Strategic Supervision Journal

Strat. Mgmt. T., 24: 587–614 (2003)

Posted online in Wiley InterScience ( DOI: 10. 1002/smj. 330




Carlson School of Management, University or college of Minnesota, Minneapolis, Minnesota, U. T. A.

White-collar crime can cost a company coming from 1 percent to six percent of annual sales, yet little is known about the company conditions that could reduce this kind of cost. Previous governance studies have examined the web link between obstruct holders, panels of company directors, or CEO compensation and fraud. Through this study, these traditional steps of governance are found to acquire little effects. Instead, operational governance, which include clarity of policies and procedures, formal crosscompany connection, and performance-based pay for the board and for more staff, significantly minimizes the likelihood of a crime commission. Copyright п›™ 2003 John Wiley & Sons, Ltd.


The monetary impact of fraud is usually immense. Quotes of the cost of white-collar offense to corporations in the United States range from $200 billion dollars (Touby, 1994) to $600 billion per year (Association of Certified Scam Examiners (ACFE), 2002). This is massively greater than street offense losses

of $3–4 billion dollars (Baucus and Baucus, 1997) and

total economic damage to victims of personal and

property offences of $15. 6 billion dollars (Bureau of Justice

Stats, 1999). Fraudulence can drastically impact the

financial functionality of a firm as it can cost you a

typical company between 1 percent and 6 percent of annual revenue (Hogsett and Radig, 1994; Touby, year 1994; ACFE, 2002). White-collar criminal offenses

alone triggers 30 percent of recent business failures

(Agro, 1978), without regard to the quality of the

firms' strategy or perhaps assets.

Keywords: fraud; criminal offense; governance; interior control

*Correspondence to: Karen Schnatterly, Carlson School of Management, College or university of Minnesota, 321 19th Avenue Southern region, Minneapolis, MN 55455, U. S. A.

Copyright п›™ 2003 Ruben Wiley & Sons, Ltd.

Fraud has brought down various apparently wellperforming firms. Enron, Sunbeam, Cendant, and Waste materials Management are some of the most recent

and spectacular good examples. Even before Enron's

collapse, the U. S. Securities and Exchange Commission payment was checking out more companies than ever pertaining to possible accounting fraud (Roland, 2001).

The cabability to prevent scam, or value loss through

fraud, has changed into a potential supply of competitive benefits and better financial overall performance for organizations in today's economic system.

This paper investigates if firms' governance systems affect the likelihood of whitecollar crime. Governance systems contain not only the board of directors as well as the CEO, although

also functional systems in the firm through

which management can impact the company. Components of these systems have been examined regarding their role in strategy process1


Method has to do with ‘how' a firm increases a competitive position (Schendel, 1992), and relates to a comprehension of both how to develop these processes to ‘develop very good strategy, after which go on to formulate those procedures necessary to make use of the strategy to work the firm' (Schendel, 1992: 3).

Received 12 Oct 2002

Final revision received 13 March 2003

Electronic copy offered at:


K. Schnatterly

(Marginson, 2002), but not with regards to their

influence on crime.

The investigation contains what may well constitute inability of governance as well as featuring some course as to what may possibly constitute even more

effective governance. Understanding or identifying

the variation in governance systems between organizations

with criminal offenses and those with no it provides perception

toward the reduction of white-collar criminal offenses in all


The governance differences between firms with

crime and people without it truly is investigated using a

sample of 114 businesses, composed of coordinated pairs...

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