The frequency of corporate misconduct: public enforcement versus private reality
| Published date | 07 October 2019 |
| Pages | 923-937 |
| DOI | https://doi.org/10.1108/JFC-10-2018-0107 |
| Date | 07 October 2019 |
| Author | Eugene Soltes |
The frequency of corporate
misconduct: public enforcement
versus private reality
Eugene Soltes
Department of Business Administration, Harvard Business School,
Boston, Massachusetts, USA
Abstract
Purpose –Perceptions about the frequency of misconduct –among the public, academics and even
regulators –have largelybeen formed by examining enforcement statistics, whichrely on the detection and
sanctioning of the misconduct. This study aims to illuminate the real occurrence of corporate misconduct,
much of which escapespublic detection.
Design/methodology/approach –By examining confidential firm records describing misconduct
within organizations, the author shows that public enforcement statistics significantly underestimate the
amount of seriousmalfeasance that arises withinfirms.
Findings –Through analyzingrecords for several large multinational firms,the author finds that there are,
on average,more than two instances of internally substantiatedmisconduct per week per firm.
Originality/value –Ultimately,this analysis illustrates the challengeof addressing corporate malfeasance
within largeorganizations.
Keywords Fraud, Bribery
Paper type Research paper
1. Introduction
One question that researchers,regulators and the public perennially ask is whether the level
of corporate misconduct is risingor falling over time. Responses to this question tend to be
quite speculative, as the most basic fact –the base rate of actual corporate misconduct –is
unknown. Without more information on the true frequency of offenses, researchers often
rely on public enforcement statistics to ascertain the level of misconduct and the
effectiveness of regulatory bodies. However, based on prior scholarship (Dyck et al.,2017)
and investigative journalists’work (Eisinger, 2017), there is strong suspicion that a
considerable amount of misconductgoes undocumented in these public statistics. Assessing
how much misconduct lies outside the enforcement records has been challenging because
this malfeasanceis not usually publicly observable.
In this paper, I begin to offer a more thorough depiction of the amount of corporate
misconduct by examining the frequencyof offenses within firms based on companies’own
internal investigative data. Publicly traded firms are required to have an anonymous
reporting channel or “hotline”for accounting and financial matters. In practice, firms use
these hotlines to receive information about a variety of issues that potentially constitute
legal and regulatory violations (Soltes, 2018a). Supplementing these hotlines, firms often
I would like to thank Jihwon Park, Alexa Scherf, Grace Liu, participants at the Cambridge
International Symposium on Economic Crime and students in Corporate Criminal Investigations at
Harvard Law School for helpful feedback on earlier drafts.
Frequency of
corporate
misconduct
923
Journalof Financial Crime
Vol.26 No. 4, 2019
pp. 923-937
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-10-2018-0107
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
To continue reading
Request your trial