David M. Katz, CFO.com | US
March 9, 2010

Why wait for a Corporate Scandal?

?Painful and costly as a major corporate financial scandal can be, it can ultimately help a company grow stronger if executives can unearth the problems that spurred the crisis and fix them.?

Why wait for a corporate scandal? By improving internal transparency, public companies have a unique opportunity to ?unearth the problems that can spur a crisis and fix them? and avoid not only embarrassment but also, in Siemens case, billions of dollars in costs.

Employees have the highest success rate for uncovering fraud, according to the latest research by Alexander Dyck, Adair Morse, & Luigi Zingales, ?Who Blows the Whistle on Corporate Fraud? (AFA 2007 Chicago Meetings Paper; Chicago GSB Research Paper No. 08-22).

A group of finance and accounting professionals have created an online forum where employees can disclose information about the questionable business practices of the company and its management team. Detecting problems early on spares not only the company?s reputation but also prevents significant financial losses resulting from fraud and misconduct.

Publicly traded companies have a unique opportunity to expand their board-level reporting to fully disclose information about the business practices of the company and its executives from an independent third party to avoid being blind sided by fraud and misconduct.

?Sometimes the best way to facilitate a change is to shine a light on the problem? (CFO.com, 16 February 2010).

Posted by Mark Rome | Mar 10, 2010 11:03 AM ET