Olympic lessons and strategies to protect against fraud and corruption
INSIGHT ARTICLE |
The United States is well-known, and rightly so, as the bellwether for ingenuity, innovation and advancement. Silicon Valley currently serves as the hub for technology-driven development, and there are many other pockets across the country that encourage and foster startup style innovation.
As we have experienced in the past, when markets turn against technology-based companies, the impact to the economy can be swift and severe, especially to early stage companies that are often the genesis of new ideas, strategies and ways of life. After an economic pullback, investors are prone to analyze what went wrong, and in many cases, they find financial wrongdoing in the form of accounting gimmicks, intentional misrepresentations, unreasonably aggressive projections and other related issues.
In 2016 we have seen an increase in red flags, signaling that investors may need to brace for impact. For example, the chair of the Securities and Exchange Commission questioned the credibility of unicorn valuations and not too long after, the U.S. Assistant Attorney General of the Criminal Division compared today’s environment to the dot-com meltdown, which was ripe with fraud. Further, if interest rates rise as many economists expect, access to capital markets could become restricted, and further exacerbate a slowdown or shutdown of early-stage, growth-focused companies.
In an economy with an uncertain future, how can business owners and individuals prepare for and protect against fraud and other similar types of financial malfeasance?
Reflecting on the Olympic Games this past summer in Brazil, there are several similarities between the preparation and training of a professional athlete and the focus, diligence and analysis needed to best protect investments from fraud.
It might appear that there is simply no comparison between training for the Olympics and protecting companies, investments and assets from fraud. As we dig down, however, it is evident that there are a few key traits and attitudes common in professional athletics that are just as relevant to business owners and individuals. Adopting these characteristics can help business leaders as they seek to maximize investments, while simultaneously combating the threat of fraud and any related negative financial impact. Commonalities include:
- Preparation. Training for an elite competition requires commitment, repetition, dedication and an unwavering work ethic. Investors should adopt a similar mindset by obtaining all the information they can pertaining to an investment before and after making an investment or key business decision, applying professional skepticism and detailed analytics to the investment and maintaining regular monitoring and oversight to ensure that the investment meets its stated objectives.
- Finding the right business partners. While the best athletes in the world were the focus of the Olympics, there were countless stories about the impact that coaches, parents and families had on the athletes’ successes. Surrounding yourself with the right people is just as important in the business world. Finding business partners that have demonstrated skills, qualifications and experience is a must. And consider other information—qualitative or quantitative—that you should learn about your business partners to ensure their honesty and integrity. The sage adage that Ronald Reagan made famous in the 1980’s still holds true today: “Trust, but verify.”
- Knowing your limits. Every athlete strives to test physical limits, but they also know when they’re pushing too hard or too fast. In business, it is often the case that an investment that sounds too good to be true, may be just that. Chasing home run returns can often lead to big losses. Investors should be open to new investments, but when an investment’s complexity exceeds your comfort level, know when to walk away.
The threat of fraud is always present and its impact can be wide-reaching. And while there is no way to eliminate fraud entirely, by adopting an Olympic-style anti-fraud culture, the occurrence of fraud can be reduced and related impact can be mitigated.