Thursday, August 03, 2006

Does initial success breed overconfidence and fraud?

USATODAY.com has an interesting article that looks at fraud throughout the last several decades. A common trait in many of the cases? The company had been doing very well, then competition came along, and pretty soon troubles began.

Bright ideas gone bust can lead to corporate fraud:
"For type-A executives who have introduced landmark changes to their industries, it's a thin line between innovation and fraud.

'There's always an element of Greek tragedy to these scandals, because they start off with someone having a real insight,' says Alan Webber, who co-founded FastCompany magazine. 'Then arrogance sets in. It's a natural instinct. Once you're the smartest guy in the room, you believe your own press clippings, drink your own bathwater. If you have one good idea, you think every idea is going to be terrific.'"
And later in the same article:
"Sometimes, executives commit fraud to please the boss, who's unwilling to accept the fact that his brilliant idea isn't that profitable.

Josh Lerner, a professor at Harvard Business School, says that in many cases of corporate accounting fraud, "it wasn't that the company was totally fraudulent as much as that you had a hard-charging CEO who was so focused on success above everything else."

Compounding the problem is the tendency among investors, once they've been shown an innovation that's profitable, to believe future pronouncements from the CEO."


FTR, this also has several good examples for class discussions.

1 comment:

saving advice said...

Jim

I enjoyed going through this blog and your others over the last couple of hours. Looked all over for a contact but couldn't find one. If you could email me, it would be much appreciated.

Jeffrey Strain