Whether it’s the Volkswagen emissions scandal or Wells Fargo creating fake customer accounts, every day a new organization makes headlines for its misconduct. Students at the Ivey Business School have heard from former leaders, such as Andy Fastow of Enron, or derivatives trader Nick Leeson, whose unauthorized high-risk trading caused the collapse of Barings, about the lessons learned from their misdeeds.
All of these actions have come in spite of protective regulations and watchful enforcement. Apparently, getting people to do the right thing is not as easy as you think.
Assistant Professor Matthew Sooy investigates how offering ‘no-fault settlements’ influences managers’ willingness to comply with regulations. In his dissertation, Sooy compares the actions taken by managers who face ‘no fault’ sanctions, where managers accept fines without admitting or denying fault, to those who must admit fault if caught violating. Under both settings, the size of fines is constant – the only difference is whether or not managers expect to admit fault if caught violating regulations.
