Beware the corporate psychopath

Friday 25, August 2017

Companies must guard against psychopaths eroding their ethics – and even destroying the business.

Psychopathy is one of the most treacherous personality disorders. Over 200 years of clinical research and forensic observations have produced a definition of psychopathic personality that involves a constellation of interpersonal, affective, lifestyle and antisocial traits and behaviours.

Psychopaths have unimpaired intellectual functions, which allow them to skilfully manipulate and mislead others. They usually hide behind a façade of charming and sincere friend, leaving a long-lasting first impression of a character too grand to resist. As master manipulators and pathological liars, they find behaving in a misleading way relatively easy.

Those who befriend a psychopath ultimately end up deeply regretful, as they are exploited, betrayed or defrauded. To fulfil their parasitic needs, psychopaths engage in egoistic behaviour without any consideration for the wellbeing of others.

Their emotions are shallow and intense external stimulus is required for them to feel any excitement. To fulfil their constant need for stimulation, they look for thrills, conduct extramarital affairs and take excessive risks in an irresponsible manner.

“Psychopaths consider themselves superior to others and have an unshakeable belief in their exceptional intellect and capabilities”

Many end up as convicted criminals, but a significant proportion are able to avoid scrutiny and could end up in positions of power.

In fact, psychopaths consider themselves superior to others and have an unshakeable belief in their exceptional intellect and capabilities. Lacking the ability to feel guilt, they go through life without any concept of personal responsibility, blaming all failures on other people.

The reasons underlying this disorder have also been of interest to researchers. Results from functional magnetic resonance imaging (fMRI) have shown that psychopaths’ brains are wired differently.

More specifically, areas of the brain responsible for emotions and making moral judgements show noticeable deficits. This suggests that psychopathy may be inborn.

On the other hand, environmental factors such as poor parental supervision, childhood abuse and neglect, disrupted families, drug and alcohol usage were all found to predict a psychopathic personality.

Although medical science has made progress in terms of developing diagnostic tools (for example, the ‘Psychopathy checklist – revised’), it has failed to provide effective treatments for this disorder.

Aptitude for business

An important question relates to the prevalence of this disorder in wider society. In the US, for example, psychopaths represent around 1% of the general population, according to the July 2012 Federal Bureau of Investigation Law Enforcement Bulletin, and sources therein.

Academic literature, however, has shown that psychopaths tend to be more common in certain environments. For instance, the prevalence rate among incarcerated offenders is estimated to be around 10% to 15%.

More surprisingly perhaps, when deciding on their tertiary qualifications, psychopaths show a preference for commerce and business studies. According to a 2011 scientific article by Marc Stewart Wilson and Karena McCarthy, ‘Greed is good?

Student disciplinary choice and self-reported psychopathy’, they tend to flock into business schools, as they believe that this type of education offers the best prospects of gaining material wealth and influence over other people. After entering the workforce, they frequently end up being promoted to positions of power.

In ‘Corporate psychopathy: Talking the walk’, Professor Babiak and his co-authors showed that, among the professionals selected by their employers to participate in management development schemes, psychopathy was four times more likely than in the general population.

Influential parasites

Why then, despite their numerous character flaws, do psychopaths succeed in having spectacular careers in the business world? This may be somewhat perplexing, considering their propensity for counterproductive behaviour and aversion to hard work.

Several factors contribute to their success. Because of their limited emotional range, they do not get stressed and interview well. Their CVs are often impressive, although exaggerated and overflowing with fiction.

“Psychopaths can make difficult decisions that affect the lives of many people without any scruples”

Their superficial charm can be misconstrued as a trait of a magnetic and charismatic personality. Being especially talented at lying and manipulating people, they exert a strong influence on the politics within a corporation.

Given their lack of empathy, they can make difficult decisions that affect the lives of many people without any scruples.

Following their parasitic instincts, they routinely try to take credit for their co-workers’ achievements. Since the overriding ambition of psychopaths is to accumulate wealth and gain control over others, they show great determination in advancing their careers.

Architects of chaos

For many years, corporate psychopathy has been the subject of academic inquiry. One interesting contribution is that of Professor Clive Boddy, who published an aptly-titled book Corporate Psychopaths – Organisational Destroyers.

He conducted an investigation based on a sizeable group of white-collar workers, who were asked to fill out detailed questionnaires regarding their supervisors. The findings presented by Boddy are unsettling and warrant further reflection.

According to the responses collected, nearly 6% of respondents have a line manager who meets the criteria for psychopathy. Even more worryingly, over 30% of workers have, in the course of their careers, worked with a manager who suffered from this personality disorder.

The survey revealed that the ramifications for the companies involved are dire. While psychopaths try to charm those who occupy higher positions in the corporate hierarchy, they simultaneously exploit junior members of staff. Those who have the misfortune of reporting to a psychopath are often treated unfairly.

According to Boddy’s calculations, psychopaths bully staff seven times more frequently than normal managers. Rude arguments and yelling become commonplace, undermining staff morale and leading to a vicious spiral of retribution.

Blinded by their pursuit of money and power, psychopaths completely ignore issues related to corporate social responsibility. This can tarnish company’s reputation and complicate relationships with customers, suppliers and other stakeholders.

“While psychopaths try to charm those who occupy higher positions, they simultaneously exploit junior members of staff”

The troubles do not stop there. Psychopaths deliberately create chaos in the workplace by providing inadequate training for others, blocking information flow or introducing confusing rules. Disorder helps them to cover up their reprehensible and often criminal behaviour, as well as deflect the blame for any flagrant failures.

Workload is frequently intensified by psychopathic managers to unsustainable levels, reflecting the level of their aggression and parasitic needs. In response to such a hostile environment, subordinates often engage in deviant workplace behaviour, such as absenteeism due to faked illness, or leaving work early.

Correlating company traits

We have recently conducted our own empirical analysis in a paper titled ‘Psychopathic traits of corporate leadership as predictors of future stock returns’.

We did not attempt to make diagnoses in the medical sense, as senior managers and directors would be unwilling to participate in this type of research. Instead, adopting a more pragmatic approach, we looked at company characteristics that are expected to be correlated with the presence of psychopaths in the higher echelons of power.

Firstly, we examined whether the language present in corporate annual report narratives published by companies bears any hallmarks of psychopathy. More specifically, we investigated whether the narratives are aggressive, self-centred, lacking focus on others and whether they are preoccupied with assigning blame.

Secondly, we probed into the issue of managerial integrity by looking at auditors’ comments, as well as formal investigations and disciplinary actions undertaken by the Financial Reporting Council.

Thirdly, we constructed a measure of company-specific risk, since psychopaths seek continual thrills by taking unneeded big gambles. Finally, lack of empathy was captured by an unwillingness to participate in philanthropy.

Damaging to value

Our findings indicate that the presence of the abovementioned characteristics is linked negatively to future returns on company stock. In other words, the presence of psychopaths in decision-making structures is detrimental to shareholder wealth.

In a capitalist system, the directors’ main aim is to boost organisational value in order to benefit shareholders. However, hiring individuals with a psychopathic personality disorder to senior management roles appears inconsistent with this.

“The presence of psychopaths in decision-making structures is detrimental to shareholder wealth”

According to the influential ‘upper echelons theory’ introduced by Donald Hambrick and Phyllis Mason, the process of strategic decision-making within a firm reflects the cognitive biases and values of top managers.

Clearly, misguided values could derail the commercial progress of corporations. This problem is exacerbated by the fact that psychopaths in management often introduce incentive schemes to reward what they consider ‘correct behaviour’.

Detecting psycopaths

The lessons to investors are clear. In order to avoid capital gains losses on their portfolios, market participants should avoid committing their money to companies whose management acts in a manner that could be labelled ‘psychopathic’.

There are also a number of recommendations that should be made to human resources departments which could enhance companies’ going concern status in the short, medium and long term.

There appears a clear benefit from incorporating psychological evaluations when trying to fill the most senior posts in a firm. Several diagnostic tools have been developed for the business context, such as B-Scan 360 or the Psychopathy Measure – Management Research Version.

These business-specific assessment tools are relatively cost-effective and easy to administer, because they are self or observer-reports that require employees to respond to questions on themselves, co-workers or superiors.

Furthermore, criminal record checks should be an integral part of the selection process. Authenticity of academic degrees should be verified and the veracity of statements made on CVs ought to be double-checked. These procedures may appear time-consuming, but can be outsourced to external specialist companies.

Finally, firms should put appropriate internal controls in place to limit the abuse of power, restrict antisocial behaviour and encourage whistleblowers.

Dr Tomasz Piotr Wisniewski is associate professor in finance, University of Leicester; Liafisu Sina Yekini is principal lecturer in accounting, Coventry University; and Dr Ayman Omar is lecturer in finance, University of Leicester

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