June 02, 2015
What Makes People Unethical? It Might Be Other People
Posted by David Zaring

Jessica Kennedy at Vanderbilt has done research on what makes corporate officials behave unethically. Here she is, in an interview (disclosure: my department's former post-doc, now at Vanderbilt):

Previous research has often traced ethical misconduct to high-ranking people’s orders. It shows that power leads to bad behavior, in essence. Other studies have shown that the behavior of high-ranking people sets the tone in their groups — that it trickles down.

But I don’t think that presents a complete picture of how unethical practices emerge. In fact, such practices often emerge from groups. For example, prior research has found that people making decisions as a group are more willing to lie than when they are making decisions as individuals. What I found in multiple studies was that high-ranking people are more inclined than low-ranking people to accept what their group recommends to them, even when it represents a breach of ethics. That is, higher-ranking people are less likely to engage in principled dissent and actively oppose such recommendations than are lower-ranking individuals.

I've watched with interest the new vogue among regulators to insist that financial institutions behave more ethically.  What does that mean?  The language is often one of chastisement.  Jessica's research suggests - and this is consistent with what banking supervisors often point to - that the problem really might be one of culture and groups, not that she is making regulatory recommendations.  Anyway, it's an interesting compliance problem.

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