Bad apples in an industry of decay

Heads are rolling in the financial industry, and individual bankers are beginning to be punished harshly for their crimes. The latest example is Jérôme Kerviel, a former Société Générale trader who was sentenced to three years in prison today as punishment for – hang on - for what, actually?

Sure, he admitted that he committed fraud, that he falsified documents, and made fake deals to hide his activities. But we also know that he acted within a very particular environment – an investment bank – meaning that he was embedded in a very special kind of organizational culture.

Corrosive organizational cultures as breeding ground for misbehavior

Lately, I have been studying the culture of investment banking by means of  insider reports. I learned that working in this industry is not for the faint of heart. The environment of these organizations is described as extreme: performance structures, working conditions, team values, management strategies and leadership styles are solely focused on making more money out of money. With all the side effects: ‘Pressure’ is a euphemism for the ways individuals are forced to work more, earn more, and gain more. Animosities are encouraged between colleagues inside and outside the firm to make them outperform each other. The strife for higher financial gains exceeds absolutely any other principle, and relationships are maintained for purely opportunistic reasons. “Trust” is a word that nobody remembers how to spell; neither clients, nor coworkers or employees are considered as persons. Just means of increasing profits.

So, are investment banks like Société Générale really surprised if individuals like Jérôme Kerviel act the way they do? I really don’t think so. Because they create the cultures within their organizations that not only encourage but evoke that kind of behavior.

And they get away with it most days.

The dilemma of personal responsibility and collective ideal

Whilst we have to acknowledge the fact that individuals need to be held accountable for their actions, I find it crucial to take a look at the conditions under which they arose. When taking excessive risks is a collective ideal in an organizations, an ideal that remains untouchable to questioning, critique or restraint, we must expect that people will go over the top. Hence, when Société Générale’s former chief executive Daniel Boutin is quoted to call Jérôme a “crook, a fraudster and a terrorist who acted alone” I have to grin and think: “well, he was in best company!”

Like I said in my previous post it will become increasingly interesting to study the conditions under which unethical – or ethical and authentic – behavior can evolve. Over the past few months I’ve come to understand that it’s not all too useful to investigate single bad apples like Jérôme to prevent future cases of corporate misdemeanor. Because it is not the one apple that infects the basket, but the whole basket that is in a state of decay.

Much more on this to follow.

Further Reading:

Freedman, Seth (2009): Binge Trading. The real inside story of cash, cocaine and corruption in the city, Penguin Books, London

Ishikawa, Tetsuya (2009): How I caused the credit crunch. An insider's story of the financial meltdown, Icon [u.a.], London

Suzana S. (2009): Confessions of a City Girl, Virgin Books, London