A Unique Empirical Study of Corporate Psychopathy1
NOT ALL PSYCHOPATHS ARE IN PRISON.
SOME ARE IN THE BOARDROOM.
The above statement was a casual response by Hare to a question asked at the end of a 2002 address to the Canadian Police Association meeting in St. John’s, Newfoundland and Labrador. The questioner turned out to be a journalist, and over the next few days, the international media picked up his newspaper article, treating the statement as somewhat of a revelation. The media reports clearly reflected both the popular view that psychopathy equates to criminality and violence, and the public and media fascination with murder and mayhem, typically attributed to “psychopaths” or “sociopaths.” Media headlines and popular television crime shows are often the only exposure the public gets to the concept of psychopathy, resulting in considerable misinformation and misunderstanding. Most people see only entertainment that often portrays psychopaths as somewhat heroic individuals who are not bound by ordinary social conventions. However, most of the public would react in horror if they actually experienced or watched the callous acts portrayed on TV or in the movies. This is also the case with business professionals, who see little relevance of such portrayals to their daily interactions with coworkers.
Unfortunately, empirically sound studies of corporate psychopathy are uncommon. Most studies (including several by the authors of this book) rely on self-report personality inventories and measures of various dark personalities. These include The Dark Triad (psychopathy, narcissism, and Machiavellianism), and, with the inclusion of sadism, The Dark Tetrad. This is problematic, given that self-descriptions of one’s personality in a corporate context likely involve presenting oneself in a good light, especially by those with a natural tendency to manipulate and deceive others. Many of these studies do not involve people in their actual workplaces. Instead, they often use university students or recruit people through Internet crowdsourcing marketplaces such as Amazon Mechanical Turk. Moreover, much of this research takes place in a laboratory-like setting, using tasks designed to simulate the real world of business. It is difficult to know how much these proxy simulation studies, and their interpretations by the researchers, inform us about the role played by psychopathy and personality in the real world of business. Unfortunately, many media reports of these studies take their findings at face value.
This is not to say that self-report inventories are not useful in the study of personality in the public and corporate worlds. They provide general insights into how personality traits relate to behaviors in different contexts, provide the basis for developing theories relevant to a particular context (e.g., types and patterns of corporate misbehavior), and make it easy to conduct large-scale studies.
For their part, organizations often are reluctant to use measures of psychopathology except under special circumstances, such as the hiring of critical public safety staff (e.g., police, firefighters, nuclear power plant operators).2 The fear of violating privacy laws and the risk of lawsuits inhibit research in this area. As a result, we know relatively little about the association between psychopathy and, for example, corporate status and performance.
Although psychopathy, broadly speaking, reflects a fundamental antisociality,3 some psychopathic features (e.g., callousness, grandiosity, manipulativeness) may relate to the ability to make persuasive arguments and ruthless decisions, while others (e.g., impulsivity, irresponsibility, poor behavioral controls) relate to poor decision-making and performance. Furthermore, while a particular mix of psychopathic features might be compatible with good performance in some executive positions in some corporate milieus, it is likely that the confluence of many psychopathic features generally relates more to appearance than to good job performance.
Exacerbating the problem is that much of what we know about psychopathy comes from clinical and empirical research with offender and forensic psychiatric populations (where the base-rate for psychopathy is high and the information needed for reliable assessments is readily available). In addition, most of the research on corporate personalities makes use of various self-report instruments with limited validity when used to evaluate sophisticated job applicants and candidates for promotion.
Until recently, we had few small-sample studies, anecdotes, and speculations about corporate psychopathy and its implications. In large part, this is because of the difficulty in obtaining the active cooperation of business organizations and their personnel for research purposes. At the same time, there is considerable public and media interest in learning more about the types of person who violate their positions of influence and trust, defraud customers, investors, friends, and family, successfully elude regulators, and appear indifferent to the financial chaos and personal suffering they create.
In the face of large-scale Ponzi schemes, embezzlement, insider trading, mortgage fraud, and Internet frauds and schemes, it was inevitable that psychopathy would be invoked as one explanation for such callous and socially devastating behavior. However, there is a dearth of empirical data on the role of psychopathy in fraud, corruption, malfeasance, and other egregious violations of the public trust. We need research in this area, but we also need investigations of a related and equally important issue: the prevalence, strategies, and consequences of psychopathy in the corporate world. The information gained from such investigations would provide valuable clues about corporate psychopathy in general and would establish an empirical base for conducting and evaluating research on the more high-profile miscreants who have wreaked financial and emotional havoc in the lives of so many people. While the latter recently have received enormous amounts of media and regulatory attention, we also should be concerned with the less spectacular, but more common, in-house fraud and corruption experienced by many corporations as well as small companies worldwide. We know little about these individuals or about the ways in which they often manage to avoid prosecution, termination, or formal censure, sometimes with the help of organizations that strive to keep problems in-house. See S 9.1: Economic and Corporate Fraud.
An Empirical Corporate Study Using the PCL-R
We mentioned a seminal study very briefly in the previous chapter but want to offer the interested reader an in-depth analysis of what we found. This study arose from an unusual set of circumstances. Over a period of several years, the senior author (P.B.) had consulted with seven companies in the US to evaluate 203 high-level corporate personnel (77.8 percent males; 22.2 percent females) selected to participate in management development programs. He completed the PCL-R (see Table 2.1) for each participant using comprehensive field notes from face-to-face meetings, observations of social and work–team interactions, as well as meetings with participants’ supervisors, peers, and subordinates. He reviewed some scores with the second author of this book (R.H.). We needed to omit two items as being inapplicable as they are focused on criminal subjects (Revocation of conditional release; Criminal versatility) and prorated the remaining eighteen items to a twenty-item scale, using the standard procedure as outlined in the PCL-R manual.4 With this information, we were in a position to determine the prevalence, distribution, and structure of psychopathic features in the sample. Importantly, we had access to independent key performance and management development measures provided by the corporations, thus allowing us to determine the extent and manner in which psychopathy was related to these variables. For an example of how not to use the PCL-R as the basis for research in the business world, see S 9.2: The Mismeasure of Corporate Psychopathy.
Competency Domains
Although they differed somewhat in the format and wording of some items, the assessment instruments used across the companies shared the same outcome variables, which was typical at the time for defining “leadership.” These assessment items reflected six broad management competency areas or domains:
For each of the six assessment variables, participants received an average score categorized as High (that is, a strength), Medium (indicating some improvement needed), or Low (indicating a weakness area requiring training or executive coaching). We coded these as 3, 2, and 1 respectively.
Most large organizations use formal, annual performance evaluations, which often lead to recommendations for training and development. Most companies use a five-point scale for the Performance Appraisal, ranging from five (far exceeds expectations) to one (far below expectations). An exploratory factor analysis of the six management competency items plus the performance appraisal item revealed two clear factors, or composites:
The main reason for the study was to answer the question: To what extent do these composites relate to psychopathy? In light of what we know about psychopathy, we expected that those with high PCL-R scores would score high on Charisma/Presentation Style and low on Responsibility/Performance. That is, they would look good but perform poorly.
Psychopathy Scores
The executive PCL-R scores varied from 0 to 34, with a group mean of 3.6. That is, the level of psychopathy in this sample was very low. “However, nine of the participants (4.4%) had a score of 25 or higher, eight (3.9%) had a score of 30 or higher (the common research threshold for psychopathy), two had a score of 33, and one had a score of 34. By way of comparison, the mean score for incarcerated male offenders is approximately 22, with about 15% of the scores being 30 or higher” (p. 183).5 Babiak and colleagues noted that interestingly, “of the nine participants with a PCL-R score of 25 or higher, two were vice-presidents, two were directors, two were managers or supervisors, and one held some other management position; thus, they had already achieved considerable rank and status within their respective organizations” (p. 185). Statistical analyses indicated that the PCL-R scores identified the same four factors or dimensions as those found with the PCL-R and PCL: SV: Interpersonal, Affective, Lifestyle, and Antisocial.
Comparison with Community Samples
Because there were no large community PCL-R samples for comparison with the corporate distribution of scores, we converted the PCL-R scores to “PCL: SV equivalents” by multiplying each PCL-R score by 12/20 (the PCL: SV has twelve items and the PCL-R has twenty items). This allowed us to compare the distribution of PCL: SV scores in the corporate sample with a large community sample,6 part of a large study to identify predictors of inpatient violence. The comparison tells us something about the prevalence of psychopathic features in a community and a corporate sample.
The two distributions displayed in Figure 9.1 are very similar to one another, with most of those in each sample having very low scores. The mean score for the community sample was 2.7, whereas the mean score for the corporate sample was slightly lower at 2.2. However, ten (0.2 percent) of those in the community sample and six (3 percent) of those in the corporate sample had a PCL: SV equivalent score of 18 or higher (the research threshold for psychopathy). Interestingly, 5.9 percent of the corporate (versus 1.2 percent in the community sample) had a PCL: SV score of 13 or higher, considered by some researchers to indicate “potential” or “possible” psychopathy.7 As we indicated above, individuals with a score this high may pose many serious problems for those around them and for the public.
Talking the Walk
The title of the article described in this chapter is “Corporate Psychopathy: Talking the Walk.” We based the title on the results, which were quite dramatic.
First, consider ratings on the variables in the Charisma/Presentation Style composite. As Babiak et al. (p. 196) put it, “as the PCL-R cut score increased there was a slight increase in the perception that a participant had good communication skills, and was creative and innovative.”8 Note that at a moderate or high PCL-R threshold, most of the ratings were between “meets expectations” and “above expectations.” In sharp contrast, as Figure 9.2 shows, as the PCL-R threshold increased, there was a strong decrease in ratings of the participant’s management style, role as a team player and leader, and performance appraisals. Indeed, the competency variables that had ratings of “Medium” or “High” at low PCL-R thresholds dropped sharply to “Low” at the upper thresholds. Similarly, their overall performance evaluations dropped from “exceeds expectations” at the lower PCL-R thresholds (that is, low psychopathy) to “below expectations” or “far below expectations” at the upper thresholds (high psychopathy).
Recall that nine of those in the sample had a PCL-R score of 25 or above. This group, that is, those in the psychopathy range, had the highest communications ratings and the lowest performance ratings. Does this explain how they were able to maintain their jobs as well as their inclusion in the management development and succession planning programs of their respective companies? We believe so.
On the surface, psychopathic executives showed great promise for promotion. They talked a good line and put on an impressive show. However, they failed to live up to expectations, some miserably. In several cases, their performance and leadership ratings were low enough to warrant dismissal or transfer. In fact, two such individuals received disciplinary action and were placed on probationary review. Yet, at the time of the study, they were still with the company. Not surprisingly, these executives had initiated legal action against their respective companies!
Corporate Variations on a Theme
In Chapter 8, we described the construction of individual profiles based on the PCL-R factor scores. Here, we applied the same procedure to the sample of 203 executives discussed in this chapter. Statistical analyses revealed much the same profiles among corporate executives as among offenders, although the numbers in the former were very small (Figure 9.1). That is, in each case there were two variants of psychopathy, manipulative and aggressive. As expected, these variants were far less common in the corporate sample than among offenders.
Nonetheless, they stood out dramatically from the rest of the sample in terms of their performance ratings. Each of these variants had performance ratings that were less than half as high as the ratings for the 91 percent of the sample that scored low on all four psychopathy factors. These two variants of corporate psychopathy included vice presidents and directors. The aggressive variant scored high on the Poor Behavioral Controls and the Early Behavioral Problems items of the PCL-R (see Table 2.1). We might assume that they are more heavily involved than others in serious and harmful behavior to employees and the company, including harassment, bullying, and intimidation. We might also assume that the manipulative psychopath would be involved in serious malfeasance, including fraud and embezzlement. In either case, the distress, frustration, and hopelessness inflicted on other employees must be difficult to bear. Yet, these and other destructive executives manage to survive and even flourish in their organizations.
What Does It Mean?
As summarized by Babiak et al. (pp. 190–181),9 and as we pointed out earlier in this book, the persona of the high-potential or “ideal leader” is an often amorphous and hard-to-define concept, and executives tend to rely on “gut feel” to judge such a complex attribute. Unfortunately, once decision makers believe that an individual has “future leader” potential, even bad performance reviews or evaluations from subordinates and peers do not seem to be able to shake their belief. The bottom line is that it is very easy to mistake psychopathic traits for specific leadership traits. The corporate psychopaths’ “talk” overshadows their actual “walk.”
The results of this study validated our observations noted in the previous chapters, but bear summarizing here because of their importance to understanding how true corporate psychopaths can so easily manipulate organizations:
For an outline of how the media misreported and misinterpreted the study just described, see S 9.3: The Wall Street “Ten Percenters.”
Discussion Questions
S 9.1
Economic and Corporate Fraud
In its 2018 Global Economic Crime and Fraud Survey,10 PricewaterhouseCoopers (PwC) reported that 49 percent of 7,200 organizations in 123 countries were the victims of economic crime, up from 36 percent in 2016. The most frequently reported frauds were asset misappropriation, consumer fraud, and cybercrime. Internal “fraud actors” committed 52 percent of the crimes, up from 46 percent in 2016. Senior managers, with a sophisticated understanding of the company’s internal controls and risk management procedures, committed 24 percent of the internal frauds. PwC noted that the opportunity to commit fraud is a key element in internal economic crime. The extent to which psychopathy is part of economic crime is unknown but likely to be significant. The B-Scan 360 offers some promise for empirical investigation of this issue.
External actors committed 40 percent of frauds; two-thirds of these were “frenemies of the organization—agents, vendors, shared service providers and customers” (p. 9). PwC provided extensive methods for preventing organizational crime. The advice they gave in the 2003 Global Survey is valid today. PwC suggested that corporations should be on the watch for the executive who:
S 9.2
The Mismeasure of Corporate Psychopathy
In a series of articles, Boddy and his colleagues11,12 have described and used what they refer to as a new tool for identifying corporate psychopaths. Boddy et al. (p. 134)13 stated, “A management research tool, the Psychopathy Measure—Management Research version (PM-MRV) . . . now exists. This is based on the world’s most commonly used psychological instrument for identifying psychopaths [the PCL-R] and relies on the reporting of fellow employees. This research tool can be used to identify when psychopathy is present in corporate management.”
The basis for this “management research tool” was a quiz (“Is your boss a psychopath?”) published in Fast Company magazine.14 The quiz consisted of a simple listing of the titles of the eight items that form the Interpersonal and Affective dimensions (Factor 1) of the PCL-R. Deutschman (p. 48) stated that Hare’s PCL-R evaluates twenty personality traits and that a subset of eight traits (i.e., Factor 1) defines what Hare calls the “corporate psychopath.” The latter part of this statement is incorrect. Neither Factor 1 nor Factor 2 alone is sufficient to define psychopathy. In discussions between Boddy and the publisher of the PCL-R, Boddy admitted that he has never actually seen a full clinical version of the PCL-R instrument and has read that it mostly involves extensive interviewing into twenty separate areas of behavior (personal communication to Hare from Claudia Roy, Multi-Health Systems, October 7, 2010).
The procedures used by Boddy are well outside the psychometric and professional standards for test development. Moreover, the PM-MRV not only misspecifies the construct of psychopathy, but also fails to differentiate psychopathy from other dark personalities: Machiavellianism, narcissism, and sadism15,16 (see Supplemental S 2.3). “Disentangling psychopathy, narcissism, Machiavellianism, and other dark personalities is critical to advancing research on corporate harm. The PM-MRV may assess only features common to these dark personalities (Factor 1 traits) and therefore cannot provide essential information about how they differ with respect to their nature, the strategies they use, and their dispositions toward corporate misbehavior. As a research tool, the PM-MRV is not specific with respect to psychopathy and provides misleading information about the role of the PCL-R psychopathy construct in the business world. The real danger is that executives or human resources personnel will use it to make decisions about individual employees” (p. 585).17
S 9.3
The Wall Street “Ten Percenters”
The article on corporate psychopathy by Babiak et al.,18 described above, generated many newspaper articles, blogs, and other Internet postings, most based on some variation of an incorrect statement by Sherree DeCovny in the CFA Institute Magazine (March/April 2012, Volume 23, Issue 2).
In the article, titled “The Financial Psychopath Next Door,” DeCovny stated: “Studies conducted by Canadian forensic psychologist Robert Hare indicate that about 1 percent of the general population can be categorized as psychopathic, but the prevalence rate in the financial services industry is 10 percent” (p. 34).
Alexander Eichler picked up DeCovny’s statement, and wrote an article in the May 19, 2012, edition of The Huffington Post titled “One Out Of Every Ten Wall Street Employees Is a Psychopath, Say Researchers.”
Neither DeCovny nor Eichler contacted me (Hare) to determine if this information was correct. The first to do so was Dr. John Grohol, who wrote, “I’ve searched PsycINFO for a study that backs this claim, and came across your 2010 study on ‘corporate psychopathy,’ where, if one adds up the numbers, you can get to 8.9% in the studied population, if you include the category of ‘potential’ or ‘probable’ psychopathy as well. But this study was not on the financial services industry specifically.”19
Grohol posted my response, along with his views on reporters who do not bother to check their facts.20 Not everyone read Grohol’s web page or my comments.
In an article for the May 13, 2012, edition of The New York Times, William Deresiewicz wrote the following under the headline of “Capitalists and Other Psychopaths”: “There is an ongoing debate in this country about the rich: who they are, what their social role may be, whether they are good or bad. Well, consider the following. A recent study found that 10% of people who work on Wall Street are ‘clinical psychopaths,’ exhibiting a lack of interest in and empathy for others and an ‘unparalleled capacity for lying, fabrication and manipulation.’ (The proportion at large is 1%).”
On May 15, 2012, the deputy editor of the op-ed page for The New York Times wrote to me, “I’m afraid that an essay by William Deresiewicz this past Sunday, about ethics and capitalism, incorrectly described your research. We are trying to get it right now . . . Although we fact-check every opinion essay, this slipped past us. We really want to set the record straight.”
We exchanged emails and the deputy editor arranged for The New York Times to issue a correction, which was as follows:
“This article [Capitalists and Other Psychopaths] has been revised to reflect the following correction.
“An opinion essay on May 13 about ethics and capitalism misstated the findings of a 2010 study on psychopathy in corporations. The study found that 3.9% of a sample of 203 corporate professionals met a clinical threshold for being described as psychopaths, not that 10 percent of people who work on Wall Street are clinical psychopaths. In addition, the study, in the journal Behavioral Sciences and the Law, was not based on a representative sample; the authors of the study say that the 4 percent figure cannot be generalized to the larger population of corporate managers and executives” (May 20, 2012).
On June 23, 2012, The Huffington Post stated, “An article that appeared on The Huffington Post on February 28, 2012, ‘One Out Of Every Ten Wall Street Employees Is a Psychopath, Say Researchers,’ was incorrect and has been removed.” Further, “CFA Magazine did not respond to repeated requests for comment. The Huffington Post regrets the inaccuracy.”
Why did these exchanges concern me? An empirical study on a specific sample of executives turned into false media reports about psychopathy on Wall Street. Scientists conduct research because they wish to understand a particular problem or phenomenon, not to have their work used for political comments about “the rich” on Wall Street.