Crime pays for senior male executives

The paper, ‘Favouritism in punishing perpetrators of economic crimes’, by Paul Healy and George Serafeim from Harvard Business School, examined the severity and consistency of punishments for perpetrators of corporate economic crimes.

Controlling for crime type and severity, they found a lower likelihood of dismissal and legal punishment for senior management perpetrators than for middle managers and junior staff.

However, the relationship between seniority and punishment severity only applied to senior male perpetrators and not to senior female.

Paul Healy, who is the James R. Williston Professor and Senior Associate Dean for Faculty Development at Harvard Business School, will be presenting the findings at a lecture this week at the University of Auckland Business School.

The researchers surveyed and collected information from companies on a broad range of economic crimes that had occurred during the previous twelve months, as well as information on the most serious crime identified and the punishment of the main perpetrator.

Given the gravity of the crimes - the most common of which were accounting fraud, asset misappropriation and bribery - top management responsible for punishing perpetrators were expected to take the violations seriously to ensure that a strong message was sent to other employees that crime is not tolerated.

However, the research revealed considerable variation in the punishment of the main perpetrators within their sample: 33 percent were dismissed and faced legal action, nine percent resigned and faced legal action, 46 percent were dismissed with no legal action, and 13 percent remained with the company (with or without a transfer and/or warning).

One explanation for the variation is that disciplinary decision-makers favour perpetrators with whom they have social ties, enabling senior male executives to go unpunished or leave quietly and not face public prosecution.

Bias in favour of members of the same social group, known as homophily bias, has been studied and documented extensively by social scientists.

The new research found this bias was more pronounced in organisations that operate in countries with greater gender inequality, had less frequent updates to internal controls, did not report the crime to regulators, and did not disclose their identity in the survey.

The findings raise numerous questions, the researchers wrote. What are the consequences for firms that punish senior white-collar crimes aggressively? Are their actions effective in deterring would-be perpetrators? What are the consequences of reducing punishments for senior male executives? Do such decisions affect employee morale and corporate culture? What role do corporate boards play in overseeing punishment decisions for senior perpetrators?