What Socrates can teach you about business ethics

New research highlights the link between how staff behave and the training you give them.

by Stephen Jones
Last Updated: 18 Jun 2020

UK financial services firms were fined a total of £392,303,087 in 2019 according to the FCA’s fine tracker. The wider reputational impacts on the companies found guilty of poor ethical conduct are unmeasured. 

In times of economic uncertainty the chances of misconduct can increase - 13 per cent of respondents to EY’s latest Global Fraud Survey said they would justify securing deals with underhand cash payments in order to keep a struggling firm afloat. 

Philosophers have been debating ethics for millenia. Are some people morally programmed to behave badly, or in fact, as Socrates argued, can virtue only be gained through a knowledge of what constitutes virtuous behaviour, i.e can ethics be taught? 

New research into the behaviours and employment decisions at financial services firms suggests that the great Greek might have been onto something. 

Researchers from MIT Sloan School of Management, University of Notre Dame and the London School of Economics studied the behaviour of 1.2 million US investment advisors between 2007 and 2017, with a specific focus on a 2010 change in the exam taken to qualify as an advisor. 

Prior to the change, questions on ethics and rules received a heavy weighting (nearly 80 per cent). Afterwards, these questions received a 50 per cent weighting in favour of more technical questions.*  

Advisors who qualified after taking the ethics-weighted exam were on average a fourth less likely to commit misconduct, which the researchers say “indicates the exam alters individuals’ perception of acceptable conduct and not just their awareness of specific rules”.

However there was a more pertinent finding. The exam’s change was found to have less effect among advisors working at firms where misconduct was already prevalent; advisors who were already engaged in poor ethical behaviour were also less likely to be affected. 

Additionally, advisors passing the older exam were more likely to leave firms with a prevalent culture of misconduct, which the researchers say acts as a good indicator that misconduct could become a major problem in the future. 

Equipping your staff with the knowledge of the terms and consequences of poor ethics will only get you so far. The way that people behave is fundamentally influenced by the culture and a results-driven pressure already prevalent within the firms. 

“The exam appears to affect advisors’ perception of acceptable conduct, and not just their awareness of specific rules or selection into the qualification,” says Andrew Sutherland, an associate professor of accounting at MIT and one of the researchers behind the study. 

“In this context, ethics training can affect an individual’s behaviour by increasing the value of their reputation, as well as the psychological costs of committing misconduct.”

* As a note, the authors’ analysis effectively compares individuals who took different versions of the exam but are otherwise similar in terms of their current employer, location, qualifications, and experience.


Image credit: Hulton Archive / Handout via Getty images


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