CEOs have not only explicit legal authority but also substantial ‘soft’ influence (based on relationships, for example) over what happens in the company. This influence extends to wrongdoing, as revealed in new research by University of Michigan Ross School of Business finance professor E. Han Kim and University of Michigan Law School professor Vikramaditya Khanna. According to Kim and Khanna, CEOs who appoint their top lieutenants (thus increasing their soft influence) are more likely to commit fraud. Their research also shows that fraud is less likely to be discovered when CEOs are ‘connected’ in this way to the other executives on their team.
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