In Sweden researchers find
alarming number of people with criminal convictions in
leading positions of listed companies
Helsinki (17.06.2012 - Timo-Erkki Heino*) More than one out of five, 22 per
cent, of the board members and the CEOs of Swedish listed companies has
been convicted of a crime resulting in fines or in custodial or
suspended prison sentences. The most common crime among the boards of
directors and chief executives has been drunken or reckless driving.
But also crimes endangering life and health, such as assault, were
committed, as well as fraud and insider trading.
The findings were revealed in two research reports
connected with the Sustainable Investment Research Platform SIRP at the Umeå
School of Business in Sweden and headed by economics professor Lars Hassel.
Out of a total of 3,373 board members 727 (21.6%) were found to have
criminal convictions. Among
the 580 CEOs the figure is 182 (31.3%) and among CFOs the number of
convictions is 78 (21.4%) out of 364.
Almost 90 per cent of the Swedish listed companies have at least one board
member who has been convicted of a crime. And, incredible though it may
seem, there are listed companies in which every
member of the board has a criminal record.
The Swedish researchers studied how the board members' and CEOs' personal
characteristics affect the way they are running their companies. It was
presumed that prior criminal convictions are evidence of excessive
risk-taking as a character trait, which could mean more risky managerial
decisions, resulting in negative consequences for the company and its
These presumptions were proven to be correct. The researches discovered that
companies which had senior executives who had been convicted of crimes,
engaged, for instance, in
more risky, and hence often less successful acquisitions, in lower
accounting quality and in short-term oriented business decisions often
resulting in higher earnings volatility. These companies also reported lower
earnings on average, which suggests that their excess risk-taking is not
compensated by higher earnings.
In another study it was revealed that boards with a higher proportion of
members with criminal convictions seem to focus less on environmental
concerns and expose their firms to greater environmental risks.
Convicted individuals can be appointed to senior posts because their
convictions often go undetected. In informal discussions with listed
companies' representatives and head-hunters, the researchers found that
during the selection of senior management vetting procedures are less than
rigorous and criminal records rarely checked.
Another reason for appointing persons with criminal records is that many of
these criminal convictions are not viewed as being of the sort that would
impair one's ability
to exercise sound business judgment, driving under the influence of alcohol
being the most common example of this kind of thinking. However, the
researchers point out that criminology literature clearly shows that
convictions, regardless of the nature or seriousness of the crime, indicate
overconfidence and a tendency to take risks. Appointing such
persons to senior corporate positions is likely to increase the overall
Sweden is one of the very few countries in the world where this kind of
research can be conducted. It is based on comprehensive data collected by
Swedish National Council for Crime Prevention and made available for
research purposes. The researchers decline to draw conclusions concerning
the degree of senior management with criminal convictions in other
countries, but they do state that appointing board members who have been
convicted of crimes is surprisingly common among listed companies in Sweden,
a country where the rule of law is strong and the general level of crime
lower than in many other Western countries.
*Timo-Erkki Heino worked at the Finnish Broadcasting Company YLE from the
early 1970's until 2011 producing investigative documentaries on economics.
- In 1994 and 2011, he received the Public Information Grant (the Finnish
equivalent of the Pulitzer prize) for his documentaries on South Africa and
on economic policy. - In 1997, 2002 and 2011, Timo-Erkki Heino received the
annual award of the Association of Investigative Journalism in Finland.