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Professor: Clear correlation between criminal background and performance

CEOs with a criminal past lead listed companies that are more volatile, have lower growth, and inferior ESG performance. This is the conclusion of Professor Henrik Nilsson at the Stockholm School of Economics, who is currently updating the course literature to include a section on Integrity Due Diligence.

Henrik Nilsson has spent the past 15 years researching behavioural factors relating to business administration, valuation, and auditing. He is also author of the book “Företagsvärdering med fundamental analys” (‘Business valuation through fundamental analysis’), the latest edition of which has an extra chapter on Integrity Due Diligence – checking a company’s executives and their background.

Henrik Nilsson

Professor at Handelshögskolan

“A lot has happened over the years. There’s a level of access to this kind of service that didn’t exist before. For example, investor meetings are now attended by researchers who analyse the CEO and CFO’s tone of voice, exact choice of words, and what they say, in order to judge whether the individual is honest, whether we can trust their promises about improved profitability, and so on. There is generally a greater focus now on the individuals running companies.”

In his research, Henrik Nilsson has run checks on CEOs and board members of listed companies and found that 25 percent of them have a criminal conviction, a term that does not include minor offences such as speeding.

“I was inspired by an article on this in the Swedish business magazine Affärsvärlden. It was a real lightbulb moment for me as a researcher and I started to think about what the consequences might be. I obtained the information I needed via the Swedish National Council for Crime Prevention (Brå) and I was amazed at how high the percentage was. It was really surprising. It’s also worth noting that 22 percent of Swedes are registered in the database.”

Henrik Nilsson’s research demonstrates, above all, a clear correlation between convicted business executives and the performance of the companies they lead:

  • The companies tend to be more inclined to take risks in their decision-making.

  • The companies have more volatile profits, which is a sign of risk-taking.

  • The executives tend to acquire companies that are bad investments, so they are forced to accept an impairment loss.

  • The executives report lower profits and take longer than other companies to report negative news.

  • Poorer CSR ratings and ESG performance.

“The research revealed that companies with a convicted executive were often slightly less profitable, generally smaller, and with governance that was likely to be worse. If the owner is a convicted CEO, there is nothing to prevent them from continuing to run their business.

Is it the individual who affects the company or is it in the nature of certain companies to recruit these kinds of individuals?

“As researchers, we face a challenge in trying to work out what’s what. We don’t have any placebo groups, so we try to check for other factors. Overall, I believe it’s the individual who affects the company, but in some cases, we have boards that are looking for a certain risk profile, even if no one is actively seeking out criminals. They identify the desired risk profile, but they can’t see the bigger implications. After all, you can’t have a risk-averse CEO if you want to engage in a period of growth through acquisitions.”

Are there any positives that come from having a criminal conviction?

“I don’t think there are, but that’s just my personal opinion. However, we know that risk-taking in itself is not a negative thing. In fact, some companies need people who take risks. But there’s good risk-taking and bad. Looking at bankruptcies, we can see strong links between historical bankruptcies and future bankruptcies, along with a higher risk profile for the companies, a high proportion of loans and less cash on hand. However, I believe you should take a rounded view and look at professional experience, rather than just whether they have a conviction.”


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