chairman of Nissan, was arrested after stepping off his corporate jet in Tokyo. Japanese authorities criminally charged him for a host of financial misdeeds at Nissan, including misappropriating $5 million and concealing about $80 million of his compensation over eight years.
Examining CEOs’ personal lives is an unorthodox method for preventing fraud. When boards, regulators, and investors consider ways to limit unethical behavior, the emphasis tends to be on systemic fixes, such as laws and regulations, large and well-funded compliance departments, heightened oversight, and reporting mechanisms such as whistleblower hotlines.
As those events were unfolding, scholars were beginning to pay more attention to the way individual managers can affect the performance of a firm. This perspective gained momentum after the 2003 publication of a landmark paper, by Marianne Bertrand and Antoinette Schoar, arguing that executives have personal styles that affect key decisions and company performance, and those styles persists even when people jump between companies.
In firms led by executives whose personal spending was excessive, we found both more fraud and more unintentional reporting errors. Identifying materialism in CEOs is a challenge because most chief executives have substantial assets. However, one way to screen for it is to see if someone’s possessions are excessive compared with those of peers and neighbors.
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