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Eugene Soltes on Why They Do It

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More than two dozen graduates of Harvard Business School have been convicted of white collar crimes.

They include the likes of Jeffrey Skilling, Rajat Gupta and Walter Forbes.

Eugene Soltes knows their names well.

Soltes is an associate professor of business administration at the Harvard Business School and author of Why they Do It: Inside the Mind of the White Collar Criminal.

“In the course of doing the research for this book over the last eight years, I just started keeping track of where people went to school,” Soltes told Corporate Crime Reporter in an interview last week. “It was out of my own personal curiosity. I wanted to know how many people were alum of the school.”

“On the last day of class, I show a slide. It includes the pictures of those alumni of the Harvard Business School who were convicted of crimes. It’s a powerful and humbling slide to show to students as they are about to graduate. Every one of them is thinking — I’m going to go out and do well. I would never have this happen to me. Everyone is so sure.”

“What motivated me to spend the time on the project is to instill a degree of humility. These are not by and large bad people or sinister people. These people are much closer to you and me and the other people you look around the class and respect. They just end up doing stupid things because they don’t appreciate the consequences at the time. We need to figure out how to identify those weaknesses that we all have and figure out how to design systems to prevent us from falling prey to our own bad intuitions.”

Soltes places more hope in compliance programs and corporate culture and less in new kinds of regulation or increased enforcement budgets.soltes

But he has no illusions.

In the book, Soltes reports on a shareholder lawsuit against Goldman Sachs. The lawsuit relies on Goldman’s statement of business ethics in which the company says “we are dedicated to complying fully with the letter and spirit of the laws, rules, and ethical principles that govern us.”

Goldman sought to have the lawsuit dismissed. Goldman’s attorneys argued that “the vast majority of supposed ‘misstatements’ alleged in the complaint — e.g. regarding the firm’s ‘integrity’ and ‘honesty’ — are nothing more than classic ‘puffery’ or statements of opinion.”

“Many other companies probably take the same view — that it’s just puffery,” Soltes said. “But what is so extraordinary here is that Goldman admitted it in a public venue. The judge quite appropriately came back and was astounded that one of the most powerful and respected companies in the world would in such a cavalier fashion throw out any notion of integrity, honesty and values to get a lawsuit dismissed.”

“There is a tension between these high level aspirational goals and what happens on the ground. It’s that disconnect that creates a lot of cynicism of business. That’s what motivated Occupy Wall Street and the anger of Senator Elizabeth Warren.”

One way to shame corporate criminals would be to ban them from recruiting on college campuses.

“Suppose that firms convicted of recent criminal offenses — firms that are felons in the eyes of the law — were not permitted to recruit on university campuses,” Soltes writes. “Such a prohibition could be voluntarily implemented by individual schools and enforced during the time that the firms are implementing better systems. While this might appear to be a small penalty, temporarily banning these firms from campuses — a choice instituted by schools, not regulators — could instill an urgency to better address the roots of misconduct that might exceed even the largest fines.”

And Soltes says that recruitment by criminal organizations on university campuses is not merely hypothetical.

“During the 2015-2016 academic year, ten firms recruiting at Harvard were found to have had a criminal conviction or a deferred prosecution agreement in the previous year,” he writes. “Several firms were even on court-ordered probation — the closest they can get to ‘doing time’ — while recruiting on campus.”

Go back to the early days of business in this country. If a businessman engaged in overcharging customers, they would be shamed in the public square. Now that shaming is much more difficult. I get a sense from your book that you think that the corporate economy will never overcome that. The people who are being wronged are so disconnected from the wrongdoers.

“That’s the underlying theme,” Soltes says. “As human beings, we don’t identify well with harms that we commit that are distant from us. This is an extraordinary challenge that all managers face.”

“How do you get that visceral feeling telling you to stop, telling you that what you are doing is potentially very harmful — if you can’t see the victims? It’s not like hitting someone on the shoulder.”

“I would say every single person I talk about in my book, I wouldn’t be worried about any one of them stealing my wallet from my back pocket. Why? They would see me. They would see my reaction. And they wouldn’t do it. Their intuition tells them that’s harmful and they wouldn’t do it.”

“Yet, a number of these executives have actually stolen money from us in much larger quantities. Why would someone who would never steal $5 from my back pocket be willing to empty someone’s 401k plan? It’s not just knowing that is wrong. But feeling that is wrong.”

“We can’t make every shareholder sit around the CEO at all times. But we can try to inoculate different norms within individuals. Compliance programs are often seen as ways of protecting the firm. They are not aspirational. I think of compliance as protecting executives from themselves. We want to be good people. We want to be law abiding. We want to be successful. But we have the ability to do things that are quite harmful to others and ultimately to ourselves.”

“We design these systems from preventing these things from occurring in the first place. And that’s not an easy flip of a switch. That’s a challenge.”

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Russell Mokhiber is the editor of the Corporate Crime Reporter..

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