One in five executives of Finnish publicly traded companies has a criminal conviction
Approximately 20 per cent of the managing directors and board members of Finnish publicly traded companies have been sentenced in court. The results were revealed in a study, by the University of Oulu Business School, the University of Helsinki and the University of Eastern Finland, which combines previous research in business economics and criminology, as well as new research in criminal law, regarding the criminal convictions of business executives.
The research material comprises 2,201 Finnish CEOs, members of the Board of Directors and chairpersons of Finnish publicly traded companies, from 2000 to 2019, from which persons who have been convicted of a criminal offence have been identified. The convictions consider the criminal convictions received by executives as adults at the first instance, since 1977, before the end of their executive career. The number of convictions is categorised by offences, gender and company size. The data has been obtained by combining the register data of Statistics Finland concerning the data of publicly traded companies, the responsible persons of the companies and the district court judgments.
In most cases, company executives commit traffic offences, such as driving while intoxicated or endangering traffic safety. The data also includes crimes against life and health, as well as sexual offences committed by executives.
The average age of the executives at the time of conviction is about 39 years, which is relatively high. At the time of the offence, the convicted persons have already advanced in their careers, as opposed to young adults whose crimes would be explained by, for example, a lack of judgement and life experience. Researchers also found that executives with a criminal record work longer in publicly traded companies than those with no criminal convictions.
Of all criminal convictions, 8.8% are imprisonment and 91.2% are monetary penalties. Of the material's managing directors and board members, 15.1% are women, while women’s share of the convicted managing directors and board members is 5.1%.
Based on this and previous research, the investigators consider that the perpetrators have a higher risk appetite than the rest of the population, and that the criminal background of an executive can increase, not only the company's financial risks, but also malpractice in the company's operations.
According to Professor Juha-Pekka Kallunki, the criminal record is linked to irrational financial risk-taking and possibly also increases the risk of abuse in business operations. “Ethical business culture and sustainable business values are difficult to implement if the company’s top management does not support these goals through its own behaviour. Since criminal history and inappropriate risk-taking correlate with each other, the criminal record can also be relevant from the perspective of the company’s ethical corporate culture and sustainable business goals,” Kallunki says.
According to previous studies in business economics, especially in Sweden, executives with a criminal background are prepared to take inappropriate risks in the company's operations. Criminal background has been shown to reduce compliance with the principle of prudence in accounting, and increase the write-down of goodwill resulting from failed acquisitions. The CEO's criminal convictions have also been found to increase both his personal and the company's aggressive, at the personal level even illegal, tax planning.
At the same time, based on previous criminological investigations, it is known that malpractices in companies are explained, among other factors, by the control-oriented nature of the perpetrator and the related increased risk appetite, to maintain the feeling of control and a sense of ability.
The criminal background of persons seeking for executive positions in publicly traded companies is not investigated, or the criminal background is not considered to affect the ability of the executive to perform their duties, at the recruitment stage.
Researchers therefore recommend that the criminal background of the person selected for the management of a publicly traded company should be investigated, at least internally, before the appointment. Determining the background is justified, not only from the perspective of possible legal liability risks, but also from the perspective of ethical and sustainable business objectives.
The study was conducted by Professor Juha-Pekka Kallunki from the Oulu Business School of the University of Oulu, University Lecturer Heli Korkka-Knuts from the University of Helsinki, Assistant Professor Jenni Kallunki from the Oulu Business School and Professor Mikko Aaltonen from the University of Eastern Finland.
The study has been published in the Oikeus Journal No 1/2023 (in Finnish and for subscribers only).
Previously published studies on the topic: