Crime and punishment in the marketplace: Accountants and business executives repeating history

To develop theoretical frameworks to discuss high profile scandals, where responsible accountants and other executives could have saved themselves, many investors and others severe personal and financial loss by considering the costs of improper or immoral behavior. These cases emphasize the importance of ethics driving accountants' decisions.

The paper discusses these ethical lapses in light of applying Kohlberg's models, biblical examples from the Old and New Testaments and the Koran, and other ethical systems.

The paper shows that this concept is not new. Throughout history, people have taken actions that cost them their freedom, their money and most importantly, their good names. Upon reflection, many of these people are astounded at the seriousness of their action given what little they had to gain from continued involvement. In reinforcing lessons that should be learned from cases of business malfeasance and highlighting many well‐known accounting and other scandals, we develop recurrent themes in the nature of business scandals and show that many people are responsible for or complicit in the malfeasance. These individuals could have prevented the fraud or minimized any adverse impact if they had considered their behavior ex ante. We show that the employees portrayed demonstrated very low‐levels of ethical development and seemed to underestimate the probability of getting caught and the resulting punishment. We also elicit many reasons from several viewpoints for not becoming involved in fraud.

It is hoped that the next generation of business leaders and middle level staff alike will consider the results/messages of this paper when faced with ethical dilemmas.

The paper concludes that the best internal control in a business structure remains the hiring and training of morally upstanding employees and managers who recognize the values of their good names before temptations arise. Incentive plans can encourage ethical behavior.

Practitioners must consider fully the potential consequences of their actions no matter how small the perceived probability of a bad outcome.