Anyone is capable of committing white collar crime says Harvard professor

“What drives wealthy and powerful people to commit white-collar crime?” It’s a tantalizing question, and one that prompted CU Denver Business School to host an open webinar specially dedicated to the subject last week: “Why They Do It: Inside the Mind of the White-Collar Criminal”. 

Its title referenced the 2016 bestselling book by Harvard Business Administration professor, Eugene Soltes; who, over seven years, documented various personal correspondences with almost 50 jailed corporate felons. 

We’re talking the big guns here: Enron fraudsters, Tyco embezzlers, and the Ponzi schemer, Bernie Madoff, with whom Soltes spoke to every Wednesday night for some three years. Why? To understand what motivates highly successful and often respected individuals to jeopardize their work and reputation by breaking the law. 

Kick-starting the webinar attended by over 700 students, educators and corporate business professionals worldwide, guest speaker Soltes was quick to establish that “people would be hard-pressed to actually tell the difference” between a successful CEO and a convicted felon. 

“You don’t reach the head of McKinsey, a managing partner at Deloitte, by not being a strategic, thoughtful individual”, he remarked, “but really digging into their experiences, it’s much more subtle than that”. 

These were not criminal masterminds who went in with the malicious intent of causing harm, Soltes found, but people who were driven by an everyday act of mental processing that is common to all of us. He demonstrated his meaning through a speeding analogy: 

“We all think that knowing the difference between right and wrong is sufficient to stop us going forward” – and yet, most of us break the speed limit by ten or fifteen points quite regularly. “It’s the safe thing to do, it’s the slow-poke falling behind who’s actually the danger”, we often use by way of excuse. But by doing so, we simply buy into the “everyone else does it” explanation. 

Many of the convicted felons followed a strikingly similar process of rationalization to justify their actions. In answer to the webinar’s moderator, Professor Melanie Kay, Soltes explained how some of the inmates invariably struggled to accept accountability for their crimes: 

Insider traders would insist that, “I know it’s a violation, but at least I didn’t destroy a firm by engaging in fraud”. A fraudster might then have claimed, “we were trying to grow something extraordinary and I tried too hard, too aggressively, and that’s why it went off the tracks. At least it wasn’t a Ponzi scheme”. 

When questioned whether any of them felt remorse, Soltes acknowledged that he really had to probe some of the executives. “The remorse came from missing their families’ birthdays, their kids’ birthdays or graduation…”, as opposed to stemming from any real sense of wrongdoing. 

But it would be naive for us to automatically attribute this lack of accountability to psychopathy or narcissism.“It is oftentimes too easy to categorize people in this box…[to confirm] what we expected all along”. 

While Madoff’s case did prompt the professor to take a three-day course to “understand how he viewed the world”, he mostly found that the binary classification was limiting. It didn’t show why the executives had reached for unethical solutions in the first place. On that point, they themselves seemed confused. 

Kay asked why some of us are able to check ourselves before engaging in substantially damaging behaviours, while others are not. 

“What we really need is a feeling that something is harmful, and that immediately stops us from considering an action”, Soltes replied. It wasn’t until the 1970s that bribery was made illicit in the US, or the 1980s that laws against insider trading were officially created, “so, the idea that you have this deep intuition against all these nuanced types of crime…[is] quite artificial”.

To show the difference between obvious and implicit wrong, he compared the situation to chasing your neighbour down the street with a hatchet. Any reasonably socialized person would be able to intuitively understand that action as being harmful, seeing as it has a distinct, physical consequence. 

However, that sense of wrongfulness tends to get lost in corporate contexts, where make-or-break decisions are happening all the time – and often, he mentioned, without anyone stopping to consider whose interests are being prioritized and who, consequently, is being impacted. 

“There’s a lot of murky conduct that falls between the gray lines of what’s illegal and not illegal and that’s where, unfortunately, there are a lot of rewards to be made. This murky conduct really proves what incentives are in human nature”. 

Take, for instance, the idea of insider trading. If your friend, who works at a large tech company, mentions a new killer app that’s going to make a lot of money, and you trade on that information, that’s illegal. “Most of the people on the webinar tonight would recognize that”, Soltes confirmed. 

“But let’s take a slight twist”. 

Say that friend works for tech firm A, and you now know that tech firm B will be devastated by the app’s release because that is their main product line – you could either short company B or trade on an ETF that just so happens to be highly correlated with the insider info that you received. 

That second course of action, seemingly, isn’t illegal. “We don’t have a law against stock substitutes”, he clarified, but that wouldn’t necessarily make it a good idea. 

While it would be exceptionally difficult for regulators to put that information together, you’d still be misappropriating information and gaining on it. “What’s scary is…the smarter the individual, the better they are at coming up with those ideas and seeing the rewards associated with them”. 

Therein lies the challenge of enforcing ethical integrity: nudging people to go beyond matching their conduct to the immediate rule of law, and start focusing their energy on developing a sense of humility. Soltes frequently returned to this concept throughout the webinar. 

“I think most of the people in the book could have maybe stopped earlier”, he determined, “had they been able to create an environment with other people [around them] providing different input” – as opposed to building firms filled with clones or variants of themselves. 

“That’s not a great environment to develop…humility”. 

Soltes defines “humility” as having the self-efficacy to seek advice from a “sounding board”, someone outside your immediate circle – like in the case of Ben Horowitz, “a rockstar when it came to technical innovation”, but by no means an accountant. 

He felt squeamish about stock-option backdating, but his new CFO thought nothing of it (the practice was common in Silicon Valley at the time). He consulted an attorney, who prevented Horowitz from going down that slippery slope. Later, the CFO was convicted for backdating stock at her last firm, and spent three months in jail. 

Here is someone who unwittingly played into the hands of the system. “Everyone starts with a sense that they are stronger than the surrounding culture…that’s not showing a lot of humility”. 

Going forward, the professor believes that organizations need to recognize that ethics training “is not just a legal function, it is behavioural”. Only 30-45% of employees at firms involved in Soltes’ most recent research reported violations that they witnessed in the workplace. The rest openly admitted that they didn’t, despite signing a legal contract. 

He rounded off the webinar by making clear that using a sounding board, whether that be a family member or a friend, is not just for CEO’s, “it’s something we all need” – to reflect on how we actually make decisions, treat other individuals, and stop ourselves from cutting corners here and there.