Skip to main content
Log in

Normalization of Questionable Behavior: An Ethical Root of the Financial Crisis in Iceland

  • Original Paper
  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

In this paper, we explore the 2008 financial crisis in Iceland through the lens of Donaldson’s concept of normalization of questionable behavior. We study the report published by the Special Investigation Commission, an investigation initiated by the Icelandic Parliament near the end of 2008. The report provides a detailed and systematic account of the processes leading up to the crisis. Our aim is to determine the extent to which the behaviors of professionals in the Icelandic financial sector can be explained as a gradual fading of moral concerns to the point that they perceived the sale of high-risk products to unassuming customers for their own short-term benefit to be morally unproblematic. In doing so, we consider both character and circumstance explanations of moral misbehavior. We expand on Donaldson’s initial description of normalization of questionable behavior by applying the concept of moral neutralization, which is defined by criminologists Sykes and Matza as the process of convincing oneself that an option that initially conflicted with one’s own moral beliefs is actually morally acceptable. We find indications that individuals in the Icelandic financial sector did engage in moral neutralization in their attempts to frame their own actions in an acceptable light. In our study, we identify one way of neutralizing away moral dissonance not captured in the original theoretical framework. Icelandic bankers justified their behavior by claiming that they did not break any relevant rules or regulations when they engaged in what were later labeled questionable activities. Our name for this kind of justification is claim of having breached no rule.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Aquino, K., & Becker, T. E. (2005). Lying in negotiations: How individual and situational factors influence the use of neutralization strategies. Journal of Organizational Behavior, 26(6), 661–679.

    Article  Google Scholar 

  • Árnason, V. (2010). Moral analysis of an economic collapse: An exercise in practical ethics. Nordic Journal of Applied Ethics, 4(1), 101–123.

    Google Scholar 

  • Árnason, V. (2016). Democratic practices, governance and the financial crash. In V. Ingimundarson, P. Urfalino, & I. Erlingsdóttir (Eds.), Iceland’s financial crisis. The politics of blame, protest and reconstruction (pp. 121–139). London: Routledge.

    Google Scholar 

  • Árnason, V., Nordal, S., & Ástgeirsdóttir, K. (2010). Siðferði og starfshættir í tengslum við fall íslensku bankanna 2008 [Morality and work practice in relation to the fall of the Icelandic banks 2008]. Report of the special investigation commission, Vol. 8. Reykjavik: Icelandic parliament.

  • Ashforth, B. E., & Anand, V. (2003). The normalization of corruption in organizations. In R. M. Kramer & B. M. Staw (Eds.), Research in organizational behavior (Vol. 25, pp. 1–52). Boston: Elsevier.

    Google Scholar 

  • Baden, D. (2014). Look on the bright side: A comparison of positive and negative role models in business ethics education. Academy of Management Learning & Education, 13(2), 154–170.

    Article  Google Scholar 

  • Bandura, A. (1986). Social foundations of thought and action: A social cognitive theory. Englewood Cliffs: Prentice Hall.

    Google Scholar 

  • Bandura, A., Barbaranelli, C., Caprara, G. V., & Pastorelli, C. (1996). Mechanisms of moral disengagement in the exercise of moral agency. Journal of Personality and Social Psychology, 71(2), 364–374.

    Article  Google Scholar 

  • Barriga, A. Q., & Gibbs, J. C. (1996). Measuring cognitive distortion in antisocial youth: Development and preliminary validation of the “How I think” questionnaire. Aggressive Behavior, 22(5), 333–343.

    Article  Google Scholar 

  • Bersoff, D. M. (1999). Why good people sometimes do bad things: Motivated reasoning and unethical behavior. Personality and Social Psychology Bulletin, 25(1), 28–39.

    Article  Google Scholar 

  • Bhal, K., & Leekha, N. (2008). Exploring cognitive moral logics using grounded theory: The case of software piracy. Journal of Business Ethics, 81(3), 635–646.

    Article  Google Scholar 

  • Bian, X., Wang, K., Smith, A., & Yannopoulou, N. (2016). New insights into unethical counterfeit consumption. Journal of Business Research, 69(10), 4249–4258.

    Article  Google Scholar 

  • Bird, F. B. (1996). The muted conscience: Moral silence and the practice of ethics in business. Westport: Quorum Books.

    Google Scholar 

  • Bird, F. B., & Waters, J. A. (1989). The moral muteness of managers. California Management Review, 32(1), 73–88.

    Article  Google Scholar 

  • Borg, E., & Hooker, B. (2017). Epistemic virtues versus ethical values in the financial services sector. Journal of Business Ethics. https://doi.org/10.1007/s10551-017-3547-x.

    Article  Google Scholar 

  • Brehm, J., & Cohen, A. (1962). Explorations in cognitive dissonance. New York: Wiley.

    Book  Google Scholar 

  • Brinkmann, J. (2005). Understanding insurance customer dishonesty: Outline of a situational approach. Journal of Business Ethics, 61(2), 183–197.

    Article  Google Scholar 

  • Chatzidakis, A., Hibbert, S., Mitussis, D., & Smith, A. (2004). Virtue in consumption? Journal of Marketing Management, 20(5/6), 526–543.

    Article  Google Scholar 

  • Cohen, M. A. (2012). Empathy in business ethics education. Journal of Business Ethics Education, 9, 359–375.

    Article  Google Scholar 

  • Darley, J. M., & Batson, C. D. (1973). From Jerusalem to Jericho”: A study of situational and dispositional variables in helping behavior. Journal of Personality and Social Psychology, 27(1), 100.

    Article  Google Scholar 

  • De Bock, T., & Van Kenhove, P. (2011). Double standards: The role of techniques of neutralization. Journal of Business Ethics, 99(2), 283–296.

    Article  Google Scholar 

  • De Bruin, B. (2015). Ethics and the global financial crisis: Why incompetence is worse than greed. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Donaldson, T. (2012). Three ethical roots of the economic crisis. Journal of Business Ethics, 106(1), 5–8.

    Article  Google Scholar 

  • Doris, J. M. (2002). Lack of character: Personality and moral behavior. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Festinger, L., & Carlsmith, J. M. (1957). Cognitive consequences of forced compliance. Journal of Abnormal Social Psychology, 58, 203–211.

    Article  Google Scholar 

  • Festinger, L., Riecken, H. W., & Schachter, S. (1956). When prophecy fails: A social and psychological study of a modern group that predicted the destruction of the world. Minneapolis: University of Minnesota Press.

    Book  Google Scholar 

  • Gentile, M. C. (2009). Giving voice to values: How to speak your mind when you know what’s right. New Haven: Yale University Press.

    Google Scholar 

  • Gentile, M. C. (2012). Values-driven leadership development: Where we have been and where we could go. Organization Management Journal, 9(3), 188–196.

    Article  Google Scholar 

  • Giacolone, R. A., & Promislo, M. D. (2013). Broken when entering: The stigmatization of goodness and business ethics education. Academy of Management Learning & Education, 12(1), 86–101.

    Article  Google Scholar 

  • Heath, J. (2007). An adversarial approach to business ethics. Journal of Business Ethics, 72(4), 359–374.

    Article  Google Scholar 

  • Heath, J. (2008). Business ethics and moral motivation: A criminological perspective. Journal of Business Ethics, 83(4), 595–614.

    Article  Google Scholar 

  • Hollinger, R. C., & Clark, J. P. (1983). Theft by employees. Lexington: Lexington Books.

    Google Scholar 

  • Hreinsson, P., Gunnarsson, T., & Benediktsdóttir, S. (Eds.). (2010). The Report of the Special Investigation Commission (Vol. 1–9). Reykjavik: Icelandic Parliament.

    Google Scholar 

  • Jóhannesson, G. T. (2009). Hrunið. Reykjavík: Forlagið.

    Google Scholar 

  • Jones, T. M. (1991). Ethical decision making by individuals in organizations: An issue-contingent model. Academy of Management Review, 16, 366–395.

    Article  Google Scholar 

  • Kelman, H. C., & Baron, R. M. (1974). Moral and hedonic dissonance: A functional analysis of the relationship between discrepant action and attitude change. In S. Himmelfarb & A. H. Eagly (Eds.), Readings in attitude change (pp. 58–575). New York: Wiley.

    Google Scholar 

  • Kish-Gephart, J. J., Harrison, D. A., & Treviño, L. K. (2010). Bad apples, bad cases, and bad barrels: Meta-analytic evidence about sources of unethical decisions at work. Journal of Applied Psychology, 95(1), 1–31.

    Article  Google Scholar 

  • Koslowski, P. (2011). The ethics of banking: Conclusions from the financial crisis (Vol. 30). New York: Springer.

    Book  Google Scholar 

  • Kvalnes, O. (2014). Leadership and moral neutralization. Leadership, 10(4), 456–470.

    Article  Google Scholar 

  • Kvalnes, O. (2015). Moral reasoning at work: Rethinking ethics in organizations. London: Palgrave MacMillan.

    Book  Google Scholar 

  • McLean, B., & Elkind, P. (2003). The smartest guys in the room: The amazing rise and scandalous fall of enron. London: Penguin Books.

    Google Scholar 

  • Milgram, S. (1963). Behavioral study of obedience. Journal of Abnormal and Social Psychology, 67(4), 371–378.

    Article  Google Scholar 

  • Milgram, S. (1974). Obedience to authority: An experimental view. New York: Harper Collins.

    Google Scholar 

  • Ribeaud, D., & Eisner, M. (2010). Are moral disengagement, neutralization techniques, and self-serving cognitive distortions the same? Developing a unified scale of moral neutralization of aggression. International Journal of Conflict and Violence, 4(2), 298–315.

    Google Scholar 

  • Sama, L. M., & Shoaf, V. (2005). Reconciling rules and principles: An ethics-based approach to corporate governance. Journal of Business Ethics, 58(1–3), 177–185.

    Article  Google Scholar 

  • Sigurjonsson, T. O., & Mixa, M. W. (2011). Learning from the “worst behaved”: Iceland’s financial crisis and the Nordic comparison. Thunderbird International Business Review, 53(2), 209–223.

    Article  Google Scholar 

  • Siponen, M., Vance, A., & Willison, R. (2012). New insights into the problem of software piracy: The effects of neutralization, shame, and moral beliefs. Information & Management, 49(7/8), 334–341.

    Article  Google Scholar 

  • Spalding, A., & Oddo, A. (2011). It’s time for a principles-based accounting ethics. Journal of Business Ethics, 99(suppl 1), 49–59.

    Article  Google Scholar 

  • Strutton, D., Pelton, L. E., & Ferrell, O. C. (1997). Ethical behaviour in retail settings: Is there a generation gap? Journal of Business Ethics, 16(1), 87–105.

    Article  Google Scholar 

  • Strutton, D., Vitell, S. J., & Pelton, L. E. (1994). How consumers may justify inappropriate behavior in market settings: An application on the techniques of neutralization. Journal of Business Research, 30(3), 253–260.

    Article  Google Scholar 

  • Sykes, G. M., & Matza, D. (1957). Techniques of neutralization: A theory of delinquency. American Sociological Review, 22(6), 664–670.

    Article  Google Scholar 

  • Tenbrunsel, A. E., & Messick, D. M. (2004). Ethical fading: The role of self-deception in unethical behavior. Social Justice Research, 17(2), 223–236.

    Article  Google Scholar 

  • Tett, G. (2009). Fool’s gold: How unrestrained greed corrupted a dream, shattered global markets and unleashed a catastrophe. London: Little, Brown.

    Google Scholar 

  • Thurman, Q. C., John, C. St., & Riggs, L. (1984). Neutralization and tax evasion: How effective would a moral appeal be in improving compliance to tax laws? Law & Policy, 6(3), 309–327.

    Article  Google Scholar 

  • Umphress, E. E., & Bingham, J. B. (2011). When employees do bad things for good reasons: Examining unethical pro-organizational behaviors. Organization Science, 22(3), 621–640.

    Article  Google Scholar 

  • Vaiman, V., Sigurjonsson, T. O., & Davidsson, P. A. (2011). Weak business culture as an antecedent of economic crisis: The case of Iceland. Journal of Business Ethics, 98(2), 259–272.

    Article  Google Scholar 

  • van der Linden, B. (2013). Principles as “rules of thumb”: A particularist approach to codes of ethics and an analysis of the Dutch banking code. Review of Social Economy, 71(2), 209–227.

    Article  Google Scholar 

  • van Hoorn, A. (2015). The global financial crisis and the values of professionals in finance: An empirical analysis. Journal of Business Ethics, 130(2), 253–269.

    Article  Google Scholar 

  • Vitell, S., & Grove, S. (1987). Marketing ethics and the techniques of neutralization. Journal of Business Ethics, 6(6), 433–438.

    Article  Google Scholar 

  • Wolf, C. J. (1999). Financial crises and the challenge of ‘moral hazard’. Society, 36(5), 60–62.

    Article  Google Scholar 

  • World Economic Forum. (2010). Faith and the global agenda: Values for the post-crisis economy. World Economic Forum/Georgetown University. Retreived on 1st June 2017 from https://berkleycenter.georgetown.edu/publications/faith-and-the-global-agenda-values-for-the-post-crisiseconomy.

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Øyvind Kvalnes.

Ethics declarations

Conflict of interest

The authors declare that they have no competing interests.

Ethical Approval

This article does not contain any studies with human participants or animals performed by any of the authors.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Kvalnes, Ø., Nordal, S. Normalization of Questionable Behavior: An Ethical Root of the Financial Crisis in Iceland. J Bus Ethics 159, 761–775 (2019). https://doi.org/10.1007/s10551-018-3803-8

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-018-3803-8

Keywords

Navigation