Corporate Misconduct: Influential Individual vs. Organizational Culture

Corporate culture refers to the beliefs and behaviors that determine how a firm's internal stakeholders (i.e., employees and management) communicate, interact and handle both internal and external business transactions. Normally, corporate culture is not expressly defined, and develops organically over time from the cumulative traits of the people, but at times corporate regulations and best practices often have great influences to the firm’s culture.

We can conclude then that a company’s culture has a profound effect on the ethical behavior of the firm’s employees. Thus, a positive corporate culture stimulates employees to behave in responsible, ethical ways, resulting in a happy workplace, and employee empowerment. On the other hand, a negative corporate culture, promotes risky, irresponsible and unethical behavior, causing a stressful and counter-productive competition inside the company; and at time causes the downfall of the business organization itself, the likes of Enron and Countrywide Financial. However, it can also be argued that some maligned individuals in powerful top management positions like Bernard Madoff and Allen Stanford can also negatively impact the company, and can lead to an eventual collapse.

Corporate psychopaths has been coined to such individuals in business with personality disorders that fail to feel empathy or guilt, disregard laws and the rights of others, and lack the ability to form constructive social and emotional attachments. Studies approximate that 1% of the general population has this disorder, and estimated that it could be as high as 3% in the corporate world because of the highly rewarded positions of power, especially in the financial industry. The debate remains whether these individuals are the primary factor in creating serious organizational misconduct due to their influential executive positions in the firm or is it a result of an unethical organizational culture.

The side saying that white-collar criminals are the factor in creating organizational misconduct because of their position of power coupled with charming personalities that they are able to influence and manipulate others. These individuals convince and may coerce their followers to engage in behavior that even their subordinates may find unethical. For example, Bernard Madoff, the man behind a $60 billion Ponzi scheme was a prestigious, well-connected man on Wall Street; and was highly respected, being a former NASDAQ Chairman. Allen Stanford on the other hand, is a former prominent finance professional, and was a Chairman of the now non-operational Stanford Financial Group. Both were convicted of a USD60 billion, and USD7 billion Ponzi Scheme, respectively, and have victimized thousands of individuals, because of their investment fraud. These individuals are being accused of being a corporate psychopaths, because of their lack of ethics, and the ability to manipulate other people, particularly investors and their employees.

On the other hand, the side saying that serious organizational misconduct is more often a result of an unethical organizational culture argues that many of the most well-known business scandals are characterized by extremely complacent or unethical corporate cultures. For example, Enron had a corporate culture that stressed competition and imbibed the attitude of winning at all costs. This lead to high tolerance of breaking the rules as long as it resulted in higher profits. Another example will be at Countrywide Financial, wherein loan officers were encouraged to engage in “liar loans” because they earned large incentives for making the sale, and government subsidies for the bank. Therefore, they argue that it may be just as likely that corporate scandals are the result of an unethical culture of the whole organization, and not from the actions of corporate psychopaths or individuals at the top of the company.

We all know that a company’s culture has a profound effect on the ethical behavior of every employees. A positive corporate culture encourages employees to behave in responsible, ethical ways, resulting in a happy workplace, team collaboration and employee empowerment. Negative corporate cultures, on the other hand, promote unethical behavior, causing a wide variety of problems. However, if one powerful and influential person holds sensitive positions in an organization, that person may be a good influence, like in the case of Starbucks CEO, Howard Schultz or a bad influence, like Bernard Madoff. Still, we can all argue how solid the corporate culture is, or how strong the influence is to create big difference to the behavior of the whole organization.

This begs the question of why so many white-collar criminals end up in positions of authority. What causes executives to turn to white-collar crime? One answer proposed by academics is that corporate psychopaths are drawn to high positions within the company.

On the other hand, psychopaths often have charming personalities and charisma. They can form long-term relationships and instill trust in others. Why would a corporate psychopath be promoted to a CEO or other executive position? The major reason why corporate psychopaths appear to occupy higher ranks is because they have a desire to control others and build themselves up. In fact, they may even be attracted to certain types of business such as finance because of the high levels of rewards they can get by climbing to the top.

Yet while it is entirely possible for corporate psychopaths to end up in positions of authority, others maintain that organizational culture has more of an influence on misconduct. Critics of the corporate psychopath theory might maintain that classifying an executive’s misbehavior as being the result of a mental disorder is an excuse used to rationalize his or her crimes. For example, prosecutors challenged the claim of Daniel Bonventre—a former executive in Bernie Madoff’s organization—that said he was “relentlessly manipulated” by Madoff’s corporate psychopathic behavior. They believed this was an excuse to gloss over his alleged guilt. Additionally, many of the most well-known business scandals are characterized by extremely complacent or unethical corporate cultures. Enron, for instance, had a corporate culture that stressed competition and winning at all costs. Breaking the rules was tolerated if it resulted in higher profits. In addition, at Countrywide Financial lenders were encouraged to engage in “liar loans” because they earned large incentives for making the sale. Hence, it may be just as likely that major business scandals are the result of a toxic, unethical organizational culture rather than stemming from the actions of corporate psychopaths at the top of the company.