White Collar Crime & Corporate Fraud—with a Touch of Pink

I recently talked with my colleague, Associate Professor of Sociology at Washington State University, Dr. Jennifer Schwartz about her April 2013 American Sociological Review collaboration with Darrell Steffensmeier and Michael Roche entitled “Gender and Twenty-First-Century Corporate Crime: Female Involvement and the Gender Gap in Enron-Era Corporate Frauds.”

The article is of particular interest to readers of this blog for its application of theories of work (e.g., homosocial reproduction, network theory, and theories of power at work) to explain the connection between gender and corporate malfeasance.  This piece also tells us about gender differences in work styles and locations:  women engage in less “big time” corporate fraud than do men, a fact that is NOT fully explained by their lower level corporate positions. The authors suggest male-dominated networks at the top of work organizations and informal barriers to women’s upward mobility may explain why men outpace women in corporate fraud.

They studied 83 corporate frauds involving 436 defendants indicted 2002-2009.   They found that the share of women in corporate fraud was low; of the 400+ indicted for corporate fraud, only 37 were women!  Yet about half of those arrested for lower-level embezzlements each year are women (e.g., by bank tellers, local non-profit treasurers, bookkeepers of small businesses). Most of these frauds were complex enough to require co-conspiracy over several years and a criminal division of labor but women were often not included in these groups.  When they were, they were nearly always in the minority, often alone, and most typically played rather minor roles.

For example:

• The Enron conspiracy led to over 30 indictments; three were women and each played a minor role.
• The five women indicted among 19 in the HealthSouth fraud were in accounting-related positions and instructed by senior personnel to falsify financial books and create fictitious records.
• Martha Stewart committed “one of the most ill-fated white-collar crimes ever” in which she saved just $46,000 after receiving a stock-tip second-hand from her broker.
• Only one female CEO led a fraud – the smallest fraud studied.
• Two women co-lead a fraud with their husbands.

Even when they compared women and men in similar corporate positions, women were less likely to play leadership roles in “big time” fraud.  What is more, women benefited less than men from their illicit involvement—in fact, the wage gap in illicit corporate enterprise may be larger than in the legitimate job market.  Over half the women did not financially gain at all whereas half the men pocketed half a million dollars or more.  The difference in illicit-gains persisted even when women were compared to their co-conspirators.

JK:  Can you tell me a little bit about what prompted you to write this article?

JS: We are interested in studying trends and patterns in women’s (and men’s) crime.  One popular notion is that gains in women’s freedoms, such as working outside the home, might lead to women’s greater involvement in crime.  Part of our motivation was to identify the extent and nature of women’s involvement in white-collar crimes.

It’s commonly believed that women today have lots more opportunity to get involved in business-related frauds or other crimes.  Martha Stewart is a household name – and a popular image of the new female criminal.  We were a bit skeptical of this characterization and were curious about the extent to which women really are a part of major financial crimes.  We also wanted to know what roles women were playing within financial conspiracies.  A second motivation for our study: the most recent financial crisis in the United States was prompted partly by accounting and other financial misdeeds by America’s public companies.  We wanted to shed some light on the nature of these important financial frauds.

JK:  How readily available are data to study white collar crimes in the US?

JS:  Whereas data on street crimes in the United States are readily available, data to study white-collar crimes are pretty rare.  There is no centralized source which collects information on crimes by or within businesses or other organizations.  Rather, police data record fraud, forgery, and embezzlements (known to police and also arrests) which are more typically perpetrated by an individual, perhaps at the expense of his/her employer.  However, in addition to “occupational” financial crimes, these crime categories include embezzlement from individuals (e.g., older adults, family members) and primarily frauds such as stolen credit cards, writing bad checks, and welfare fraud.  As well, individuals are asked about their own victimization or commission of street crimes (e.g., National Crime Victimization Survey, various self-report instruments), but not many ‘unofficial’ data sources exist for studying white-collar crime.  If one is interested in complex, high-yielding financial conspiracies, little data exist.

We were able to make use of an online repository of indictments and other case materials from the federal Corporate Fraud Task Force, press releases from the Department of Justice, publications like company quarterly reports filed with the US Securities and Exchange Commission, and other information sources.  These fraud cases each involved accounting schemes to deceive auditors, analysts, and investors about a corporation’s true financial condition (e.g., securities fraud; false statements of corporate assets/profits), Ponzi investment schemes, and/or insider trading involving large sums of money or financial loss.

From these information sources, we created database of mid- and upper- level corporate officials involved in Enron-era financial frauds; our database includes each individual’s role in the crime, corporate position, relationships among co-defendants, illicit profits, firm attributes, and offense characteristics.

JK:  Why is the workplace context an important place to turn for studying crime?  Is there something special about work, per se, that makes women vulnerable to committing crime there?  If so, what are these things?

JS:  Financial and other losses due to corporate wrong-doing (e.g., jobs, organizational legitimacy) have far-reaching consequences.  Business crimes are believed to be more costly to the public than street crime, yet few study such organizational offenses.  It’s important to know about the culture and structure of organizations as well as the leadership styles that make these offenses more likely.

Women’s opportunities for crime in the business world are abundant and perhaps even growing, particularly given the types of financial management jobs that tend to be held by women (e.g., in accounting, bookkeeping, auditing, compliance, administrative services, and other financial reporting or management positions).  These sorts of corporate positions are often instrumental in pulling off the firm’s financial fraud.  Especially as more women ascend the corporate ladder, women CEOs will face pressures to augment the company’s bottom line, sometimes through risky ventures or morally ambiguous practices.

Yet, it seems based on others’ research about gender differences in management styles and priorities that generally women may be more resilient to this temptation to fudge the books. For example, research on business ethics suggest women are not as prone as men to justify illicit practices for company gain, but rather are more oriented toward social justice and ethical responsibilities.  Moreover, women leaders (and female workers in general) tend to perceive themselves as being watched more carefully, so may not perceive opportunities for corporate fraud as readily as males.   Without additional data it is not yet possible to tell if women simply are not in the position to direct and become involved in corporate schemes or whether they opt not to even when in the position to do so.

JK:  What do you think scholars of organizations, occupations, and work should take away from your research?

JS:  Many of the organizational processes that limit women’s involvement in corporate leadership also function to limit women’s involvement in corporate conspiracies.  One element may be that women are less often in positions of power to direct fraudulent business schemes.  Women remain vastly underrepresented in C-level leadership positions, but among mid-level managers, women are readily available as co-conspirators.  Even though about half of mid-level managers in these fraudulent companies were estimated to be women, only about one-quarter of those mid-level managers involved in corporate frauds were women.  So, women remain under-represented as corporate fraudsters even where opportunities may be available.  It’s likely that homosocial reproduction, or the tendency to work with demographically similar others, operates to preclude women’s fraud-involvement.  Informal business practices that tend to exclude women from legitimate upward mobility and equal compensation also tend to exclude or limit women’s gains from involvement with illicit work-networks.

Women are not often viewed as having the criminal capital or valued traits and competencies, such as trustworthiness, social connections, or nerve and ambition, to carry out these schemes.  As well, women tend to perceive greater scrutiny and oversight, tend not to be rewarded for or expected to take part in financial risk-taking, and experience other sex role norms unsupportive of illegal business practices.  Such gender differences at work among social groups and organizations cause some to wonder whether having more women at the helm of corporations might reduce incentives for corporate wrong-doing or profit-oriented illicit business practices.  It’s a promising policy-solution, but not yet well-tested!

 Read more about this article on Huffington Post, Freakonomics, and Slate.

Contact Dr. Jennifer Schwartz at (schwartj@wsu.edu)