At first glance, mentioning the financial service industry and psychopaths in the same sentence seems insulting, illogical and controversial, especially to financial professionals and investors who, for different reasons, must hold the financial industry in high esteem. Linking these two terms is especially sensitive since the common view is that psychopaths are generally considered criminally insane. And very often this is certainly true.
But psychological and neuroscience research and a closer examination of psychopaths now makes the distinction between the criminally insane and the “functional,” non-violent psychopath, who is a non-criminal.
In the provocative and interesting book, The Wisdom of Psychopaths, author Kevin Dutton notes that non-criminal, non-violent psychopaths are more common in business, politics, medicine, education and many other professions than the public would like to believe. There are many psychopaths who are successful in their professions, including the financial services industry. Many psychopaths (criminal and non-criminal) are described as charming, magnanimous, egocentric, and cunning, who do not show any sense of guilt or remorse for their anti-social acts.
In a few studies among professions cited in the book among diagnosed psychopaths, more business managers showed these characteristics than hospitalized criminals and psychiatric patients. What made the difference between the business people and the other two groups was the degree of criminal activity, impulsive behavior and physical attacks that were shown. But aside from that, studies found that all three groups shared many of the same personality attributes, while their intensities varied.
“…its time to look for new explanations that can account for these ongoing, systemic and unparalleled global financial crimes that are beyond lame calls for ethical training and sadly, the fiduciary standard.”
According to Dutton, the definition of psychopathy has challenged mental health professionals, including psychiatrists, but the latest research shows that psychopaths are at a far end of the normal personality spectrum and exhibit traits that are egocentric, impulsive, non-conforming, carefree, fearless, coldhearted, dominating and engaging in anti-social, but not necessarily criminal, acts.
In his book, Dutton interviewed a successful venture capitalist who described that one of the three characteristics that made him rich was “insensitivity” to the impact his financial decisions would have on others or the environment.
While the book does not specifically mention the financial services industry, recent news events of large-scale anti-social behaviors in the LIBOR and PIBOR price fixing scandals; the pervasive top-down and bottom-up mortgage fraud, accompanied by the sale of toxic derivatives that led to the 2008 recession; the Enron, Worldcom, Adelphia Communications, and Tyco International, and other major accounting scandals; the assignment of false ratings by Standard & Poor’s, the Bernie Madoff fraud, and the largest scandal of all, the fixing of the foreign exchange markets by the world’s largest banks. (For more on these scandals, see Banking With the Felons on this site.))
The Traditional Lame Response
While the industry and the financial media certainly report on these scandals and the resulting fines and penalties (rarely does anyone go to jail), their combined responses usually center on the lack of business ethics, lapses in oversight, more regulation, changes in the board of directors, calls for a new code of ethics, a focus on long-term versus short-term goals, and other failed efforts.
Even Forbes, a paragon of corporatists, is at a loss to come up with new ideas. In one article, the author suggests that “meaningful (corporate) cultures will implore workers to do the right thing. That means individuals are encouraged to come forward with their concerns and know they will be heard and acted upon. Such a system allows management to address and handle issues in a holistic way to ensure strong ethical health.”
Yet anyone who has worked in a major corporation knows this is nonsense. Managers and executive don’t want to know about ethical violations unless that can directly lead to a federal or state regulatory enforcement action. After all, the role of corporate human resources department is to prevent the company from getting sued, not advancing the careers of employees.
The Forbes article also fails to mention that unethical actions are driven by huge financial rewards that are shared by all managers who are directly connected to the unethical behavior. That is why the LIBOR and foreign currency price fixing scams went on for decades.
Dutton’s book also notes that Vikings between the 9th and 12th Centuries made their conquests using two groups of barbarian warriors: more ordinary soldiers and a second more vicious group who “fought in a brutal, trance-like fury.” This group was the subject of Viking folklore and history, and they even were used to brutalize their own people.
Time to Hire In-House Corporate Psychiatrists
Flash forward to the 21st Century, and these same highly-motivated warriors could become Navy Seals or trading room managers who would knowingly engage in fraud as they shared the spoils with anyone participating and managing the schemes. While distasteful, this may be the corporate culture (devoid of any toothless discussion of fiduciary responsibility or ethics) which has allowed these epic scams to persist for decades.
All this means its time to look for new explanations that can account for these ongoing, systemic and unparalleled global financial crimes that are beyond lame calls for ethical training and sadly, the fiduciary standard. Psychopaths, be definition, do not even acknowledge these societal norms. Yet acknowledging that these crimes are psychopathic makes them more understandable and preventable.
So as the financial services industry relies on behavioral finance as its main link to human psychology related to money, investing and explaining why average individuals make bad decisions, maybe the psychological scope should be broadened to include the study of psychopathology. That seems to offer a better explanation for the global financial industry’s current anti-social, billion dollar, criminal scams that in the past decade have become larger and more common than ever.
That’s why investigating this psychopathology offers better explanations about how large, educated, and highly-paid groups act in concert to defraud millions of unsuspecting people within the organizational confines of 21st century financial corporations.
To root out this non-violent criminal behavior, investment banks and trading firms that have incurred millions of dollars in regulatory and criminal settlements should hire in-house psychologists or psychiatrists to identify the psychopaths and their spheres of influence in trading rooms or board rooms.
For instance, in May 2015 five major banks plead guilty to criminal charges and pay more over $5.5 billion in collective penalties “to settle charges their traders routinely manipulated the world’s foreign-exchange market for their own profit.” Even worse, in 2013 Bloomberg news reported that the nation’s six biggest U.S. banks, led by JPMorgan Chase and Bank of America Corp., paid over $103 billion in legal costs since the financial crisis. This was more than all dividends paid to shareholders in the past five years.” Part of the money paid to lawyers should be paid to trained mental health professionals to root out the psychopaths and their spheres of influence inside the banks. These spheres of influence are large and extend into the executive suites since the ill-gotten-gains reach to the highest corporate levels. Identifying these bad employees is the only way to change an errant corporate culture since ethics classes and adopting a fiduciary standards mean nothing to psychopaths.
Also, since the U.S. Supreme Court says corporations are considered people than maybe they should be diagnosed with the same psychological maladies that affect real flesh-and-blood individuals . Who knows, maybe some people in the financial services industry will begin to recognize the psychopath in the next cubicle.