CEOs with an over-sized ego are more likely to commit fraud. Ok, so where did that oversized ego come from? Hello?
“The biggest risk factor for fraud is a CEO with a truly oversized ego.”
So found an academic review of 15 Canadian corporate fraud cases between 1995 and 2005, which pointed out that a list of common warning signs of potential fraud is missing this most important item, which includes being “lauded by the media or by analysts.” According to Janet McFarland in Toronto’s The Globe and Mall, Michel Magnan, one of the report’s authors, argues that “generous doses of external praise can lead an egotistical executive to [result in] an exaggerated sense of self-confidence that leads CEOs to believe they can do whatever they want and get away with it.” Magnan, a business professor at Concordia University, seemed surprised that the companies and executives were “quite present in the media….because you’d think fraudsters would like to hide or do things covertly….”
It’s no surprise to the addictionologist. While some might be more covert, alcoholic egomania generally fuels a grandiosity that can take form in a public display of prowess, as if to say, “Look what I can get away with.” They relish the idea of sticking it in people’s faces because doing so further inflates the ego.
The idea that an oversized ego fuels fraud is only half of the story. The missing half is that the oversized ego is more often than not fueled by alcoholism..
Prof. Magnum pointed out that the research could be useful for regulators and auditors, who are taught to rely on a “fraud triangle” of factors in detecting malfeasance. These include incentives such as a large share ownership or stock option grants, situations where the share price appears overvalued (which increases pressure to meet inflated expectations), and weak corporate governance. However, the study found these factors are present in what McFarland wrote is a “large proportion of companies in general and do not sufficiently narrow down a reasonable pool of dangerous situations.” In fact, good governance could help CEOs get away with fraud by creating a “cloak of responsibility around CEOs.”
Understanding the role of alcoholism is difficult because it crosses such a broad range of disciplines that many figure it couldn’t possibly be the explanation for so many varied problems. It’s the elephant in the room and should be obvious, but isn’t. It obviously explains most deviant psychology and psychological issues, but psychologists and psychiatrists usually don’t see it. It’s obviously the initial instigator behind most incidents worthy of study by historians, but historians have never noticed. Alcoholism explains most bizarre and destructive behaviors of the subjects of biographies, but biographers are usually completely ignorant of the disease. The effect of unchecked alcoholism is obvious in many newsworthy current events, but journalists omit mention of it or understate its significance. It’s obviously at the root of the vast majority of incidents with which the criminal justice system must deal, but law enforcement rarely treats it or, if they attempt to do so, it’s half-heartedly. Addiction is obviously at the root of most crime, a fact that investigators could use to narrow the focus of their efforts—if they looked to addicts rather than non-addicts as likely culprits, they could save tremendous resources. This is true for serial and mass murderers and is true, as well, for CEOs who commit fraud.