In the summer of 1941, a German spy – who unbeknownst to Germany was also a British spy – was stationed in the United States. The double agent, codenamed Tricycle by his British handlers, was sent an uncharacteristically detailed questionnaire from the Germans, requesting extensive information about armament stockpiles, production schedules and facilities, and layout sketches for hangars and docks in… Pearl Harbor.
The so-called “XX Committee” that ran double agents within M.I.5 in Britain was taken aback by the extent of the inquiry and the level of minutiae sought, particularly given the high regard in which Tricycle was held by the German Abwehr. The British intelligence service briefly considered highlighting their concern to their American counterpart – which also had access to the German request – but ultimately elected to stay in their lane.
Sir John Masterman, who ostensibly oversaw the “double-cross system” for British intelligence and wrote about it in his fascinating book with the same title, said approximately thirty years later, “With the greater experience of a few more years’ work, we should certainly have risked a snub and pointed out to our friends in the United States what the significance of the document might be….”
Failures to heed warnings are all around us.
I learned about that from a Silicon Valley legend.
In addition to being a gifted photographer, Boris Feldman is one of the most successful securities litigation defense lawyers of all time. It’s why more Fortune 50 companies than not have him on speed-dial.
Since I hope you never need Boris’s expertise – and because your company probably can’t afford him anyway – let me share something he told me once when I asked about effective ways to ward off major causes of securities litigation, like accounting problems, before they ever happen.
He started by observing matter-of-factly that people are basically good and they want to do the right thing. So, ferreting out problems before they occur isn’t rocket science: you need to speak with finance staff on a regular basis and listen carefully to what’s being said… and not said.
What does this mean in practice for high-performing boards?
With the CEO’s approval, have audit committee members spend some time every year on-site in a conference room sharing brown-bag lunches with the vice president of finance, controller, heads of AP/AR, credit personnel, etc.
The goal is simple. Get to know them. Understand what they like and dislike about their jobs. Ask them how they could do their jobs better. And, importantly, ask them whether they feel like they’re always able to give bad news to their superiors.
This isn’t about grilling people. It’s not about “gotchas.” And it’s not about being coy. It’s about being approachable, authentic, and connecting with people who are the early warning system for all kinds of malfeasance.
Not bad for the cost of a few deli items.
Bad events almost always have warnings.
Some warnings are embedded in the questions. Some are in the answers.
