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Cultural Stickiness on Wall Street

+ Kari Kohn

In a recent DealBook piece, Andrew Ross Sorkin highlights a financial industry survey, which suggests that despite firm’s efforts to promote integrity, the underlying culture on Wall Street continues to be compromised by greed and lax ethical standards. From the survey:

A particularly troubling and consistent finding throughout the survey is that Wall Street’s future leaders–the young professionals who will one day assume control of the trillions of dollars that the industry manages—have lost their moral compass, accept corporate wrongdoing as a necessary evil and fear reporting this misconduct.

Here are a few of the disturbing statistics that Sorkin highlights from respondents of the survey:

- 23 percent said that “they had observed or had firsthand knowledge of wrongdoing in the workplace.”

- 24 percent said they would “engage in insider trading to make $10 million if they could get away with it.”

- 26 percent of respondents said they “believed the compensation plans or bonus structures in place at their companies incentivize employees to compromise ethical standards or violate the law.”

- 17 percent said they expected “their leaders were likely to look the other way if they suspected a top performer engaged in insider trading.”

- 15 percent doubted that their leadership, upon learning of a top performer’s crime, would report it to the authorities.”

- 28 percent of respondents felt that the financial services industry does not put the interests of clients first.”

- 52 percent said they “believed it was likely that their competitors have engaged in illegal or unethical activity in order to be successful.”

Given the emphasis on ethical behavior in universities and MBA programs in particular, Sorkin was surprised to discover that young professionals are one the biggest problem areas.

Perhaps oddly, the problem is most pronounced among the youngest employees in finance, the next generation of leadership on Wall Street.

Remember the question about whether an executive would commit insider trading for $10 million if there were no repercussions? Well, if you parse the numbers by seniority in the industry, respondents with under 10 years of experience were even more likely to break the law: 38 percent said they would commit insider trading for $10 million if they wouldn’t be caught.

That result is particularly striking since I would have expected the next generation of financiers to be the most interested in helping to build a new, anti-Gordon Gekko culture on Wall Street.

One possible explanation rests on the tendency for inefficient systems of rules to be persistent or sticky. It may be that the young professionals who opt-in to the culture that is Wall Street were always less likely to absorb the ethical overtures of their professors. Or perhaps young professionals arrive with ethical intentions, but lacking the numbers or the seniority to tilt the cultural balance, end up quickly assimilated into the pre-existing behavioral norms.

Tile image by: Michael Daddino

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