Does a Traffic Ticket Mean You're More Inclined to Fraud? Maybe....

I'll be the first to admit that I have been known to exceed posted limits on the highway. By how much? Hmmm. Maybe I'd better lay claim to the Fifth on that.

Oh and I can justify my speeding, of course: I'm just keeping up with traffic! Statistics have shown that being an outlier on either end of the bell curve (driving significantly more slowly than traffic or driving significantly faster) is much more dangerous than flowing along with the rest of the vehicles on the road.

So it's not really that I want to go fast: I want to be safe.

Yeah, and I've got a bridge to sell you.

But now I may have to rethink my vehicular behavior.

The New York Times' Floyd Norris has a fascinating article in today's paper, based on an academic report written and recently published by Robert Davidson (Georgetown University), Aiyesha Dey (University of Minnesota), and Abbie Smith (University of Chicago), that suggests that "off-work" behavior can give a strong clue about "at-work" behavior. An abstract of the paper, which is to appear in the Journal of Financial Economics,  is available here; a .pdf of the full paper is also available there.

The authors explored whether two forms of "off-work" behavior by senior corporate executives -- living "high on the hog", and having any kind of criminal record (including traffic violations) -- were correlated to misfeasance or malfeasance on the job:

We predict and find that CEOs and CFOs with a legal record are more likely to perpetrate fraud. In contrast, we do not find a relation between executives’ frugality and the propensity to perpetrate fraud. However, as predicted, we find that unfrugal CEOs oversee a relatively loose control environment characterized by relatively high probabilities of other insiders perpetrating fraud and unintentional material reporting errors. 

 Wow.

First of all, I wasn't aware that people with criminal records could even be CEOs or CFOs. Norris reports that

Of the 109 chief executives of companies found to have committed fraud, 12 had previous encounters with the law that were more serious than a speeding ticket. The academics counted eight felony drug charges, four case of domestic violence and four traffic violations so serious that they were lumped under the heading of reckless endangerment. (Some of the bosses had more than one item on their record.)

The professors had turned to SEC fraud cases dating from 1992 to 2004, and then looked for companies as similar to those, but with fraud filings, as possible: similar in size, in the same industries, similar (pre-fraud filing) stock market performance, etc.

So, what kind of legal record had the CEOs and CFOs of the non-fraud companies have? None of them had anything more serious than "an ordinary traffic violation." And even there, the differences were compelling. Norris notes:

Of the 109 chief executives from nonfraudulent companies, just five had traffic tickets. Sixteen of the fraud company chief executives had such tickets. Some of them had more serious violations. Altogether, 22 of the 109 had some previous violation.

As the paper's authors state,

we interpret an executive’s prior legal infractions, including driving under the influence of alcohol, other drug-related charges, domestic violence, reckless behavior, disturbing the peace, and traffic violations, as symptoms of a relatively high disregard for laws and lack of self-control. We predict and find a direct, positive relation between CEOs’ and CFOs’ prior records and their propensity to perpetrate fraud....

Or, as Norris puts it, more simply: "What this could indicate is that people who are willing to violate one set of social norms are more likely to be willing to violate far more serious ones."

I've written before of our human capacity for self-delusion (e.g., here, writing about the need to get rid of the "gimmes"). While I don't think that a speeding ticket on my record should automatically mean that I couldn't be a great CEO (on the other hand, felony drug charges? Really?), I do think that before the board offers me the job, they should do a background check. And look for answers more compelling, and less self-serving, than "I was just keeping up with traffic."