Bad Behavior at Business School Becomes Corporate Misconduct Later

One of the striking aspects of the recent financial crisis is not just that there were few criminal prosecutions (virtually none) of people who oversaw the writing of fraudulent loan documents, the botching of foreclosures, and the misleading of unsophisticated consumers with unclear loan terms. What should truly shock you is the near-complete absence of stigma adhering to corporate boards or executives following all this corporate misbehavior.

A study of director turnover at financial companies from 2006 to 2010 found that a company’s underperformance, including needing a government bailout, was unlikely to force board members out, and the effect was even smaller at nonfinancial companies. The study also found that directors who oversaw financial catastrophes suffered no fewer opportunities to serve on other companies’ boards. One news article noted that a director from Lehman Brothers continued to serve on the board of Office Depot and that a director from American International Group had joined the board of a New York investment bank.

Since I have observed business school students for decades, it occurs to me that this habit of keeping quiet in the face of problematic action starts early. In fact, it’s evident in business school culture. There are many examples of business school students collectively letting corner-cutting slide, ranging from ignoring rather than criticizing alcohol-fueled misbehavior to not calling out students who update their Facebook pages, answer e-mails, and do online shopping during class. My colleagues at Stanford say that students regularly complain, both to faculty who fail to stop behavior and to the school’s administration, about the effects of behavior like this on the learning culture.

But few individual students, or even groups, want to enforce norms on peers, something that would ultimately be more effective than anything faculty or the administration could do.

Much of business school experience is focused on building relationships that will be useful later in one’s career, so expressing disapproval of others could compromise ties to someone who could later be successful.

Another deterrent to blowing the whistle: There’s no upside to calling out bad behavior. As an article about whistleblowing on scientific misconduct, aptly titled No One Likes a Snitch, and other research makes clear, outing bad behavior frequently results in worse outcomes for the whistleblower than for the miscreant.

As decades-old research demonstrates, peer approval or disapproval of inappropriate behavior are among the most potent forces affecting conduct. Humans, as social animals, react strongly to whether their behavior results in being cut off from the group.

People who complain about others’ behavior, either in school or in the corporate world, without being willing to to condemn such behavior, are not just hypocrites. They are helping to establish a climate in which misbehavior flourishes. After all, the very idea of a “norm” implies a standard of conduct that is both widely practiced and, when violated, brings sanctions.

Turning away and trying to ignore instances of inappropriate or even illegal behavior helps create an “anything goes” climate—an environment that makes misbehavior of all kinds and levels of severity ever more likely.

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