Juha-Pekka Kallunki on his findings that shook corporate leadership in Finland.
In a recently published study in Finland, professor Juha-Pekka Kallunki, alongside his colleagues, sheds light on a little talked about reality within the corporate world. Their research reveals that approximately 20% of the CEO's and board members at Finnish listed companies have past criminal convictions, a fact that initially stirred disbelief and skepticism across Finland's business landscape.
Kallunki, a professor at the University of Oulu School of Economics and a visiting professor at the Stockholm School of Economics, emphasizes the gravity of this issue:
– The research evidence is very clear and no one can deny that this is a problem that we must address. In the business community there were quite a few negative comments early on but on the positive side more and more people seem to realise that we shouldn't recruit the wrong kind of people to lead our biggest companies.
Kallunki has a long track record of corporate governance research, often in collaboration with professor Henrik Nilsson at the Stockholm School of Economics. Their work challenges the prevailing belief that a propensity for risk taking is inherently beneficial for business. Analysing huge sets of data, they demonstrate that the involvement of individuals with criminal backgrounds in top corporate positions adversely affects company performance.
The researchers got the same results when looking at earnings volatility, goodwill write offs after M&A, overall profitability and even audit quality. And the research has been replicated by colleagues in the United States.
– Our research findings are unambiguous – having people with a criminal background as board members, CEOs, or even auditors has a purely negative impact on company performance.
Highlighting the importance of a nuanced understanding of risk-taking, Kallunki distinguishes between calculated, strategic risks and the irrational risks often associated with criminal behavior. He argues that the latter, exemplified by severe traffic violations and other offenses, has no place in business decision-making.
– Criminal convictions typically reflect irrational risk-taking and that is simply bad for the company.
The call for action is straightforward – implement thorough background checks and "fit and proper" assessments across all sectors, not just the financial industry. Kallunki points out the disparity in scrutiny between different professions, noting:
– In Finland, people who work in daycare and schools have their backgrounds checked. But when it comes to appointment of board members and C-level executives there are often no background checks done.
As Finland moves towards adopting these measures, Kallunki’s research not only highlights a critical oversight in corporate governance but also paves the way for more ethical and responsible business practices. Through his insights, the conversation around leadership integrity and risk management in Finnish companies is set to evolve, ensuring a future where corporate success is not only measured by financial outcomes but also by the ethical standards upheld by those at the helm.
Facts from the Research:
The study represents a collaborative effort between the University of Oulu Business School, the University of Helsinki, and the University of Eastern Finland. It delves into the backgrounds of 2,201 Finnish CEOs and board members of listed companies who held their positions at any point between 2000 and 2019. The investigation uncovered that around 20% of these executives had been subject to a previous court sentence.
The analysis revealed that the most prevalent types of offenses were traffic violations, crimes against life and health, and sexual offenses. On-the-spot fines, such as those for speeding, were not included in the dataset.
Significantly, 8.8% of these convictions resulted in prison sentences, while the remaining 91.2% led to monetary penalties. An interesting gender dynamic emerged from the study, showing an over-representation of male executives in the conviction data. Although women constituted 15.1% of the sample population, they accounted for only 5.1% of the convictions.
For further details on this study, visit the University of Oulu's official website: https://www.oulu.fi/en/news/one-five-executives-finnish-publicly-traded-companies-has-criminal-conviction
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