Research: The personal backgrounds of top management are reflected in companies' decisions

Last week, Yle interviewed Juha-Pekka Kallunki, professor of accounting at the Oulu Business School, on his latest research on criminal convictions and other personal backgrounds of CEOs, board members, and auditors of companies. The research has sparked a lot of debate since the story was published.

Professor Juha-Pekka Kallunki sitting behind chair rows in a lecture room.

Last week, Yle interviewed Juha-Pekka Kallunki, professor of accounting at the Oulu Business School, on his latest research on criminal convictions and other personal backgrounds of CEOs, board members, and auditors of companies. The research has sparked a lot of debate since the story was published.

The research group led by professor Juha-Pekka Kallunki examines the impact of the personal backgrounds of companies' top management on the operations of the companies they manage. For example, criminal convictions, tax penalties, and omissions are examined in the study. Extensive register-based data is used to identify management characteristics, such as tendencies to excessive risk-taking, excessive self-confidence, or sensational behaviour. Criminal convictions and other negative personal backgrounds reflect a person's personality traits, which in turn affects their actions as leaders of their companies.

Companies play a vital role in our society, so the phenomenon is socially significant.

International research on the topic has been conducted in collaboration with the Stockholm School of Economics for more than ten years. Several studies on the subject have been published with data from listed Swedish companies. At present, the research is also carried out with extensive Finnish data. The data covers not only listed companies but also unlisted companies.

A criminal history can indicate a willingness to take risks

According to already published publications, one in three CEOs of Swedish listed companies has received a personal criminal conviction from a court during their adult life. The most common convictions are traffic offences, such as endangering traffic or drunk driving. The data does not include speeding fines or parking tickets issued by the police.

Similar, yet unpublished, findings have been made in yet unpublished studies with data containing Finnish limited companies. This is not surprising due to the similarity of Finnish and Swedish business life.

According to the results, criminal convictions of company management hurt company-level decisions. This is reflected, for example, in worse acquisitions, fluctuations in the company’s performance, and more aggressive tax planning.

The study also found that while audit work is standardized and monitored teamwork, the personal qualities of an individual auditor affect the quality of the audit.

The interpretation of the results is based on the data

Since last week’s news coverage, the debate over the results of the study has been active. In the discussions, the results of the study have been interpreted a little bit too far, professor Kallunki points out. For example, it is not possible to speak of ‘criminal’ business leaders because the findings are not related to economic or other crimes. Nor does conviction for drunk driving make a person ‘criminal’.

The results of the study relate to average phenomena observed in a large number of individuals. No conclusions can be drawn for an individual leader. “As researchers, we present our findings, that we make from the data,” reminds professor Kallunki.

In the banking and insurance sector, an assessment of the reliability, suitability, and professionalism of the manager is required. "The message of our research is that this assessment is justified and should be extended to all industries in the future."

The text was originally published in Finnish on the Science with Arctic Attitude blog on Aug 27, 2021.

Research: The personal backgrounds of top management are reflected in companies' decisions

A criminal history can indicate a willingness to take risks

The interpretation of the results is based on the data

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