Understanding Business Fraud and Human Behavior

Sep 11, 2024

Lecture on Corporate Fraud and Human Behavior

Important Statistics

  • On average, a person interacts with at least 7 companies daily.
  • 1 in 7 large corporations is found to have public fraud each year in the US.
  • Fraud costs shareholders approximately 380 billion dollars annually.

Impact of Fraud

  • The automotive industry and financial services are often involved.
  • Trust is a key factor in the financial industry, as seen in Switzerland.

Honest Companies and Whistleblowers

  • 6 in 7 companies do not engage in fraud.
  • Whistleblowers face great personal risk (e.g., Michael Woodford with Olympus).
  • Journalists also face danger in bringing the truth to light (e.g., Anna Politkovskaya).

Study on Human Behavior

  • A 10-year study involving economists, ethicists, neuroscientists, and lawyers.
  • Goal: Understand human motivation and reduce corporate fraud.

Theories on Human Motivation

  • Adam Smith: Self-interest ultimately benefits everyone; includes long-term considerations.

    • Example: A dog doesn’t steal food due to potential negative consequences.
    • Economic motivation includes conduct rules, rewards, and reputation.

  • Immanuel Kant: Some actions are inherently right or wrong, regardless of outcome.

    • Example: A dog avoids stealing food because it is wrong.
    • If motivation comes from values, incentives like rewards may be unnecessary.

Experiment on Honesty

  • Coin toss experiment conducted at the Manifesta art exhibition.
    • Participants reported toss results affecting their monetary reward.
    • Results showed varying levels of honesty among participants.

Concept of "Sacred Values"

  • People have intrinsic values that they uphold regardless of cost (e.g., honesty).
  • Making money according to these values brings greater satisfaction.
  • Studies show individuals may undervalue unearned income.

Organizational Impact

  • Consider both motivation and personal choices aligned with values.
  • Personal choices with strong intrinsic values can reduce fraud and improve organizational performance.

Conclusion

  • Combining motivation with careful personnel selection can enhance business ethics.
  • Further research is needed to explore the development of sacred values over time.

Note: The lecture emphasizes the importance of understanding human behavior to address corporate fraud and enhance honesty in organizations.