Communication Management at K&S Corporation - Case Study Example

COMMUNICATION MANAGEMENT Name: Course: Professor’s Name: University: State: Date: Introduction Communication is an important aspect in the internal management of an organization that ensures the smooth running of its operations. Additionally, communication is the bridge that connects the organization to external stakeholders such as investors. It ensures a healthy relationship with the public hence improving the corporate image. Unfortunately, incidents may occur tarnishing the organization’s image and handling of their occurrence determines the extent of damage to the reputation. The management can use certain strategies to contain the situation through communication with the public to maintain the existing level of confidence. Business Incidence K&S Corporation has faced fraud scandals involving its employees over the years hence ranking among the most scandalous corporations in southern Australia. Early 2015 the company realized yet another string of fraudulent activities dating from 2007 to 2014. The $7 million fraud implicated the auditor of the company with the company suing KPMG for negligence (Changarathil 2015 p.1). A previous fraud scandal facing the trucking company involved Dennis Craig Telford who stole $22 million from the company causing major losses to Allan Scott, the then largest shareholder. The fraud scandals have influenced negatively on the company since the revelations with investors losing confidence in the corporation (Mckay 2015 p.7). The company lost $27.6 million in its market valuation within a day of the emergence of these speculations in 2002. During this time, the staff reportedly lived lavish lifestyles prior to the fraud revelations, like Dennis Craig Telford who owned a beach house worth millions of dollars. The recent discovery of misappropriation of $7 million with $400,000 occurring in the financial year of this discovery took place approximately seven years after the death of Allan Scott. Public Image Maintenance The public image of K&S Corporation suffered tremendously after experiencing major fraud scandals twice. The company would have to formulate effective strategies to correct the negative image it portrayed. Investors for instance began pulling their money out of the company in fear of misappropriation. After the fraud revelations, the company only managed to recover a few million dollars meaning that the company would have to pay debts from its reserves. Investors would therefore have to pay for unnecessary expenses due to the fraud. In 2002, Mr. Scott, the then company’s major investor, took it upon himself to assure other investors of the expected high performance of the company. He expressed dismay over the ongoing fraudulent activities that went undetected despite involving an individual employee. He also promised to use any means available to recover the lost funds and hold responsible individuals accountable for their actions. In 2015, the Scott family’s AA Scott Pty Ltd, the current largest shareholder also assured the investors of the strategic positioning of the company for future success. It provided a strategy for revenue maximization and cost minimization to improve profitability amidst the fraud scandal. Announcement of dividend payment to shareholders on April 3rd further contributed to improving investors’ confidence on the company’s performance. As the major shareholder, they stood to lose the most from implications of the fraudulent activities hence this information word meant a lot to other investors. It also indicated the commitment of the company’s management to emerge from the negative publicity by recovering funds and taking legal action against responsible persons. Assuring the other investors of the high likelihood to recover from fraud was an effective strategy to prevent their exit (Ma & Zhan 2016 pp.14). This strategy worked in maintaining key investors despite the reported fall in share value. Perceptions of the public and the context of information affect its interpretation upon reaching the public. Revelations of fraudulent practices within K&S Corporation came during a time when KPMG had released results of a survey conducted on corporate fraud indicating its extensive rate of encroachment. According to the survey, 55 percent of the largest corporations reviewed in the survey had reported at least once incidence of fraud within two years (Todd 2002 p.6). The amount of funds lost through fraudulent practices amounted to $273 million indicating that fraud was a thriving practice among large public and private companies. The survey indicated that managers attributed to 40 percent of losses incurred due to fraud. This information provided the context for the released information regarding K&S Corporation fraud. It helps the public understand that this was not an isolated case but a common occurrence within the industry. On one hand, it maintained the investors’ confidence by showing them that this was only an unfortunate occurrence that befell the company. This means that only few individuals within the management played a role in the fraudulent activities and their elimination would restore the organization to its initial position. On the other hand, it triggered extensive debate on the issue of corporate fraud within Australia, a phenomenon affecting the country’s economy (Avery & Park 2016 pp.18). In the course of this debate, K&S Corporation took centre stage due repetition of the fraud incidents indicating low commitment of management in preventing fraud. However, despite the highly controversial position of the company’s management, the company was keen to inform the public that it had a comprehensive crime insurance cover to protect investors’ funds from extensive effects of the fraud. This helped in protecting the company’s reputation from the extensive damage expected from the fraud incident. Dealing with Bad Press K&S Corporation has been the victim of bad press following its involvement with large fraud scandals twice. Top employees of the company received conviction for defrauding the company with some funds still unrecovered to date. Negative publicity began with Craig Telford, the financial controller, sentenced to fourteen years in prison for defrauding the company $22million. Finding the financial controller guilty of fraud was a big blow to the company that had trusted him with management of funds. This triggered negative publicity with the public expressing concerns over the quality of corporate governance within the organization. Falling victim to fraud twice in a row contributed to the negative publicity portraying the company as incapable of preventing fraudulent activities. Involvement of key employees in the scandals further tarnished the organization’s image since it indicates the compromised nature of the entire workforce (Bernays 2000 pp.45). The company portrays lack of commitment to fighting funds misappropriation due to occurrence of major fraud scandals twice. Scandals facing the organization rated among the most prominent fraud scandals in southern Australia hence making headlines over a substantial amount of time. Erasing the damage of bad press for the organization would therefore require effort and dedication of the management (Vejlgaard 2016 pp.87). Unfortunately, the organization is yet to take these measures to ensure restoration of its name among stakeholders. Until then, the company stands to lose investment opportunities due to the high level of suspicion from the public and its limited activities aimed at correcting the negative publicity. Addressing the Public Addressing the press upon the eruption of a scandal can influence the impact of negative news on an organization’s reputation (Diwan 2001 pp.81). One can alter the narrative of a scandal by responding to information provided by the press at a certain time. There is a belief that any publicity is good publicity but this conception is untrue in the business world. Investors prefer trusting trustworthy individuals with their funds rather than gambling their money with mediocre business partners. Negative publicity therefore tarnishes the image of the organization, which triggers suspicion among investors. Investors may contemplate reducing the amount of their investment or complete withdrawal of investment from the organization. This reduces the amount of capital available to conduct business hence resulting in losses. When revelations emerged that K&S Corporation had been a victim of fraud once again, the public was in dismay hence looking for more information on the matter. The media therefore approached the organization for information or comments regarding the issue. The management refused to comment on the issue and distanced itself from the ongoing discussions about the fraudulent activities of major officials affiliated with the organization. This only raised further questions about the position of the organization regarding the fraud scandal (Lewis & Nichols 2011 pp.20). This was a perfect opportunity for the organization to clear its name and provide its position regarding misappropriation of funds. Distancing themselves from the issue only contributed to speculations about the role of management in covering up fraud for seven years. Refusing to engage the public in information robbed the organization an opportunity to clear its name and restore investor confidence. It therefore watched its reputation go down the drain instead of intervening and attempting to save it from further destruction (Wilcox, Ault & Agee 2001 pp.51). Provision of comprehensive information is a strategy used by the organization to mitigate the damage of its reputation due to the fraudulent activities of its employees. It admitted to presence of fraud since 2007 to 2014 when the company discovered the presence of suspicious activities (ABC 2015 p.5). The company did not cover up any information regarding the fraud since this would later contribute largely to tarnishing its image. The organization also refrained from protecting employees implicated in the fraud scandal hence distancing itself from the activities. It even provided information that employees involved in the scandal were in police custody to assist in further investigations. This passed across the message that individuals had to take responsibility for their actions and give an account of funds placed under their care. Refusing to discuss employee misconduct to the public reduced the level of damage to the reputation. Admitting that employees within the organization were corrupt individuals would only destroy the confidence of the public on the organization. It would indicate that the company has no confidence on its own workforce hence the public would have a hard time trusting the management team. Weighing the words to disclose to the public through the press therefore worked in distancing the organization from negative speculations. It also indicates a degree of loyalty to its employees and at the same time indicating that it requires individuals to take responsibility for their actions. Communication Breakdown Involvement in fraudulent activities twice indicates serious problems in the internal controls within the organization. Internal controls require a high level of communication between employees within the organization. Communication ensures passing of information from one point to the other as well as giving of feedback (Chopra 2009 pp.56). Formal and informal communications systems are important in the operation of an organization to prevent any form of breakdown. Involvement of employees in discussions help uncover problem hence formulate solutions to solve reported issues. The fraud scandals facing K&S Corporation involved either one or two employees charged with the responsibility of managing company’s funds. This indicates that the individuals had the overall power of preparing and presenting financial records hence getting the opportunity to manipulate records to their favor. The individual therefore prepared the records without sharing information with other employees. Lack of interaction among workers means they have the mandate to make certain decisions without consultation or supervision. Frauds therefore have the possibility of going undetected for long periods. Lack of supervision also gives room for misappropriation of company’s funds through unauthorized spending on personal agendas. Employees therefore have the freedom to use company’s money to live lavish lifestyles at the expense of investors. Communication systems would eliminate these problems by identifying misappropriation early enough (Robra-Bissantz 2000 pp.96). Action would then follow to correct any management troubles identified by employees. Early action would eventually prevent scandals that tarnish the company’s name and cost the company many resources. This would protect the company from suffering losses through fall in stock value due to withdrawal of investors from the venture. Communication breakdown not only occurs within the organization but also evident with other stakeholders. There seems to be miscommunication between the company and KPMG, the audit firm charged with the responsibility of auditing financial documents. The firm claims not to notice any issues with the financial documents presented for analysis. Some expenditure may seem normal to the auditor but when under review by both the management and the auditors may reveal discrepancies. The management may identify certain amounts allocated for unauthorized purposes. It can also identify false transactions documented in the financial statements. The auditor working in isolation may therefore fail to notice certain issues arising in the management of funds. However, the loss of large sums of money over a period of seven years raises questions as to whether the auditor was part of the fraud scheme. If the audit firm would have raised issues with the company and no action taken toward this effect, then the blame could shift to the company. Coordination of efforts between the management and employees would have resulted in a more effective audit process (Catellani 2016 pp.111). Management could have ideas on areas that have funding discrepancies to direct the auditing process towards a certain direction making it more effective. Suing of KPMG only proves the presence coordination between the two entities hence ineffectiveness of the audit process that failed to detect presence of fraudulent activities over a period of seven years. Conclusion Evidently, communication skills determine the success or failure of an organization through maintenance of a healthy relationship with stakeholders. Corporate image relies on the information available to the public regarding the organization hence the need to control information available to them. In the event of an unfortunate incident that threatens the corporate image as the one facing K&S Corporation, the conduct of management communicates a lot to the public. Therefore, the management team has the responsibility of managing effects on its reputation and maintains public confidence in the organization. References ABC South East 2015, Million dollar fraud hits K&S Corporation for second time. Available from: http://www.abc.net.au/local/stories/2015/02/26/4187301.htm [18 July 2016]. Avery E & Park S 2016, ‘Effects of crisis efficacy on intentions to follow directives during crisis’, Journal of Public Relations Research, 72-86. 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