Irresponsible decisions – irresponsible people? Why managers become corrupt

Scandals like the manipulated emissions tests at Volkswagen or those seen in a number of other large concerns pose the question of what causes so many managers to act irresponsibly and create such chaos in their organizations. WU Professor Günter Stahl has been investigating this question in a large-scale research study called “Responsibility & Leadership.” He and his team are working to determine factors that influence managers’ behavior. According to their results, the individual’s personal characteristics are only one factor, while organizational, social, and cultural variables also play an important role.

Corporations do not always appear in the most flattering light: Unethical decisions, badly paid workers, mass layoffs, manipulated balance sheets, tax evasion – the daily papers are filled with scandals like these. Günter Stahl, Professor of International Management at WU, is currently investigating the factors that influence managers’ behavior. His research project “Responsibility & Leadership” is made up of a series of studies that focus both on the “dark side” of management behavior – irresponsible, corrupt, or destructive actions – as well as on positive examples of responsible leadership and what motivates them. Responsible, ethical executives act as role models and establish positive values in their companies, supporting the necessary transition to post-2015 sustainable development goals, while irresponsible managers create chaos in organizations, as demonstrated by Volkswagen’s emissions scandal. 

More than just personality

The research project “Responsibility & Leadership” is made up of a series of studies analyzing both the negative and positive sides of management behavior. The investigation is based on the premise that explanation attempts based solely on the personality or values of the individual manager are insufficient. “To understand the causes behind responsible or irresponsible management behavior, we have to take the complex interactions between a host of individual, organizational, and social factors into account. For example, analyses of major corporate scandals and collapses over the last 20 years have shown that in addition to individual, personal characteristics of the executives involved, e.g. narcissistic tendencies, aspects of the management team as a whole (including a lack of diversity and peer pressure) and of the institutional and cultural environment (e.g. shareholder value philosophy) played a very significant role,” explains Stahl. “This is why it’s important to conduct empirical investigations and attempt to explain this behavior from a variety of levels.”

Influencing factors on three levels

On the individual level, Stahl and his team conducted experimental studies to investigate the effects of managers’ empathy for various stakeholder groups on their behavior towards these groups. The results showed that managers behaved more responsibly towards groups they identified with more strongly and for whom they felt more empathy, for example groups with whom they shared a similar cultural background. These findings demonstrate clearly that psychological or cultural distance to certain groups (e.g. people with an immigrant background) is associated with reduced empathy levels, which has an impact on the individual’s tendency to behave responsibly or irresponsibly towards these groups.   On the organizational level, the researchers focused on the question of how the composition of management teams affected managers’ decisions and actions. Stahl and his colleagues found that teams with a high level of diversity, i.e. that include people of different genders, educational backgrounds, and nationalities, reacted more flexibly to the demands of the various stakeholders and took their needs more into account, generating a stronger corporate social performance for the entire organization. The third level investigated by Stahl and his team was the institutional level, where they looked at how legal, institutional, and cultural factors (e.g. shareholder value model) affected managers’ sense of responsibility and the relationship between companies and stakeholders. The results showed that in countries with a stronger shareholder value philosophy (e.g. USA), very little consideration is given to the needs of other stakeholder groups, while in countries that are more stakeholder oriented (e.g. Germany), the spectrum of criteria included in corporate decision-making processes is much wider.  

Success factors of responsible management

All of the studies made it clear that unethical behavior is not solely the result of a manager’s personality. Factors like the composition of the management team, corporate culture, incentive systems, and social, political, and cultural conditions play a very important role, as well. This even applies to extreme cases like the Volkswagen scandal or complete corporate collapses like Enron, Arthur Anderson, or the Lehman Brothers. “Our studies indicate that in addition to personal characteristics of the individuals involved – for example strong narcissistic tendencies and a resistance to criticism – a large number of other contributing factors also exist, including a lack of practiced values in companies, a strongly hierarchical corporate culture, and a strict orientation towards shareholder value maximization. These are possible approaches towards more responsible management behavior,” says Stahl, “for example, a CEO who serves as a positive example by practicing values like integrity, social responsibility, and sustainability, together with a diverse top management team who are aware of the needs of a large number of stakeholder groups and takes these into account when making strategic decisions, can establish the cultural change it takes to support the necessary transition to post-2015 sustainable development goals.”

Event tip: WU Professor Günter Stahl will be taking part in WU’s new event series “WU matters.WU talks” on November 15, 2016, and will be giving a talk on why good managers turn bad (in German). 

WU matters.WU talks.
Wiener Vorlesung & WU Best Paper Award
Date:

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