Hubris, Fraud & Governance: The Fish Rots from the Head Down

Because no-one is too smart to fail ...

Recently an article¹ sparked an unexpected and thought-provoking conversation with my teenage daughter about personalities and their influence on our perceptions. Inspired by its breakdown of Trump’s policies—presented free from the noise of his (or TikTok’s) rhetoric and controversies—I decided to conduct a small experiment.

I shared these policies with my daughter without mentioning Trump’s name. Her reaction? Surprisingly supportive. What stood out most was her candid observation when I revealed the policies as Trump’s:

“If he weren’t an old, white, misogynistic, criminal, what he’s saying isn’t so bad.”

A similar discussion with a friend, however, prompted a very different response:

“Not to be extreme, but a lot of people may have agreed with Hitler’s sentiments, yet the devastation came in their execution and the character of the man.”

Both responses focused on Trump’s character, showing how perceptions of his policies were immediately coloured once the source was revealed. This made me reflect on a broader truth: we often judge ideas not on their content but on the person delivering them.

Delivery matters. How often have you abandoned a theoretically brilliant yet monotonous podcast? Conversely, people are drawn to charismatic leaders who inspire confidence and rally support. However, unchecked hubris can lead them, like Icarus, too close to danger, ultimately causing their downfall. For many, the intention to deceive may not be present at the outset. Yet this too-smart-to-fail personality type (my words) can set off a cascade of lies and misjudgements, with disastrous consequences as their narrative spirals out of control.

These charismatic leaders undoubtedly have the power to inspire, attract investors, and rally teams. However, they can also drown out dissenting voices and obscure cracks in organisational structures. This is where internal controls—often overlooked and underappreciated—play a crucial role. These systems, designed to ensure accuracy, accountability, and compliance, work quietly in the background, uninfluenced by personalities, serving as the unsung heroes of a healthy business or political system.

Charismatic leaders, Trump can be likened to a 'noisy child'—distracting, demanding attention, and making it difficult to think clearly unless one actively tunes him out, like

Marvin Barth

did in the article that provoked the above discussions. Similarly, accountants and investors must tune out the 'noise' to focus on evidence, critically assess narratives, and communicate their findings effectively. Failure to do so can lead to catastrophic outcomes.

In this article, I explore three of the most spectacular failures of internal controls and governance in recent times. While each case has been analysed extensively on its own, examining them collectively highlights a striking commonality: the fish rots from the head down—in other words, the tone at the top is critical.

The Smartest Guys in the Room

Ethical leadership establishes the values and expectations that guide an organisation. When leaders prioritise accountability and compliance, they set a powerful example that resonates throughout the company. Conversely, when those at the top disregard or undermine controls, they create an environment where unethical behaviour becomes embedded and widespread.

Among the most effective safeguards is ensuring no single individual wields excessive control over vital financial processes – segregation of duties. By distributing responsibilities and ensuring checks and balances, organisations can reduce the risk of fraud and errors while promoting transparency and accountability.

The story of the Swiss mining giant, Glencore serves as a stark warning of what happens when these principles are neglected. Far from merely ignoring unethical practices,

“senior individuals at Glencore authorised the bribery instead of simply failing to prevent it”².

This behaviour was enabled by a lack of robust internal controls, which failed to detect or prevent corruption, allowing it to proliferate unchecked.

Perhaps Glencore were not, as they called themselves, “The Smartest Guys in the Room”³ ⁴ after all. Alex Gibney’s book Enron: The Smartest Guys in the Room suggests that anyone giving themselves this moniker should be treated with caution rather than honour. Enron was once celebrated as a beacon of innovation, with executives who dazzled analysts and captivated markets with their bold vision. Yet, behind the façade lay a web of complex accounting loopholes and outright fraud. Their carefully crafted narrative delayed critical scrutiny until it was too late, leading to Enron’s dramatic collapse and the downfall of Arthur Andersen, then one of the world’s largest accounting firms.

The Crypto Wunderkind

Strong corporate governance and internal controls are vital safeguards, acting as counterbalances to the influence of powerful personalities and the temptation to focus solely on short-term results. When these controls are absent, even the most celebrated companies can spiral into chaos, driven by the unchecked power of their charismatic leaders.

Imagine this: your CEO is playing League of Legend⁵⁶ on his phone during a high-stakes investor pitch, while his second-in-command - and on-again, off-again girlfriend - shares her love of Harry Potter while dressed as a sultry wood nymph, complete with fairy lights on her head. Absurd as it sounds, this happened at FTX. The CEO, Sam Bankman-Fried. The Wood Nymph, Caroline Ellison (CEO of FTX’s sister company Alameda). The investor, Sequoia Capital, was not deterred. Instead, they invested a substantial sum and even published a (now-deleted) article praising the experience.

This recklessness stemmed from a leader who believed he was smarter than everyone else, moving the company offshore to avoid US regulations and operating with no governance structure. Under Sam Bankman-Fried's charismatic leadership, FTX lacked a corporate governance structure. Customer funds were commingled with those of its affiliated trading firm, Alameda Research, blatantly violating fiduciary duties. Financial decisions were concentrated among a close circle of insiders, with blurred personal and professional relationships further undermining accountability and a complete absence of segregation of duties.

The collapse of FTX is a stark reminder of the catastrophic consequences that arise when internal controls and governance are neglected, allowing charisma to overshadow accountability.

The Disrupter

Disruptors often position themselves as visionaries, challenging the status quo and introducing groundbreaking innovations. While this mindset can drive progress, it can also serve as a smokescreen for circumventing controls and accountability. Phrases like "you wouldn’t understand" or claims of "new, secret technology" are often used to dismiss scrutiny, silencing questions that might otherwise uncover flaws or misconduct. When the disruptor’s vision is prioritised over transparency and compliance, the organisation risks trading stability for a façade of innovation.

Nowhere was that more evident than in the case of Theranos, where Elizabeth Holmes styled herself as “The Next Steve Jobs,” cultivating an image of an innovating genius to convince a star-studded board of the merits of her unproven and ineffective technology⁷. Theranos's machine was famously named the Edison, a choice that carries its own ironic undertone. Thomas Edison, celebrated as a genius inventor, was no stranger to the idea of "faking it" to keep his ambitions alive. During his development of the incandescent light bulb, Edison made grand claims about its readiness, often presenting flawed prototypes to investors and the public while working furiously behind the scenes to perfect the design.However, unlike Edison, Theranos's claims were built on a foundation of deliberate deception, with no scientific or technological basis to support them. This ironic parallel serves as a reminder of how the line between visionary perseverance and outright fraud can blur when ambition is left unchecked by ethics or accountability.

Theranos’ board, composed of accomplished but aging men with no expertise in medicine or science, lacked the ability to effectively challenge her claims. Instead of providing governance, they merely rubber-stamped her assertions, lending them unwarranted credibility.

Compounding this was a blatant disregard for segregation of duties—Holmes and her COO, Sunny Balwani, were in a romantic relationship, creating a toxic concentration of power. Dissenters like Tyler Schultz, who raised critical red flags about the technology’s validity, were aggressively silenced, even though his own grandfather, George Schultz, served on the board.

The Fish Rots from the Head Down

All these companies share a common truth: the rot started at the top. The tone at the top is critical, as leadership sets the ethical and operational standards for the entire organisation. In cases like Theranos, FTX, Enron, Glencore, collusion—whether romantic or otherwise—creates a concentration of power that erodes accountability and amplifies misconduct. Combined with a lack of governance and ineffective oversight, these factors form a dangerous cocktail, allowing unethical practices to thrive unchecked. This pattern serves as a stark reminder that strong governance and internal controls are not optional; they are essential safeguards against the human tendencies toward hubris, greed, and unchecked ambition.

Fraud is often difficult to detect because of the magnetic personalities that drive these corporate collapses. Leaders like Holmes, Bankman-Fried and others leverage charm, intelligence, and confidence to obscure unethical practices and deflect scrutiny. But remember no one is too smart to fail. Warning signs to watch for include excessive secrecy, resistance to independent oversight, and environments where dissenters are threatened, silenced, or dismissed as uninformed.

Much has been written about corporate failures, but in my opinion there seems to be a recurring personality type—charismatic, domineering, and unwilling to tolerate dissent—that plays a central role in many of these cases. Identifying these traits and strengthening checks and balances are crucial to averting similar failures in the future because if something seems too good to be true, it often is.

Returning to the catalyst of this discussion: Trump. He appears to embody many of these traits—charismatic, adept at silencing dissent, intent on disrupting established systems, and undermining key safeguards such as segregation of duties by appointing family members⁸ and friends to critical positions. Whether you love or hate his policies is beside the point; the real issue lies in the broader implications of such leadership styles on governance and accountability. As Barth noted in You Want a Revolution, the comparison of President Donald Trump to President Andrew Jackson is particularly striking, as both are seen as revolutionaries and disruptors. Jackson, while undeniably a disruptor, had a presidency plagued by volatility and scandal, raising questions about the long-term consequences of such leadership approaches. Similarly, Trump's presidency invites us to examine how disruption and the erosion of traditional safeguards can affect institutional stability and public trust. I shall close with the words of another former US president, Dwight D. Eisenhower: “The supreme quality for leadership is unquestionably integrity. Without it, no real success is possible, whether it is on a section gang, a football field, in an army, or in an office.”

1. You say you want a Revolution... Dictator or patriot, Donald Trump is plotting a revolution by Marvin Barth | 27 November 2024

2. Glencore to pay £280 million for ‘highly corrosive’ and ‘endemic’ corruption | SFO Press Release | 3 November 2022

3. How Glencore’s Roller-Coaster Ride Tamed Its Swashbuckling CEO by Bryan Gruley, Jesse Riseborough, and Javier Blas | 7 September 2016

4. Dryblower (again) on pay day for the Glencore boys by Tim Treadgold | 6 April 2011

5. The founder of FTX lives his life by a calculus of altruistic impact by Adam Fisher | 22 September 2022

6. The Hard Lessons of FTX by Anthony Pugliese & Richard F Chambers | 26 January 2023

7. The Inventor: Out for Blood in Silicon Valley | A HBO Documentary | 2021

8. Trump’s extraordinary selection of his daughters’ fathers-in-law for key posts underscores his reliance on family members by Betsy Klein and Isabelle D’Antonio | 2 December 2024