Family background connection to business managers’ financial crimes

The top one level business managers are twice as likely to commit financial crimes if their parents have been brought to court or convicted of financial crimes, says the University of Oulu School of Economics research.

The connection of crimes to family background is particularly strong when the financial crimes of the parents have been serious and led to a prison sentence.

The study looked at financial crime convictions that CEOs and board members of Finnish limited companies have received while acting in these positions.

The data covered almost 76,000 CEOs and board members who worked in 64,000 limited liability companies between 1995 and 2019.

Of these managers, 921 were guilty of a financial crime during their managerial career, the most common of which were accounting and tax crimes.

Contact According to the researchers, the crime between managers and their parents cannot be explained by, for example, a common family company background or the parents’ low socioeconomic status.

A professor of business economics who is part of the research group Juha-Pekka Kallunki says research tells us that it’s about learned patterns and attitudes.

The research does not show a direct cause-and-effect relationship. However, the results strongly support the fact that especially the environment during childhood is important.

“Even if it’s about the top management of companies and the people who have reached the top branch, factors of growing age still guide behavior.”

According to Kallungi, the same phenomenon has been observed when looking at street crime. The family backgrounds of economic criminals have not been investigated before.

Every fifth of the managers of Finnish listed companies has been sentenced to punishment for some crime.

Kalunki says that parents have hardly taught their children how to technically commit an accounting crime.

“It’s about general attitudes, for example how parents have talked about taxes.”

The study revealed that in addition to the parents, also the spouse’s actions are reflected in the manager’s behavior. Managers who have committed financial crimes have a spouse who has committed financial crimes more often than others.

The probability of financial crimes also increases if the manager has lived in an area where financial crime is more common than average in his youth.

Kallunki says that in order to combat financial crimes, “unlearning” would be needed, for example in education.

So-called responsibility issues have only started to be emphasized in business operations in this decade. They have come to business schools in droves in the last five years. However, a large number of company managers have a non-commercial education.

Kallung’s previously led by the University of Oulu School of Economics, the University of Helsinki and the University of Eastern Finland in the study it turned out that every Fifth of the directors of Finnish listed companies have been sentenced to punishment for a crime.

The data included 2,201 managing directors, board members and board chairmen who worked in listed companies between 2000 and 2019. The persons who received a criminal conviction were identified among them.

Most often, managers were guilty of traffic crimes, such as drunk driving or endangering traffic safety. There were also crimes against life and health and sexual crimes.

Kallung’s in my opinion, business leaders should be expected to do better. According to him, all crimes of company managers should be treated as seriously as crimes of police officers.

“However, the CEO is responsible for the legal operation of the entire company and the correctness of the administration.”

Sometimes Kallunki hears it being said that in the business world, you need toughness and courage to move on the borders of the rules.

However, the willingness to break laws is the wrong kind of hardness and a detriment to the company, he says. The phenomenon has been studied in Sweden and the United States and found that managers with a criminal background are prone to excessive risk-taking, which produces bad investments and losses.

“They play with the company’s money.”