Fraud and financial scandals

Authored by: Steven Toms

The Routledge Companion to Business History

Print publication date:  December  2016
Online publication date:  December  2016

Print ISBN: 9780415855563
eBook ISBN: 9780203736036
Adobe ISBN: 9781135007836

10.4324/9780203736036.ch23

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Abstract

The chapter illustrates the benefits of using business history to gain perspective on a significant problem for present day business and regulators: the continuing occurrence of financial fraud and financial scandals. To do so, it presents a conceptual framework of financial fraud based on the historical interaction of opportunity and impediment. In the long run, the character of opportunity is determined by the technical characteristics of assets and their unique, unknowable or unverifiable features. Impediment is promoted by consensus about the real value of assets, such that through active governance processes, fraudulent deviations from real, or consensus value, can be easily monitored. Active governance requires individuals in positions of responsibility to exercise a duty of care beyond merely being honest themselves. Taking a long run historical perspective and reviewing a selection of British financial frauds and scandals, from the South Sea Bubble to the global financial crisis, the chapter notes the periodic occurrence of waves of opportunity and the evolutionary response of passive governance mechanisms. In doing so, it provides an overview of the business history and related literatures that have addressed this recurrent ‘dark side’ of business behaviour.

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