Are Public Companies More Unethical Than Private Companies?

Public vs. Private

Do publicly held companies foster an environment conducive for committing criminal acts more than privately held companies?

By XXX

MNGT 6000

Webster University

Purpose

The purpose of this paper is to examine and determine whether or not publicly traded companies are more prone to foster an environment conducive for criminal acts than those of privately held companies. Due to the enormity of the research, only companies owned in the United States will be examined. Of course, a company is an inanimate object and therefore incapable of doing something, let alone committing criminal acts. So the purpose of the study is really to examine if public or private businesses tend to have more criminal activities emanate from them on behalf of the executives working within. The executives are separated out from the rest of the employee populace due to the fact that they are responsible for the direction and guidance of the company. Given this fact, the executives are in essence, identified with the company. To clarify, an executive is anyone in a position of President and above including board members. For the sake of the study, when one of these executives is indicted or investigated for committing a criminal act, this author will speak in terms of the corporations committing a criminal act. This is not unusual when lawsuits are filed or indictments made. Articles and publications also tend to equate executives with the companies they lead. Think Enron, Worldcom, and Arthur Anderson.

Premise

This author contends that after a thorough examination of the facts, it will be determined that publicly held companies foster an environment conducive for committing criminal acts more than privately held companies that operate within the United States. This author is basing this premise on three factors: 1.) public companies exposure to the public eye, 2.) pressures from Wall Street placed on public companies to perform and 3.) scrutiny from shareholders of public companies. This author believes that private companies are not without sins themselves, but overall, it will be found that public corporations tend to transgress far more than their private counterparts.

To try and bring specific measurement to bear in this type of research will be difficult, but this author will contend that if evidence can be found and confirmed that more than a two-to-one ratio exists between publicly held company crimes and privately held crimes, than the premise is supported.

Situation Analysis

The past three years has seen a flurry of activity in regards to corporate fraud. Companies such as Enron, Worldcom, and Tyco International have brought major distrust to the eyes of the world. So much distrust has been generated that the United States recently passed legislation, named the Sarbanes-Oxley Act, which would cause executives of corporations to be more accountable for their company's performance. Yet, even as the news almost daily reports on the criminal trials of the executives from these companies, there is little, if any mention of privately held companies undergoing the same proceedings. One would surmise that is because private companies are just that - private, and therefore do not have to report all aspects of their business. Of course that is true, but criminal charges are a matter of public record. Most certainly, if an indictment is brought against a privately held company, the public will know about it. So, criminal acts will most likely be exposed when researched. Another argument may be that there are less private companies in the US than public ones, thus lessening the possibility that private companies will commit more criminal acts. Actually, according to one source, there are more than 14,000 publicly registered companies and even more privately held ones.

So, based solely on the differing proportions, one would surmise that there is a greater likelihood to find a criminal act committed by a privately held firm.

This paper will examine a number of sources to determine which type of business, if either, is more prone to generate criminal acts despite the number of publicly or privately held companies and their ratio to one another.

Study Limits

This author's premise would be rejected if the preponderance of the evidence shows that the percentages of criminal acts committed on behalf of private companies cause the two (public)-to-one (private) ratio to change, increasing the private-side of the ratio. Another impact on the premise would occur if enough evidence could not be found to make a rational and realistic determination as to the premise. It can already be deduced that some evidence will not be available. For example, it is fair to say that some states are lax in pursuing litigation against corporations for one reason or another. When this is the case, a criminal act may in fact have been committed, but no charges were brought against the company. In fact, a court case may not have even been conducted. Another limitation will be the impossibility to examine the shear volume of information that needs to be analyzed to come to a certain determination of the premise. Despite that fact, it is believed that through certain sampling techniques and methods, a determination to either support or reject the premise can be ascertained.

Research Method

Due to the scope of the study, the primary method used in research will be articles derived from various web sites, as well as hard copy periodicals, journals, and books. An interview will also be conducted with a faculty member of Webster who has had many years of experience in private and public firms. Also, a survey of few but specialized respondents will be conducted. The survey is considered specialized because the respondents are experienced business professionals with at least 10 years in the work force and exposure to the public and private sector. The survey does not contain a large number of respondents, thus the reason for a specialized sample. Though the survey is not a strong piece of research, it is another source to be considered.

Literature Review

Various