After a recession that tanked the economy and revealed the shady dealings associated with subprime mortgages, statements of corporate income, and other problematic business practices, it’s natural that many remain suspicious of how large companies operate—and concerned about the far-reaching consequences of their moral failings.
Taxes have become an increasingly important part of the conversation, especially when it comes to discussions about corporate-tax rates and loopholes, which then brings up questions about which groups do or do not pay their fair share of taxes. According to a new study from Wake Forest and the University of North Carolina, Wilmington, the IRS estimates that in 2006, corporate-tax evasion was responsible for around $67 billion in losses. And prior to that, unethical behavior related to the reporting of corporate finances was also an issue in major cases of fraud, including WorldCom and Enron.
In the effort to combat fraud, the role of Chief Financial Officer is especially critical, since the job requires signing off on, and certifying the accuracy of some financial statements for firms that report to the SEC. That makes company CFOs one of the primary lines of defense when it comes to fair and accurate financial reporting and prevention of unethical financial behavior. But a 2012 study from Ernst and Young found that “15 percent of CFOs indicated they would be willing to commit fraud to win business and 4 percent said they would be willing to intentionally misstate financial performance.” And that's just the CFOs who were willing to admit to such views. A 2014 version of that same study on global fraud found that 7 percent of CFOs said they would be willing to misstate company finances in order to help weather tough economic times. “CFOs are more likely than any other role to justify making changes to assumptions relating to valuations and reserves to meet financial targets,” the study found.
Though corporate ethics and morality have been studied at length, especially when it relates to the size of a firm, or executive compensation, the new study from researchers at Wake Forest and UNC Wilmington takes a look at a different characteristic of a company’s leadership—gender—as a means of determining how ethically a company’s higher-ups behave when it comes to paying taxes and reporting income.