Instinctively, it might seem obvious that employees are most likely to cheat and engage in negative corporate citizenship when times are tough. Indeed, various studies have shown that stress can reduce our willpower, which in turn makes us more susceptible to various negative behaviors.
Research from London Business School suggests that is not actually the case, however, and that we’re actually more likely to err when things are going well. Indeed, the researchers even suggest that the economic conditions we encounter when entering a role can provide an ethical baseline that endures.
Driving misconduct
The researchers looked at over 2000 CEOs of US companies who had received non-scheduled stock option grants between 1996 and 2005. They examined whether these bosses had engaged in any kind of corporate misconduct in that period by looking at whether the options were backdated, which the researchers took as an indicator of unethical behavior.
Backdating options is widely considered to be an unethical practice, if not illegal, and identifying it can be done by examining the price movements of a stock after options have been granted. If the price falls until a grant is officially recorded and then rises, it’s either extremely fortunate or a backdated issue.
They then gathered collected data on the graduation date of each CEO and explored the unemployment rate that year to understand the prevailing economic conditions to understand if people who graduated when unemployment was low were more or less likely to backdate their stock options.
The results show that the bosses that graduated in positive economic conditions were around 30% more likely to cheat the stock options, suggesting that something in their circumstances upon graduation had changed the morality of the future executives.
Corporate cheating
The researchers believe their findings have novel implications as traditionally, research has focused on more direct factors, such as the way in which financial incentives can affect the likelihood that leaders will cheat. The findings demonstrate that indirect factors can also play a crucial role, even when those factors occurred many years ago.
“The paper also highlights the relative malleability of ethical behavior to prevailing economic conditions – when the economy was doing well, all CEOs in our sample appeared more likely to backdate options, including those who began their corporate careers in a recession,” the researchers say. “This implies not only that early experiences appear to influence the ‘baseline’ propensity to cheat, but that economic conditions can move the baseline up or down.”
The authors also believe their findings could have implications in the way people recruit if they’re looking to hire people who might behave ethically (or not).
“Other research suggests that these graduates tend to be more satisfied employees, remain with their companies longer, and are less narcissistic as individuals – all attractive qualities in their own right,” they conclude. “Our paper suggests that they may behave more ethically, too.”
