in achieving satisfactory resolutions. Such offices will usually report to MBI superiors who are themselves the subjects of escalating employee complaints. The feeling that wolves are set up to guard the henhouse will eventually pervade the organizations until employees sense that it is pointless to file formal grievances. Law suits will become the only recourse for victimized employees, and costly out-of-court settlements will be the standard solutions for the affected organizations.

– Fire-fighting Management: MBI practitioners will operate constantly in a crisis mode – putting out one fire after another in their organizations. All the organizational problems they attempt to put under the carpet will eventually come back to haunt them and their organizations.

– Hostile Audit Environment: Some internal auditors will feel they are risking their job security and external auditors will feel they are risking their engagement contracts when they audit the activities of MBI practitioners. The environment will be decidedly hostile for quality assurance work. MBI practitioners will be tenaciously uncooperative and obstructive. Poor audit trails will make the review process a Herculean task. Equally too, auditors’ access to members of an audit committee will be significantly curtailed.

– Disregard for Established Controls: MBI practitioners feel that controls are established to be conveniently circumvented. They will consistently exhibit little or no regard for established controls. They view preventive and detective controls as major threats to their jobs. Thus, opportunities to commit occupational frauds will abound, and anti-fraud measures will not find fertile grounds in the organizations.

– Unethical Culture: The environment will foster a corporate culture where anything goes. Ethical misconducts will be widely tolerated. Tone from the top will essentially be perceived to mean that trusted employees can get away with anything except murder. Employees caught and prosecuted for unethical and illegal acts will rationalize that their MBI superiors were engaging in similar improprieties. This will eventually attract the keen eyes and ears of local, state, and federal regulators.

It usually takes front-page news of organizational problems associated with MBI practices before an organization feels the need to change its culture. In some cases, the efforts to change are genuine. Conversely, in some cases, the efforts to change are purely cosmetics. If anything, the recent corporate scandals involving Enron, WorldCom, and others have taught us that MBI practices are inconsistent with the 21st Century management best practices. Any benefits from MBI practices will always be short lived.


Why Organizations Need to Address MBI Practices
The main reasons why organizations need to eliminate MBI practices are two-fold. First, the practices do not maximize employee productivity, ensure operational efficiency, and enhance organizational effectiveness. Instead, such practices tend to turn employees into major destabilizing forces for organizations.

Second, MBI practices are not in compliance with the federal regulations. For instance, Section 406 of the Sarbanes-Oxley Act of 2002 (SOX) requires the adoption of a code of ethical conduct or formal performance standards with the necessary controls to help organizations in promoting: (1) honest and ethical conducts; (2) accurate and timely disclosure of public financial reports; (3) compliance with regulations; (4) internal reporting of ethical code violation; and, (5) accountability for adherence to the code of ethical conduct. Similarly, Sections 301, 806, and 1107 of SOX address the following regulatory matters:

– Require organizations to establish procedures for the receipt, retention, and treatment of complaints and the confidential anonymous submission by employees on accounting, internal controls, and auditing matters.

– Grant employees the right to sue their employers for retaliation by filing a formal charge with the US Department of Labor.

– Provide for criminal penalties, including up to 10 years in prison for retaliation against employees or whistle-blowers.

In addition, the Federal Sentencing Guidelines enacted in 1991 by the US Congress state that organizations are liable to sentencing and fines for federal offenses connected with securities, bribery, embezzlement, fraud, money laundering, and other criminal business activities. The Guidelines hold that an organization operates only through its agents – usually managers – and, is, therefore, liable for the offenses committed by its managers. The Guidelines are intended to achieve (1) just punishment; (2) sufficient deterrence; and (3) encourage the development of internal mechanisms to prevent, identify and report on criminal behaviors in organizations. Furthermore, a recent Bill/Study initiated by Senator Grassley made specific formal recommendations for strengthening transparency, governance, and accountability in the non-public, not-for-profit sector.


Implications for Auditors
Internal auditors must realize that MBI practices are detrimental to organizational effectiveness. Their risk-based reviews should assist their organizations in identifying and eliminating such practices. This entails performing assurance and consulting engagements with independence and objectivity. Job security should be made secondary to compliance with the audit standards and professional code of ethics.

Given the hostile environment they operate in, internal auditors should be prepared to resign from their positions if it is the only option to make their audit observations known to the internal and external stakeholders. Of course, cultivating a good working relationship with members of the audit committee is of paramount importance in the fight against pervasive MBI practices.

Similarly, external auditors should not let contracts or monetary issues cloud their independence and professional judgment. They should know that weak internal controls contributed by pervasive MBI practice can generate fraudulent financial statements and opportunities for other types of occupational frauds.

In addition, internal and external auditors should avoid credibility problems by not engaging in MBI practices or appearing to turn a blind eye to such practices during internal control reviews. Thus, self-assessment is a critical step toward objective reviews and an effective fight against MBI practices. Lack of credibility has been known to hamper quality audit work.

Finally, the Enron and WorldCom cases showed that internal and external auditors can pay heavy prices if they know but fail to act on red flags in auditable areas.


Conclusion
We live in a democratic society. MBI practices are not in harmony with our democratic ideals or with the principles that undergird our hard fought democracy. Such practices benefit few self-centered leaders at the expense of organizational effectiveness. Thus, it is time to take a ‘reality check’. Three important questions to ask are:

(1) Is our organization engaged in wide-spread MBI practices?
(2) Are we contributing to such practices?
(3) What can we do to help eliminate such harmful practices?

The evils of MBI practices reinforce the importance of proper management of employees as human beings with feelings; and compliance with governmental regulations. Internal and external stakeholders who value successful organizational performance, ethical culture, and social responsibility should join hands in fighting against such practices in their organizations. This requires a proactive mindset because a stitch in time saves nine.

Perception about direct or indirect involvement in MBI practices will not allow anyone or any group of individuals to wage effective fight against MBI practices. Credibility is, thus, an important weapon in the anti-MBI fight. Organizations that are decisively proactive in rooting out MBI practices will be the ones left standing on a solid footing in the 21st century where only the fittest survives in an increasingly competitive global marketplace.

We have read so much about “management by objectives” and “management by the seat of your pants” and their impact on organizations that they’ve become buzzwords. To the best of this author’s knowledge, our management literature has not yet addressed “management by intimidation” and its impact on organizations per se. The closest issue previously discussed in the literature was the eighth of W. Edwards Deming’s famous “Fourteen Points of Management” in Out of the Crisis (1986).

This article discusses the characteristics of management by intimidation and their impact on organizations.Overview
Management By Intimidation (MBI) is the practice of managing, or governing people based on fear. Most organizations have managers or leaders who employ MBI practices. Such practices are inconsistent with Deming’s eighth point of management Impact of Management By Intimidation which behooves contemporary management practitioners to “drive out fear” in order to make employees feel secure enough to express ideas and ask questions. Deming has steadfastly viewed management by fear as counter-productive to the long-term health of an organization because it prevents employees from acting in the organization’s best interests.

Common characteristics of MBI philosophy are:

– Use of Threats: MBI practitioners threaten or intimidate people to perform, not inspire people to do their best. Letters of warning, informal threats of dismissal, and informal requests to resign are some of the popular tactics used by MBI practitioners in organizations.Impact of Management By Intimidation Show of unchecked power is the basis for their operating philosophy.

– Ineffective Oversight Body: Members of the oversight body (e.g., board of directors) are carefully screened and hand-picked. The intent is to ensure that members who do not habitually question the activities of management are selected and retained. Such an ineffective oversight body gives MBI practitioners carte blanche to act administratively with unchecked powers. The body views auditors as necessary evils, rather than partners who assist its members in discharging their oversight responsibilities. The need to avoid micro-management is used as an excuse for this kind of hands-off oversight philosophy.

– Censored Communications: MBI practitioners do not like employees to communicate openly and frankly about their views on organizational matters. They manipulate communication channels to ensure that only positive things are said and written about the organizations to external parties. Employees who express unfavorable opinions about the working conditions are routinely reprimanded by superiors who subscribe to the MBI philosophy.Impact of Management By Intimidation Commitment to truth is nonexistent. Board members, external auditors, and regulators receive communications censored or sanitized by MBI practitioners to conceal the real organizational climate and culture.

– Self-Centeredness: MBI practitioners are self-centered leaders. They make decisions that are usually best for themselves, their favorite subordinates, their friends, and their business partners. Personal agendas are disguised as organizational agendas.

– Unchallenged Authority: MBI practitioners do not like their authority challenged or questioned by anyone. They have no compunction whatsoever in eliminating people who habitually challenge their authority.

– Lack of Accountability: MBI practitioners are the least accountable people in organizations. They are quick to take credit for successful initiatives, and equally quick to apportion blame on others for organizational failures. They are meticulous in building cases – real or imagined – against dispensable employees or scapegoats. MBI practitioners last long in organizations mainly because the culture of accountability is nonexistent.

– Lack of Transparency: MBI practices are not transparent to people who are not directly impacted by such practices. We either experience, or learn about them from colleagues who were affected by the practices. MBI practitioners are too concerned about leaving audit trails that they have adopted the practice of not documenting their activities as much as possible and tacitly asking their subordinates to do the same.

– Questionable Hiring Practices: MBI practitioners tend to ignore good personnel policies and resort to cronyism and nepotism in their hiring decisions.Impact of Management By Intimidation Covert tactics are used to ensure that friends and relatives are given preferential considerations. Ruse interviews are occasionally conducted just to satisfy legal requirements.

– Lack of Diversity: MBI practitioners preach but do not practice diversity. They develop policies, procedures, and plans that extol the virtues of diversity. They organize events intended to create the illusion that their organizations believe in diversity. A closer look will reveal that the people they surround themselves with in key leadership positions are not diverse. Lucrative positions, contracts, and bonuses are typically awarded to people who look, think, and act like them.

– Double Standards: Activities that are acceptable to MBI practitioners are not necessarily acceptable to ordinary employees. Double standards are consistently applied in organizations. It is acceptable for MBI practitioners to circumvent rules if it suits their whims, but employees who commit the acts are involuntarily terminated.

– Disdain for Independent Reviewers: MBI practitioners treat internal auditors, external auditors, and other independent reviewers with open disdain. They do not want anyone to review and criticize their activities, or the activities of their “trusted” employees. They operate under the illusion that their actions are beyond reproach and not subject to audit. MBI practitioners prefer to have “other people” audited or investigated so that they can get the ammunition to eliminate certain people and show that certain conducts cannot be tolerated. The philosophy of “trust but verify” is foreign to MBI practitioners.

– Management Myopia: MBI practitioners are inherently reactive managers. They like status quo. They dislike people who rock the boat or think outside the box. They rarely communicate their expectations to employees in a clear, unambiguous manner. They conduct periodic performance evaluations based on their moods at a particular time. Disliked employees are harshly criticized, and “trusted” employees are richly rewarded. MBI practitioners manage to survive for as long as possible to aggrandize themselves – not to ensure the long-term health of their organizations.

– Bliss in Feigned Ignorance: MBI practitioners find bliss in feigned ignorance. The less they know about bad things in their organization, the better for them. That is why they harbor visceral hatred for whistleblowers or employees they perceive as “bad news” messengers. They work hard to erect corporate buffers that will deter unfavorable news from reaching their attention. When confronted by the reality of things in their organizations, they are quick to use the standard excuse of “I didn’t know” or “I was not aware” of the problems and their associated risks.

Traditional managers might have employed some or even most of these MBI tactics in their leadership roles. Stress, insecurity, and “fear of getting caught”Impact of Management By Intimidation are common factors contributing to the adoption of MBI practices in organizations.


Impact of MBI Practices
MBI practices impact organizations in the following ways:

– Unmotivated Employees: Employees will not be sufficiently motivated to give their best or ‘go the extra mile’. They will do just enough to get back, giving their required 8 hours daily. Unmotivated employees will not feel bad about engaging in unproductive activities or sabotaging work to make their MBI superiors look bad.

– Overstressed Workforce: Employees will operate under enormous stress. They will work in constant fear of their MBI superiors, making it difficult for them to be consistently productive. Increased stress will adversely affect their health, family, and work habits.

– Non-enterprising Employees: Employees will get the feeling that they are not empowered to think and accomplish anything without the blessings of MBI practitioners. They will be fearful of expressing opinions or suggestions in meetings intended to solicit frank and helpful input. Corporate stance on employee empowerment will be viewed with skepticism.Impact of Management By Intimidation Employees will eventually start finding excuses to avoid involvement in synergistic corporate initiatives.

– High Employee Turnover: There will be high turnover of competent employees, especially the middle management positions all the way to the frontline staff positions. Affected employees will be those who were made scapegoats by MBI practitioners and those who decided to leave the unhealthy corporate culture of their organizations in order to preserve their integrity, health, sanity, and/or career.

– Inequitable Compensation: The “favored” or “trusted” employees will always get paid more than employees who are deemed expendable by MBI practitioners. Experience and qualifications will be irrelevant. The perception that some people are more equal than others will eventually percolate in the organization – causing bitterness and divisiveness among employees.

– Climate of Distrust: Employees will not trust MBI practitioners and vice versa. The climate of distrust will escalate to the point that working conditions become unhealthy and disruptive.

– Climate of Vindictiveness: Employees who dare to think outside the box or engage in whistle-blowing activities will be called names and punished by vindictive MBI practitioners. Such practitioners and their cohorts will not be afraid to flaunt their powers when it comes to exacting punishment on people they view as ‘disgruntled employees’. The absence of a system of checks and balances will promote this climate of vindictiveness in the organizations.

– Ineffective Dispute Resolution: Employee complaints and disputes will escalate. Offices established to handle such complaints or disputes in compliance with the equal employment opportunity and labor laws will be ineffective in achieving satisfactory resolutions. Such offices will usually report to MBI superiors who are themselves the subjects of escalating employee complaints. The feeling that wolves are set up to guard the henhouse will eventually pervade the organizations until employees sense that it is pointless to file formal grievances. Law suits will become the only recourse for victimized employees, and costly out-of-court settlements will be the standard solutions for the affected organizations.

– Fire-fighting Management: MBI practitioners will operate constantly in a crisis mode – putting out one fire after another in their organizations. All the organizational problems they attempt to put under the carpet will eventually come back to haunt them and their organizations.

– Hostile Audit Environment: Some internal auditors will feel they are risking their job security and external auditors will feel they are risking their engagement contracts when they audit the activities of MBI practitioners. The environment will be decidedly hostile for quality assurance work. MBI practitioners will be tenaciously uncooperative and obstructive. Poor audit trails will make the review process a Herculean task. Equally too, auditors’ access to members of an audit committee will be significantly curtailed.

– Disregard for Established Controls: MBI practitioners feel that controls are established to be conveniently circumvented. They will consistently exhibit little or no regard for established controls. They view preventive and detective controls as major threats to their jobs. Thus, opportunities to commit occupational frauds will abound, and anti-fraud measures will not find fertile grounds in the organizations.

– Unethical Culture: The environment will foster a corporate culture where anything goes. Ethical misconducts will be widely tolerated. Tone from the top will essentially be perceived to mean that trusted employees can get away with anything except murder. Employees caught and prosecuted for unethical and illegal acts will rationalize that their MBI superiors were engaging in similar improprieties. This will eventually attract the keen eyes and ears of local, state, and federal regulators.

It usually takes front-page news of organizational problems associated with MBI practices before an organization feels the need to change its culture. In some cases, the efforts to change are genuine. Conversely, in some cases, the efforts to change are purely cosmetics. If anything, the recent corporate scandals involving Enron, WorldCom, and others have taught us that MBI practices are inconsistent with the 21st Century management best practices. Any benefits from MBI practices will always be short lived.


Why Organizations Need to Address MBI Practices
The main reasons why organizations need to eliminate MBI practices are two-fold. First, the practices do not maximize employee productivity, ensure operational efficiency, and enhance organizational effectiveness. Instead, such practices tend to turn employees into major destabilizing forces for organizations.

Second, MBI practices are not in compliance with the federal regulations. For instance, Section 406 of the Sarbanes-Oxley Act of 2002 (SOX) requires the adoption of a code of ethical conduct or formal performance standards with the necessary controls to help organizations in promoting: (1) honest and ethical conducts; (2) accurate and timely disclosure of public financial reports; (3) compliance with regulations; (4) internal reporting of ethical code violation; and, (5) accountability for adherence to the code of ethical conduct. Similarly, Sections 301, 806, and 1107 of SOX address the following regulatory matters:

– Require organizations to establish procedures for the receipt, retention, and treatment of complaints and the confidential anonymous submission by employees on accounting, internal controls, and auditing matters.

– Grant employees the right to sue their employers for retaliation by filing a formal charge with the US Department of Labor.

– Provide for criminal penalties, including up to 10 years in prison for retaliation against employees or whistle-blowers.

In addition, the Federal Sentencing Guidelines enacted in 1991 by the US Congress state that organizations are liable to sentencing and fines for federal offenses connected with securities, bribery, embezzlement, fraud, money laundering, and other criminal business activities. The Guidelines hold that an organization operates only through its agents – usually managers – and, is, therefore, liable for the offenses committed by its managers. The Guidelines are intended to achieve (1) just punishment; (2) sufficient deterrence; and (3) encourage the development of internal mechanisms to prevent, identify and report on criminal behaviors in organizations. Furthermore, a recent Bill/Study initiated by Senator Grassley made specific formal recommendations for strengthening transparency, governance, and accountability in the non-public, not-for-profit sector.


Implications for Auditors
Internal auditors must realize that MBI practices are detrimental to organizational effectiveness. Their risk-based reviews should assist their organizations in identifying and eliminating such practices. This entails performing assurance and consulting engagements with independence and objectivity. Job security should be made secondary to compliance with the audit standards and professional code of ethics.

Given the hostile environment they operate in, internal auditors should be prepared to resign from their positions if it is the only option to make their audit observations known to the internal and external stakeholders. Of course, cultivating a good working relationship with members of the audit committee is of paramount importance in the fight against pervasive MBI practices.

Similarly, external auditors should not let contracts or monetary issues cloud their independence and professional judgment. They should know that weak internal controls contributed by pervasive MBI practice can generate fraudulent financial statements and opportunities for other types of occupational frauds.

In addition, internal and external auditors should avoid credibility problems by not engaging in MBI practices or appearing to turn a blind eye to such practices during internal control reviews. Thus, self-assessment is a critical step toward objective reviews and an effective fight against MBI practices. Lack of credibility has been known to hamper quality audit work.

Finally, the Enron and WorldCom cases showed that internal and external auditors can pay heavy prices if they know but fail to act on red flags in auditable areas.


Conclusion
We live in a democratic society. MBI practices are not in harmony with our democratic ideals or with the principles that undergird our hard fought democracy. Such practices benefit few self-centered leaders at the expense of organizational effectiveness. Thus, it is time to take a ‘reality check’. Three important questions to ask are:

(1) Is our organization engaged in wide-spread MBI practices?
(2) Are we contributing to such practices?
(3) What can we do to help eliminate such harmful practices?

The evils of MBI practices reinforce the importance of proper management of employees as human beings with feelings; and compliance with governmental regulations. Internal and external stakeholders who value successful organizational performance, ethical culture, and social responsibility should join hands in fighting against such practices in their organizations. This requires a proactive mindset because a stitch in time saves nine.

Perception about direct or indirect involvement in MBI practices will not allow anyone or any group of individuals to wage effective fight against MBI practices. Credibility is, thus, an important weapon in the anti-MBI fight. Organizations that are decisively proactive in rooting out MBI practices will be the ones left standing on a solid footing in the 21st century where only the fittest survives in an increasingly competitive global marketplace.

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