16 June 2010

Board members of Swedish companies with criminal convictions are common

Almost 90 percent of companies listed on the Stockholm Stock Exchange have at least one board member who has been convicted of a crime. Companies with several board members who have been convicted of crimes are less profitable and present a greater risk to investors. Such are the conclusions presented in a study by Henrik Nilsson at the Mistra program Sustainable Investments.

Henrik Nilsson has investigated 4046 board members against the National Crime Prevention Council’s prosecution records to form his conclusions. He found that 901 people or more than 22 percent have been convicted of a crime. Of all the companies on the Stockholm Stock Exchange, nearly 90 percent have at least one board member that has been convicted of a crime.

There are several theories that support the supposition that committing even minor crimes affects one’s future behavior. “An individual who is fast and loose with the rules is likely to make poorly thought-through decisions or to take excessive risks in serving the board," says Henrik Nilsson.
Formerly convicted board members are found in a variety of companies. The types of offenses board members are convicted of include breach of trust, theft, financial fraud as well as harassment, trespassing and violent crimes. Negligence and driving under the influence represents a large proportion of the crimes.  Speeding and other minor offenses are not included in the study.
The difference in profitability between a company with several board members convicted of crimes and a company with few or no one convicted is approximately 10 percentage points. Board members convicted of crimes are less able to direct and control their company's management structure. Strategic decisions often involve unwise risks and the company's sloppy accounting procedures indicate poor quality.

“Listed companies boards are only slightly more honest than the average Joe. Had more women been included on the boards the statistics would have been better because women are less likely to commit crimes of any sort,” says Henrik Nilsson. He also presents an ethical index in the report, which also takes into account earlier bankruptcies and credit history.
The majority of the 382 companies included in the study are listed on the Nasdaq OMX exchange.

Mistra Mistra