Sunday, 8 January 2012

You don't have to be a psychopath to work here but it helps. Does Darth Vader run Goldman Sachs?

“Know the power of the dark side” says Darth Vader to Luke Skywalker in The Empire Strikes Back. But we haven’t, it seems, taken Darth’s wise, if husky, counsel to heart. According to management researchers we are naively unaware of the dark’s malign and boundless influence. “Dark leadership” they claim, was the force behind the global financial crisis.

Once great companies were brought to their knees by “impostors” acting as their leaders. Dark, dysfunctional leadership has destroyed firms with historic reputations. Employees have lost their livelihoods, shareholders their investments and, perhaps most troubling of all, capitalism has lost some of its credibility.

Corporate psychopaths, says Clive Boddy, a Professor at Nottingham Trent University, are one type of dark manager. In a paper for the Journal of Business Ethics entitled “The Corporate Psychopaths Theory of the Global Financial Crisis” Boddy says corporate psychopaths “probably” or “largely” caused the global financial meltdown.

Commentators, says Boddy, no longer accept that all managers work selflessly for the benefit of the organisations that employ them. Corporate psychopaths are an example of this selfish, destructive manager.

Psychopaths are the one per cent of people who completely lack a conscience. They are charming but ruthless and entirely out for themselves. As a result, they are a menace to the companies they work for and society as a whole.

These psychopaths rose to senior positions within financial corporations where they were able to influence the moral climate of the organisations that employed them, Boddy claims. They “largely caused the crisis” because their “single-minded pursuit of their own self-enrichment and self-aggrandizement to the exclusion of all other considerations has led to an abandonment of the old-fashioned concept of noblesse oblige, equality, fairness, or of any real notion of corporate social responsibility.”

How did these monsters manage to get so powerful? Well, before the 1980s, companies were more stable and slow to change, Boddy writes. Corporate psychopaths were more noticeable as “undesirable managers” and their “selfish, egotistical personalities” didn’t get them very far. But then the corporate environment became more dynamic and chaotic and corporate psychopaths made their way to the top of organisations which they were able to destroy from within.


There’s one slight flaw in this theory. It’s complete bollocks. Far from these “undesirable managers” rising invisibly through the corporate hierarchy until they reached the corner offices of financial behemoths, they were eminently desirable and desired. Brian Basham, “veteran City PR man, entrepreneur and journalist”, writes approvingly of Boddy’s corporate psychopath theory for the UK Independent newspaper. But mid-way through the article Basham relates a conversation he had with a “senior UK investment banker” about the attributes of successful banksters. The senior investment banker makes a confession:

At one major investment bank for which I worked, we used psychometric testing to recruit social psychopaths because their characteristics exactly suited them to senior corporate finance roles.”

“Here was one of the biggest investment banks in the world seeking psychopaths as recruits,” writes Basham.

This major investment bank, for some mad reason, preferred the characteristics of psychopaths to the “old fashioned concept of noblesse oblige” equality or fairness.

Never-ending growth

But when Basham tries to locate the source of the malaise he, too, drifts swiftly into fairy land. He thinks the financial sector’s search for “never-ending growth” is to blame.

I hate to the interrupt the catharsis of hating heartless bankers but the search for never-ending growth is universal in capitalist societies and not restricted to the intangible, abracadabra money-creating world of finance. Every week newspapers fret over whether economic activity in the services or manufacturing sector is above 50 per cent (that means growth hurray!) or below 50 per cent, which means contraction (we’re all doomed!). Governments manically chase the willow the wisp of growth. Without growth, in this society, we’d live in a permanently depressed economy, with the blights of high unemployment, poverty and homelessness for company. Without growth, in technical terms, you’re screwed.

Growth is, to use a word that is coming back into fashion, systemic and the financial sector, like every other sector of the economy, hasn’t stopped pursuing it, even if it has stopped achieving it.

Greggs the Bakers, to take one example, is not a bank - you can’t get much more tangible than a sausage roll - but it, too, has a never-ending search for growth and has been very successful in achieving it. It now has more high street shops in Britain than McDonalds. The way companies, including but not only banks, operate, is to secure and augment market share, destroy the competition, make as much money as they can and achieve as close to monopoly status as possible. In other words, grow.

Rip out their hearts

Basham has seen Dick Fuld, former CEO of Lehman Brothers on video, snarling that he wanted to rip out his competitors’ hearts and eat them before they died. It’s terrifying, he says. But it’s also not unique. I personally can attest to one manager in a non-financial company who wanted to render a competitor so poor they couldn’t even afford shoes. Some people do take the injunction to destroy the competition rather too literally. But they aren’t all psychopaths. They are all senior managers in capitalist firms, however.

Here is Dick Fuld in action (note the applause after he says he wants to rip his competitors’ hearts out)

Basham’s neat separation of good and bad capitalism, like Ed Miliband’s emphasis on predatory capitalism, ignores the allure of finance in the first place. It wasn’t just the likes of Lehman Brothers, Goldman Sachs and Citigroup that were, to use a technical economic term, “at it”. Manufacturing companies like Ford and General Electric diversified massively into finance for the rather prosaic reason that they could make far more money out of lending to people than through their core business of making cars, light bulbs or fridges. “Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines,” says a New York Times article.

 The dominance of finance is not an aberration, but a simple recognition of where the biggest profits can be made.

Basham, in approving of the corporate psychopath theory says that, in unregulated times, the least-principled rise to the top. But how, prey, did the times get so unregulated? Through continuous and expensive lobbying by financial corporations and banks, that’s how. The US Commodity Futures Modernization Act of 2000 which legalized speculation in commodities and derivatives like credit default swaps, didn’t happen all by itself.

Can Basham name a single corporate CEO, psychopathic or non-psychopathic, who lobbies for more regulation? That might as well have been a rhetorical question.

Psychopaths didn’t lobby for financial deregulation anymore than they employed themselves in investment banks.

Functional, all too functional

Deregulation and the ensuing crisis, scandals and bankruptcies did not come about because of bad people or dysfunctional leadership. Leadership was all too functional. In the words of American economist, Richard Wolff: “Capitalism systematically organizes its key institutions of production – the corporations – in such a way that their boards of directors, in properly performing their assigned tasks, produce crises, then undermine anti-crisis reforms, and thereby reproduce those crises.”

It’s all the difference the world. To use an analogy, Manchester United is not a football club because Manchester United Plc employs people who are good at football anymore than Lehman Brothers acted psychopathically because psychopaths wheedled their way into leadership positions at the firm. Manchester United is designed and constituted to be a football club so it seeks to recruit people who can tackle, catch left-wing crosses swinging in the wind, or are lethal from 12 yards. Investment banks seek psychopaths for the same reason that Manchester United seeks young men who can score 30 goals a season.

It isn’t complicated and the fact that intelligent people can’t see it must mean there is a reason for their willful blindness. There is a taboo at work here. As Jack Nicholson once said, “The truth? You can’t handle the truth.”

I don’t want to burst Boddy’s carefully constructed career bubble (actually that’s a lie) but it is quite possible to work selflessly for the benefit of the company that employs you and for that company to behave selfishly, psychopathically even. The aforementioned General Electric has a giant tax department with the sole purpose of avoiding tax. GE actually received a tax benefit in the US of $3.2 billion in 2010. “We have a responsibility to shareholders to legally minimize our costs,” explains a GE spokeswoman (the second, unspoken part of the sentence is “everyone else can get f*****”). That’s an institutional reason for selfishness. No psychopaths needed. Fairness and noblesse oblige are also conspicuous by their absence.

But the expectation that managers should be selfless is, in any case, mystifying. “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest,” said Adam Smith. That sentence has become one of the foundations of market economics. Our own personal selfishness, in other words, leads to an overall benefit to society. Self-aggrandizement and the desire for self-enrichment are expected, desired even, in capitalism. But now, according to Boddy, those same selfish qualities have become the reason for disaster. I must have missed something.

Friedrich Hayek, the free marketeer who had such an influence on Margaret Thatcher, said society would prosper if everyone was motivated by personal gain. Now we are told by capitalist ideologues like Boddy that the problem is too much selfishness. You have to admire the flexibility.

The psychopath theory of the financial crisis needs further development and research, says Boddy. And like investment banks during the boom, there is immense potential for expansion. Why not apply the theory to 9/11 for example? The reason Al-Qaeda flew planes into the World Trade Center was because it was run by psychopaths. What we need is a new Al-Qaeda with leaders committed to fairness and equality. If that sounds ridiculous, that’s because it is.

Surely the role of psychopaths in causing the Second World War has been underplayed? The National Socialist German Workers’ Party must have been honeycombed with psychopaths. Unfortunately for the theory, Reinhard Heydrich, the man who conceived and planned the Final Solution, was partial to the very non-psychopathic activity of playing Beethoven string quartets with friends in his spare time.

The truth is far more disturbing. With all due love and respect to the Occupy Movement, it isn’t the one per cent of psychopaths that you need to worry about, but the other 99 per cent.

The 99 per cent

The Milgram Experiment, which has been examined in this blog, explains why attributing outcomes no-one likes to psychopaths is a monumental cop-out. In the experiment, first conducted 50 years ago, members of the public were instructed to give electric shocks to a “learner” if he got memory testing questions wrong. No real shocks were actually delivered, the “learner” was acting, but the participants thought they were really hurting someone. One or two per cent of people relished giving the shocks – up to 450 volts - and inflicting pain. They were real sadists, maybe psychopaths.

 The vast majority – around 70 per cent of participants – didn’t like what they were doing but went on dutifully giving electric shocks on instruction, even passed the point they thought the learner might be dead. They took no pleasure in delivering the shocks - they shook, sweated, they even laughed hysterically at themselves – but they obeyed, and did it anyway.

The motives of the sadists/psychopaths and the ordinary folk were completely different. But their actions were the same.

As the creator of the experiment, Stanley Milgram, said, subjective feelings were irrelevant. When a person merges their unique personality into an organisation, they become a mere vessel, and are no longer an autonomous person. “It is the essence of obedience that the action carried out does not correspond to the motives of the actor,” he concluded, “but is initiated in the motive system of those higher up in the social hierarchy.”

In case of the investment bank that used psychometric testing to find psychopaths because they were so suited to senior finance roles, non-psychopaths would have had to mimic their behaviour or find somewhere else to work. Their own motives and personalities were irrelevant.

In the 18th century, the French philosopher Montesquieu said, “First men make institutions but afterwards institutions make men”. It is a simple piece of wisdom. If we want real change we had better change institutions because changing people is a road to nowhere.

On one point, however, Boddy is correct, if for the wrong reasons. He says that if the corporate psychopaths theory of the financial crisis is accurate, “we are now far from the end of the crisis. Indeed, it is only the end of the beginning.” The second part is true.

Here is a more rational view of the corporate psychopath (it's not about individuals)


  1. I should have mentioned probably Alan Greenspan, the head of the Federal Reserve, who admitted that his ideology, based on free market selfishness, had been found wanting. (Greenspan is an acolyte of Ayn Rand, the fanatical believer in capitalism who wrote a book called 'The Virtue of Selfishness'. He spoke of his "shocked disbelief". "I made a mistake in presuming that the self-interess of organization, specifically banks and others, [was] such that they were best capable of protecting their own shareholder and their equity in the firms", he confessed. In other words, capitalism will eat itself unless otherwise restrained. It was an ideology that assumed selfishness but that individual selfishness would be contained by institutional selfishness. Unfortunately, the institutional selfishness, which relieved itself of government regulation quite deliberately, went too far and, but for the bail-outs, would have brought down the entire economic system

  2. Hi!
    Please help me and give me your source of this sentence:

    "Unfortunately for the theory, Reinhard Heydrich, the man who conceived and planned the Final Solution, was partial to the very non-psychopathic activity of playing Beethoven string quartets with friends in his spare time."

    Is it from Slavoj Zizek? If yes, what do you thinking?
    Where he got it from?

    Thank you very much.

  3. Yes it's Zizek in "First as Tragedy, then as Farce" p39/40

    He says there it's one of his favourite examples so he has obviously talked about it elsewhere. Unfortunately I don't know where he got it from, probably a past biography

    btw I did find a recent article making similar points to this one -

  4. They say "don't hate the player, hate the game", but they are one in the same, chicken and egg.

    It's quite clear by now the whole way we do money is nothing more than a massive ponzi dream. Social mobility? How can that be possible when 97 pence of every pound in the economy was borrowed into existence from a private bank?