BOOK REVIEW: Inside the white-collar criminal's mind

Why They Do It: Inside the Mind of the White-Collar Criminal, by Eugene Soltes

IN 1939 EDWIN Sutherland, a distinguished and influential sociologist and author of the most popular university textbook on criminology, changed our understanding of crime. He asserted the belief that crime was restricted to murder, assault and burglary, largely committed by individuals in the lower social classes, was misleading and incorrect.

Based on public criminal records, most serious crime was being committed instead by society’s most well-known and respected business leaders. Sutherland coined the term “white-collar crime”.

An example he presented was of a grocery store executive who embezzled $600 000 (worth over $10m today) in just one year. This was six times the entire amount from five hundred robberies that occurred at the same chain of stores during the year.

Eugene Soltes is a Harvard business professor who has based the conclusions of this book on written communications and visits to 48 former executives who were now in prison.

These people had overseen some of the most significant corporate failures in history. Soltes’ communications were conversational and casual, and the subjects provided very different explanations to those they had offered in court.

This book was written with Prof Soltes’ students in mind. These are some of the finest minds in the world who came to Harvard to become great business leaders. They certainly did not come to Harvard to become business and family destroying criminals, and to be publicly humiliated. However, more than two dozen have achieved this notoriety.

Historically, criminologists and society at large have believed that criminality stemmed from psychological aberration. Some thought it might be due to excessive greed or ambition, or a faulty analysis of the risk-to-reward involved.

To get the most out of this this review, answer this question before reading on. Why do you think people commit white-collar crime? Then consider that for all the suggestions above, there is little concrete evidence or support.

So, why do they do it?

Surprisingly little is understood about the choices that lead to white-collar criminals’ downfall.

What the author found was that white-collar criminals spend surprisingly little effort thinking about the consequences of their actions. “They seem to have reached their decisions to commit crimes with little thought or reflection,” his investigations confirm.

This was largely because they never really felt that the decisions were actually harmful to themselves or other real people. Stealing money from someone’s pocket involves a high degree of intimacy: these executives never needed to get close - physically or psychologically - to their victims.

“While the aggregate costs are difficult to assess precisely, one estimate placed the annual cost of financial fraud in the United States at nearly $400 billion,” says Soltes. With such significant consequences, it is not surprising that business schools and businesses teach “business ethics” as one means of trying to address this problem.

But if the cause is misdiagnosed, the remedy will not work. Soltes sees the cause as very different to what I studied at university, or have read about. “There is an implicit - and flawed - assumption that participants would employ the same decision-making process they used in the classroom if they faced the same predicament at some point in their own future.”

Only 23 seconds after hearing a report of a problem at Goldman Sachs, former McKinsey MD Rajat Gupta called an associate, Rajaratnam, and divulged this information to which he was privy. Rajaratnam sold his shares in Goldman Sachs the following day, before the news was publicised. He avoided losing $3m.

Gupta made no money from this at all, but served a prison sentence for this crime. One would have expected a person, widely lauded for his thoughtful leadership and deep strategic mind, not to have made such a foolish and criminal decision.

Acting on imperfect intuition

In the seconds before the call, he did not do some clever calculation that showed that the benefits of providing this information to Rajaratnam outweighed the expected costs. He acted on his imperfect intuition.

Would you commit a crime so instinctively, that could potentially harm yourself or others?

In our day-to-day lives we tend to rely on initial and often unsatisfactory intuitive judgements, called “blind spots” by psychologists Max Bazerman and AnnTenbrunsel. But when the big moral challenge comes, we will rise to the occasion, right?

It’s a public holiday and you are driving on the highway between Johannesburg and Pretoria. You are listening to energy pumping music as you weave between the cars. Then you notice you are driving at 132 kph in a 120 zone.

But you are in a great mood, your car is in great condition and so is the highway. And a lot of other motorists are also driving above the speed limit. So, you continue.

You could be involved in an accident at that speed in which your passenger, your life partner, is maimed, and the occupants of the other vehicles are killed or severely injured.

Did you have criminal intent? The court will judge that you did, and so will the families of the victims.

What would stop you? Seeing the traffic police? Seeing a fresh accident? Your partner imploring you to slow down - NOW?

Why did you make that bad decision, and what stopped it? When everyone around you is also speeding, well, it seems okay. When there is no one to tell you forcefully that what you are doing is wrong and dangerous, doing it just seems okay.

Just ask Dennis Kozlowski, the former CEO of Tyco, who was one of the highest-paid CEOs in the world and was convicted for embezzling nearly $100m.

Mark Whitacre was a senior executive of ADM. It was his wife Ginger’s horror when he mentioned he was on the team involved in negotiating international price-fixing that shocked him into the realisation of his criminal involvement.

“It was a way for me to separate from a culture that I had fallen into... She felt like she was losing me.”

Do you have a Ginger?

Readability:     Light ---+- Serious
Insights:         High +---- Low
Practical:         High --+-- Low

  • Ian Mann of Gateways consults internationally on leadership and strategy and is the author of Executive Update. Views expressed are his own.

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