complete the questions at the end of the case study.  Make sure your answers are substantive. You must reference material presented within the text and other class material to support your answers in order to get full credit for the assignment.

Case Study 3.1: White Collar Crime: The Gap Between Perpetrators and Victims

When a prominent business leader ends up in prison, we often ask: “Why would a successful person with so much to lose risk it all by engaging in criminal activity?” Harvard professor Eugene Soltes sets out to answer this question in his book Why Do They Do It? In addition to reviewing what experts have to say on the subject, he interviews executives serving jail time for insider trading, manipulating interest rates, backdating stock options, falsifying financial statements, and stealing from investors. Soltes points out that while he analyzes the failures of prominent executives, we can learn from their example to avoid a similar fate.

Soltes reports that two common explanations for white collar crime—personality weaknesses and judging that the benefits outweigh the costs—don’t explain the actions of his subjects. For the most part, the convicted executives didn’t have poor self-control or lack empathy. (One exception was Bernie Madoff, who seemed to lack feeling even for his own family.) And they didn’t carefully weigh the costs and benefits of their actions. Scott London, a KPMG senior partner who provided inside trading information to a friend, noted, “At the time this [securities fraud] was going on, I just never really thought about the consequences” (p. 99). London made little money from providing the information to his friend but had to pay a high cost. In addition to going to jail, he lost his CPA license and his job (which paid $650,000 to $900,000 a year) and had to resign from three charitable boards.

Professor Soltes puts much of the blame for corporate crime on the disconnect between the action and the harm. In large companies, perpetrators are separated physically and psychologically from their victims. Their misbehavior is eased by the fact that they are distanced from the harm caused by their crimes. The CFO of ProQuest, for example, illegally boosted earnings, which cost shareholders $437 million when the scam was discovered. However, he didn’t think he did much damage because he carried out his crime on a computer and didn’t target a particular individual or group. In addition, perpetrators are often rewarded for misbehavior (get promoted or honored for making the numbers) before they are caught. According to Soltes:

Each kind of corporate misconduct has facets that make it resonate less intuitively. With financial reporting fraud, the effects are not felt until long into the future and the victims are often applauding the perpetrator’s behavior until the deception is revealed. With insider trading, it’s difficult to identify precisely which investors are harmed. And with tax evasion, the reduction to government coffers make the harm to specific individuals so diffuse that it no longer feels salient to say it harmed any individual person. (pp. 128–129)

Many of the disgraced executives didn’t consider the moral implications of their actions. They saw themselves as solving immediate business problems under time pressures in order to further their careers. They relied on their intuitions, which lacked a moral component. No one then challenged their choices. Executives at Symbol Technologies, for example, were convicted of booking sales for equipment that wasn’t shipped in order to continue to reach earning projections. Said one executive engaged in the scheme: “We always came up with solutions . . . Whatever it took, you did it and you got success from it.” (p. 189)

Soltes concludes by offering suggestions to reduce corporate misbehavior in ourselves and others. (Financial fraud costs the United States nearly $400 billion a year.) He argues that we need “uncomfortable dissonance” if we are to avoid falling victim to faulty intuition. To engage in deliberate reasoning, we need to hear more dissenting opinions when making choices, something that his leaders failed to do. Along with dissonance we need to be humble, to appreciate “our lack of invincibility—our inherent weakness and frailty” (p. 329). Doing so will encourage us to stop and reflect. However, moving toward greater humility may not be easy. The former executives interviewed by Soltes didn’t appear all that humbled by their experiences. Instead, they believed that what they did wasn’t so bad and that others were more at fault. According to Soltes: “Virtually every one of the former executives I spoke with pointed out, even complained, that it was not he who was the true villain—it was always someone else” (p. 329).

Discussion Probes

1. What steps can organizations take to reduce the physical and psychological distance between financial crimes and the harms they cause?

2. What might be other reasons that executives commit white-collar crimes?

3. How can we help ensure that moral considerations are factored into important organizational decisions?

4. How open are you to “uncomfortable dissonance?” How can you ensure that you will hear from those with different opinions?

5. Why do so many disgraced executives excuse their behavior?

6. What are some strategies for recognizing our “inherent weakness and frailty?”