Company shareholders and stakeholders have a new “head’s up” on choosing — or keeping — the organization leader.
“Accounting fraud is relatively rare in the business world, but when the scheme is uncovered, the destruction is often as widespread and long-lasting as an EF5 tornado.”
That’s the engaging lede for the feature article, “Bad Behavior” in the just-published Spring 2014 edition of Georgetown Business. With new research, Georgetown University Assistant Professor Robert Davidson concludes that there are distinct warning signs for potential executive fraud: “You really want to pay attention to how people live in their personal life, because for many people that’s how they behave in their professional life.”
This research was conducted by Davidson with accounting professors Aiyesha Dey at Minnesota’s Carlson School of Management and Abbie Smith at the University of Chicago Booth School of Business. As palliative, the professors offer this counsel: The risk of accounting fraud with a CEO with personal legal troubles or a lavish lifestyle seems to decline with an effective monitoring system: “The board itself , or someone else in the firm, should pay more attention to governance and can choose to keep an unfrugal CEO.”
But company shareholders/stakeholders: Don’t say the professors didn’t warn you.