Good governance criteria suggest that a board consisting of a majority of independent outsiders was the most likely structure to protect the legitimate interests of an entity, individual members were less likely to become a corporate criminal and the independence of the board and accountability were seen as antidotes to corruption.
Several researchers have concluded that, because of their positions, senior appointees (directors and heads of departments) when presented with the opportunity will override controls and direct others to commit and conceal crime [1]. In one example, Abdullah et al. (2019), who analysed over 10 years of cases in corporate settings in Malasia, found that over 90% of cases of corporate crime were perpetrated by chairpersons, directors and top management.
The recent corruption in PwC in Australia, was also laid at the foot of the directors (Armstrong, 2022). In this case, the company was commissioned by the Australian Government to develop new tax legislation. At the same time, heads of the company were sharing this information to partners worldwide who were consulting with clients on how to avoid the new regulations. The reviews of the PwC concluded that the governance structure was totally inadequate to assure independence of the board or its accountability. The PwC board was dominated by the internal Chair, and the PwC’s Partners serving on the Board were also the people committing the crimes.
This failure of governance structures to prevent crime has encouraged researchers to turn to examining the human factors that might be important in crime prevention.
Human factors and crime
“Human governance” (Abdullah et al., 2019) emphasises the importance of the people rather than the structure of a corporation. As Boubakri and Saffar (2016) pointed out, a structural concept of corporate governance could neglect many aspects of organizational life and culture because it is too much centred on a mechanistical and procedural approach to organizational issues. This prompted several researchers to explore individual characteristics such as demographic characteristics, leadership and influences. However, n corporations such as organisation culture.
Abdullah et al. (2019) investigated the demographic characteristics, qualifications and skills appropriate to different contexts. They concluded that “human” governance, the personal characteristics of directors and top management, were among the most crucial factors in crime prevention.
Other researchers included consideration of gender and ethnic diversity in their analyses of demographic characteristics. Gottshalk (2012) reported that Norwegian men commit more than 25 times more white-collar crime than women. Women were seen as less likely to commit white-collar crime because they have less access to power structures and therefore less opportunity. Researchers in other studies suggested that the real reason may be that they may be more ethical than men (O’Fallon and Butterfield, 2005; Abdullah et al., 2019).
Leadership and corporate disaster
Poor leadership and poor culture have been the focus of many investigations of company disasters (for example Enron, Arthur Anderson, PwC). The various reviews of PwC (Switowski, 2023; Australian Government, 2023) indicated that PwC leaders had a marked ignorance of, or disregard of, their company governance and espoused values aimed at cultivating an environment of trust with various stakeholders through the leadership values and competencies of integrity, capability, positive intent, mutual respect and transparency. Trust in PwC business has been lost, but not only in PwC. Questions were raised in the Australian Parliament about the integrity of the “big four” major consulting firms in Australia, their conduct of business with Government and their role in the loss of expertise in government departments.
Directors of companies are usually selected to meet the specified education level, skills and expertise in position descriptions and a Board’s skills matrix. Psychological attributes such as personality, ethics and integrity are more difficult to ascertain. However, these attributes were studied by Collins (2001) in his study of the leaders of 11 “Great Companies” selected from 1,435 companies that appeared in the Fortune 500. Collins concluded that the leaders who build great companies have a duality of personal humility and professional will; they are modest and wilful, shy and fearless and they subjugated their needs to the grater ambition of something larger and more lasting that themselves. Stewardship (Davis et al., 2004) and complexity leadership theories (Uhl-Bien, 2021). Refer to leadership practices that reflect these values. In complex environments they are collaborative and responsive to followers and seek to address the goals of stakeholders such as employees, communities and the wider society.
These leaders showed clarity of purpose, insisted on excellence, gave credit where it was due and motivated followers with their high moral and personal standards. They understand that ethical principles and morals should govern our leaders if leaders are to instil similar values in their followers.
Dion (2020) describes “morally ambiguous leaders” caught in the psychological conflict between the person-they-would-like-to-be and the “other” person engaged in business. Such leaders do not accept the “stable frontier” between good and evil. They are often powerful, able to shift their decision making depending on political advantage and have a weak commitment to what is right and wrong. When principles conflict, they will take the decision which is most expedient.
The “darker” aspects of leadership are found in leaders whose personalities feature attributes such as narcissism, psychopathy, Machiavellianism and sadism. They can be capricious, murderous, high-handed, corrupt and evil. There is still uncertainty as to whether darker leadership is due to intrinsic psychological disposition or attributes, or to a lack of exposure to ethical reasoning (Armstrong and Francis, 2017). It is effective, and self-serving.
An ethical culture
Organisation culture is most often defined in terms of underlying values, beliefs and principles that are shared by an organisation, group or nation. In organisations, the shared values and beliefs interact with an organization’s people, structures and systems to define work-related norms for behaviour that are shared with, expected by and rewarded by other members of an organisation. The culture endorses the actions and practices that are directed to what goals people and society ought to pursue and what actions they ought to perform (Armstrong, 1999). Ethical principles are fairly universal and are often recorded in Codes of Ethics or Codes of Conduct issued by professional associations and regulatory bodies. Many Australian companies develop their codes based on the Australian Institute of Company Directors Code of Conduct 2022 and Australian Securities Exchange Corporate Governance Principles 2019.
Underscoring ethics is the ethical principle “Do no harm”. Committing a murder is an obvious breach of an ethical principle. But so is thieving, lying and cheating, behaviours that in PwC’s case appears to have been accepted as normal. Ethical principles include the virtues of honesty, respect, trust, justice and integrity. Integrity is not only reflected in consistent values and behaviour but is also evident in what is accepted as being moral and ethical.
A moral decision concerns the right conduct, but what is “right” relates to social manners or customs such as those advocated in religions and national cultures. Morals are often seen as criteria for judging various behaviours. As they are determined by social or community values expressed in laws, religion or national traditions, what is moral can therefore differ across different countries or individuals (Muenjohn and Armstrong, 2007; Grow and Armstrong, 2007).
Moral values “when violated, arouse feelings of guilt for wrongdoing” (Rokeach, 1973, p. 8). It is not known if “ambiguous” leaders experience psychological dissonance when they are ambivalent or indifferent to ethical or moral decision making. Dion (2020) suggests that they could be open to multiple moralities, without being engaged in moral deliberation processes.
Those leaders who gravitate without principles across ethical and moral issues may leave a vacuum in an organisation’s culture that can be filled by criminal behaviour. In contrast, leaders in organisations, who initiate, influence and model specific behaviours in keeping with their ethical and moral concerns promote integrity in the culture of their organisations.
Conclusion
As noted above, much corporate crime within organisations is committed by the leaders of their organisation. Research confirms how good leadership is achieved, the value of good leaders and how they reinforce ethical and social mores to support desirable cultures that promote the good of a firm and the wellbeing of those who work in it.
Robust structures and processes set the foundation for good governance. However, crimes are committed by individuals. Therefore, deterrence of criminal activities will depend, not on more regulations, but on individual characteristics, agreement with peers on values, ethics and morals and rewards, whether they motivate self-interest or the good of the firm or society.
Note
Is this true of President Trump and his relationship with his former accountant?
