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Fraud Fest: Gender & racial diversity among corporate leaders can help fight fraud

Julie DiMauro  Regulatory Intelligence and E-learning Expert

Julie DiMauro  Regulatory Intelligence and E-learning Expert

Women may be as susceptible to ethical weaknesses as men, but they may be less likely to engage in corporate fraud because they still have an outsider status that may actually make them less able to avoid detection when committing illegal acts, said a panel of woman financial experts.

These comments came at the online Fraud Fest conference, sponsored by UC-Berkeley’s law school, which focused on fraud in the economy. Panelists said that women are not yet at the demographic number it takes to breed the familiarity and level of comfort in their roles that men often have, and such insider status can make men more susceptible to taking shortcuts or looking away from the actions of fellow male insiders.

The recent three-day conference featured thought leaders from law, finance, academia, and journalism. In the session on gender and fraud, the discussion revolved around the impact that gender inclusion on corporate boards has on the perpetration and prevention of corporate fraud.

“In upper level roles, especially in the board context, the long-term presence of persons with similar backgrounds can hamper some self-surveillance and even board members’ obligation of holding company officers accountable for their actions,” said Alexandra Wrage, president and CEO of TRACE International, a global anti-bribery organization and third-party risk management solutions provider.

Panelists dispelled the notion that women are somehow more ethical by virtue of their chromosomes. Indeed, there have been women fraudsters throughout history, and they are not disappearing. For example, Gulnara Karimova, the daughter of a former Uzbek president, was indicted last year for taking hundreds of millions of dollars in bribes.


The long-term presence of persons with similar backgrounds can hamper some self-surveillance and even board members’ obligation of holding company officers accountable for their actions.


“Racial and ethnic minorities on boards can have a similar outsider status as well,” Wrage said, adding that anyone not in the biggest demographic — which is still white and male — can leverage that outsider status to challenge the perspective of the mainstream power structure.

Another panelist, Anat Admati, professor of finance and economics at Stanford University’s Graduate School of Business, agreed. “More diversity among corporate overseers in terms of gender, race, academic training, and career trajectories will facilitate more perspectives that can help spot fraud and corruption,” she said.

Women on boards, for example, can pose fresh questions about assumptions on fraud or about an economy that is too reckless with average people’s money and does not serve society as well as it should, she said.

Fahmi Quadir, founder, and chief investment officer at Safkhet Capital, talked about her role in uncovering corrupt business practices at global firms. Quadir — who has achieved recognition as a skilled short-seller and is one of relatively few women in that specialized trade — makes money by finding companies that are exploiting people. And she thinks her outsider status serves her well in this job.

Clearly, being an outsider, combined with thorough investigation and gut instinct, has proven to be a fraud detection tool in many cases. To be sure, it is not the designated role of women or other diverse voices to help keep a check on fraud. Well-crafted and evolving compliance programs, internal controls, up-to-date training, ethical and transparent leadership, and accountability processes are best implemented for these purposes.

Particularly as global corporations continue to struggle with the current global pandemic’s social and economic impacts and contemplate their strategic direction in the face of a stronger call for racial equality, corporate boards must make novel and critical decisions. And these corporate decisions will directly impact the products and services global corporations offer, the sense of inclusion their employees feel, the social messaging they send their customers, and their overall financial stewardship.

If there ever was a moment ripe for shaking things up in terms of the older, white male boardroom, it’s probably now.


 

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