Why do good people do bad things?
Recently we’ve been treated to a spate of bad behavior by otherwise successful, sensible individuals. A couple of Credit Suisse mortgage traders intentionally mis-marked their portfolios as the housing market crumbled around them. LIBOR traders systematically manufactured false readings of this key global index in order to help their firms’ derivatives desks. And then there’s Rajat Gupta, the former Chief Executive of McKinsey & Co., who served on the Goldman Sachs Board of Directors. Gupta was convicted of felony conspiracy and securities fraud for disclosing confidential Board-level information to a hedge-fund. These people have shipwrecked their careers and served time in prison for their crimes. How can such smart people be so dumb?
The common factor in all these stories is their social context. The Credit Suisse executives headed up their structured credit group in a high-flying financial powerhouse. The LIBOR traders were part of an elite fraternity of dealers who talk to one-another constantly, exchanging jokes, favorite restaurants, and personal information. Gupta is a prominent Indian-American, and his information helped another member of that community—even though he did not personally profit.
What’s striking is that these people didn’t just break the law, they also violated company and professional ethical codes that they personally signed and supported. But “bad company corrupts good morals.” What someone would never do alone can seem acceptable or even praiseworthy when it’s part of a group’s behavior.
Aristotle observed that we are social animals, hard-wired to want to fit in. All the more reason to be careful where and with whom we associate. Because if you lie down with dogs, it’s no surprise when you get up with fleas.
Douglas R. Tengdin, CFA
Chief Investment Officer