Fraud, Scandals, and Crises in Business History

Since the Enron-affair and the Worldcom debacle in the same year 2002, the scholarly interest in business fraud and scandals has become substantially larger. The economic crisis starting in 2007-2008 has further stimulated the study of dubious financial practices, also among business and economic historians. The speakers will discuss individual scandals and crises. They explain how actors construct narratives about of fraud (and other dubious financial practices) and crises, thus framing these events as scandals to a different degree. The impact of crises and scandals on business regulation is also discussed.

Detailed programme

 12:30        Lunch (sandwiches)

 13:00        Per Hansen (Copenhagen Business School)

“There will be the devil to pay.” Central bankers and sense-making in the Austrian Crisis of 1931.

 14:00        Hartmut Berghoff (University of Göttingen)

The Compliance Revolution of the 2000s. Evidence from the Siemens Cases and other Corruption Scandals

 15:00        Tea

 15:30        Steve Toms (Leeds University Business School) and Hugo van Driel (RSM, EUR)

Financial scandals, fraud and the lessons of the past: Perspectives on the business history literature and a proposed model

 16:30        Drinks at the Erasmus Paviljoen

Speakers:

“There will be the devil to pay.” Central bankers and sense-making in the Austrian Crisis of 1931.

Per H. Hansen, Copenhagen Business School

In this paper, Hansen examines how central bankers made sense of and tried to understand the Austrian financial crisis of 1931 by constructing a narrative that could make sense of the crisis and stop it from spreading beyond Austria. He takes a micro-historical approach and focuses on central bankers’ attempts to deal with uncertainty and the sense that the world as they knew it was falling apart. The paper is based on archival work in the Bank of England, the Federal Reserve Bank of New York, and the Bank for International Settlements.

Per H. Hansen is Professor of business history at Copenhagen Business School. His current research and teaching interests focus on financial history. He has also published articles and books on organizational culture and change, design history, and on narrative and cultural approaches in business history. He has been visiting scholar at Harvard Business School, UC Berkeley, Stockholm School of Economics, Rutgers University, and Stern School of Business. He was president of the Business History Conference from 2013 to 2014.

The Compliance Revolution of the 2000s. Evidence from the Siemens Cases and other Corruption Scandals

Hartmut Berghoff, University of Göttingen

Siemens is Europe’s largest electrical-engineering company. On November 15, 2006, its headquarters were raided by police because the Munich public prosecutor was investigating massive off-the-books cash deposits for bribing foreign officials. The scale of the alleged crimes was beyond what anyone could have imagined in 2006. This investigation formed the basis of indictments by the Munich public prosecutor, the SEC, and the US-Department of Justice. By the end of 2008, Siemens had settled with all of the German and US authorities involved, agreeing to pay a total of 1.6 billion dollars in fines and disgorgement, a record amount under the FCPA until today. This paper looks at the profound changes in the legal environment that took place since the 1990s. It will then ask how corporation reacted to them or rather failed to do so. It will further look at the way authorities applied the new rules and how they reacted to corporate malfeasance. Finally, it will analyse how a compliance revolution impacted corporations from the inside. After the turmoil of the scandal and the severe punishment through the 2008 settlement Siemens underwent its own compliance revolution by establishing a new culture of transparency and set up comprehensive mechanisms to prevent corruption in the future. This program certainly is not perfect and corruption has not totally died out but the new approach toward compliance had a profound impact on the running of the company.

Hartmut Berghoff is the director of the Institute of Economic and Social History at the University of Göttingen in Germany. He has been the director of the German Historical Institute in Washington DC from 2008 to 2015. His fields of expertise are the history of consumption, business history, immigration history and the history of modern Germany. The most recent publications are Moderne Unternehmensgeschichte. Eine themen- und theorieorientierte Einführung, 2nd ed., München 2016 and (co-edited) Tatort Unternehmen. Zur Geschichte der Wirtschaftskriminalität im 20. und 21. Jahrhundert, München 2016. He is also co-author of a yet unpublished book Die große Transformation. Die Geschichte der Siemens AG im Zeitalter der Globalisierung, 1966-2011. For a full CV and a complete list of publications consult https://www.uni-goettingen.de/en/101865.html

Financial scandals, fraud and the lessons of the past: Perspectives on the business history literature and a proposed model.

Steven Toms, Leeds University Business School & Hugo van Driel, Erasmus University Rotterdam

Since the Enron-affair and the Worldcom debacle in 2001/2002, the scholarly interest in business scandals and fraud has become substantially larger.  We review around 60 articles and books on scandals and fraud published or reviewed in history journals. The review paper attempts to determine whether (business) historical studies, even when not following a quantitative approach or not otherwise aiming at generalization, taken together have something to offer in gaining general insights in business scandals and fraud. The classic framework for studying fraud is the so-called fraud triangle consisting of incentive, opportunity and rationalization of fraud. We propose a model that encapsulates this approach and adds a historical dynamic perspective. The model is based on four parameters that link to key strands of the relevant literature: governance institutions and accountability, access to resources, market efficiency and regulation. This model enables us to incorporate the impact of innovation, personal motivations of fraudsters, networks, and sense-making of fraud and scandal and the regulatory response they may trigger.

Some preliminary conclusions are:

• innovation often enables fraud
• the occurrence and intensity of outcry about dubious financial practices is often based upon the financial damage done rather than the mendacity or wickedness of the perpetrators
• historical studies have the potential to highlight participants’ rationalisations of their actions; fraudsters themselves construct counter-narratives to legitimize their malpractices, rationalisations which may go beyond merely emphasising instrumental reasons
• these rationalisations may to some extent resonate with interpretations of contemporaries and later historians, thus offering some correction to the view of fraudsters as shamelessly greedy people
• competing post-scandal accounts may resolve into a dominant narrative supporting  changes in business practices and/or regulation, but scandals seem to have a mere triggering role here, as these changes tend to be in line with pre-existing agendas for reform

Our suggestion for future studies of scandal and fraud and their aftermath is to perform carefully designed comparative studies (across time and place). This would help us to systematically relate the framing of scandals to subsequent changes in business practices and/or regulation (or their absence).

Steven Toms is a business school academic and business historian. He specialises in the history of cotton textiles, once the main industry of his native Lancashire and the engine of the British export economy of the nineteenth century. Steven’s research has examined the roles of governance and finance in the growth and decline of businesses. He has served as editor of the journal Business History. He teaches a wide range of accounting and finance subjects, including forensic accounting and finance. Subjects: Accounting, Business History, Cotton Textiles, Forensic Accounting and Finance, Corporate Finance and Corporate Governance. http://business.leeds.ac.uk/about-us/faculty-staff/member/profile/steve-toms/

Hugo van Driel is assistant-professor of Business History at Rotterdam School of Management, Erasmus University, Rotterdam, The Netherlands. He performed several historical studies of the port and transport business and other industries. Most recently, he published on the use of methods and theory in business history. For further details on his publications, see http://www.erim.eur.nl/people/hugo-van-driel/.