CEO Speeding Tickets Lead to Accounting Fraud?

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Brand new research shows that CEO recruits who have had even one minor legal infraction—such as a speeding ticket—are 7 times more likely to engineer an accounting fraud than CEOs with completely clean records.

CEO Sitting on ChairThe research was conducted by Robert Davidson, a professor at Georgetown University’s McDonough School of Business.

Professor Davidson found that CEOs who live a life of luxury (e.g. owning a yacht, a high-end car, a high-priced home, etc.), are 10 times more likely to preside over firms where other executives engineer frauds.

This landmark research flies in the face of convention recruitment wisdom. The managing partner of Boyden Global Executive Search’s Chicago officer revealed that a CEO with a whole slew of speeding tickets and traffic violations might raise eyebrows, but a single speeding ticket—prior to this research—normally would not.

However, this study indicates that even a single traffic infraction can matter tremendously.

The study compared companies involved in fraud during 1992-2006. Although the sample size was on the low end—only 109 firms involved in fraud and 109 not—Professor Davidson explained that it included “every case of fraud from an S&P 1500 firm” during that period of time.

Professor Davidson noted, “In our fraud sample 21% of CEOs had broken the law, and in the non fraud sample it’s 5%.”

As you might have expected, several of the CEOs in the fraud sample had done much more than get speeding tickets. They were convicted of driving under the influence, domestic violence, drug charges, getting into bar fights, and other types of reckless behavior.

In the past, the motto of CEO recruitment has been “don’t sweat the small stuff.” However, the takeaway from this research, according to Professor Davidson is, “[T]here’s information in the small stuff, it matters.”

Ultimately, you can bet that employers privy to this study will be taking a keener look at a person’s traffic record before offering them a job.

(Source: http://blogs.wsj.com/riskandcompliance/2013/07/18/ceo-speeding-tickets-luxury-spending-could-be-early-warning-of-fraud/)

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This post was written by Adam Rosenblum


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