Skip to main content

The Global Financial Crisis and the Values of Professionals in Finance: An Empirical Analysis

Abstract

The idea that the ethical values of professionals in finance (PIFs) (e.g., stockbrokers and fund managers) have played a role in the global financial crisis (GFC) is widespread. The crisis-of-ethics debate is important, concerning one of the main policy challenges of our times, but is based on popular lore and anecdotes rather than systematic evidence. We analyze the self-enhancement and self-transcendence values of PIFs vis-à-vis the general population and test for patterns of variation that are consistent with the idea of a crisis of values, meaning patterns of variation that would implicate PIFs’ values in the GFC. Employing pre-crisis data allows for an unbiased assessment. Results reveal only minor differences in values between PIFs and the general population, too small to support the idea of a crisis of ethical values by objective standards. Extensive robustness checks confirm these findings, sometimes actually revealing values differences counter to the crisis of ethical values idea. We conclude that the financial system would not have fared better had we had a different breed of PIFs. Rather, situational forces can induce severe disregard for the welfare of others, also in people with ordinary, decent values. Hence, if anything, the GFC shows that the financial services industry has been providing an environment highly conducive to unethical behavior. The practical implication is that fixes to the financial system can only come from improved regulatory design.

This is a preview of subscription content, access via your institution.

Fig. 1

Notes

  1. 1.

    Still, while we think that these values and the Schwartz framework are most appropriate for the purpose of assessing the ethical values of PIFs, we are also the first to recognize that the assessment of the appropriateness of any specific value or values framework remains necessarily subjective. To deal with this contingency, when checking the robustness of our main results, we also consider differences between PIFs and the general population in other dispositional domains. In addition, where possible, we link Schwartz's self-enhancement and self-transcendence values to other measures plausibly capturing individuals' ethical dispositions.

  2. 2.

    The situational forces that affect behavior are broad and carry substantial power in the opposite direction as well, leading people to care for others. An example is the study by Isen and Levin (1972), which examines the effect of positive mood on behavior. In their experiment, finding a dime in the coin return of a public telephone while making a call increased the percentage of people who spontaneously helped to pick up papers that were dropped in front of them from 4 % (1 out of 25) to 87.5 % (14 out of 16).

  3. 3.

    See Schwartz (n.d.) and http://essedunet.nsd.uib.no/cms/topics/1/4/4.html, which provides SPSS syntax to make the necessary calculations.

  4. 4.

    The recoding protocol provided on the ESS website (http://essedunet.nsd.uib.no/cms/topics/1/4/4.html) actually does not say anything about the ipsatization of the four higher order subdimensions and the two overarching values dimensions. Moreover, the only SPSS syntax provided for these dimensions calculates non-ipsatized values measures. Hence, to be complete and to ensure comparability of our work to other work that may have followed this protocol to the letter, we also present results on differences between PIFs and the general population on measures of self-enhancement, self-transcendence, and SEST values that have been calculated without ipsatization. In this case, Self-Enhancement and Self-Transcendence scores are constructed as means of raw value item scores, while SEST scores are obtained by subtracting an individual's Self-Enhancement score from his/her self-transcendence score.

  5. 5.

    Schwartz's values framework is also regularly used in business studies. An example most similar in spirit to our analysis is Lan et al.'s (2009) comparison of the personal values of accounting practitioners with those of students.

  6. 6.

    ISCO codes have been developed by the International Labour Organisation (ILO). See http://www.ilo.org/public/english/bureau/stat/isco/intro.htm for more information.

  7. 7.

    The higher order rubrics for these two latter occupational categories are Clerks (ISCO 4) and Office clerks (ISCO 41) and Customer services clerks (ISCO 42).

  8. 8.

    We focus on SEST, self-enhancement, and achievement values only and do not consider the other four values, as only values in these first three domains exhibit statistically significant differences between PIFs and the general population (see Table 1).

  9. 9.

    Compared to Table 1, there are more instances in which the values difference between PIFs and the public are statistically significant at usual levels, however. This is as expected given that the number of individuals classified as PIF is now higher (1,033 vs. 414).

  10. 10.

    We thank an anonymous referee for pointing out this idea and the possible relevance of the combination of stimulation and hedonism values with power and achievement values.

  11. 11.

    Again, we thank an anonymous referee for suggesting this analysis.

  12. 12.

    Meanwhile, the data on economic morals further give us the opportunity for an indirect robustness check, assessing the validity of self-enhancement and self-transcendence values in relation to the kind of unethical behavior associated with the GFC. We find that such values as SEST and self-transcendence consistently correlate most strongly positively with the condemning of such behavior as concealing faults in second-hand products or making false insurance claims, while such values as self-enhancement and power consistently correlate most negatively with the condemning of such behaviors (cf. Schwartz 1996). Similar results obtain to respondents' views of rules and laws. Details of the correlations between basic values and economic morality are available on request.

  13. 13.

    Obviously, we should be a bit careful to generalize this result all the way up to the ranks of CEOs of financial firms, as there are very few people like that in the world. Therefore, it would indeed be interesting to study the personal values of top-level executives in the financial services industry, although we envision the same difficulties that kept us from studying the actions of PIFs vis-à-vis the general population more directly, namely biased responses, low willingness to participate, et cetera.

References

  1. Bilsky, W., Janik, M., & Schwartz, S. H. (2011). The structural organization of human values—evidence from three rounds of the European Social Survey (ESS). Journal Cross-Cultural Psychology, 42, 759–776.

    Article  Google Scholar 

  2. Boddy, C. R. (2011). The corporate Psychopaths theory of the global financial crisis. Journal of Business Ethics, 102, 255–259.

    Article  Google Scholar 

  3. Bogle, J. C. (2009). A crisis of ethic proportions. We must establish a “fiduciary society”. Wall Street Journal, http://online.wsj.com/article/SB124027114694536997.html. Accessed 31 May 2014.

  4. Caprara, G. V., Alessandri, G., & Eisenberg, N. (2012). Prosociality: The contribution of traits, values, and self-efficacy beliefs. Journal of Personality and Social Psychology, 102, 1289–1303.

    Article  Google Scholar 

  5. Carter, J., & Irons, M. (1991). Are economists different, and if so, why? Journal of Economic Perspectives, 5, 171–177.

    Article  Google Scholar 

  6. Chen, C.-w. (2013). Are workers more likely to be deviant than managers? a cross-national analysis. Journal of Business Ethics,. doi:10.1007/s10551-013-1810-3.

    Google Scholar 

  7. Cohen, J. (1988). Statistical power analysis for the behavioral sciences (2nd ed.). Hillsdale: Erlbaum Associates.

    Google Scholar 

  8. Curtis, R., Harney, S., & Jones, C. (2013). Ethics in a time of crisis: Editorial introduction to special focus. Business Ethics, 22, 64–67.

    Article  Google Scholar 

  9. Davidov, E., Schmidt, P., & Schwartz, S. H. (2008). Bringing values back in: The adequacy of the European Social Survey to measure values in 20 countries. Public Opinion Quarterly, 72, 420–445.

    Article  Google Scholar 

  10. Donaldson, T. (2012). Three ethical roots of the economic crisis. Journal of Business Ethics, 106, 5–8.

    Article  Google Scholar 

  11. Dutton, K. (2012). The wisdom of psychopaths: What saints, spies, and serial killers can teach Us about success. New York: Scientific American/Farrar, Straus and Giroux.

    Google Scholar 

  12. Fay, S. (1997). The collapse of barings. New York: W.W. Norton.

    Google Scholar 

  13. Financial Crisis Inquiry Commission. (2011). Financial crisis inquiry report. http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full.pdf. Accessed 31 May 2014.

  14. Frank, R. H., Gilovich, T. D., & Regan, D. T. (1993). Does studying economics inhibit cooperation? Journal of Economic Perspectives, 7, 159–171.

    Article  Google Scholar 

  15. Frank, R. H., Gilovitch, T., & Regan, D. T. (1996). Do economists make bad citizens? Journal of Economic Perspectives, 10, 187–192.

    Article  Google Scholar 

  16. Friedman, T. L. (2011). Did you hear the one about the bankers? New York Times, http://www.nytimes.com/2011/10/30/opinion/sunday/friedman-did-you-hear-the-one-about-the-bankers.html.

  17. Ganzeboom, H. B. G., & Treiman, D. J. (1996). Internationally comparable measures of occupational status for the 1988 international standard classification of occupations. Social Science Research, 25, 201–239.

    Article  Google Scholar 

  18. Graafland, J. J., & van de Ven, B. W. (2011). The credit crisis and the moral responsibility of professionals in finance. Journal of Business Ethics, 103, 605–619.

    Article  Google Scholar 

  19. Grissom, R. J. (1994). Probability of the superior outcome of one treatment over another. Journal of Applied Psychology, 79, 314–316.

    Article  Google Scholar 

  20. Haney, C., Banks, W., & Zimbardo, P. (1973). Interpersonal dynamics in a simulated prison. International Journal of Criminology and Penology, 1, 69–97.

    Google Scholar 

  21. Hare, R. D. (2012). The Wall Street ten percenters. http://hare.org/comments/comment2.html. Accessed 31 May 2014.

  22. Hitlin, S., & Piliavin, J. A. (2004). Values: Reviving a dormant concept. Annual Review of Sociology, 30, 359–393.

    Article  Google Scholar 

  23. Huffington Post. (2012). 1 In 10 Wall Street Employees is a psychopath, claim is disputed [update]. http://www.huffingtonpost.com/2012/02/28/wall-street-psychopaths_n_1307168.html. Accessed 31 May 2014.

  24. Inkeles, A. (1960). Industrial man: the relation of status to experience, perception, and values. American Journal of Sociology, 66, 1–31.

    Article  Google Scholar 

  25. Isen, A. M., & Levin, P. F. (1972). The effect of feeling good on helping: Cookies and kindness. Journal of Personality and Social Psychology, 21, 384–388.

    Article  Google Scholar 

  26. Jenkins, P., & Jones, S. (2009). Bankers lectured on the value of morals. Financial Times, http://www.ft.com/intl/cms/s/0/71833734-b3a2-11de-ae8d-00144feab49a.html#axzz1wLUxqCCQ. Accessed 31 May 2014.

  27. Jin, K. G., Drozdenko, R., & DeLoughy, S. (2013). The role of corporate value clusters in ethics, social responsibility, and performance: A study of financial professionals and implications for the financial meltdown. Journal of Business Ethics, 112, 15–24.

    Article  Google Scholar 

  28. Jowell, R., & Central Co-ordinating Team (2007). European Social Survey 2006/2007: Technical Report. London: Centre for Comparative Social Surveys. Data archived by the Norwegian Social Science Data Services.

  29. Kraus, M. W., Piff, P. K., Mendoza-Denton, R., Rheinschmidt, M. L., & Keltner, D. (2012). Social class, solipsism, and contextualism: How the rich are different from the poor. Psychological Review, 119, 546–572.

    Article  Google Scholar 

  30. Lan, G., Ma, Z., Cao, J.-A., & Zhang, H. (2009). A comparison of personal values of Chinese accounting practitioners and students. Journal of Business Ethics, 88, 59–76.

    Article  Google Scholar 

  31. Madrick, J. (2010). At the heart of the crash. New York Review of Books, 57, 37–40.

    Google Scholar 

  32. Marglin, S. A. (2008). The dismal science: How thinking like an economist undermines community. Cambridge: Harvard University Press.

    Google Scholar 

  33. Marwell, G., & Ames, R. (1981). Economists free ride, does anyone else? Experiments on the provision of public goods, IV. Journal of Public Economics, 15, 295–310.

    Article  Google Scholar 

  34. Meglino, B. M., & Ravlin, E. C. (1998). Individual values in organizations: Concepts, controversies, and research. Journal of Management, 24, 351–389.

    Article  Google Scholar 

  35. Milgram, S. (1963). Behavioral study of obedience. Journal of Abnormal and Social Psychology, 67, 371–378.

    Article  Google Scholar 

  36. Piff, P. K., Stancato, D. M., Côté, S., Mendoza-Dentona, R., & Keltner, D. (2012). Higher social class predicts increased unethical behavior. Proceedings of the National Academy of Sciences USA, 109, 4086–4091.

    Article  Google Scholar 

  37. Rohan, M. J. (2000). A rose by any name? The values construct. Personality and Social Psychology Review, 4, 255–277.

    Article  Google Scholar 

  38. Schwartz, S. H. (1992). Universals in the content and structure of values: Theory and empirical tests in 20 countries. In M. Zanna (Ed.), Advances in experimental social psychology (Vol. 25). New York: Academic Press.

    Google Scholar 

  39. Schwartz, S. H. (1996). Value priorities and behavior: Applying a theory of integrated value systems. In C. Seligman, J. M. Olson, & M. Zanna (Eds.), The psychology of values: The Ontario Symposium (Vol. 8). Hillsdale: Erlbaum.

    Google Scholar 

  40. Schwartz, S. H. (2009). Basic human values. Paper for the Cross-National Comparison Seminar on the quality and comparability of measures for constructs in comparative research: Methods and Applications. Bolzano, Italy, June 10–13.

  41. Schwartz, S. (n.d.). Human values scale. http://www.europeansocialsurvey.org/docs/methodology/ESS1_human_values_scale.pdf.

  42. Schwartz, S. H., & Bilsky, W. (1987). Toward a universal psychological structure of human values. Journal of Personality and Social Psychology, 3, 550–562.

    Article  Google Scholar 

  43. Schwartz, S. H., & Bilsky, W. (1990). Toward a theory of the universal content and structure of values: Extensions and cross cultural replications. Journal of Personality and Social Psychology, 58, 878–891.

    Article  Google Scholar 

  44. Schwartz, S. H., Melech, G., Lehmann, A., Burgess, S., & Harris, M. (2001). Extending the cross-cultural validity of the theory of basic human values with a different method of measurement. Journal Cross-Cultural Psychology, 32, 519–542.

    Article  Google Scholar 

  45. Schwartz, S. H., & Rubel, T. (2005). Sex differences in value priorities: Cross-cultural and multimethod studies. Journal of Personality and Social Psychology, 89, 1010–1028.

    Article  Google Scholar 

  46. Stiglitz, J. E., & Members of a UN Commission of Financial Experts. (2010). The Stiglitz report: Reforming the international monetary and financial systems in the wake of the global crisis. New York: New Press.

    Google Scholar 

  47. Tagiuri, R. (1965). Value orientations and the relationship of managers and scientists. Administrative Science Quarterly, 10, 39–51.

    Article  Google Scholar 

  48. Veit, E. T., & Murphy, M. R. (1992). Ethics in the investment profession: A survey. Charlottesville: The Institute of Chartered Financial Analysts.

    Google Scholar 

  49. World Economic Forum. (2010). Faith and the global agenda: Values for the Post-CrisisEconomy. http://www3.weforum.org/docs/WEF_GAC_FaithValuesReport_2011.pdf.

  50. Zimbardo, P. G. (2014). Stanford prison experiment. http://www.prisonexp.org. Accessed 31 May 2014.

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to André van Hoorn.

Appendix

Appendix

See Tables 11, 12, 13.

Table 11 Country samples included in the analysis
Table 12 Differences in non-ipsatized self-enhancement, self-transcendence and SEST values
Table 13 Financial occupation and other (potential) predictors of differences in hedonism and stimulation and combinations of hedonism and stimulation with power and achievement

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

van Hoorn, A. The Global Financial Crisis and the Values of Professionals in Finance: An Empirical Analysis. J Bus Ethics 130, 253–269 (2015). https://doi.org/10.1007/s10551-014-2225-5

Download citation

Keywords

  • Crisis of ethical values
  • Effect size
  • Financial system
  • Global financial crisis
  • Personal values
  • Situationist ethics
  • Schwartz