Leadership, Followership, Context and Ethics in Finance 1
Ethical and unethical leadership and followership in investment banking
In my PhD, I want to combine integrative approaches to destructive leadership and current
developments in the field of behavioural ethics to examine ethical and unethical leadership
and followership in the investment banking sector. Integrative approaches to destructive
leadership go beyond the person of the leader and take into account the whole process of
leadership (Krasikova, Green, & LeBreton, 2013; Padilla, Hogan, & Kaiser, 2007).
According to Padilla et al.’s (2007) model of the toxic triangle, for example, destructive
leadership “entails the negative consequences that result from a confluence of destructive
leaders, susceptible followers, and conducive environments” (p.176). Recent developments in
behavioural ethics (see Dinh & Lord, 2013) suggest that to understand the processes that lead
to unethical behaviour (and supposedly unethical leadership as well) may unfold in two
processes, one deliberate and one more implicit. In my PhD, I want to apply this two-process
perspective to understand unethical behaviour in the investment banking sector and I want to
use Padilla et al.’s toxic triangle approach to identify and examine sensitive points where
paths between ethical and unethical behaviour separate. Enriching the knowledge of how
leaders, followers, and context interact can help us understand how actors diverge from
ethical to unethical paths. This may be a starting point for developing intervention studies and
trainings for developing ethical leadership and followership. The personnel and material
resources that I will find at Durham University will allow support my PhD, thereby
contributing to understanding ethical and unethical behaviours in the investment banking
sector. It will also provide a basis for research throughout my academic career.
Multiple interacting sources for unethical behaviour
Financial, housing, and credit crisis have led to a new call for moral leadership in the
investment banking sector that is committed to high ethical standards. Hopes are that leaders
Leadership, Followership, Context and Ethics in Finance 2
can function as leverage to reduce fraud and corruption in the financial sector. Leaders are
expected to do this in two ways. First, the public experience of effects from obviously
unethical leaders resulted in a claim for leaders that ground their behaviour in ethical
standards. Second, the impression that corruption is a widespread in investment banking and
the finance and banking sector in general (in part echoed in the popular media in movies such
as The Wolf of Wall Street) resulted in a call for leaders who counteract potentially unethical
tendencies in followers. These claims are reasonable given that leaders influence individual
and collective outcomes in organizations directly (e.g., by making ethical or unethical
decisions) and indirectly (e.g., by functioning as a role model, by creating an ethical climate
and installing checks and balances).
Recent approaches to destructive leadership (which includes unethical leadership) suggest
that the leader might be only one factor and that destructive outcomes such as corruption are
often the result of a confluence of unethical leaders, susceptible followers, and conducive
environments (Padilla et al., 2007; Thoroughgood, Padilla, Hunter, & Tate, 2012).
Thoroughgood et al. (2012) suggest that different kinds of followers contribute to destructive
leaders in different ways. Followers might contribute to destructive leadership by acts of
omission and commission (Kelman & Hamilton, 1989). They engage in acts of omission
when they do not counteract destructive leader behaviour (e.g., the use of harmful methods of
influence and rule-breaking; Einarsen, Aasland, & Skogstad, 2007) and remain silent instead
of voicing their concerns or deviating opinions (Knoll & van Dick, 2013). In such cases,
followers conduct crimes of omission as they fail to intervene against destructive leaders
which had the potential to prevent colleagues, the organization, or external stakeholders from
harm (Kelman & Hamilton, 1989; Uhl-Bien & Carsten, 2007). Followers engage in acts of
commission when they actively contribute to a destructive leader’s agenda. In such cases,
Leadership, Followership, Context and Ethics in Finance 3
followers (co-)produce destructive leadership (Carsten & Uhl-Bien, 2013) by either
implementing potential destructive orders or suggestions or by coming up with their own
destructive ideas that facilitate and even extend a destructive leader’s agenda (Kellerman,
2008; Lipman-Blumen, 2005). For example, overzealous followers may withhold negative
information to close a deal, believing leaders would want them to do this.
A conducive context is the third influence factor in the toxic triangle of destructive leadership
(Pardilla et al., 2007). The idea is that destructive leadership is more likely to emerge in
negatively connoted context conditions such as instability or perceived threat from external
forces, particularly when institutional checks and balances are weak (Padilla et al., 2007).
One aim of my PhD will be to examine whether it is possible to apply theory based on the
toxic triangle of destructive leadership to examine ethical and unethical leadership in the
investment banking sector. When preparing this proposal, I not only read through the
literature on unethical and destructive leadership, I also read review articles on current
developments in the field of behavioural ethics. Papers by Dinh and Lord (2013), Haidt
(2001), and Reynolds, Leavitt, and DeCelles (2010) made me aware that examining the
characteristics of leaders, followers, and contexts that are mentioned in the literature on
destructive leadership might not be exhaustive and might be complemented by current
findings from behavioural ethics. For example, the prevailing view in the destructive
leadership literature is that destructive leaders try to implement their selfish aims and use
several elaborated strategies to win followers’ compliance. Followers, in turn, deliberately
decide whether they contribute to destructive leadership based on selfish motives such as
avoiding negative consequences or approaching gains. The context in which these decisions
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take place is considered only in so far as negatively connoted context conditions facilitate the
emergence of susceptible followers and make it easier for destructive leaders. However,
recent approaches in the field of behavioural ethics question this elaboration-based view of
the destructive leadership process and suggest that attempts to explain unethical acts in
organizations might benefit from considering more implicit processes. For example,
Reynolds et al. (2010) show that implicitly believing that business is ethical can justify
unethical acts that further business success.
Behavioural ethics research suggests that destructive outcomes sometimes occur in
ambivalent situations in which desirable and potentially destructive outcomes collapse in
single behaviour options (Aquino, Reed, Thau, & Freeman, 2007; Reynolds et al., 2010). In
such situations, for example, when a specific organizational or professional culture links
destructive behaviour to valued organizational outcomes, employees (leaders and followers)
engage in unethical behaviour when they rely on external cues (e.g., the meaning of events as
provided by a leader, implicit beliefs about the nature of business) and fail to become aware
that a situation comprises moral content (Reynolds, 2006). These findings suggest that the
elaboration-based approach that concentrates on conscious decision making and explicit
ethical values need to be complemented by more implicit processes such as employees’
perceptions and constructions. Knoll, Schyns, and Petersen (2014) provided first evidence
that individual differences in followers’ perceptions and constructions (i.e., epistemic
motives, implicit followership theories) influence followers’ willingness to contribute to
unethical leadership (as operationalized by the decision to discriminate in an in-basket
exercise). Other studies that draw on implicit processes related to the self to explain unethical
behaviour are germane to the context of finance and investment banking (Barnes,
Schaubroeck, Huth, & Ghumman, 2011; Mead, Baumeister, Gino, Schweitzer, & Ariely,
Leadership, Followership, Context and Ethics in Finance 5
2009). Recently, the death of an intern of Bank of America Merrill Lynch in the City of
London put the working culture and especially the long working hours into public awareness.
Barnes et al. and Mead et al. showed that lack of sleep is related to unethical behaviour and
that this process was mediated by ego-depletion (an exhaustion of self-regulatory resources).
In my PhD, I want to draw on these findings and work together with some of the researchers
at Durham University to further examine whether implicit processes can enrich the
understanding of unethical leadership in the investment banking sector.
Research plan
As I do not yet have the skills to conduct empirical research to examine the influence of
explicit and implicit processes in unethical leadership and followership, I want to start with a
more extensive review of the relevant literature to build a sounder basis for developing theory
related to ethical/unethical behaviours. In order to see how the findings presented in the
literature can be linked to the situation in investment banking, I plan to do in-depth analyses
of media reports of unethical practices. Based on that knowledge and with the skills I will
have acquired during the first year of the PhD programme at Durham University, I plan to
start developing experiments and a longitudinal survey study after the first year. I also plan to
examine the relevance of implicit processes in the emergence of destructive leadership with
experiments. The opportunities that I will find at Durham University will allow examining
implicit processes with indicators such as facial expression, eye-tracking, group studies,
physiological measures, implicit measures. Besides the optimal research opportunities, my
progress and development will surely benefit from the exchange of ideas with the colleagues
at Durham University who are experts in research on destructive and ethical leadership.
References
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