The current battle between advertising giant WPP and its founder, Martin Sorrell, shines another spotlight on how allegedly questionable expense account reporting can prompt a corporate controversy or inflate an existing one. It also evokes some sage advice given years ago by the master politician, Lyndon B. Johnson.
As the story goes, at the end of his administration, LBJ warned his departing aide Joseph Califano to “watch out” for Johnson’s successor, Richard Nixon. According to the biographer Robert Dallek, Johnson predicted that Nixon wouldn’t be satisfied with merely winning the presidency. He’d also need to send some former Johnson associates to jail. Accordingly, Johnson advised Califano to pay an additional $ 500 above what he owed on his income taxes, as insurance against a Nixon-run Internal Revenue Service.
Well, LBJ wasn’t far off the mark on that one, and his practicality still rings true. For as it is in politics, so often it is in the corporate world. Leadership structures being what they are, fractious, adversarial and suspicious relationships will exist. Especially for leaders who by their personality or management style tend to “make waves,” e.g., those who carry a high profile, whose leadership style is bold and transformational, or who are forced to make unpopular or difficult decisions.
For these kinds of leaders, the risk of personal controversy is high. There will always be those in the organization looking to challenge the change agents, through fair or unfair criticism. And, as a series of recent developments suggest, the expense account can be a fertile (and sometimes justifiable) source of criticism.
Take the WPP/Sorrell controversy for example. As its long-time CEO, Mr. Sorrell is recognized for building WPP into an advertising giant. However, he resigned as CEO over nine months ago in the cloud of an internal investigation into allegations of his personal misconduct. Mr. Sorrell has aggressively refuted the allegations and his relationship with WPP has become increasingly (and publicly) strained. More recently, WPP has scrutinized his expense reports and reportedly has sought reimbursement for certain payments related to housing, family travel and vacations.
And there have been other highly publicized expense report controversies over the last several months. In one circumstance, issues relating to the expense reporting of a prominent international executive have been at the core of a series of fraud-based allegations. In another recent instance, a federal financial regulator has been subjected to government investigation for what a whistleblower described as “extravagant” expenditures for food, alcohol, and travel.
Expense account abuse was cited in the widely reported termination of a prominent Wall Street executive also asserted to have engaged in sexual harassment. FINRA has been active in policing expense account reporting in the financial services industry. More than a dozen members of the investment banking division of a major U.S. financial institution were fired or suspended for expense report violations. And, of course, several high-ranking members of the Trump Administration have faced allegations of expense account abuse.
Let’s face it. Whether as a proper exercise of corporate compliance, as leverage in an internecine dispute or just as a means for plain old score-settling, expense account improprieties are low hanging fruit. They cut to the heart of personal integrity, betray corporate culture and can frustrate implementation of leadership initiatives. And that’s where LBJ’s advice comes into play, in a manner that is win-win for corporate leaders, and for the organization.
For the expense account equivalent of that extra $ 500 in taxes is a disciplined adherence to expense reporting policies, above and beyond what is required by company policy. It’s not necessarily a matter of paying more expenses out of your own pocket (although that might help). It is more a matter of paying extra attention to both the spirit and letter of the company’s expense account rules.
Seek clarity on the scope of authorized discretionary expenditures. Actually preserve receipts. File reports immediately, and include a full explanation of the activity involved. Make sure the right people—not your subordinates—are reviewing the submitted reports. When you anticipate incurring major expenses, pursue an appropriate form of pre-clearance. Actually examine the report before it is filed. Not only just play by the rules; focus on the larger expectations of leadership.
Joseph Califano was a gifted public servant of many years standing who didn’t need lessons on integrity from President Johnson. He would have intuitively done the right thing. But wave-makers and change agents in any line of business tend to attract push back, that can often distract them from serving the company and its stakeholders. And recent developments suggest that paying that extra $ 500–in the form of expense account discipline—will enhance the quality of that service.
LBJ might have seen this simply as the smart play. But there’s an organizational benefit as well. Ultimately, it’s a tone-at-the top exercise, an action that sends a very prominent signal of personal integrity and commitment to compliance. It’s certainly not a legal requirement nor even a best practice. It won’t shield true fraudsters from scrutiny. But it is a reflection of good faith, and can also prevent unnecessary internal controversy and distraction. And if it also works to keep the Nixons of the organization at bay, all the better.