Adam Larson: 00:05

Welcome back to Count Me In. I'm Adam Larson, and I'm thrilled to welcome three returning guests whose work has earned the 2026 Kurt Verschoor Ethics Feature of the Year Award, Dana Hermanson, Daniel Haggerty, and Douglas Boyle. Last time, our conversation about building virtue to fight fraud really resonated with you, our listeners. This time, we're flipping the coin, diving into the shadow side of ethical decision making in accounting and finance. Together, we'll explore their award winning article on capital vices, pride, envy, greed, and how these forces quietly shaped organizational culture, explain why good people sometimes cross the line, and how they map into familiar fraud frameworks like the fraud diamond.

Adam Larson: 00:46

In this episode, you'll learn not just how to spot early signs of these vices at work, but strategies for reducing and building safeguards both for yourself and your organization. So whether you're leading a team, entering in the profession, or already well into your career, this conversation is packed with practical insights to help you build a workplace where virtue, not vice, define your successes. Dana, Doug, Dan, thank you so much for coming back on the Count Me In podcast. We're excited to have you back. Last time you were on, we were talking your award winning article, Building Virtue to Fight Fraud, and the that conversation really resonated with our listeners.

Adam Larson: 01:26

And this time, we're having you back because your article has won again. And this time, you went a different direction and looked at the shadow side of all that. So walk me through what pulled you toward Capital Vices in the next chapter of your work. And Dana, we'll pass it over to you.

Dana Hermanson: 01:39

Great. Well, it's great to be with you again, Adam. Always a pleasure. I I think the way I think about it is is virtue is sort of the shield against fraudulent behavior, but we really wanted to flip the script here, look at the the Vices side, because what we're ultimately trying to understand is why people do bad things. So we go back to the the capital Vices, and I think in the course of this discussion, the Vices give us some sense of why people do bad things, and we also, in the article, work not to keep the discussion of Vices just in its own bubble, but we ultimately connect those Vices to fraud tools that accountants are already familiar with, like the fraud triangle and the fraud diamond.

Dana Hermanson: 02:20

So I think that's one of the exciting parts of this, is we kind of bring together the wisdom of the ancients with the current thinking about fraud.

Adam Larson: 02:27

So, Dan, you're a resident philosopher, And maybe for those who didn't catch the first conversation, maybe you can paint a picture of how these two articles co connect. If virtue is the foundation, where do Capital Vices fit in that that same framework?

Daniel Haggerty: 02:40

Yeah. Sure. First, it's good to be back with you, Adam, and my co authors. And, yeah, I think that's a great place to start because the two pieces, the two articles really do belong together. Right?

Daniel Haggerty: 02:51

In the first article, we focused on virtue, on what it looks like to form accountants and financial professionals who are disposed to do the right thing, not just because of compliance or rules or consequences, but because of who they've become. Right? So we were asking what does ethical excellence actually look like in a professional life? In the second piece, we turn to the other side of that picture. Right?

Daniel Haggerty: 03:19

What you might call the darker side, or I think you called it the shadow side, Adam. Right? If if virtue is cultivated excellence, then vice is cultivated distortion, and that cultivated is important here. It's not a one off bad action. Right?

Daniel Haggerty: 03:35

To understand vice, like to understand virtue, you can't focus on an individual action. The focus needs to be on the agent's state of character, like who they've become, their habitual ways of thinking and feeling and desiring and perceiving. Right? That's what we talked about in the Virtue article about how that kind of stable character consistently leads to good behavior. And in this, we're looking at how a sort of deformed, malformed character can habitually and stably lead to bad behavior and and poor judgment.

Daniel Haggerty: 04:17

So the connection then is this. Virtue tells us what we're aiming at, like honesty, good judgment, integrity. But the Capital Vices, and for us, pride, envy, and greed, help explain why people habitually miss the mark, why they drift away from those sorts of behaviors, sometimes gradually and almost imperceptibly, until behavior that once would have seemed unthinkable starts to feel reasonable and even justified. So if the first article is about building the kind of person who resists fraud, this one's about understanding how someone can be kind become the kind of person who for whom fraud starts to make sense. And we really think you need to look at it from both sides if you wanna understand the roots of the problem.

Adam Larson: 05:06

Yeah. That that makes a lot of sense. I I think it'll I think for us, for our listeners to help dig into this, we should kind of dig into each of those pride, envy, and greed together just so we can understand what that looks like because, you know, there's example pride. You know, you guys describe pride as, like, the most dangerous of the three vices, but you're also careful to say that pride is not all pride is vicious. Kinda like when you look at narcissism, all CEOs have a level of narcissism that they have to have in order to be successful c e.

Adam Larson: 05:32

You know? So maybe, maybe, Doug, you can help us understand, like, what does healthy pride a healthy professional pride look like versus the kind that starts to crack this foundation of ethical behavior?

Douglas Boyle: 05:42

Oh, Adam, you're exactly correct. Being a former executive when we first started studying this, and I was learning about pride. In business, of course, we have pride. I mean, we work hard. We wanna do well for our companies and for our families.

Douglas Boyle: 05:55

And but the distinction is what fuels it. So if if if an executive's pride is fueled by the the wrong the wrong perspectives, it it could lead to danger. It could lead to culture. So for example, a good pride would be if I'm focused on the long term business success and long term performance. Because I can have a long term horizon.

Douglas Boyle: 06:15

I can think about sustainable profitability. I can think about sustainable working capital. I'm gonna make fiscal decisions that are prudent in the long term. So if I'm pry I have pride around those outcomes, that would be that would be really helpful. Also, customer.

Douglas Boyle: 06:30

If I have pride around my customers. So if I wanna deliver superior products and services and I wanna build trust and I wanna retain them and I wanna have a strong reputation, that's that's a good area to have pride in. Organizational capability is another one. So if I wanna build strong teams, I wanna improve systems, I wanna create better decision making that's collaborative, and I have pride in in doing that, that that's another good area of focus. Understanding what's going on in my company, having pride in that, that I I have really good feedback loops with my employees and my team, and we have an open environment, and we have integrity of execution.

Douglas Boyle: 07:05

So there's lots of things we could be prideful of, which is very helpful for for good outcomes. The kind of culture that produces then is we're gonna have open communication. We're gonna have kind of a safe environment where people could share things that can bring up issues in a culture that supports transparency. We're gonna have a learning culture where we're learning together, and we're prideful of that. We're all on this journey together, and we're gonna learn as we go through this journey.

Douglas Boyle: 07:27

We're gonna have sustainable results. We're gonna have high levels of trust, and we're gonna share the benefits of that. Right? We're gonna share the the through, you know, promotions and through compensation schemes that make sense. So if you could take pride in those things as an as an executive, that's really helpful.

Douglas Boyle: 07:41

On the flip side, if I'm taking pride in my ego and I'm taking pride in the optics of things, so I really care more about what people think about me and people think about my company, and I'm I'm focused on looking credible and I'm focused on being dominant and appearing dominant, if I'm overly focused about my status and my authority and my self preservation and I'm prideful of my decisions to the point where nobody could question them. So if I make a decision and and it's, you know, not a really good informed decision and and there's outcomes and we're going down the wrong path, If I have pride in in that decision where I'm not gonna change, I'm not gonna listen, that could be very harmful. If I have pride in controlling the company and dominating everybody, and I I feel that that's a prideful thing, That's something that gives me satisfaction. Or I pride in a consistent narrative that I wanna paint a picture to the world, and we're gonna stick by that no matter what the outcomes are. So that type of pride is more ego driven as opposed to more long term outcome driven.

Douglas Boyle: 08:39

So and and that is gonna produce a a culture of of political safety. So if I'm in that culture and I'm an employee, I'm gonna try to protect myself and I'm gonna not be open and transparent. Bad news isn't gonna get surfaced. So I'm I'm not gonna be informed. The board's not gonna be informed.

Douglas Boyle: 08:53

Transparency is gonna be be an issue. And we're gonna have an environment where we blame each other because we're focused on our own egos and our own perceived reputation or legacy, and we're gonna have conformity pressure. We're gonna conform to a certain way that I'm dictating. It's gonna be much more short term focus because I'm not looking at the longer term horizon. I'm looking at, you know, the next quarter or or two quarters, and there's gonna be an erosion of norm.

Douglas Boyle: 09:18

So so that's where the line goes. So and, again, I've learned this from doctor Haggerty is that the pride, it could be used if it's fueled in the right way, but we gotta be careful on on on what's fueling it.

Adam Larson: 09:28

Yeah. That makes a lot of sense. You know, as you're talking about that, it made me think of the this concept of moral licensing, and it kinda really jumped out to me when we were reading the article. That that idea that, you know, if you have a good track record of good behavior, it can actually just make create like this justification of for crossing the line. And it I was thinking about that with Dan when you were when you were talking about, you know, like, people have this good character.

Adam Larson: 09:50

And, like, well, I've always been this good character, so everything's fine. But maybe we can talk a little bit about, you know, give us a sense of how that kinda plays out in the real world setting, real organization setting. Because, like, hey. I've made every other good choice, but I can just do that this one time, and then, you know, it snowballs from there.

Daniel Haggerty: 10:05

Yeah. Okay. Yeah. Moral licensing. It's one of the more unsettling dynamics, right, that we talk about because it doesn't show up in obviously unethical behavior.

Daniel Haggerty: 10:14

Right? It it shows up in people who have a strong track record of doing the right thing, which is really interesting. And in an organizational setting, it often looks like this. You have a high performing, well respected professional. Right?

Daniel Haggerty: 10:28

Someone who's consistently delivered results, maybe even someone who's known for their integrity. And then over time, that track record becomes part of how they see themselves and how others see them. They're trusted. They're given more autonomy, and in many cases, less scrutiny. And then the moment comes.

Daniel Haggerty: 10:51

Maybe there's pressure to hit a target or smooth earnings or close a deal. And instead of thinking, well, is this right? The internal conversation subtly shifts to something like, you know, I've earned some flexibility here, or I know where the line is, and I'm not like those people who actually commit fraud. Right? That's the licensing effect.

Daniel Haggerty: 11:16

Their past good behavior becomes a kind of psychological credit or, like, a moral credit that they feel that they can draw And because they still see themselves as a good person, the action doesn't feel like a serious violation. It feels like a small justified exception. Right? And I see everybody nodding because I think we can understand this. We could recognize the possibility of that in ourselves.

Daniel Haggerty: 11:42

I know, you know, I know I can. And it it what makes it especially dangerous, though, in organizations is that they're often the very people that you least suspect. And that's a familiar trope. Right? It's, a common pattern in cases of fraud.

Daniel Haggerty: 11:58

I never would have thought I thought no way would I have thought that that person would be the one to have committed fraud. Because they have the trust, they have the access, and they have the self confidence to override controls or rationalize, you know, gray areas for decisions. So the risk isn't just the risk when it comes to vice and fraud isn't just certainly isn't just obviously bad actors. It's also respected insiders who gradually come to believe that the rules apply to them a little less.

Adam Larson: 12:32

You know, I think we've all seen that where it's like, what? Johnny would never do such a thing. We we've all heard that concept like what you were just describing where they've built up this culture, this, like, ability of, hey. I've seen this person do in inaction. They're complete trustworthy.

Adam Larson: 12:47

They've done all these things. And maybe slowly over time, they've caused them to become lax or decisions that they make or cause that to happen. And it's interesting because I think way too often we believe so and so would never do that, not knowing, you know, what they do behind closed doors or they've built up that trust. You know? And how it's hard because even the person doing the action doesn't believe that they're doing something wrong.

Adam Larson: 13:11

So how do you, like, how do you build against that, Dan?

Daniel Haggerty: 13:13

Yeah. It's it's you know, I I think isolation is a problem here. So I I said when the internal conversation shifts to, I deserve some flexibility here. I think it's really important in organizations that take seriously ethical commitment and ethical development that there is self reflection, self awareness, but also discussion, conversation. But to ask yourself or to actually ask somebody else in the organization who you're close to, is what I'm about to do here something that I could transparently tell you about?

Daniel Haggerty: 13:42

And if not, that's that's a sign that, no, no. Maybe you're tired. Maybe you're under too much pressure. Maybe you need to take a little bit of a break because, yeah, you've been great. You don't wanna derail all of that now.

Daniel Haggerty: 13:53

It's a it's a a it's a well known phenomenon. So I think isolation and not being transparent with yourself and with a trusted other is is really the problem.

Douglas Boyle: 14:02

That's a perfect idea too because very often, Dana and study I this a lot, these fraudsters are first time offenders. So not only do they think that way, but their record supports that. You know, it's the first time they've ever had an offense, and it's a a major offense. So so, you know, data does support that. In many cases, they truly were upstanding folks who who've never gotten in trouble.

Dana Hermanson: 14:24

And and many times, I think there there's an internal discussion. I just gotta get through this one problem. We're just gonna work through it. And in the working through it, it becomes a bigger and bigger and bigger problem. With financial reporting fraud, you see it start small.

Dana Hermanson: 14:39

Soon as you start small, you've hurt the next period, and you do it more the next period. Then the third period is in a hole when you start, And next thing you know, a little problem has become a a massive problem.

Adam Larson: 14:50

When we look at examples of, like, Enron, you know, Enron has been written about bunch of times at this point, you know, but there was a this culture of arrogance there. Like, pride was kind of baked into the identity of the whole firm, not just individual people. You know, how does pride go from an individual level to an organizational level, and how does that escalate those risks, that risk? Dana, why don't you take that?

Dana Hermanson: 15:11

I think it kind of feeds off of each other in that you have this notion that, you know, we we're great. We're above reproach. We're also above scrutiny. And then people start to internalize that. I'm great.

Dana Hermanson: 15:24

I'm above reproach. I'm above scrutiny. And and and you just get this kind of entitlement, you know, arrogance, you know, the smartest guys in the room, you know, kind of discussion. Remember early two thousand one, I was at a conference, and there was a speaker from Enron at the conference. And it was unbelievably impressive in terms of delivery.

Dana Hermanson: 15:47

We're all just kinda sitting there. I'm I'm ready to pull on, you know, an Enron t shirt and run through a brick wall after hearing this guy. But I was talking with some colleagues afterward, and it collectively struck us that while it was very, very impressive and well delivered, everything else, there was something about it that was just difficult to understand. There was a confusion dimension. It sounded great, but I'm not really quite sure exactly what they're doing.

Dana Hermanson: 16:15

I just know that they're really smart, and maybe they're smarter than all of us. And I've reflected on that so many times, because it was less than a year that the company blew up. And I've looked back at that over time with this culture of arrogance notion, thinking, gosh, there really was a notion that there's this special secret sauce there. They've figured out something that nobody else on the planet has figured out. And ultimately, don't think it turned out to be quite the case.

Adam Larson: 16:39

Well, we could probably talk about pride for for the whole time, but let's move on to envy. Envy is one of the is a tricky one because it kinda hides. It's not easy to detect. You know, it could masquerade as competitiveness or show up as back end compliments or even subtle undermining. Dan, maybe this is for you, but, like, what should what should professionals be paying attention to either in themselves or in the culture around them that might signal envy at work?

Adam Larson: 17:02

Because, you know, it's always good to even look at yourself to make sure that you're not doing it, maybe not subconsciously.

Daniel Haggerty: 17:09

Yeah. But let me say, when I first maybe 20 more than 20 ago, when I first started developing an interest and doing initial research into the Capital Vices, envy really struck me. I didn't I didn't know what it was. I used the word, and we used the word. People say, oh, I'm so envious.

Daniel Haggerty: 17:26

And they don't mean what the vice envy means because nobody would would admit to envy. It's like Aristotle said, of all the vices, it's the one that actually it just has no upside for anybody. It's it's it's like the very opposite of of love. I mean, envy is is nasty, which is why I think, Adam, it it hides. And, I also wanna say that something I've noticed from my own teaching, though, about virtues and devices.

Daniel Haggerty: 17:49

So I teach ethics to both undergraduates and in our PhD program in accounting to graduate students. And I've noticed something interesting that when we talk about virtue, students are definitely engaged. It resonates. But when we turn to vice, the energy in the room shifts. Right?

Daniel Haggerty: 18:07

People lean in. There's a kind of fascination there. And I and I and envy then, in particular, or pride or greed, you know, all of these. And I think you know, I've been thinking about that. Why is that?

Daniel Haggerty: 18:19

And I think part of it is that vice feels more familiar. People recognize pride, envy, and greed in themselves, even if they don't want to admit it, but they recognize it more readily than fully developed virtue. And I think that creates a kind of psychological honesty that you can acknowledge these gray areas without pretense, at least to yourself. And it also, I think, helps explain something like envy because these things don't just show up dramatically. They're subtle, and they show up subtly in comparison, in quiet internal reactions to other people's success when we're talking about envy.

Daniel Haggerty: 18:58

So at the individual level, I think the first thing to pay attention to is your reaction to other people's success. Can you genuinely take satisfaction in a colleague doing well, getting promoted, getting recognized, getting rewarded, or does it create a kind of quiet irritation or comparison in the background? Even something subtle like the feeling to like, the feeling like, feeling the need to qualify the other person's success. Well, they had help or they got lucky. Right, can be a signal that envy is at work here.

Daniel Haggerty: 19:35

So another sign is how we respond to setbacks. If there's even a small sense of satisfaction when a colleague or arrival, if you perceive them as arrival, stumbles, that's definitely a red flag. Because envy people misunderstand about envy, I think, they say when they think, you know, about envy. They think, I want the good that the other person has. Not so much.

Daniel Haggerty: 20:00

What it really is is I see that somebody else has a good that I lack, and I perceive that disparity as diminishing me. And what I really want is for them not to have it anymore. I want them to lose the good that they have, and who wants to admit to that? And yet it's absolutely common to, you know, the human condition, to human nature. At the cultural level, I think you tend to see envy thrive then in environments that are highly comparative, where everything is ranked, everything's highly visible.

Daniel Haggerty: 20:33

It's about, like Doug said, optics and constantly evaluated. Right? So if if recognition in an organization is scarce or narrowly distributed or if success is framed as, like, a zero sum, people start to experience others' achievements as losses for themselves. Right? That's that disparity that I perceive your success as diminishing or even just as a loss for me.

Daniel Haggerty: 21:01

Right? And over time, that can shift from something internal to something behavioral, like undermining colleagues, withholding information, or quietly justifying actions that you think level the playing field. So I think the key is learning to notice, again, those early signals, especially the subtle ones, because envy does most of its damage, I think, long before it ever shows up as something overtly unethical.

Adam Larson: 21:29

And that's super dangerous in a culture because you're no longer helping teammates and supporting the team for the greater goal of the organization. But if you're suddenly undermining teammates because you're envious, suddenly it just breaks down your whole culture, the team's gonna suffer long term because of it.

Daniel Haggerty: 21:45

Yeah. And, of course, it could also then undermine fraudulent actions, right, that I am in some sense internally justified in doing this because the other people was the other person was lucky or they had help or I just wanna pull them down a little. So sometimes the motivation for fraud isn't pride or greed. It's more comparative to pull the other person down a little by raising myself up, leveling the playing field.

Adam Larson: 22:11

That makes a lot of sense. Now this is the first time I had kind of really thought about the Elizabeth Holmes story in the context of envy, you know, because it shows how admiration can tip into something more dangerous. Doug, maybe you can walk us through, you know, you see envy connecting that particular fraud and the warning signs that there were there.

Douglas Boyle: 22:28

Yeah. And I I think as a backdrop, first of all, the industry that she was operating in and and the company was operating in is is medical technology. And and these are folks who are trying to change the world. And a lot of what motivates them is we wanna be the elite trim transformative people and really transformative organization. And and to Dan's point, other people have done things, but this is the this is the thing.

Douglas Boyle: 22:54

We're gonna be the ones who do it. So it it it's driven by envy because they're not trying to add a contribution to the technology. They're trying to tear things down and say, no. We're we're we're the elite. And that that's what drives a lot.

Douglas Boyle: 23:06

And so they ended up instead of proving science, they were trying to prove status. And if you look at their goals, if you look at public statements and and look at what they actually did, they were trying to be perceived as the transformation geniuses. We're the ones. Again, as as opposed to ex you know, being a part of that transformation, we are the transformation. Because they they didn't really recognize other other technologies.

Douglas Boyle: 23:28

So it went from really from a technical reality to a kinda ego reality based on envy. So first thing they did is they built a narrative, and their narrative was kind of unrealistic that they made public claims that outpaced what their internal technology, internal systems could do because they're trying to be that new standard, and they're trying to diminish the other standards that that existed. Then they had image reinforcement loop. So in their press conferences, when they spoke to investors, the public figures, the people they put on their board, very high profile people, very well known people, and and very good people, but not necessarily maybe some of the technical people they needed to to do what they're claiming they're gonna do. And then they had a lot of dissent in in suppression.

Douglas Boyle: 24:12

So a lot of their very senior engineers and and technicians who were pulling back a little bit saying, hey. Look. We're not quite there yet or we don't know if this is feasible. They they shut them down, and and they diminished them. So they they didn't want any of that dissent.

Douglas Boyle: 24:26

And then they hid behind secrecy a lot because when they were questioned, they're like, well, we can't tell you that because it's proprietary. And and as we're working on this from a proprietary perspective, you know, it won't be fair to us or the company to share that level of detail because it's information that isn't protected yet. And then they kinda locked in that identity of being the world changing breakthrough rather than going in steps that here's the piece validated. Here's the next piece that's validated. So that ego to kinda take over, you know, a big part of the the the space and be known as the ones who who who did much more than anybody else could ever do or dream of kinda locked in the whole system.

Douglas Boyle: 25:05

So kind of the warning signs where they did make very high level claims about what they could do without validation yet. Typically, you you bleed that out in pieces. We did this. Here's the data. We did this.

Douglas Boyle: 25:17

Here's the data. But they didn't kinda go in that that process. And then they have heavy reliance on the reputation of of that aura of them and their board and the people around them. And then the technology didn't keep up, and the technology can't deliver on those things. And they just keep kept doubling down on that narrative.

Douglas Boyle: 25:35

They shut down people who wanted to question that, and they they were a story. So that's that's where greed got in the way because if they were to say, hey. Look. We're gonna recognize the great things people have done before us, and we're gonna add another couple inches to that, and we're gonna validate and test it. That went out the window.

Douglas Boyle: 25:50

To Dan's part, they wanted to pull all that down, and and we're gonna be the ones who are the innovative geniuses and and and forget everything, maybe you know and just trust us. So so that kind of greed process occurred, and it that happens sometimes in technology industries because everybody wants to be the next genius. And and and so you gotta you gotta watch that if you are a heavy innovator and you're trying to change the world, reel that in maybe. And maybe do it in pieces and get validation checks and put people around you who who are smart, who might say, jeez, Doug, you're you're going too fast or you're making claims that are not supporting it. But that that was that was the culture that was driven based on on envy.

Adam Larson: 26:28

Mhmm. So one of the things you guys pointed to as an antidote to envy was mentor things like mentorship and shared success. What does that look like inside of a, you know, a team within an organization? And then maybe we could talk about what changes changes how a leader behaves or how recognition works. Dana, why don't you take that for us?

Dana Hermanson: 26:45

Sure. I I think from a, you know, even a finance and accounting perspective, we often, understandably so, we focus on whether targets or goals were met or not. You know, did you hit it or did you not hit it? And I think it's also important to focus on two additional things. Not just did you make it or not make it, but how did you make it or not make it?

Dana Hermanson: 27:06

So if it's a sales goal, did you end up, you know, essentially abusing customers to get to that goal? If it's a profit goal, did you achieve it by killing all advertising in the last six weeks of the year or shifting maintenance on the plant to next year? Something that's not gonna be disclosed, but you have, yeah, you've achieved the goal, but we didn't really do it the right way. So I think a big piece of it is the how. A second thing that we need to focus on in addition to just did you meet the goal or not is who?

Dana Hermanson: 27:37

Was it just you? Who was the team? Who were the key people? Alright, we gotta make sure that everybody who contributed to this is getting credit. So I think if you're in an environment where you have this potential for envy, you've got all the potential for comparisons and backstabbing and everything else, and people are doing crazy things to meet targets, I think a leader's gotta be able to say, wait a minute.

Dana Hermanson: 27:59

Step one is did you meet or not? Step two, we're gonna understand how you did it, and we're gonna understand who did it. And I think that can really help you to to mitigate some of the the really, really perverse behaviors that you can see when there's a lot of envy and a lot of just internal competition that's almost for the sake of competition. It's not competition for the sake of making the business better, it's I wanna beat Doug because I just gotta beat Doug. If the company benefits, you know, who cares?

Dana Hermanson: 28:28

This is just person against person competition.

Adam Larson: 28:30

It's like that's the darker downside of this idea of gamification, where we wanna, hey, gamify, make it more exciting for people to participate, but it also brings out the negative side where envy it can create envy. People some people are more competitive than others. Some people competitiveness inspires them. For other people, it just makes them shut down. So it's like you have to be careful what elements of those things that you bring into a team and how it shows up because it can bring out the nasty side of folks.

Dana Hermanson: 28:56

Yeah. They they can engage in perverse behaviors to meet targets. They can try to claim all the credit. And just the their internal marketing efforts within the company may really start to outweigh the value that they're actually contributing. And, you you don't wanna just give the rewards to the loudest voice who's saying, me, me, me.

Dana Hermanson: 29:14

I did it all.

Adam Larson: 29:15

So let's, let's jump over to greed. So greed is probably the most recognizable. We can see you you can really tell when somebody's actions are being greedy, you know, in a lot of in a lot of actions. But, you know, it's also probably the easiest for us to rationalize. You know, what what how does that rationalization process work, and and how does an internal conversation start to go sideways?

Adam Larson: 29:37

Doug, why don't you take

Douglas Boyle: 29:38

Yeah. Very often, great starts pretty harmlessly, very small because because we start out and we say, jeez, I want security. So I'm gonna work hard to get security for myself, for my family, and that's that's harmless. Right? And then you start having some growth, which is good.

Douglas Boyle: 29:54

And then, hopefully, success shows up, and things might start shifting. Right? Because because now we went from security to now we're living a higher lifestyle, higher expectations, there's higher costs, and then quietly pressure starts creeping in and the need to do more and the need to do more. And people wanna show I've made it, and I'm now in a different circle, and I wanna show everybody that I belong in the circle. And and they start wanting more and more and more.

Douglas Boyle: 30:22

So we shifted from a safety perspective to now a perspective where we're running up this escalator and and and accelerating. And these extravagant things in this lifestyle start stops feeling like extravagance. It's kinda maintenance. So now we're at another plateau where we're living this lifestyle and we want more and we wanna keep feeding it. And we started telling ourselves, oh, just this one time, just a slight exception here to hit a target as Dana was referring to.

Douglas Boyle: 30:49

And then they start rationalizing. It it start it goes from saying initially, is this the right thing to do? And now they're saying, could I could we justify this? Or can I justify this? And then it moves to, well, others at my level and my lifestyle are doing these types of things.

Douglas Boyle: 31:02

So it's not often, it's not you wake up one day and somebody's greedy to that level and they're doing things. They slowly work themselves into these things and it and it grows. And then everyone in their space is pushing that limit, and they're all feeding each other. And and they're looking at each other, and it's it's making it seem, you know, more normalized. And then, ultimately, it becomes a part of who you are.

Douglas Boyle: 31:23

It becomes part of how you think and how you act. So it starts small, typically, a lot. I mean, there are cases where somebody's, you know, excessively greedy to start off, but most of the cases you look at, they work their way into it. And it's it's a process that is somewhat invisible to you because you see it around you and you see it as normalized.

Adam Larson: 31:41

Now, Doug, that makes me think of of the line a line from the article that kind of really stuck with me. Like, the the line between prudence and vice is not found in action, but the intention behind it. Now, Dan, you teach accounting and finance professionals. You know, how do you teach people to recognize that shift in themselves before they've already crossed that line in in your ethics classes?

Daniel Haggerty: 32:00

Yeah. Where yeah. I mean, it's a question of where the internal typically, the internal conversation starts to go sideways. And that, yeah, that's exactly the challenge because from the outside, the behavior can look identical. Right?

Daniel Haggerty: 32:13

You you can pursue growth, manage earnings, push performance in ways that are completely appropriate and admirable or in ways that start to drift into something that's problematic. And the difference is not always visit you know, visible in the action itself. So, you know, what I try to do, what we we try to do in the article too, is shift the focus again inward a bit and give people tools for better self awareness. Right? So one simple way to think about it is to pay attention to what's driving the decision.

Daniel Haggerty: 32:47

Is it coming from a place of responsible stewardship, doing my job well, serving the organization, serving my clients, or is there something else that's creeping in, like the need to prove something or to protect my image, you know, to hit the numbers at all costs. I was just recently talking to a a close friend who's very successful in her field. And in the course of the conversation, she said, you know, very earnestly, she said, money doesn't motivate me. It never did. And I I was, you know, I I was struck by that.

Daniel Haggerty: 33:24

And I said, well, what what does motivate you? She said, right off the cuff, she said, taking care of my clients and doing my job well. Right? And that's what motivates her. And and I I think it shows up that she's not reaching too far.

Daniel Haggerty: 33:39

She's not trying to uphold an image. She's not trying to get more clients at any expense. She's trying trying to maintain what she does very well. And, of course, that reputation brings in more clients for association. Right?

Daniel Haggerty: 33:54

You know, we found I found that it's it helps to build in moments of structured reflection. Again, even very brief ones where professionals ask themselves questions like, would I be comfortable explaining this decision transparently to a colleague that I respected? Or am I still seeing this clearly, or am I starting to rationalize here? Because that's usually where the shift happens, not all at once again, but gradually. And and the intention starts to change before the behavior clearly does.

Daniel Haggerty: 34:25

And if you can catch that early, when the story that you're telling yourself starts to sound a little too convenient, that's often the moment when you can recalibrate before crossing the line. So in a sense, we're not ask we're definitely not we're not asking people to become perfect, but we are asking them to become more attentive to their own patterns of thinking and desire and emotion before those patterns harden into habitual action. That's the tradition and, vice versa, going all the way back to the ancient Greeks. If you're focusing on the behavior, often you're focusing too far down the line. It's the motivation that shows up in forming stable patterns of thought and feeling, emotion, desire, and perception that leads to these behaviors.

Daniel Haggerty: 35:14

That's where the reflection has to focus.

Adam Larson: 35:16

And I appreciate that insight, man. So, Dana, in the beginning of this conversation, you mapped you you talked about the fraud diamond. And in the article, you guys map all three all the vices onto the elements of the fraud diamond, which is a model a lot of our listeners understand and know well. But maybe you could walk us through that connection. Which Vices tend to show up in which part of the diamond, and how does it vary by type of fraud?

Dana Hermanson: 35:37

Sure. So this was the real light bulb moment for me. Because if you think about the fraud diamond, you've got incentive or pressure, which is telling you about the, largely about the situation. You've got opportunity, which is telling you about the target organization and the strength of their controls. And then the last two sides, you've got rationalization and attitude, which tells you about the person.

Dana Hermanson: 35:58

And then capability is the personality type, skill set, etcetera, the person that you would need to pull off a fraud. So two of the four sides of the fraud diamond are focused on the person. And that's what we thought about first, is how do these vices map into rationalization and attitude, and how do they map into capability? I think all three of them really map into both of those sides. I think with pride, envy, and greed, very easy to come up with rationalizations as to why certain behaviors make sense.

Dana Hermanson: 36:30

You know, I deserve it, or I'm trying to put somebody else down, or I just want the money. A host of different rationalizations can come into play. From a capability perspective, pride is tied to ego, which is one of the elements of capability. With envy, you tend to get into manipulation, even coercion of other people, which is another element of capability. And with greed, you may just see a lot of risk taking.

Dana Hermanson: 36:56

In other words, you may figure out ways to just simply become more capable of coloring outside the lines in order to get the kinds of things that that you want to achieve. So I think the linkages for all of us initially were very, very clear between the three capital Vices and the person focused parts of the fraud diamond, rationalization and capability. But then it was interesting as we thought about it some more. The Vices, we believe, actually can affect incentive or pressure, and in some cases, even opportunity. And what we're getting at there is with incentive or pressure, you certainly have external pressures on people.

Dana Hermanson: 37:34

If Dan is my CEO and I'm the CFO, he can put pressure on me to do something. But we've also got internal pressures. So I've got the internal pressure that, you know, my name is on the company or I'm trying to keep up with somebody else or I've got envy driven pressure or greed driven driven pressure. So we also believe that there's a linkage between the Capital Vices and internally generated incentive or pressure to commit fraud. And then the other thing that that we focused on is if you think about pride, and this notion of being above reproach, the rules don't apply to me, controls are for other people.

Dana Hermanson: 38:14

You can envision scenarios where very prideful managers over time, would either, you know, intentionally or very subtly kinda decrease the focus on controls in the organization. Now we don't need controls. We're great people. You know, we're wonderful. We're, you know, we're cream of the crop.

Dana Hermanson: 38:31

So we're not gonna invest in that. So you see a deterioration of the internal control structure over time that's pride driven. So I think the simple answer to your question is the three capital Vices we believe can affect all four sides of the diamond. Not just the two that you typically think of as relating to the person, but also internally develop incentive or pressure and also degrading controls over time if you've got a very prideful management team.

Adam Larson: 39:02

So in the article last year, you guy you guys gave us some tools for cultivating virtue. In this one, you give us some practical strategies for reducing the impact of these vices. For the leader, for somebody sitting right now in their office listening to this podcast, maybe going for a walk, that's how they listen to their podcast. You know, what's one thing they can do this week to kinda help? But, like, what what's one thing that they can move to help move that needle this week?

Douglas Boyle: 39:22

Yeah. That's a great question. I I always like the practical questions. The one thing they could do that's pretty simple is think about when they're making big decisions or key decisions, run a real tough reality check as to what decision why they're making the decision they're making and and what the outcomes could be. So for example, they could seek input of people who who have good judgment and people who are gonna disagree with their decision.

Douglas Boyle: 39:46

So the way the way this might look is is that when they're making this decision, they should think about what assumptions are am I making? Are they solid assumptions? What pressures am I dealing with right now to motivate me to do it? And bring in somebody or more more than one person, depending on how big the decision is, and and give them permission to disagree with you. And that's a key thing for an executive because I was an executive before, and and people tend to agree with you when you're an executive.

Douglas Boyle: 40:13

So explicitly give them permission. Say, hey. Look. I really appreciate your your judgment, and I really don't want you to disagree with me here. I want you to really push back if if my assumptions aren't right or if the direction isn't right or if it something just doesn't feel right about this.

Douglas Boyle: 40:28

And then and then lay it out to them. And and the key there is is when they do give you feedback, don't push back. Even if you don't initially agree with it, listen, and thank them for the feedback because they're actually giving you a gift. They're giving you information that you don't have. So whether at the end of the day, it's it's it's valid or not, take it as a gift initially and say, you know, thank you so much.

Douglas Boyle: 40:50

Ask questions of clarification. That's fair because that's not, you know, questioning their their judgment to say, hey. You know, why do you think that way or tell me more about this? I I wanna understand, you know, more about your perspective and tell them it's very helpful and then reflect. Take some time.

Douglas Boyle: 41:06

Don't have a time pressure on. And doctor Hermanson discusses this a lot in our pressure paper is that you don't have to make every decision immediately. Take that feedback and get it from maybe more than one person. Thank them for it and then reflect. And then think about your motivations.

Douglas Boyle: 41:21

Think about the feedback. And at when you're done, you might still make the same decision, but at least you've gone through a process. And you know why you're making the decision. You've got other perspectives, and then absolutely thank them for their views. So if you could start practicing that with key decisions, you can't do that for every decision, obviously.

Douglas Boyle: 41:37

But for key ones that that matter, you'll start building that process and that culture where people will maybe even start coming up to you without you even asking. So if I go to Dana several times and do that and go to Dan several times and do that, if they see me walking down a path that isn't really helpful for me or the company and we built that kind of relationship, they might tap me on the shoulders and say, hey. Look, Doug. I know your intent is to do x y z, but I think you're missing a piece here. So that's key as an executive to to start small like that and then to ultimately build a team and culture around you where people won't let you walk down those paths.

Douglas Boyle: 42:10

And then they feel confident to do it, and they do it in a respectful way. But that's that's the kind of the optimal environment to be operating in, and it's challenging. Like I said initially, people don't like to tell executives that maybe their ideas aren't as great as they think they are. There's there's pitfalls. But but given that permission, it also takes pressure off too.

Douglas Boyle: 42:30

Because now you're making decisions where you're not the only one, and you're getting perspectives, and and you feel supported in your decision. So and that's a very practical thing that you could start practicing Well, you know, going to any kind of reading literature or going to training or investing, that that's a pretty practical approach.

Dana Hermanson: 42:46

I would add to that. I think it's often very helpful to remind ourselves that, you know, you think about pride, envy, and greed, and I think what they have in common is a lot of it is focused on the rewards that come from quality work. So you start to emphasize the reward, you know, rewards more than the work itself. And I think it's important for anyone in business, or higher ed, to remind yourself, focus on the quality work. The other stuff will come.

Dana Hermanson: 43:14

But just focus on the quality work, make decisions that will enhance the quality of the work you're doing, and the contribution that you're providing, and the other stuff will come. You know, it's kinda like with greed. Money is a byproduct, it's not the product. And I think getting that mindset right on a continual basis, it can really help as you face a wide variety of decisions.

Adam Larson: 43:35

I think it's also important to remember that the like, as you guys describe it, you know, these vices are habits that are kind of repeated behaviors over time. It's not just a fixed trait, something that's happening, but it's something that kind of slowly develops, which kind of gives me hope that, you know, these things can be unlearned. What you have learned can just be unlearned through better behaviors and patterns. You know, what kinda gives us the as we're kinda wrapping up this conversation, what gives you the most optimism about a professional's ability to actually do that work in themselves?

Daniel Haggerty: 44:02

Yeah. I I mean, I think that's exactly right. We do see this as a hopeful part of the whole framework because if these were fixed traits, then the conversation would be very different. Right? But but if they're formed habits, patterns that are gradually formed over time, that in principle, they can be reshaped.

Daniel Haggerty: 44:19

And Aristotle's very clear about this. I mean, he says, look. If you were raised in an absolutely optimal environment in your formative years through childhood into adolescence and young adulthood, good for you. You know, you probably have excellent character. But who's that?

Daniel Haggerty: 44:35

Aristotle says, we all the rest of us show up in adulthood, young adulthood, if we're somewhat self reflective, we're aware that, no, we're deformed. Our character has been deformed. Often, he says, you know, it makes no small difference. He says, no. It makes all the difference, the environment in which one comes to be formed.

Daniel Haggerty: 44:54

So your teachers, your culture, your community, maybe your church, certainly your parents, your siblings, your friends, the friends that you have. Like, before you're even aware of it, these relationships are forming or deforming to some extent your character. But then when you arrive at adulthood and you're aware where the deformation is and then, again, like, you can imagine somebody saying, well, who cares? I just I am who I am. I'm not perfect.

Daniel Haggerty: 45:21

Who is? I agree. We're not talking about perfection here. Aristotle answers that question. Who cares?

Daniel Haggerty: 45:26

Well, I can't make you care, but the reason why you should care is because if your character is deformed, then not only you're not it's not just that you're not excellent, it's that your shot at living well, at flourishing, at thriving, at of having an excellent life is diminished. So you should care. Right? And and it takes work, and it takes self awareness, and it takes repetition to sort of restructure where the distortions are in your character. But, anyway, what gives me optimism is that the profession, I think, is already starting to recognize that compliance and controls, while they're essential, they're just not enough on their own.

Daniel Haggerty: 46:02

Right? I think there's a growing awareness that culture, I mean, like, corporate culture, judgment, and character really, really matter. How people think, right, that how they think, what they value, how they see situations plays a huge out a huge role in the outcomes. And the encouraging part is that those things can be influenced through mentorship, through leadership, modeling, through how we structure incentives, through how we even talk about success. Organizations are constantly forming people, whether they realize it or not.

Daniel Haggerty: 46:41

So the question isn't whether formation is happening. It's whether it's happening intentionally and in the right direction. And I think once you frame it that way, it really opens up possibilities. You're not trying again to create perfect people, but you can create environments where people become more reflective, more self aware, more attuned to those early shifts that we've been talking about. And and that's where the optimism is.

Daniel Haggerty: 47:05

Right? Not that we eliminate vice entirely. We're human beings. Just never gonna happen. But that we can meaningfully reduce its grip, right, by taking formation seriously as part of professional life.

Daniel Haggerty: 47:19

And and just to, you know, say, at our university, where Doug and I teach, we're in the process of developing a a a concentration in ethics for financial professionals, students majoring in accounting and finance to begin with. And by design, this is a a four year concentration. It's formative. Our effort here is to be to formative. And I'm not saying we're gonna form their character.

Daniel Haggerty: 47:44

That seems a little pretentious. But what we hope to do is to better form their moral perception and their self awareness. And that kind of formation takes a sustained and integrated effort. So in the first year, for instance, we're gonna have them write reflections on what motivates them to do well, not just in school, but in their career. What what is fraud as they understand it, and what's the issue?

Daniel Haggerty: 48:10

What's the problem with fraud? And then I'm developing a capstone course, so the last semester of senior year, where the professor who gives them those reflection papers is gonna hold on to them and then give them to me, and I'm gonna share them back with the students after they answer those questions again to see, has there been growth? Has there been development and formation in terms of their understanding of what proper motivation looks like and what is it sort of a deeper understanding of the nature of fraud and what's wrong with fraud has occurred. So I expect we haven't done this yet, but I expect there to be a growth from compliance alone to something like what we would call integrity. Right?

Daniel Haggerty: 48:52

Like, it's a matter of who they are and who they've become. And I, you know, I think if we can do that and and then send these young people off into their careers and into the professions, it's not only good for them. It's good for the organizations that they'll work for or work with, maybe someday run. And, you know, maybe I am being very optimistic here and saying, I think it's good for society. I think it's just we have enough corruption.

Daniel Haggerty: 49:16

We have enough fraud. What can we do about it? Well, more compliance, more control. I just don't think that's gonna work. We just gotta form people better than we are now.

Douglas Boyle: 49:24

Add to that too. Dan said it resonates because executives wanna be successful. They wanna be successful long term. They wanna have excellent lives. So we're not asking them to engage in something that's gonna hurt generally what outcomes they're trying to trying to achieve anyhow, it supports that.

Douglas Boyle: 49:40

So so it's something that will make you have more sustainability in in your career, have longer term success. So it it it makes sense to invest some time in it because in business, we invest a lot of money in degrees, fancy degrees and fancy conferences and all these things we develop. And on the technical side, so to make a small investment on this side, the payback's worth it. So it's a good case to make to people who are trying to achieve things.

Dana Hermanson: 50:05

Yeah. And I think if you're focused on being successful the right way and for the right reasons, then the temptations to cut corners and even get all the way over to fraud really get mitigated.

Adam Larson: 50:17

Well, Dan, Doug, Dana, thank you so much for sharing in this new article with us. I encourage our listeners to click the link in the in the show notes to read that article and, and engage with these guys on LinkedIn or wherever else so that we can keep the conversation going. Guys, thank you so much for coming back on the podcast.

Daniel Haggerty: 50:33

Thank you. Our pleasure.

Dana Hermanson: 50:34

Thank you.

Douglas Boyle: 50:34

Thank you, Adam.

Announcer: 50:37

This has been Count Me In, IMA's podcast providing you with the latest perspectives of thought leaders from the accounting and finance profession. If you like what you heard and you'd like to be counted in for more relevant accounting and finance education, visit IMA's website at www.imanet.org.