Understanding C-suite Fraud

What do corporate leaders-turned-fraudsters say about their actions? Why did they do what they did? Harvard professor Eugene Soltes’ book Why They Do It: Inside the Mind of the White-Collar Criminal (2016) offers some illustrative statements.

I never once thought of the costs versus rewards.

I never felt that I was doing anything wrong.

If there was something wrong with this transaction, wouldn’t people have told me?

You can’t make the argument that the public was harmed by anything I did.

I thought we were freakin’ geniuses.

You couldn’t stop because you would wreck everything.

When I look back, it wasn’t as if I couldn’t have said no.

Soltes spent seven years investigating why respected executives engage in white-collar crime—fraud, embezzlement, bribery, and insider trading; he “interacted extensively” with almost 50 formerly prominent executives who had been convicted of white-collar crimes (Soltes, Dec. 2016).

Greed wasn’t necessarily a factor. For many, their unethical and criminal actions resulted from “momentary lapses of self-control and restraint” (Parloff, 2016, summarizing Soltes). Once engaged in the behavior, they may not have recognized it as wrong, or may not have seen a good way to stop.

According to Soltes, some of these convicted execs believed, or at least told themselves, that they were sustaining the business or employees’ jobs. Some were being lauded for their success. Others “never really thought about the consequences.” Or they did not relate to the people they were harming.

“The perpetrators of white-collar crime are physically, psychologically, and even temporally distant from their victims,” says Soltes in his Atlantic magazine article. “Usually, a gut feeling that something will be harmful is enough of a deterrence. But when the harm is distant or abstract, this internal alarm doesn’t always go off. This absence of intuition about the harm creates a particular challenge for executives. …many of the people most harmed or helped by executives’ decisions are those they will never identify or meet.”

This distance, and a strong belief in one’s own intuition, can lead executives into a “gray zone” between right and wrong. Executives (in reality, all of us) need “uncomfortable dissonance”— external influences or events that conflict with their intuition—to motivate a behavior change (Carozza, 2017) or, perhaps, to even recognize the gray zone.

Yet, many executives seldom experience such dissonance. In his article about Soltes’ research, Dick Carozza, editor-in-chief of Fraud Magazine, quoted one of the convicted executives.

When the CEO is in the room, directors — even independent directors—tend to want to try and please him. The board would give me anything I wanted. Anything. We believed our own press. … With myself and others—even the board—you become consumed a little bit by your own arrogance, and you really think you can do anything.

Soltes says that executives need to be surrounded by people of diverse backgrounds and viewpoints, who are more likely to provide dissonance than people who share the same views and opinions (Carozza, 2017).

Board members and members of the senior leadership team may need to seek their own sources of dissonance to ensure they can provide it to others.

We all need to take to heart one of Soltes’ conclusions. “The simple fact is, most of us think we are better and more moral than we actually are. No one, especially those who have achieved success, believes that are likely to stumble and err. It is this sense of invincibility that has felled leaders across a range of fields.”

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Carozza, Dick. “Why Do They Do It?” Fraud Magazine, July/August 2017. http://www.fraud-magazine.com/article.aspx?id=4294998521

Parloff, Roger. “A Harvard Professor Studied Infamous White-Collar Criminals. Here’s What He learned.” Fortune, October 10, 2016. http://fortune.com/2016/10/11/white-collar-criminals-eugene-soltes/

Soltes, Eugene. “The Psychology of White-Collar Criminals.” The Atlantic, December 14, 2016. https://www.theatlantic.com/business/archive/2016/12/pyschology-white-collar-criminal/503408/

Soltes, Eugene. Why They Do It: Inside the Mind of the White-Collar Criminal, 2016.