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Corprate Fraud

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” I came across this article in the Michigan Alumnus Summer 2013 issue, page 39.   I thought it was something interesting to share with viewers.”  DeVine

Close Ties Means More CEO Fraud

When a CEO appoints more top executives, the chance of fraud goes up – and the chance of finding it goes down.

“CEOs who commit fraud don’t act alone.” said E. Han Kim, Ross business professor and co-author of the research, “The more closely connected they are, the easier it is to bypass controls.”

The authors looked at a sample of publicly traded companies from 1996 to 2006.  They compared firms where the CEO had appointed all four executives with those where the CEO appointed none.  At the firm with four, fraud went up by about 35 percent and the chance of detection went down by 20 percent, according to Kim’s estimate.  And that CEO had a 30 percent better chance of not getting fired after he got caught.

“Boards, regulators, and investors need to be aware of this,” said Kim, who has served on a number of boards, “Network connections  among executives have benefits, but we’ve shown that the connections built through personnel decisions by the CEO magnify the risk of corporate fraud.”

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This entry was posted on 06/09/2013 by in Crime Knowledge, Orgainzed crime, Social Issues, Uncategorized and tagged , , , , , , , .

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