Thesis Banking on Team Ethics

In my doctoral thesis I address contextual root causes of misconduct from a social psychological perspective. My central argument is that shared behavioural patterns reflecting the climate within a trading team can contribute to the (mis-)behaviour of its individual members. Social psychology works from the assumption that our behaviour at work is influenced by our direct social context: our colleagues, our manager and the team we work in. Identifying social psychological root causes of misconduct implies addressing team climate and behavioural patterns as potential contributors to the choices made by individual workers. The bad news of such an analysis is that getting rid of specific individuals who committed fraud (as ‘rotten apples’) is unlikely to eliminate such contextual root causes of misconduct. The good news is that these root causes represent concrete levers banking divisions can analyse and use to prevent future misconduct cases. Finding contextual root causes, and using social psychological knowledge to prevent future misconduct cases within trading businesses, is the next step that banks and financial supervisors can use to improve the industry. My analysis aims to identify such contextual root causes, invoking current insights from empirical research in psychology, as a way to deliver practical guidelines for banks and financial supervisors that help to prevent future misconduct.

In this thesis, I present my analysis in four parts. First, Part I introduces the preventive social psychological approach to misconduct within trading teams. It shows that misconduct is a current and continuous problem within banking, and explores its detrimental consequences (Chapter 1). It clarifies my conceptualisation of misconduct, and explains the context of my analysis. When examining relevant contextual variables, I distinguish between (a) the context of financial supervision, that provided the data for this research and (b) the context of trading businesses within banking and three organizational aspects that characterize this professional context (Chapter 2). I elaborate on the central problem presented here: banks and financial supervisors are insufficiently effective in preventing future misconduct. My approach to addressing this central problem is to introduce the Corrupting Barrels model, based on an overview of social psychological root causes of misconduct that offers an approach to effectively prevent future misconduct (Chapter 3).

In Part II, I discuss current banking and financial supervisory practices as outcomes of my analysis conducted in the context of my (former) job in financial supervision. Chapter 4 first offers an overview of two studies and their different research questions and data sources. Then, I present a first study that explores to what extent banks currently include team level in their own analysis of misconduct cases when this is initiated by themselves (Chapter 5 on Study 1). Next, in a second study, I explore the effects of initial supervisory requests asking banks to analyse their misconduct cases and to include the team level in their analyses (Chapter 6 on Study 2).

In Part III, I present a supervisory assessment of social psychological root causes of misconduct within trading teams (Study 3), using the Corrupting Barrels model that I developed as a basis. After introducing the research question and data source (Chapter 7), I first elaborate on the theoretical foundation of the Corrupting Barrels model by providing an overview of the scientific research on three social psychological root causes of misconduct (Chapter 8). I summarize research on error management, relating to the task of the team and the way errors relating to that task are dealt with. An ineffective error approach within a team can form a root cause of misconduct. Next, I review research on outcome inequality, relating this to the relationships within the team. This inequality, and its emotional consequences such as perceived injustice and envy, can form a root cause for misconduct. I connect to prior research on morality, relating this to the moral climate within a team. A dysfunctional moral climate can form a root cause for misconduct. Furthermore, I elaborate on leadership impacting team climates. Finally, I describe Study 3: a supervisory assessment of social psychological root causes of misconduct within trading teams (Chapter 9, on Study 3) and present the outcome of this analysis in the form of a framework (including deskresearch guidance, formats for interviews and observations and a survey) that can be used to identify team climates facilitating misconduct.

In Part IV, I present the conclusions of my analyses and explore the practical implications of the preventive approach of misconduct that can be used by banks and by financial supervisors (Chapter 10). I discuss the way banks and supervisors can use the Corrupting Barrels model and framework to analyse the root causes of misconduct. Next, I discuss the way team climates facilitating misconduct can be improved using the insights as presented. Finally, in Chapter 11, I consider the strengths and limitations of my analysis and offer suggestions for future research.