Board Oversight in Start-Up Fraud: Unveiling the Risks of Shared
Type
conference paper
Date Issued
2024
Author(s)
Abstract
Research into venture fraud is still scant and there is limited insight for why and how it occurs beyond that the founding entrepreneur usually constitutes the main suspects. In this study, we examine the monitoring behavior of board members in start-up fraud and their potentially compromising relationships with the founding entrepreneur leading the venture. In contrast to emerging recommendations in the literature, our qualitative study of 14 prominent fraud cases exposes the limitations of shared stock ownership between founding entrepreneurs in the executive lead and board members. Whereas guidelines from previous work mostly related to agency theory suggest shared ownership should produce improved alignment with venture goals, we show this alignment mechanism indicates risk of monitoring failures and the perpetuation of insufficient supervision, enabling fraudulent activities among boards and CEOs. Furthermore, our model identifies the founding entrepreneur in the lead as a central issue, alongside a considerable risk of fraud reinforcement mechanisms. This risk is compounded by the tendency of board members to resort to 'freeze' or 'flight' responses as initial coping strategies when detecting fraudulent activities before confronting problems directly.
Language
English
Keywords
alignment
monitoring
opportunism
venture boards
venture fraud
venture governance 18411 2
Division(s)
File(s)![Thumbnail Image]()
open.access
Name
AOM submission 18411.pdf
Size
686.61 KB
Format
Adobe PDF
Checksum (MD5)
c87957b75af4f207f5dab46116012d7a