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Is Wall Street a bad ethical neighborhood?

[This essay was originally posted on the Conflict of Interest Blog]

For many years I taught ethics in the executive MBA program of a New York area business school. Because of the school’s location, the “day job” for many of the students was in the financial services field, and on average they seemed less ethics-focused than did the others.  I did not find this surprising – since for many years my “day job” was as a white collar criminal defense lawyer, and a disproportionate number of my clients were from that same industry.

Wall Street is not, of course, run by wolves.   And there have been other industries that could be seen as “bad ethical neighborhoods,” at least for a time.  (Indeed, it was from defending several members of a very different, and even more troubled, industry – the specialty pipe business – in the 1980s that I began to be interested in the possibility of what was then seen as preventive corporate criminal law and has now become corporate compliance and ethics.)

But the financial services field has always been different because – by definition – the day-to-day work there is dominated by dealings with money itself.  As described in this earlier post, research published in 2013 showed that “mere exposure to money can trigger unethical intentions…” – and presumably the greater the exposure the greater the ethical peril.

Now, and more directly relevant to the issue of financial services and culture, is the publication this week in Nature of “Business culture and dishonesty in the banking industry” - by Alain Cohn, Ernst Fehr and Michel André Maréchal,   their summary of which is: “Contemporary commentators have attributed scandals [in the financial services sector] to its…business culture … but no scientific evidence supports this claim. Here we show that employees of a large, international bank behave, on average, honestly in a control condition. However, when their professional identity as bank employees is rendered salient, a significant proportion of them become dishonest. This effect is specific to bank employees because control experiments with employees from other industries and with students show that they do not become more dishonest when their professional identity or bank-related items are rendered salient. Our results thus suggest that the prevailing business culture in the banking industry weakens and undermines the honesty norm, implying that measures to re-establish an honest culture are very important.”

So, an important knowledge gap has been filled, even if it is primarily a matter of proving with experimental data what has long been known from observation of real life.

But  identifying a neighborhood as unsafe is  not the same thing as reducing the peril.  In one of our exchanges on the ECOA web site, Steve Priest recommends these five areas to focus on in ethical culture building:  a true “commitment to doing the right thing; clear standards; organizational values put into action (by leaders and employees); accountability, and open communications up, across and down the organization,” to which I add promoting long-term thinking; moderating any undue pressure to perform; and  nurturing employee identification with the company, its customers or its products/services.  Finally, because so much of the ethical trouble in the financial services field has  seemingly sprung less from purposeful lying than from carelessness about the truth, the “culture of care” approach discussed here might be useful for reestablishing an honest culture in this rough neck of the woods.