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I Anja Kuhn Mart.Nr: 11722464 Corporate Psychopaths and their effect on leadership and corporate culture A guideline how to cope with psychopathy in a corporation Masterarbeit zur Erlangung des akademischen Grades eines Master of Science der Studienrichtung Betriebswirtschaft an der Karl-Franzens-Universität Graz Betreuer: Univ.-Prof. Dipl.-Ing. Dr. techn. Michael Kopel Institut: Organisation und Institutionenökonomik Graz, April 2020

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I

Anja Kuhn

Mart.Nr: 11722464

Corporate Psychopaths and their effect on leadership and

corporate culture

A guideline how to cope with psychopathy in a corporation

Masterarbeit

zur Erlangung des akademischen Grades

eines Master of Science

der Studienrichtung Betriebswirtschaft

an der Karl-Franzens-Universität Graz

Betreuer: Univ.-Prof. Dipl.-Ing. Dr. techn. Michael Kopel

Institut: Organisation und Institutionenökonomik

Graz, April 2020

II

Table of content

1 Introduction ....................................................................................................................... 1

Description of the case study samples ................................................................................. 4

2 Scientific Relevance .......................................................................................................... 8

Literature Review ................................................................................................................. 8

Current State of the Art ....................................................................................................... 9

Structure of Content ........................................................................................................... 10

3 Corporate Psychopaths and the “Dark Triad” ............................................................... 11

Definition ............................................................................................................................. 11

“Dark Triad” ....................................................................................................................... 15 3.2.1 Machiavellianism ........................................................................................................................... 15 3.2.2 Narcissism ...................................................................................................................................... 16 3.2.3 Psychopathy .................................................................................................................................... 17

Common features and differences ..................................................................................... 17

Distribution within different sectors ................................................................................. 19 3.4.1 Distribution within the hierarchy of a corporation ......................................................................... 20

4 Case Study Design ........................................................................................................... 20

Analytical Framework........................................................................................................ 20 4.1.1 Behavioural Agency Theory ........................................................................................................... 21 4.1.2 Corporate Governance .................................................................................................................... 23

Methodology ........................................................................................................................ 25 4.2.1 Criteria of the deliberate sample ..................................................................................................... 25 4.2.2 Target setting of the Design ........................................................................................................... 26

Psychopathy Measure ......................................................................................................... 27 4.3.1 Traits of Corporate Psychopaths .................................................................................................... 27 4.3.2 Assess the personalities of the leaders ............................................................................................ 28 4.3.3 Collation ......................................................................................................................................... 32

Corporate Psychopaths as Leaders ................................................................................... 38 4.4.1 Psychopaths rising within corporations .......................................................................................... 38 4.4.2 Leadership mechanisms & its Impact ............................................................................................. 40 4.4.3 Pay for performance & Behavioural Agency Theory ..................................................................... 44 4.4.4 Collation ......................................................................................................................................... 46

Multiplier Effects of Corporate Psychopaths................................................................... 51 4.5.1 Intra-organizational ganging dynamics/ Corporate Culture ........................................................... 51 4.5.2 Key characteristics of corporations as psychopaths ....................................................................... 53 4.5.3 Passive Board of Directors ............................................................................................................. 56 4.5.4 Corporate Governance .................................................................................................................... 57 4.5.5 Collation ......................................................................................................................................... 58

Corporate Fraud ................................................................................................................. 63 4.6.1 White Collar Crimes ....................................................................................................................... 65 4.6.2 Audit Failure ................................................................................................................................... 67 4.6.3 Collation ......................................................................................................................................... 68

5 Cross-Case Analysis ........................................................................................................ 73

6 Guideline to cope with Corporate Psychopaths.............................................................. 76

Recognition of psychopathic traits within a corporation ................................................ 77

Prevent Corporate Psychopaths from entering a corporation ....................................... 81

III

Managing psychopathic personalities and cultures ......................................................... 83 6.3.1 Manage psychopathic subordinates ................................................................................................ 86

Preventing corporate failure .............................................................................................. 88 6.4.1 Corporate Governance .................................................................................................................... 88 6.4.2 Auditing Methods ........................................................................................................................... 89

Lessons learned ................................................................................................................... 90

7 Conclusion ....................................................................................................................... 91

Reflection ............................................................................................................................. 93

Limitations .......................................................................................................................... 94

Implications for further research ...................................................................................... 94

8 Appendix .......................................................................................................................... 96

Table of possible candidates .............................................................................................. 96

Criteria check of the used examples.................................................................................. 98

Hare’s original checklist for psychopathy summarized: .............................................. 100

Guideline Checklist ........................................................................................................... 101

9 Bibliography .................................................................................................................. 104

Table of figures

Figure 1: The dark triad (Boddy 2010, p.303). ....................................................................... 17

Figure 2: Experience of Corporate psychopaths in the workplace (Boddy 2010, p.307). ...... 19

Figure 3: Psychopathy Checklist (Skeem et al. 2011, p.101).................................................. 28

Figure 4: Description of Cross-Case Factors .......................................................................... 73

Figure 5: Evaluation of the Cases............................................................................................ 73

Figure 6: The effects of Corporate Psychopath ....................................................................... 78

Figure 7: Trimodal approach (Externbrink and Keil 2018, p.68). .......................................... 82

Figure 8: Managing a Corporate Psychopath as Subordinate (Externbrink and Keil 2018,

p.81).......................................................................................................................................... 87

1

1 Introduction

“This world, ladies and gentlemen, is not a sandbox with children building castles. No, this

world is tough competition that in a very sobering way only knows winners and losers.”

Wendelin Wiedeking (*1952) former CEO of Porsche AG. (Forschelen 2017, p.762).

The competitive intelligence expert Marc Barry would agree with this testimony and specifies

it for the economic world by saying, “If you’re a CEO, do you think your shareholders really

care whether you’re Billy Buttercup or not? (..) I don’t think so. I think people want money.

That’s the bottom line.” (Bakan 2012, p.30). As greed and moral indifference define today’s

corporate culture, the pressure that is put on CEOs to expand shareholder value no matter what

is steadily increasing (Bakan 2012, p.30).

But how does this subject of a harsher and emotionless tone in corporations affect all of us?

Over the last 100 years the corporation has become the world´s dominant economic institution

and the trend toward dominance of the “corporate system” has continued persistently (Berle

and Means 2017, p.20). According to the UN, corporations employed 54 million people in 2002

(Assadourian 2005, pp.18f). The average market capitalization of corporations tripled since

1975 and exceeds now $6 billion (Doidge et al. 2018, p.11). A more recent report also showed

that 59 per cent of the world’s 150 largest economic entities are in fact corporations (Tombs

and Whyte 2015, p.5). As the wealth of today´s largest corporations exceed the wealth of many

national governments, the dominance of modern corporations in the economic world also has a

vast effect on our society, so the public is inevitably surrounded by their ideas and culture

(Tombs and Whyte 2015, p.3).

The permanent corporate presence in our lives shapes not only our personal ideology, but also

influences society by fixing prices, altering laws and is furthermore able to dictate the decisions

in government (Bakan, 2012, p.7). Today´s corporations are able to govern our lives as they

have the capacity to combine economic power and a seemingly unlimited number of people.

They are central to all systems of social- or health-care, criminal justice, education, energy and

transport. Furthermore, the problem is not only the size of today´s corporations but also their

market concentration. In the recent years, academic studies even tend to argue that multinational

corporations are replacing states as the most powerful forms of actors in globalization (Tombs

and Whyte 2015, p.16).

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However, these results help the public forget their morality or their offences. This error can

have significant consequences, as elite offenses cause sufficiently bigger harm than street-level

offences which are called violent crimes. The so-called white-collar crimes are defined as

“nonviolent crime for financial gain committed by means of deception” (Blickle et al. 2006,

p.221) and often occur due to the lack of requirements for corporations to pay the costs of their

damaging activities. As corporations are focusing entirely on maximizing profits for the

corporation’s shareholders, they are trying to externalize as many of their social and

environmental costs as possible without being held accountable for it (Assadourian 2005). This

is mainly due to the system used in accounting practice in which corporate balance sheets

normally only reflect particular costs without accounting for the long-term damage caused by

their activities (Tombs and Whyte 2015, p.14). As corporations become more powerful,

demands for accountability from an increasingly anxious public arise (Bakan 2012, p.16). Even

though there is an increasing global regulatory focus on trying to end fraud and the phenomenon

of too big to fail corporations, they have the underlying problem of moral hazard, where the

responsible people are protected from the negative consequences of their risky actions

(Schwarcz 2017, p.761).

As the corporation’s defined mandate is to pursue its own aim of increasing its value, regardless

of the harmful consequences it might cause unethical actions (Bakan 2012). As a result ruthless

traits and behaviours have been normalised and in some cases even appreciated among

corporate leaders (Pardue, Robinson, and Arrigo 2013, pp.166f). In a personal environment

most people would find these personality traits abhorrent but are willing to accept it in the most

powerful institutions (Bakan 2012, p.18). So no wonder that according to Peter Jürgen Dormann

(*1940), CEOs are dangerous animals (Forschelen 2017, p.770). However, the concrete

consequences of these dangerous characteristics for the affected employees or the entire

corporations are rarely brought to the public. One reason might be that unethical actions mostly

happen in secret and as soon as it becomes public, the scandal of hazardous leadership is usually

given more attention than the analysis of the components that originally led to the problems

(Huber and Scheytt 2017).

A main reason for these growing threats from corporations might be the existence of so-called

Corporate Psychopaths. The term Corporate Psychopath (Boddy 2011, p.256) describes a

combination of the term psychopath from the field of psychology and corporate from the

business literature. In a nutshell, psychopaths can be explained as people without any

3

conscience. Due to this lack of conscience, psychopaths can often end up committing offences

and end up in prison (Hare 1999b, p.181). The correlation between psychopathy and street-

level offenses has been proven (Walsh, Swogger, and Kosson 2009, p.416) and valid methods

for identifying violent psychopaths has been developed (Boddy, Ladyshewsky, and Galvin

2010, p.122). However, psychopathic characteristics among corporate offenders are still rarely

explored. In general, there is scarcity of research to explore the relationship between

psychopathy and acts of elite offences (Pardue, Robinson, and Arrigo 2013, p.116).

So, what happens when Corporate Psychopaths reach corporate leadership positions? It can

cause low levels of ethical decision making (Boddy, Ladyshewsky, and Galvin 2010, p.122) as

these destructive leaders are mostly concerned with their own achievements and value them

over the success and wellbeing of the corporation they work for. Boddy (2015, p.2413)

postulates that whenever a corporation has been infiltrated by corporate psychopaths it has

resulted in a handful of people on the top becoming wealthy by taking high risks to improve

their position, while neglecting any social responsibility connected with their actions. Hansen

& Wernerfelt (1989, p.399) described the building of an effective human organisation as a

critical aspect for the corporation’s success. Corporate Psychopaths can directly affect the

whole human organisation due to their disruptiveness (Clarke 2005), as well as their negative

influence on the behaviour of colleagues (Goldman 2006). However, having Corporate

Psychopaths within a corporation is nearly unavoidable as psychopaths represent an estimated

1% of the population and it is therefore likely that every corporation employing more than 100

people will employ at least one psychopath (Boddy et al. 2015, p.534). In this thesis Corporate

Psychopath is used as an umbrella term for the three main socially-aversive attributes:

psychopathy, narcissism and Machiavellianism (Furnham, Richards, and Paulhus 2013, p.199).

These three form the so called “Dark Triad” (DeShong, Grant, and Mullins-Sweatt 2015, p.55).

This term originates from the negative association of these socially-aversive attributes and their

link to counter-productive behaviour (Furnham, Richards, and Paulhus 2013).

Dark-side tendencies often reveal themselves in ruthless efforts to get ahead and thus lead the

way to behaviour that acquires short-term benefits but with long-term costs as a result (Kaiser,

LeBreton, and Hogan 2015). Empirical analysis supports the hypothesis that dark triad

tendencies are particularly destructive for shareholder wealth (Omar, Wisniewski, and Yekini

2019, p.1221). However, having Corporate Psychopaths in a corporation leads mainly to

indirect productivity losses (Michalak and Ashkanasy 2018). Even though not directly

4

measurable, it can be safely assumed that Corporate Psychopaths in leadership roles contribute

to the 12 billion missed working days due to anxiety and depressive disorders (WHO 2016). So

even though Corporate Psychopaths are often considered high flyers within their corporations

(Furnham 2016), it becomes obvious that Corporate Psychopathy and bad leadership are

undeniably linked.

In order to understand the immense impact of Corporate Psychopaths on societal values and

economic norms and to be able to create guidelines to deal with them, this thesis aims to analyse

exemplary high ranking Corporate Psychopaths that can be directly linked to corporate failings

(Boddy 2006, p.1467). As scandals of failing corporations combined with bad leadership

accumulated within the last decade, more awareness has been paid to culture and the impact of

the tone at the top on organizational outcomes. Consequently, a general comprehension of

Corporate Psychopaths not only aids in constructing guidelines but also in answering the

question of how global corporations end up with Corporate Psychopaths as leaders (Boddy,

Ladyshewsky, and Galvin 2010, p.121).

Description of the case study samples

The idea of linking proven psychopathic CEOs with the failure of corporations came up after

several of these collapses could be directly related to their senior management (Boddy 2015,

p.2413). In the aftermath of different corporate failures, a high number of potential Corporate

Psychopaths have been proposed by various authors (Deutschman 2005). But even though

the tendency to white collar crimes and the lack of guilt of the responsible leaders is visible

in most of these cases, not all collapses can be clearly linked to a psychopathic leader.

Nevertheless, the following examples give historical evidence of collapses due to the effect of

Corporate Psychopaths in their ranks.

1. Maxwell Communication Corporation

The first and oldest case is also the first one that led to a public discussion about the effects

of bad leadership by a seemingly charismatic and competent CEO. The famous business

figure Robert Maxwell was well-known as a media tycoon, owning the Maxwell

Communication Corporation with newsletters like The Daily Mirror or The New York Daily

News while simultaneously influencing society as a member of the British parliament (Smith

2013).Thus he was a respected leader during his lifetime (Boddy 2016a). After his mysterious

death in 1991 he left his media corporations in a complex web of the covert links between all

5

his investments and his Maxwell Communication Corporation causing his complete empire to

crash down with over £300 Million missing from The Daily Mirror pension fund. It soon

became obvious that he was constantly breaking the criminal law (Clarke 1992, p.463). The

bankruptcy of his corporation was subject to many historical reports. As a result, Maxwell’s

well disguised fraud during his time as CEO is well documented and can optimally be

examined for this thesis.

Maxwell scores highly on the measure of corporate psychopathy by the acclaimed author

Robert Hare (Boddy 2015, p.2413), who personally named the disgraced British media tycoon

Robert Maxwell as a possible psychopath. He reportedly said "I'm not saying Maxwell was a

psychopath…but he sure had psychopathic tendencies." (Boddy 2005, p.33).

2. Enron

The second case of the famous Enron scandal publicly started a conversation of the socially-

aversive characteristics by the dark triad within their leaders after its spectacular crash in 2001.

Just a few years earlier Enron was celebrated as “America's Most Innovative Company”

(Wang et al. 2007, p.229) by Fortune magazine due to its great short-term profits and it

showed a high efficiency in actively disguising the already ongoing fraud. Ultimately, the

corporation had to file for bankruptcy and their committed corporate offence could be

labelled as the biggest governance failure in corporate history (Downes and Russ 2005a).

Enron's bankruptcy filing shows over $20 billion in debt with additionally more than $20

billion off the books (Downes and Russ 2005 p.84). Their responsible leaders CFO Andy

Fastow, together with CEO Jeff Skilling, chairman Jay Kenneth and 27 other Enron leaders

sold their shares before the corporation collapsed (Downes and Russ 2005a). To gain more

profit for themselves, these leaders set up fraudulent entities to keep several liabilities off the

books and therefore displaying a cheating personality (Boddy 2016a). Consequently the

members of the senior management were identified as potential Corporate Psychopaths (Naudé

et al. 2018, p.29). In this case especially Fastow and Skilling were described as being

manipulative, bullying, egocentric and lacking any remorse for their crimes, which are

definite traits of Corporate Psychopaths (Perri 2013). Enron’s collapse clearly showed what

happens when the ruthless characteristics we normally accept in corporate leaders are pushed

to the extreme (Bakan 2012, p.32).

6

3. Madoff Investment Securities

Corporate bankruptcy rates soared during and after the Financial Crisis and between 2007 and

2010 the bankruptcy rates rose by 87.2% (Flynn and Kearns 2011, p.2). Among those corporate

collapses were numerous multinationals, once leading corporations (Heracleous and Werres

2016, p.491), but the example of Bernard Madoff and his Ponzi scheme stands out as the

biggest investment scam in history (Azim and Azam 2016, p.122). Bernard Madoff was the

CEO and founder of the investment corporation Bernard L. Madoff Investment Securities LLC

and ultimately confessed to running a large scaled Ponzi scheme for decades, resulting in

considerable losses for his 4,800 investors (da Silveira 2012, p.29). He was a prominent Trader

and Chairman of Nasdaq, a competitor to the New York Stock Exchange (Hurt 2009,

p.953), before the customers withdrew their deposits in the wake of the financial crisis.

The investigation following the crumbling of his empire revealed a $50 billion Ponzi

scheme that not only destroyed the life of individuals, but also led to corporation collapses in

the aftermath (Court Documents, 2009).

His motive of increasing his own power and profit explains his destructive trait of remorseless

scheming and manipulating, which is typically seen in a psychopath (Creswel & Landon 2009).

Various authors shared this observation and called Madoff either a sociopath (Henriques,

2012) or a psychopath (Winarick 2010). Even though Madoff and his actions within his

investment group have been named potentially psychopathic (Perri 2013) before the scandal

went down with many personal tragedies as its aftermath, questions arise why the fraud could

not be detected despite clear warning signs and eligible whistle-blowers.

4. Wells Fargo

The case of Wells Fargo is the only example where the discussed scandal did not lead to

a complete bankruptcy of the corporation. It also deals with their whole unethical corporate

culture instead of just one Corporate Psychopath. The Wells Fargo cross-selling scandal

illustrates the tensions that can emerge between corporate culture, financial incentives, and the

resulting employee behaviour (Tayan 2019, p.1). Even though Wells Fargo has been ranked as

“Great Places to Work” for several years (Tayan 2019, p.2), the CEO’s mantra was "eight is

great” (McGrath 2016) meaning to sell eight Wells Fargo products to each customer. This

instruction proved so demanding for bank employees, that they began to open deposit accounts

for Wells customers without their permission to reach the set goal (McGrath 2016). The high

pressure that was introduced by top management, made the employees desperate trying to meet

minimum goals to keep their jobs. A lawsuit against Wells Fargo later proved “employees who

7

failed to resort to illegal tactics were either demoted or fired as a result.” (Hill 2017, p.76).

Finally, in 2016 Wells Fargo had to admit to opening over two million accounts without

customer authorization over a time-span of five years (Ochs, 2016).

But even though the employees created those fake bank accounts, the CEO is generally

considered to be the origin of the scandal as his strategy was responsible for the fraudulent

tactics (McGrath 2016). Even though some complaints of the immoral activities reached the

CEO, they were ignored or downplayed, thus preventing an end to the scheming or even just

getting an insight into the extent of the growing scandal (Sison, Ferrero Muñoz, and Guitián

2018). Through this ongoing disguise of a large scaled fraud Wells Fargo became

„organizationally psychotic“ (McKay, 2016). In the end, the scandal caused a $185 million

payment to resolve a lawsuit by regulators, a $2.6 million payment that was refunded to

customers and the termination of 5,300 employees (Tayan 2019, pp.2f). The Wells Fargo

scandal is a perfect example of a toxic corporate culture that emphasizes fraud to create profit.

5. Steinhoff

The most recent is the Steinhoff Collapse in 2017. The South African retailer Steinhoff was

first thrust into a financial crisis in December 2017 after the resignation of its influential Chief

Executive Markus Jooste (Rossouw and Styan 2019a). In recent years, suspicions of possible

fraud grew due to the rapid pace of Steinhoff’s acquisitions (Naudé 2018). CEO Markus Jooste

administered deals, that inflated the group’s profit and implemented unethical practices, such

as tax evasion, accounting irregularities and in general low corporate standards (Soko 2018).

His leadership style created a culture of uncritical conformity and ultimately led the multi-

billion dollar corporation to the country’s biggest corporate scandal (Soko 2018). An

independent report found out that Steinhoff had overstated profits in an $7.4 billion accounting

fraud, with only the top leaders knowing of it. This caused a loss of more than 216 billion South

African Rand from Steinhoff’s market value (Motsoeneng & Rumney, 2019). When Jooste had

to appear in Parliament due to his criminal misconducts, a member of parliament quoted one of

Jooste’s former colleagues saying „he was a psychopath“, (Magwood, 2018) and asked Jooste

directly for his thoughts on this testimony about his character. The former CEO was entirely

unfazed and said „not in a position to comment on that“ (Magwood, 2018). The collapse can

be seen as the result of a failure in corporate governance and highlights the risks of a dominant

Chief Executive Officer (Sewpersadh 2019).

8

All these featured cases have been extensively analysed in the past but not in direct comparison

with each other. Even though the CEOs and their implemented corporation cultures have

already been identified as psychopathic before, they were never analysed to find specific

patterns connected with their dark traits.

2 Scientific Relevance

Literature Review

The first consideration of the literature research is the relationship between the characteristics

of Corporate Psychopaths and organizational performances within corporations. As

Corporate Psychopaths aim to become leaders, leadership in general and the setting of their

incentives in particular play an essential role in the performance of the corporation. The

literature on leadership and how to set the right incentives to get the leaders to align with the

goals of the corporation is extensive. However, as in finance the assumption is that everyone

is economically rational, leaders are seemingly distinct from their subordinates by possessing

traits that enable them to rightfully manage the future and convincingly be in control.

Consequently, much of the literature on leadership maintains the common belief in their ability

to predict the right future rather than questioning this trait. Critical articles of the common

concept of leadership started challenging the mainstream literature, arguing that it is also

important to consider the effects of leadership on the collective rather than simply on the

individual (Drath et al. 2008) and to examine “asymmetrical power relations and insecurities”

(Bryman et al. 2011, p.184) within the hierarchy. Another critical aspect is the incentive setting

of leaders, as it is likely the most crucial strategic factor for an organization. It is used to direct

managerial decisions and channel the behaviour of subordinates (Gomez-Mejia et al. 2014).

But in today´s corporation, especially the payments of CEOs can often lead them to make short

term decisions and manipulate corporation results. This phenomenon of moral hazard could be

encouraged by the typical characteristics of Corporate Psychopaths.

The current state of the literature about Corporate Psychopaths is not only provided by

psychology researchers but is also an interesting topic for the economic field of study. The

issues of the dark triad have been primarily dealt with by psychology papers but due to the

common traits within their characteristics, their economic effects got increasingly interesting

from the corporation´s point of view. Particularly after the Global Financial Crisis, economists

like Clive R. Boddy started to research to what extent leaders, that were directly linked to past

corporate failures, might be Corporate Psychopaths (Boddy 2011). The reviewed research

9

suggests that each dark triad member has their own facets but the published studies in each field

tend to combine their dark characteristics summarizing it in the term Corporate Psychopath

(Furnham, Richards, and Paulhus 2013).

Current State of the Art

The different research directions surrounding Corporate Psychopaths and their impact

demonstrate the increasing importance of this subject. As the size of modern corporations is

constantly growing, the effect of Corporate Psychopaths as leaders is naturally expanding but

has in fact received relatively little academic attention (Tombs and Whyte 2015, p.2). But how

do Corporate Psychopaths affect the leadership and culture within a corporation and what are

typical characteristics of failing corporations that are attributable to those Psychopaths? In

most of the research, the consequences of them as part of corporations is not included. However,

further studies of destructive characteristics may lead to a better understanding of leadership in

general (Kellerman 2004). It is a particularly important aspect as research across different

domains implicates that negative people and experiences always have a stronger effect than

positive ones (Kaiser, LeBreton, and Hogan 2015). Even though there is existing research of

Corporate Psychopaths, Harms et al. (2011) already noted that the nature of the dark side of a

person and their resulting behaviour appears “far more complex than originally thought”

(Harms, Spain, and Hannah 2011, p.508). There is still a lot of research necessary to figure out

all the similarities and differences between Corporate Psychopaths but even more critical is the

link between their characteristics and their behaviour as leaders. It will take a great deal of

further research in order to understand how it actually affects leadership (Kaiser, LeBreton, and

Hogan 2015). Additionally, several economists have previously highlighted the far‐reaching

effects on their employees and the corporate governance issue Corporate Psychopaths present

(Boddy 2017). And as most organizations have a pyramidal structure, the tone at the top likely

has a multiplier effect throughout all segments of the corporation. Hence, the top managements

control of organizational resources and their decision-making power for important strategic

choices within a corporation have an enormous effect on the company´s future (Gomez-Mejia

et al. 2014).

But what measures could help to control dark traits of leaders within a corporation?

Behavioural Agency Theory is a theoretical basis for dealing with incentive setting strategies.

Even though it is an established theory based on Agency Theory (Pepper and Gore 2015,

p.1046), only more recent literature started to address the evolution of incentives regarding

10

their impact after multiple corporate failures. However, it could be a relevant theoretical basis

for discussing strategic ways of managing dark characteristics in a corporation. Another

relevant aspect when dealing with Corporate Psychopaths as CEOs is Corporate Governance.

In essence, Corporate Governance is about the way power is performed over corporate entities

and setting a framework for those managing it (du Plessis, Hargovan, and Harris 2018). The

global financial crisis raised fundamental questions about the functions of Corporate

Governance (Tricker and Tricker 2015, p.18) and how it could help to prevent unpredicted

corporate collapses. Consequently, research regarding the application of Behavioural Agency

Theory and Corporate Governance in the actual business areas of today´s complex organization

of corporations has become more and more relevant and should be expanded. The question

which now arises is how does the knowledge of these help modern corporations detect or

prevent misalignment of the agent or even corporate failure?

This thesis will cover Corporate Psychopaths, leadership and the link between them in order to

create a valuable contribution to both research areas and their impact on corporations as a

whole. In order to do so, it is only reasonable to link leaders of the dark triad to corporate

failures in order to figure out which characteristics of a corporation indicate a possible threat.

This combination has not yet been evaluated in this way and could provide a great insight into

signs of corporate failure due to Corporate Psychopaths.

Structure of Content

After introducing the topic together with relevant examples in chapter 1, the scientific relevance

is described in chapter 2, followed by defining the terms Corporate Psychopath and ‘dark triad’

in chapter 3. Chapter 4 explains the case study design starting with the analytical framework of

Behavioural Agency Theory in combination with the Corporate Governance Aspect, followed

by the methodology of this design. The section furthermore highlights the specific criteria of

the deliberate sample and the target setting is explained. The deliberate samples are explained

with a particular emphasis on why they are representative of Corporate Psychopaths as CEOs

and psychopathic cultures in corporations. Part 4.3 uses psychopathy measures to figure out

if considerable overlap exists between reported behaviour and the measure of psychopathy

applied (Boddy 2016a). Thereafter in section 4.4 the topic of why psychopaths are rising up

within corporations is treated as well as their leadership mechanisms to influence their

employees. In accordance with that the multiplier effect of the behaviour of leaders along

with possible intra-organizational ganging dynamics and key characteristics of whole

11

corporations as psychopaths are examined in section 4.5. The risk of corporate fraud

occurring due to Corporate Psychopaths is explored in section 4.6. Consequently, wrapping up

the research is done by a cross-case analysis of the findings in Chapter 5.

With the help of the described findings, it is possible to create guidelines how to handle

Corporate Psychopaths in chapter 6. The first step is figuring out how to recognize any

psychopathic traits within a corporation, whether in a whole culture or just one individual. As

a result, the second point is how to manage the recognized personalities. The third and most

important point is how to prevent casualties of their characteristic traits for the corporation or

even prevent those Corporate Psychopaths from entering it. The last point is describing the

lessons learned from the numerous cases of historic corporation failures. The thesis ends with

a reflection, as well as its limitations and implications for further work that has to be done.

3 Corporate Psychopaths and the “Dark Triad”

Definition

The general expression of a sociopathic personality first emerged during the 1930s (Lykken

2006, p.4). Based on this, the work of the psychiatrist Cleckley (1941) shaped the idea of the

pathological condition psychopathy. His research firstly identified key criteria including lack

of anxiety and guilt, poverty of emotions, and most importantly lack of empathy (Pardue,

Robinson, and Arrigo 2013, p.131). An official approach to defining the term psychopathy

comes from ‘A Dictionary of Psychology’, which describes it as “a mental disorder roughly

equivalent to antisocial personality disorder, but with emphasis on affective and interpersonal

traits such as superficial charm, pathological lying, egocentricity, lack of remorse, and

callousness.” (Colman, 2001, p.618). Therefore, it is possible to conceal psychopathy and

appear normal, to an extent where psychopaths can easily gain the trust of their surroundings.

Due to their manipulative qualities they are generally perceived as competent and well-meaning

(Pardue, Robinson, and Arrigo 2013, p.131).

However, some psychopaths tend to use instrumental violence like robbery to get what they

desire, resulting in a high number of psychopaths in prison (Kiehl and Hoffman 2011, p.1).

Most psychopaths lack a moral compass resulting in going through life taking what they want.

They tend to rationalize and justify their own behaviour, often not accepting the responsibility

for their own activities and finding a way to blame others for it (Pardue, Robinson, and Arrigo

2013, p.134). This is the reason why psychopathy is generally seen as the most dangerous of

12

personality disorders (Babiak et al. 2012, p.1). Yet, some of them have a better ability to control

their impulses which enables them to strive for a corporate instead of a criminal career (Boddy

et al. 2015, p.532). Although Cleckley (1941) regarded psychopaths as pathological, he already

noticed some adaptive characteristics such as social poise when he wrote about a psychopathic

business man who exploited his interpersonal charm for his own occupational success (Smith,

Watts, and Lilienfeld 2014, p.507). Consequently, psychopaths can differ vastly from one

another, and their condition can range in severity and therefore also in their personality traits

(Babiak et al. 2012).

The modern literature has different expressions for the phenomenon of a psychopath working

and operating in an organizational area (Boddy 2005), like executive, or organizational

psychopaths/sociopaths (Pech and Slade 2007). As previously stated, the most used one is the

phrase „Corporate Psychopath“ (Boddy 2011, p.256) which is a combination of the term

‘psychopath’ from the area of psychology and the term ‘corporate’ from the business literature.

Measurement

In general the term psychopathy refers to a personality disorder that covers interpersonal,

affective, lifestyle, and antisocial traits and behaviours (Babiak et al. 2012, p.1) and is

determined by two dimensions, whose characteristics psychopaths highly exhibit. The first

dimension consists of lack of affection and interpersonal manipulation. The lack of affect factor

describes psychopaths as cold-hearted humans without remorse but also physical and social

fearlessness (Smith, Watts, and Lilienfeld 2014, p.507). As they strive for their personal wealth,

they might be unable to have real emotions or empathy but are capable of simulating feelings.

The second factor of interpersonal manipulation expands this attribute by indicating that they

are usually perceived as completely normal (Lingnau and Dehne-Niemann 2016). The second

dimension is divided into erratic lifestyle and antisocial behaviour and therefore contains the

behavioural features of psychopathy. Here, erratic lifestyle refers to the extremely impulsive

nature of psychopaths. As psychopaths normally have very limited self-control they can be

provoked quickly and tend to short but violent outbursts of anger (Lingnau and Dehne-Niemann

2016). A more detailed description of the two dimensions and its traits can be found in Chapter

4.3.2.

The two most widely used psychopathy measures, the interview-based Psychopathy Checklist-

Revised (PCL-R) (Neumann, Johansson, and Hare 2013) as well as the Psychopathic

Personality Inventory-Revised (PPI-R) (Koglin and Petermann 2009) are both based on these

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broad dimensions. The two-dimension composition carries important implications for the

different display of psychopathy (Smith, Watts, and Lilienfeld 2014, p.507). As so-called

successful psychopaths, Corporate Psychopaths often do not have all four of the factors. Unlike

psychopathic criminals, they tend to have little or no trait of the secondary psychopathy

dimension, which helps them to apparently fit into society.

Origin

Understanding psychopathy starts with knowing the fundamental principles about personality.

The personality represents who an individual is and results not only from genetics but also from

the upbringing. Therefore it reflects how individuals see and experience their surrounding

(Babiak et al. 2012, p.1). A personality is officially defined as “the set of psychological traits

and mechanisms within the individual that are organized and relatively enduring and that

influence his or her interactions with, and adaptations to, the intrapsychic, physical, and social

environments” (Larsen and Buss 2005, p.4). Individuals’ personalities evolve only until roughly

their late 20s (Babiak et al. 2012, p.1), which is why psychopathic behaviours typically begin

in childhood and continue in adolescence. Just like any personality this lifelong disorder is a

result of connections between biological and temperamental predispositions but also social

drives (Babiak et al. 2012, p.1). Therefore it can occur as a consequence of physical or cultural

factors but in their study of male twins, Taylor et al. (2003, pp.633f) found that psychopathic

traits were primarily associated with genetic factors. The dominant physical factor is abnormal

brain connectivity, especially in the orbitofrontal cortex regions (Finger et al. 2011, p.152)

which results in the inability to experience empathy. As the orbitofrontal cortex regions is the

region of the brain that is responsible for emotion, any disturbance of its functions can lead to

socially inappropriate behaviour (Wernke and Huss 2008, p.231), especially when making

moral judgments. Since Corporate Psychopaths have no real sense of emotion they are able to

make very rational decisions without any sign of delusions or nervousness where other people

would maybe make different choices based on their emotions (Boddy 2006, p.1468). Even

though psychopathy might arise from genetic factors, environmental factors need to be

considered, too. Contributing factors to the disorder are poor parenting, child abuse and the use

of drugs (Gao et al. 2010, pp.7f).

But whether to physical or cultural factors, psychopathy exists in all societies. Psychopathy can

occur in both males and females within all race, cultures and socioeconomic backgrounds.

Psychopaths may themselves even be married and have a family (Babiak et al. 2012). In

14

general, researchers agree that psychopaths understand right from wrong but willingly disregard

society’s rules to pursue their own interests (Babiak et al. 2012). There is also a consensus

among these experts that psychopaths should be carefully managed rather than treated, as

psychopathy is not curable and treatments not available at present (Harris and Rice 2006,

p.568).

Development in a corporation

Even with today´s knowledge of psychopaths, they have no problems in joining the business

world of politics, law enforcement, government, and academia. In our society they are part of

all areas of work, from executive to blue-collar position (Babiak et al. 2012, p.2). In the

recruitment phase, such individuals tend to impress as they appear calm and charming due to

their limited range of emotions. Psychopaths try to win over their superiors, whilst

simultaneously exploiting their subordinate and colleagues, often taking credit for their work

(Boddy 2005, p.37). They appear sophisticated, and can be very successful in a corporation

(Boddy 2011, p.256). As accomplished manipulators, they find gaining promotions relatively

easy, as their lack of empathy and their callousness allow them to make difficult business

decisions, such as mass dismissals, without any moral consideration (Omar, Wisniewski, and

Yekini 2019, p.1198). Kühn (2012) came to the conclusion that the personality of the described

„Homo oeconomicus“ widely overlaps with that of a Corporate Psychopath. After reaching

supervisory positions, they refuse to share information and introduce self‐serving rules and

procedures (Boddy, Galvin, and Ladyshewsky 2011, p.17) as Corporate Psychopaths are mostly

concerned with their own goals of money and power and value them over the success and

longevity of the corporation they work for. These actions result in reduced employee job

satisfaction (Mathieu et al. 2014, p.87) with over 30% of bullying in corporations being

accounted for by the behaviour of Corporate Psychopaths (Boddy 2014, p.113). Research

shows that psychopathy is additionally associated with the use of hard negotiation tactics and

poor management skills (Smith, Watts, and Lilienfeld 2014, p.509). Corporate Psychopaths

disregard any kind of corporate social responsibility and can destroy the reputation of their

employer (Boddy 2012, p.79). Their constant need for stimulation can also induce excessive

risk-taking, which can put entire corporations in crisis (Omar, Wisniewski, and Yekini 2019,

p.1198).

Corporate Psychopaths create deliberate chaos in a corporation to deflect the blame for their

failure and to hide their unlawful activities. The relatively chaotic nature of a modern

corporations is helping them to rise quickly in their hierarchy unnoticed. Today’s global

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corporations are used to rapid change and thus also to a constant turnover of staff. These rapidly

changing conditions within a corporation make it hard to spot Corporate Psychopaths (Boddy

2011, p.257). Consequently Corporate Psychopathy has been described as “the most important

forensic concept of the early 21st century.”(Babiak et al. 2012, p.3).

“Dark Triad”

Despite individual theoretical roots on the three socially aversive personalities: Narcissism,

Machiavellianism, and Psychopathy, the distinctions grew blurred over time (Jones and Paulhus

2014, p.28). As a result, Paulhus and Williams (2002) formulated the term Dark Triad to

encourage studying the three traits together to be able to clarify their common features as well

as their differences. The three personalities can all be found under the term Corporate

Psychopaths. They are named the Dark Triad due to their common socially undesirable traits,

and conceptual similarities (Rauthmann 2012, p.487). Indeed, studies have shown considerable

positive correlations between measures of the traits of the Dark Triad and counterproductive

workplace behaviour (O’Boyle et al. 2012, p.569). However, the analysis also showed, that

each characteristic trait of the Dark Triad exhibits different behaviour therefore recent research

often focuses on their individual diversified impact on corporations (Perry 2015). As

Machiavellians are more linked with interpersonal forms like maltreatment of co-workers and

outcomes predicted by a strategic orientation (Jones and Paulhus 2014, p.30), Narcissists are

more associated with workplace behaviour for ego-promoting outcomes such as bullying and

white-collar crimes. And finally, psychopathy is often involving reckless, violent and

aggressive workplace behaviour (DeShong, Grant, and Mullins-Sweatt 2015). However, the

goals of the different Dark Triad members frequently align as they all display a common

callousness and way of thinking (Jones and Figueredo 2013). To varying degrees, they all show

tendencies to self-promotion and aggressiveness (Paulhus and Williams 2002, p.557).

3.2.1 Machiavellianism

Christie and Geis (1970) were the first to introduce the concept of Machiavellianism into the

characteristic literature and it was mainly based on the political strategist, Niccolo Machiavelli

(1513-1981). The construct emerged from a selection of statements from Machiavelli´s original

books (Paulhus and Williams 2002, p.556), especially from a book entitled Il Principe (The

Prince) from 1532. The Prince was addressed to kings and lords and advises them to secure

their power, if necessary even through methodically planned immoral deeds, including the

removal of rivals (Muris et al. 2017). Christie and Geis constructed these statements into a

selection of personality attributes to be able to measure Machiavellianism. Further research

16

showed that respondents who agreed to the summarised, twenty-point measure of

Machiavellianism (Boddy 2010, p.301), were more likely to behave in a calculating and cold

fashion (Christie & Geis, 1970). The measurement also includes traits like a cynical worldview,

especially of human nature (Jones and Paulhus 2014, p.29), a general immoral outlook (Spurk,

Keller, and Hirschi 2016, p.113) and self-beneficial motives with strategic planning

(Rauthmann 2012, p.487). Machiavellians are known for planning ahead, building alliances,

and trying to maintain a positive reputation. They are strategic rather than impulsive (Jones and

Paulhus 2011).

Overall there are differing results on how Machiavellians are perceived by others. In general

young Machiavellians appear to be liked by their colleagues (Hawley 2003) but Machiavellian

behaviours are often rejected (Falbo 1977), and individuals judge Machiavellians more

negatively after an extended involvement with them (Rauthmann 2012, p.488).

Machiavellianism within corporations describes a ruthless and selfish approach to management.

3.2.2 Narcissism

The general theory of Narcissism was developed by Freud and named after the myth of

Narcissus, a beautiful man who was cursed by a goddess to fall into unreturned love. He fell in

love with his own reflection and unable to leave his image, he died of starvation (Holme, 1981).

The construct of Narcissism emerged from Raskin and Hall (1979), who invented the

Narcissistic Personality Inventory (NPI). Facets from this clinical syndrome are characterized

by a high self-love with desire of control, admiration and most importantly success (Paulhus

and Williams 2002, p.557). The basic characteristics of narcissists include grandiosity,

entitlement, dominance, and a high level of arrogance (Özsoy 2018, p.743) Especially

grandiosity can lead narcissistic characters on a pursuit for ego-boosting (Morf and Rhodewalt

2001), frequently ending in self-destructive behaviours (Vazire and Funder 2006). Narcissistic

grandiosity also promotes a sense of entitlement and can even turn into aggression as soon as

the own grandiosity is threatened (Jones and Paulhus 2014, p.30).

Therefore, a narcissist has since been seen as someone “who loves themselves too much for

their own good” (Boddy 2010, p.302). Narcissists demand the admiration of others but have

difficulties in maintaining any relationships due to their general lack of trust and also affliction

for others (Spurk, Keller, and Hirschi 2016, p.113). They even tend to belittle others or are

vengeful against colleagues (Omar, Wisniewski, and Yekini 2019, p.1203). Narcissists can be

popular, and liked at first but are seen not favourably as interactions progress (Back, Schmukle,

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and Egloff 2010), as their arrogant and hostile behaviour causes the loss of their previously

positive reputation (Rauthmann 2012, p.488).

3.2.3 Psychopathy

The adaptation of clinical psychopathy is the most recent of the Dark Triad (R. D. Hare 1985).

The previously mentioned self-report psychopathy scale was first assembled by Hare (1985)

and later expanded in the generally accepted Psychopathy Checklist, which is still the standard

measurement of psychopathy (Paulhus and Williams 2002, p.557). Psychopathy is defined by

the impulsivity of that person, a lack of guilt or remorse about their actions as well as a belief

in the superiority of oneself (Spurk, Keller, and Hirschi 2016, p.113) and might include criminal

activities (DeShong, Grant, and Mullins-Sweatt 2015). They tend to lie for instant rewards,

even if it compromises the general long-term interests (Jones and Paulhus 2014). Thus

psychopaths act impulsively, have a tendency to thrill-seeking, and due to their callousness pay

little attention to their reputations (R. D. Hare and Neumann 2008).

Due to their manipulative behaviour, they can appear similar to narcissists at first until their

antisocial behaviours come to light. However, due to their lack of empathy and impulsiveness

some of them seem repulsive from the beginning (Rauthmann 2012, p.488). Of the three

personality disorders, psychopaths are the most studied and apparently the most dangerous ones

as well (Paulhus, Williams, and Harms 2001, p.5).

Common features and differences

Figure 1: The dark triad (Boddy 2010, p.303).

While the psychopathy checklist shows correlation with Narcissistic Personality Disorder, there

are also differences between these two. The main reason is, that Narcissists do have emotions

and thus a conscience about the people around them and their own behaviour. So, there is a

general agreement that narcissism is the lightest counterproductive personality within the triad.

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The minimal anxiety and their lack of real emotions make psychopaths the most treacherous of

the three, even though Machiavellianism and psychopathy appear very similar (Boddy et al.,

2015, p.533). The various studies of Paulhus & Williams have shown that especially

interpersonal manipulation and callous affect are common traits within all the Dark Triad

personalities. This evidence shows, that the core of the Dark Triad is generally based on the

talent of interpersonal manipulation (DeShong, Grant, and Mullins-Sweatt 2015). The members

of the Dark Triad share a common core of disagreeableness over time and consequently of a

social destructiveness in their environment (Paulhus and Williams 2002, p.561). Indeed, dark

personalities exhibit behaviours aimed at getting ahead instead of getting along, which reflects

their anti-sociality (Rauthmann 2012, p.488).

But there are also clear differences, as Jones and Paulhus (2012) concluded that egoistic goals

drive narcissistic behaviour, whereas instrumental goals or material gain motivate

Machiavellians and psychopaths (Jones and Paulhus 2014, p.30). Machiavellianism

distinguishes itself from psychopathy with respect to the element of impulsivity (Jones and

Paulhus 2014, p.29). Narcissists also exhibit the most self-enhancement, followed by

psychopaths. In contrast, Machiavellians showed no sign of self-enhancement, as they are more

reality-based (Paulhus and Williams 2002, p.561).

The following statements are used for a SD3 (Short Dark Triad) Test. Items should be kept in

the same order, reversals are indicated with (R) here and the statements can be evaluated from

Disagree strongly to Agree strongly (1-5). It reflects the dark triad and their differences (Jones

and Paulhus 2014). All of those traits can be seen in Corporate Psychopaths.

Machiavellianism

1. It’s not wise to tell your secrets.

2. I like to use clever manipulation to get my way.

3. Whatever it takes, you must get the important people on your side.

4. Avoid direct conflict with others because they may be useful in the future.

5. It’s wise to keep track of information that you can use against people later.

6. You should wait for the right time to get back at people.

7. There are things you should hide from other people to preserve your reputation.

8. Make sure your plans benefit yourself, not others.

9. Most people can be manipulated.

Narcissism

1. People see me as a natural leader.

2. I hate being the center of attention. (R)

3. Many group activities tend to be dull without me.

4. I know that I am special because everyone keeps telling me so.

5. I like to get acquainted with important people.

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6. I feel embarrassed if someone compliments me. (R)

7. I have been compared to famous people.

8. I am an average person. (R)

9. I insist on getting the respect I deserve.

Psychopathy

1. I like to get revenge on authorities.

2. I avoid dangerous situations. (R)

3. Payback needs to be quick and nasty.

4. People often say I’m out of control.

5. It’s true that I can be mean to others.

6. People who mess with me always regret it.

7. I have never gotten into trouble with the law. (R)

8. I enjoy having sex with people I hardly know

9. I’ll say anything to get what I want.

(Jones and Paulhus 2014, p.31).

Distribution within different sectors

People with psychopathic tendencies who are not already on a criminal path and who choose

to obtain higher levels of education have a preference for business and commerce degrees

(Hassall, Boduszek, and Dhingra 2015). Corporate Psychopaths reportedly gravitate to power

which mostly can be found in large corporations (Boddy 2006, p.1466). A Daily Mail article

(Utton 2004) referred to the psychopathy expert Dr Hare and wrote that “Wherever you get

power, prestige and money you will find them (..)”. But it is not just any corporation they are

attracted to, as there is evidence that they prefer certain types of corporations. As they have a

natural aspiration to win what they see as the “game” of life, Corporate Psychopaths apparently

prefer working with money in large financial corporations (Boddy 2011, p.257) due to the

potential rewards these corporations offer.

Figure 2: Experience of Corporate psychopaths in the workplace (Boddy 2010, p.307).

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The research of Boddy (2010) provides evidence that Corporate Psychopaths appear at a

greater level in the financial service sector and the civil service in comparison to primary

industries and retail services. On the other hand, professions that are dedicated to serving others

like social work seem way less attractive to individuals whose main motivation is always an

egoistic one which is the case for Machiavellians, Psychopaths and Narcissists (Boddy 2010).

3.4.1 Distribution within the hierarchy of a corporation

As already mentioned in the definition of Corporate Psychopaths, those individuals often end

up in positions of power, as there exists significant incidence of the emotional components of

psychopathic personality disorder in a sample of senior managers (Omar, Wisniewski, and

Yekini 2019, p.1198). Even though it contradicts general management principles, dark triad

managers are able to rise through the ranks into those positions with high power. Due to their

skills in manipulation they can hide possible performance shortfalls by using bullying tactics

(Pech and Slade 2007). In a study of nearly two hundred executives, 3.5 % of the top senior

executives were psychopathic as measured by the Psychopathy Checklist (Boddy,

Ladyshewsky, and Galvin 2010, p.127).

4 Case Study Design

This thesis focuses specifically on the issue of Corporate Psychopaths and their destructive

effects within a corporation. However, even with exact measurements and clear guidance on

how to diagnose a dark triad personality disorder (Hare, 1991) executives will be unwilling to

participate in surveys, particularly if those could expose the dark side of their character.

Therefore a more practical approach is to collect information in a more discrete way by going

through archived data (Omar, Wisniewski, and Yekini 2019, p.1197). In order to provide

concrete correlations between Corporate Psychopaths as leaders and their corporate

destructiveness it is necessary to select exemplary collapses or scandals of big corporations in

the past. Combining those real examples with a theoretical background should enable the setup

of hypotheses about typical characteristics within a failing corporation due to Corporate

Psychopaths.

Analytical Framework

The theoretical framework emphasizes that top executives affect corporate goals, values, and

actions and therefore may exhibit certain psychological traits which become a strong driving

force and shape the whole corporation. As Corporate Psychopaths are disproportionally

21

represented within higher managerial positions (Babiak, Neumann, and Hare 2010), their

decisions and behaviour have a concrete influence on broader society (Omar, Wisniewski, and

Yekini 2019, p.1197). On the basis of the argument that behavioural agency theory and

corporate governance codes are both based on the agency theory, combining them may improve

the explanatory value of agency-based models of the executive behaviour as well as insight into

how these behaviours could be controlled. This combination also takes the modern structures

of corporations as well as the risk of having Corporate Psychopaths as leaders into account.

4.1.1 Behavioural Agency Theory

In essence, information asymmetry permits Corporate Psychopaths as executives to disguise

the actual motives for their behaviour. Even though not all leaders pursue managerial

opportunism, shareholders do not have any way of knowing which person is going to exhibit

such tendencies in advance. Unfortunately, the temptation to make up profits as well as hiding

losses is extensively too great for those whose jobs and wealth depend on the results (Downes

and Russ 2005, p.94).

The standard agency framework centres on monitoring costs and incentive setting as the basic

theoretical assumption is the misalignment of agents and principals, which often leads to moral

hazard. In contrast, the behavioural agency theory sets the agent performance at the centre of

its concept, declaring that the interests of shareholders and agents can be aligned if the

responsible leaders are motivated to work to the best of their own abilities (Pepper and Gore

2015, p.1045). Consequently, the main theoretical background on the conduct of Corporate

Psychopaths as leaders is Behavioural Agency Theory, developed by Wiseman and Gomez-

Mejia (1998). This theory is often seen as a progression of the traditional agency theory, since

the model integrates concepts from the behavioural theory of the firm (March and Shapira 1992)

and agency theory (Gomez-Mejia et al., 2015). In this model elements of internal corporate

governance are combined with the incorporate ideas from prospect theory (Tversky and

Kahneman 1992) in order to explain executive risk-taking behaviour of different kinds of

leaders (Wiseman and Gomez-Mejia 1998, p.133). The Behavioural Agency Theory is based

on four key factors which affect their strategic decision making (Camerer, Loewenstein, and

Rabin 2011). These components are loss aversion, preferences linked to uncertain outcomes,

temporal discounting, and lastly fairness as well as inequity aversion (Pepper and Gore 2015,

p.1047).

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Considering these factors, the importance of the agent’s intrinsic and extrinsic work motivation

is not to be underestimated. The Behavioural Agency Theory questions the idea that intrinsic

and extrinsic motivation are independent or even additive. Frey and Jegen (2001) have

described this phenomenon as “crowding-out“, arguing that unpredictable monetary rewards

might even cause a reduction in intrinsic motivation (Deci and Ryan 1985). The first factor of

behavioural agency theory presumes that especially senior executives are primarily loss averse

and just secondary risk averse, since losses linked to their future pay pose a significant threat

to their perceived wealth, and to the executives standard of living (Wiseman and Gomez-Mejia

1998, p.140). Principally it means, that decision makers are generally more concerned about

losing wealth than to increasing it (Wiseman and Gomez-Mejia 1998). This component

explains why decision makers act conservatively when facing gains but almost always take

greater risks when facing a loss, as there is nothing more to lose than the general loss itself.

Consequently, the second factor of preferences relating risky and uncertain outcomes also

depend on the loss aversion, as when forecasted performance is unsatisfactory, executives may

anticipate losses to wealth and thus consider taking greater strategic risks (Wiseman and

Gomez-Mejia 1998, p.137). Below an individual reference point, agents will be loss averse but

above the reference point they will traditionally be risk averse. Specifically, senior executive's

risk preferences are revealed through their strategic choices on behalf of the corporation.

Extensive research has shown that risk bearing mediates the relationship between how the

situation facing an executive is framed and the amount of risk the executive is willing to take

(Gomez-Mejia et al., 2015). These choices hold important implications for the firm's

performance and the agent's general compensation risk (Wiseman and Gomez-Mejia 1998,

p.135), especially when dealing with Corporate Psychopaths.

The third factor is linked to agent´s time preferences. Within behavioural agency theory, the

assumption is that agents discount time to a hyperbolic discount function, rather than an

exponentially one (Ainslie & Haslam, 1992). It implies that possible future rewards are

deliberately discounted even though the actual discount rate is individual. The fourth and last

component is the perception of equitable compensation of the agent. If they feel like their input

and skills are valued and adequately rewarded the agents will be motivated to contribute to the

corporation´s success at a high level (Adams 1965). However, if this is not the case and the

output is not proportionate, the agent will become demotivated. The agent’s equity criterion is

individual according to the proper market standards and personal assessment. Fehr and Schmidt

(1999, p.819) call this important factor “inequity aversion.”

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An important assumption of behavioural agency theory is that the top executive teams have a

vital impact on firm performance. This is especially important when dealing with Corporate

Psychopaths in this group of chief executive officers (CEO), the chief operating officers (COO),

the chief financial officers (CFO), or divisional heads (Pepper and Gore 2015, pp.1050f ). They

are responsible for defining and executing the corporation’s strategy (Carpenter, Geletkancz,

and Sanders 2004) and usually receive a lot of monetary compensation for their work. However,

in the last decades there has been considerable discussions about the structure of top

management compensation in large corporations, on whether it is rightfully designed to lead

executive decision making toward maximizing the general performance (Finkelstein and

Hambrick 1988).

Behavioural agent theory argues that any high management team needs a balanced set of reward

strategies with a combination of fixed and variable pay and short- and long-term incentives to

maximize the agent´s motivation to optimize their own job performance in regard to the best

interest of the corporation. To maximize the overall corporation performance, the selected

strategy must be valid for all the agents in the top management team. Identifying the optimal

reward strategy for the corporation requires an understanding of all the top executives agents

and their individual risk tolerances (Pepper and Gore 2015, p.1063), which makes it even more

important to identify members of the dark triad in their ranks.

4.1.2 Corporate Governance

The idea of behavioural agency theory is also closely linked to the general aspect of Corporate

Governance, as agency theories are used as the implicit theoretical background to study

governance issues (Jensen and Meckling 1976). It is an umbrella term which covers the

activities and composition of the board of directors, compensation policies (Cuomo, Mallin,

and Zattoni 2016), the relationships with the shareholders, with those managing the corporation

as well as with external regulators, auditors and other legitimate stakeholders. In essence,

Corporate Governance is the framework of rules and processes by which authority is managed

and controlled within a corporation and covers the mechanisms by which those in control

should be held accountable (du Plessis, Hargovan, and Harris 2018).

Corporate governance codes can be formulated at three different hierarchical levels. The first

level is the international one, where codes are developed by institutions such as Pan‐European,

Commonwealth or OECD, in order to increase governance standards in a whole geographic

24

region. The second level is national. Codes are issued by institutions like the government or the

stock exchange within individual countries to be able to positively influence corporate

governance practices in a specific national environment. The last is the individual firm level,

where codes are established by corporations to communicate to share- and stakeholders their

governance principles (Cuomo, Mallin, and Zattoni 2016). In case of the corporation´s level the

board of directors should generally be responsible for supervising the management and also for

its decisions and performance (Tricker & Tricker, 2015), which is especially important when

dealing with Corporate Psychopaths as CEOs. The corporate governance code of a corporation

should press the board of directors to take on an active role in controlling the behaviour of the

top executives. But contrary to other forms of regulation, governance codes are "formally

nonbinding and voluntary in nature " (Haxhi and Aguilera 2015, p.2), which allow firms the

flexibility to select which corporate governance structure they adopt in order to pursue their

objectives, while simultaneously guaranteeing better transparency (Cuomo, Mallin, and Zattoni

2016, p.223). The „comply or explain“ application (Mallin 2013, p.36) provides a voluntary

method for improvement and innovation of the applied corporate governance practices. The

individual corporations all have the option to comply with the codes’ recommendations or they

have to explain the reasons why they could not (Cuomo, Mallin, and Zattoni 2016, p.223).

However, despite the positive effect this voluntarily approach can have, there also is doubt on

its actual effectiveness (Pietrancosta 2010). In contrast to hard law regulations, corporate

governance codes are not able to enforce good business practices from corporations as they

have the option to not comply. Empirical evidence exhibits that corporations comply with

codes’ recommendations more in form than in substance (Krenn 2014). However, at the same

time hard law regulation can also have negative implications for governance practices, as recent

studies revealed increased costs of compliance with regulation (Sasseen and Weber 2006),

which can be especially high for small corporations (Engel, Hayes, and Wang 2007).

The accumulated corporate scandals over the last two decades have underlined the failure of

the existing governance mechanisms, like appropriate and equal governance codes for all

(Cuomo, Mallin, and Zattoni 2016, p.224). Especially after the Enron debacle in 2002 almost

all advancing economies added further strands to corporate governance policy as codes have

become a popular method of increasing corporation’s accountability (Mallin 2013). The second

phase of expanding national codes development occurred after various corporate scandals led

to the global financial crisis. Consequently the amount of corporate governance codes increased

exponentially after this (Cuomo, Mallin, and Zattoni 2016, p.222). Simultaneously, the

25

establishment of new corporate governance codes always occurred alongside with stricter legal

standards aimed at increasing investor protection.

These increasing demands of corporate governance codes and new legal norms for transparency

and reporting are all in their core responses to the agency dilemma. Indeed, the conceptual

framework of corporate governance codes is the need to respond to the agency problem as

wherever there is a separation between the members and the governing body, the agency

dilemma could arise and corporate governance issues could occur (Tricker and Tricker, 2015).

Therefore, the main goal of corporate governance is to find the right mechanisms to align the

agents with the interests of the responsible principals and consequently with the corporation

(Wiseman and Gomez-Mejia 1998, p.133). As a result of the increasing globalization,

supranational institutions are gaining importance to implement governance codes to avoid

massive corporate frauds in the future and to stimulate regular revision (Cuomo, Mallin, and

Zattoni 2016).

Methodology

4.2.1 Criteria of the deliberate sample

As part of understanding the cultural context of a corporation in relation to the individuals of

the dark triad, the method is to pursue a qualitative research approach in term of a case study

design. The research is primarily an exploratory research and therefore used to acquire an

understanding of underlying motivations of the dark triad within corporations. It should help

providing insights into the problem and developing hypotheses for further potential quantitative

research (Eisenhardt 1989). Within the case study, five different corporations, that all either

completely failed, ended in bankruptcy or in a damaging scandal, are being analysed. The

concrete benefits of such a historical approach to organizational studies has been

acknowledged (Clark and Rowlinson 2004) and therefore the study of those who managed

these corporations can also provide valuable insights (Boddy 2016c).

It is a deliberate sample, based on the subsequent criteria. Firstly, their leaders all showed clear

traits of Corporate Psychopaths and research was done on their behaviour during the crisis

situation of their corporations. As it is not possible to identify these traits in the thesis, all leaders

are identified as Corporate Psychopaths by classified researchers. They are either directly

connected to psychopathic traits or to one of the varieties of the dark triad in literature.

Secondly, the chosen CEOs had to be in his or her chief executive officer function when the

26

scandal was unfolding. The time span of their period of office as CEO is an important indicator

for any change within the corporate culture during this time. Particularly the intra-

organizational gang dynamics should be noticeable and observable for the employees and could

often lead to a system of normalizing fraudulent activities within the corporation.

The third important criterion is pay for performance. As Corporate Psychopaths are mostly

concerned with their own achievements, there is a strong connection between their

compensation and their destructive behaviour within a corporation. They tend to aim for short-

term successes to increase their own profits without acknowledging the long-term damage of

their actions for their corporation (Boddy et al. 2015, p.545). The next criterion is directly linked

to the behaviour of destructiveness. As soon as Corporate Psychopaths are not able to deliver

real success anymore, they start to create the desired outcomes illegally. So, all examples

contain white-collar crimes committed in order to try disguising the progressively negative

results for the corporation. These immoral activities occur mostly in the form of accounting

fraud. However, it is not sufficient enough to only have a proven fraud within the corporation

as one important aspect for the thesis is that the affected CEO had an active part of the

implementation of the fraud and knowingly disguised it. An additional criterion is the collapse

of the fraudulent system within the corporation. To be able to use it as an example in the

analysis, the immoral activities had to be exposed and various published information have to

exist to facilitate the tracking of their attributes that eventually led to their failure (Heracleous

and Werres 2016). The last criterion is the vast time span of roughly 30 years from 1991 until

the most recent case of 2017. It should exhibit, that the failure of the corporations is not only

due to a general crisis. Consequently, they are not just in different times but also in different

sectors, which enables comparability over all sectors and control for the influence of other

factors of those respective environments.

4.2.2 Target setting of the Design

Are there typical patterns and processes that can lead to failure of a corporation if Corporate

Psychopaths are in the top management and is it possible to identify several factors leading

towards a scandal or failure? In order to investigate this question and examine whether typical

patterns can be identified across all cases, hypotheses are made on what organisational traits

they shared by doing a cross-case analysis of the five examples and their development. To be

able to provide a theoretical basis for these patterns, the analytical framework of Behavioural

Agency Theory and Corporate Governance is used. This design of a case study should enable

27

to examine the process by which these corporations finally collapsed through an understanding

of Corporate Psychopaths and their impact on leadership and corporate culture. The analysis

involves individual as well as cross-case analysis, upon which the thesis is able to use these

researched assumptions to develop guidelines on how to deal with Corporate Psychopaths in

corporations and psychopathic corporate cultures. Within history a number of fraud cases

have been directly or indirectly associated with the work of Corporate Psychopaths. But

even though the lack of guilt is conspicuous in most of these cases, not all scandals can be

directly linked to a psychopathic leader and therefore used as an example in this thesis.

Table 8.1 in the Appendix displays prominent examples of candidates and provides reasons

why they were unsuitable for the analysis.

After cancelling out some prominent examples due to not meeting the list of criteria, table

8.2 in the Appendix shows an overview of the utilized cases for the analysis that are already

mentioned in Chapter 1. The concrete samples cover several outstanding individuals as

potential Corporate Psychopaths and all meet the above named criteria.

Psychopathy Measure

Hypothesis 1:

The first hypothesis is, that today´s requests of a charismatic executive within a

corporation promotes typical traits of a Corporate Psychopath.

4.3.1 Traits of Corporate Psychopaths

Understanding the individual leaders described in section 1.1 is an important first step of

understanding the behaviour of Corporate Psychopaths as leaders. Therefore the reported

behaviour of these individuals will be compared to the summarized psychopathy measure

described below to figure out if plausible connections occur (Boddy 2016a). With this

analysis it is possible to evaluate the personalities of the leaders and further classify their

individual category of the dark triad. Traditionally the traits of the members of the Dark Triad

are considered undesirable. However evidence suggests that these individuals are successful in

certain careers (Young & Pinsky, 2006) as they are able to extract what they want from their

environment via a certain exploitive style (Jonason, Li, and Teicher 2010, p.111). Even though

little is known about successful psychopaths, a growing amount of literature is emerging to

expand the measures of psychopathy which previously often assume that they possess only

violent and other criminal behaviour (Skeem et al. 2011, p.120).

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Even though several authors designed diagnostic instruments suitable for the business context

(Omar, Wisniewski, and Yekini 2019, p.1198), like the B‐Scan 360 (Mathieu et al. 2013) and

the Psychopathy Measure – Management Research Version PM‐MRV (Boddy, Ladyshewsky,

and Galvin 2010), the standard measurement is still the Hare’s original checklist. Consequently,

the best method is comparing the checklist (Appendix section 8.3.) with the described

demeanour.

4.3.2 Assess the personalities of the leaders

“Psychopathic shortages of fear, conscientiousness, and altruism have been observed in

business-men, investment counsellors, media personnel, actors, and entertainers, even in at least

one former chief judge of the state of New York” (Lykken 2013, p.37). So how can so many

leaders display psychotic features? And how can these traits help them to climb up the

hierarchical ladder? As already mentioned in the definition of Corporate Psychopaths, there are

two broad dimensions, whose characteristics psychopaths exhibit. These two can each be

divided into two facets and so the following checklist for psychopathy can be divided into four

facets, each describing different but typical characteristics of Corporate Psychopaths.

Figure 3: Psychopathy Checklist (Skeem et al. 2011, p.101).

Facet 1: Interpersonal

The facet includes interpersonal traits which are directly connected to the apparent charisma of

the leader. Often this charisma helped the person to gain power in a corporation in the first

place. The Greek word „charisma“ describes a person that is endowed with a special gift that

equip them with a power to persuade institutions and the general public (Naudé et al. 2018,

p.25). These charismatic individuals have the unique talent to engage people at all levels, speak

their respectable language and therefore earn their respect (Khurana 2002). However, research

29

showed that a charismatic leader does not just need inherent qualities but also requires an

optimal social setting for the rise of such an executive, as well as a strong emotional connection

between the leaders and their followers. And even though society needs charismatic leaders like

Martin Luther King, it is necessary to always keep in mind the danger of those charismatic

leaders, as for every good leader there is an egoistic one. There is inevitably the risk of

charismatic leaders becoming arrogant and believing the law do not apply to them (Naudé et

al. 2018, p.26). Hence, the first attribute on the list, superficial charm can often be found in

combination with a grandiose sense of self-worth. This inflated confidence is not de facto bad,

as leaders need it to do their job and be successful at it. However, narcissistic traits such as

entitlement, self- absorption and especially arrogance can cause executives to ignore the reality

of the corporation that could possibly threaten it (Naudé et al. 2018, p.27). Especially CEOs

who became successful early on in their careers are quick in developing the belief that they are

invincible (Long, 2008). Corporate Psychopaths also tend to be pathological liars (Boddy

2005). The members of the dark triad use every way to be able to get what they want and if

there are any circumstances or individuals that prevent them from getting it, they tend to apply

several unethical tactics. In the case of corporations, the easiest way is using their own truth to

advance their positions and expedite their rise within the ranks. Corporate Psychopaths

especially exhibit behaviours such as lying to damage the reputation of a colleague who they

see as an opponent (Özsoy 2018, p.745).

Thus, a person who scores highly on the Corporate Psychopath measure is expected to be very

competitive as well as individualistic (Jonason, Li, and Teicher 2010, p.112). Indeed, this

enables manipulating and conning their surroundings, as already noted by Cleckley (1941,

p.338) who described their characteristic as “free from social or emotional impediments”.

Additionally, Hare explains, that psychopaths “can be very effective at presenting themselves

well” (Hare 1999a, p.35). Corporate Psychopaths are said to have a special talent for reading

people which allows them to change their personas skilfully to suit the situation and their

opposite individual in order to mask their true intentions (Skeem et al. 2011, pp.103f).

Facet 2: Affective

The second facet deals with the affective characteristics of Corporate Psychopaths.

The members of the dark triad, but especially Machiavellians, legitimatize their negative

behaviour by their efficacy, living by the slogan “the ends justify the means” (Crysel, Crosier,

and Webster 2013, p.35). Therefore, they justify their lack of concern and remorse over their

actions with their outcome. One famous example of this accepted strategy in our today`s

corporations is the character of the TV doctor, who appears to have many Dark Triad traits and

30

legitimize his lack of concern for his patients by indicating that the final result is what ultimately

matters (Jonason et al. 2012, p.196). As Corporate Psychopaths often apply soft manipulation

tactics like charm, exchange of a favour or alliances this focus on the outcome is socially

acceptable in our business world and seldomly backfires (Spurk, Keller, and Hirschi 2016, p.3).

Executives that are culpable of negative behaviour or even fraud for a good result often believe

that they have earned the right to proceeds no matter how they achieved it. Even if it is the

result of corrupt activities, they are more deserving due to their ingenuity and feel no guilt

despite mounting evidence against them (Naudé et al. 2018, p.28). Traditionally these

individuals show shallow emotions in general, as low levels of conscientiousness and anxiety

are typical. The combined lack of empathy might also be instrumental in enabling an exploiter

to remain unfaced of potential social rejection due to their behaviour (Jonason, Li, and Teicher

2010, p.113). The shallow emotions and lack of empathy for potentially affected people and

corporations also enable Corporate Psychopaths to convince themselves and others that they

are not corrupt for their own sake and that their actions are acceptable. Dark triad members are

often willing to engage in self-enrichment at the expense of other stakeholders as Corporate

Psychopaths have been putting other individuals’ money at risk for personal gain (Jones, 2014).

It shows, that they generally fail in accepting responsibility for their own actions and the

resulting consequences.

Facet 3: Lifestyle

The third facet reviews the general lifestyle and the connected traits of Corporate Psychopaths.

The first one is the general need for excitement, which is able to push charismatic individuals

towards greatness, but also triggers a certain urgency to accomplish goals. The characteristic of

sensation-seeking includes pursuing stimulating experiences, and the eagerness to take risks for

them (Zuckerman 1994). A clear link exists between members of the dark triad and impulsive

risk behaviours, especially if their egos appear to be threatened which increases aggressive risk

taking (Bushman and Sander 2012). The characteristic trait of the need for excitement could be

positively correlated with functional impulsivity like being socially adventurous but more often

is correlated with dysfunctional impulsivity like lacking self-control as the Corporate

Psychopath execute the actions without considering the potential consequences (Crysel,

Crosier, and Webster 2013). This need for excitement can lead to not only fuelling

opportunistic corruption due to narcissistic illusions of indemnity (Naudé et al. 2018, p.28) but

also to a lack of realistic long term goals for the whole corporation (Jones and Paulhus 2011).

The need for excitement also often comes along with a certain lack of restraint, which makes

an individual prone to an egocentric sense of entitlement (Naudé et al. 2018, p.28), which often

31

makes them seem charismatic. The chosen charismatic leaders are mostly impulsive,

unpredictable characters, as they are expected to offer a new vision for an entirely different

future. This impulsivity usually comes with a general sense of irresponsibility, as Corporate

Psychopaths often deliberately destabilize the corporations they work for. In some cases the

destabilization can bring required changes to the corporation`s system, but in most cases it does

more harm or could even be disastrous (Khurana 2002, p.7). However, it is undeniable that in

all circumstances, destabilization carries great dangers. Charismatic leaders are also able to be

mesmerising in a frightening way, which helps them to extort corporations through fear.

Corporate Psychopaths are described as living a parasitic lifestyle through controlling their

surroundings by projecting a charisma that simultaneously is entangled with menace (Naudé et

al. 2018, p.34). However, the described lifestyle characteristics may be optimal for the

individual (Dawkins, 1978), despite the costs to a corporation. Dark Triad traits can be

maintained in the business only if positive benefits seemingly accrue and as Buss (2009)

suggests, a dark personality can be an flexible strategy established in response to a realistic

appraisal of a shorter time horizon (Jonason et al. 2012, p.192).

Facet 4: Antisocial

As Corporate Psychopaths regard themselves as superior beings, they often feel entitled to use

the resources of others and even aggress against seemingly „lesser beings“ (Myers, 1980). This

view of themselves leads to poor behavioural control as Corporate Psychopaths „might be

more likely to assume that they will win a fight, and so they would be more willing to start it“

(Baumeister, Smart, and Boden 1996, p.8). As they are generally associated with little positive

attributes (Muris et al. 2017) their limited empathy probably fosters interpersonal aggression

and a relationship style that focusses around short-term relationships (Jonason et al. 2012,

p.193). In many instances it starts with early behavioural problems of the dark triad, which

can lead to violence, drug use and consequently to higher juvenile delinquency (Jonason et al.

2012, pp.196f). This is one reason, why the typical image of the dark triad and psychopaths in

particular is that of the persistent criminal offender. However, even though psychopathy seems

to gravitate to extreme and predatory violence, the existence of Corporate Psychopaths proves

that these individuals are also able to use their considerable intelligence avoiding crimes or be

able to cover it (Skeem et al. 2011, p.96).

Unfortunately, the apparently charismatic characteristics are in demand in modern corporations,

especially when a corporation is struggling. Directors searching for a new CEO are not satisfied

with experience but want visible and stand out leaders who need to possess a set of personal

qualities that can inspire and submiss others (Khurana 2002, p.2). However, today’s widespread

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belief in the powers of a charismatic leaders could be problematic for the corporation for various

reasons. The first reason is exaggerating faith in the impact a single CEO might have on a whole

corporation. Secondly, the search for a charismatic leader lets the directors overlook promising

candidates, often from the inside. This leads to the last reason, the idea that outsiders are better

qualified to lead (Khurana 2002, p.5). This cult of a new and visionary outsider is often so

anchored in a corporation´s culture, that insiders are overlooked. The role of a CEO in today´s

corporation is motivating follower, inspiring employees to work harder and gaining the trust of

investors and analysts. Summarized, a modern, charismatic CEO is supposed to be able to

perform miracles and in case of need to bring a dying company back to life (Khurana 2002,

p.3). However, as mentioned in the table of candidates, the list of corporations which was

destroyed or led in a scandal by charismatic CEOs includes some of the biggest corporations

worldwide (Khurana 2002, p.7). The first hypothesis is that the wish of a charismatic executive

within a corporation helps to promote the Corporate Psychopaths in the selected examples.

4.3.3 Collation

1. Maxwell Communication Corporation

The first leader that we analyse is Robert Maxwell. As a famous media tycoon he stole from

his corporations pension funds and in the aftermath was illustrated as possessing psychopathic

traits including arrogance and insincerity (BBC News 2004). In line with the description of

Corporate Psychopaths being initially charming, Maxwell was described as „being someone

who would charm the birds off the trees and then shoot them“ (De Vries 1993, p.169). Also

typical for a member of the dark triad he was illustrated as a charmer who was able to mesmerize

women while simultaneously being insensitive and crude towards others (Boddy 2016a). Paired

with his superficial charm came also a grandiose sense of self-worth. With an autocratic

management style (Cox 2002). Maxwell apparently had enormous judgement of his own

significance and consequently was often reckless to win at all costs (Boddy 2016a). Maxwell

was also passionate about personal publicity as he was described as „having a lust for fame“(De

Vries 1993, p.173) which was part of his general need for excitement as a characteristic that is

typical for a Corporate Psychopath (Boddy 2016a). As a high psychopathy scoring leader

(Boddy 2015, p.2413), he intentionally made it difficult for an outsider and most insiders

evaluating the true economic viability of all his enterprises. As a pathological liar he could not

have left control of his empire without others realising its lack of financial viability. Corporate

Psychopaths often cling to their leadership position, not only due to its wealth and power but

also because they are afraid of exposure of their false image of success (Boddy 2015, p.2420).

33

This was also the case for Maxwell as in his business he was conning enough, so nobody

suspected any wrongdoing.

He had a lack of empathy for his employees as he tended to be bullying and menacing to them

while simultaneously flattering those above him (Simpson, 2001). The poor behavioural control

of a Corporate Psychopath is showing in his characteristics of being merciless brutal and

abusive (Boddy 2016b) as well as operating his corporation based on a climate of fear (De Vries

1993). Maxwell intentionally stole from his pensioners’ investment funds without any

consideration for the long term interests of the employees as well as his corporation (Boddy

2015, p.2417). As a Corporate Psychopath Maxwell was reported to use an impulsive and

careless to irresponsible approach to business making accurate accounts difficult to produce

(Clarke 1992).

In conclusion Robert Maxwell can be described as a charismatic leader. He was able to use his

typical characteristic of the dark triad to appear charming to the necessary partners that he

needed and abusive against his employees. During his business life he was a stand-out,

charismatic leader who possessed a set of personal qualities that could submiss others.

2. Enron

The second Corporate Psychopath in the selected examples is the former CEO Jeffrey Skilling

but in case of Enron in combination with the chairman Kenneth Lay as well as the CFO

Andrew Fastow. Skilling was famous for his ability of superficial charm as the entire board of

directors bent to his will to the point where they suspended the Enron code of ethics allowing

him to engage in off-balance-sheet partnerships. Until the bitter end Skilling and his colleagues

could vow investors and analysts alike (Khurana 2002, p.7). The top executives all had a

pronounced urge for self-expression as well as a grandiose sense of self-worth. Especially

Skilling strove to be perceived as one of the greatest business innovators of the time (Huber

and Scheytt 2017) and symbolized the idea of becoming rich and powerful by taking risks and

to “thinking outside the box“ (Khurana 2002, p.7). This approach and the “yes-man culture”

(Khurana 2002, p.7) of Enron serves the need for excitement of the top executives. The senior

management team created a tangled web of over 700 related deals hiding their debts (Culpan

and Trussel 2005, p.68). Chairman Lay, and CEO Skilling ordered CFO Fastow, to build private

cooperate institutions in secret to conceal market losses (Boddy 2015, p.2420) so that they could

manipulate financial information for investors and analysts. As a described dysfunctional

narcissist, Lay as well as Skilling can be described as pathological liars as they are guilty of

misreporting and engaging in various forms of corruption (Naudé et al. 2018, p.28) and showed

34

a lack of empathy or remorse as they also ordered conspiratorial employees to carry out illegal

acts of concealing the numbers of Enron (Li 2010, p.39). The top executives were convinced,

that they needed to protect and consequently manipulate the perception of Enron to a network

of externals, even their auditors, partly through threats and partly through financial advantages

(Huber and Scheytt 2017). As they realized their failure of realistic long term goals, they all

withdrew large amounts of their investments prior to the corporation’s failure, while reassuring

their investors of Enron’s long-term viability (Naudé et al. 2018, pp.29f). Subsequently they

failed to accept any responsibility for their illegal actions.

Summing up, the former CEO Skilling was known to radiate so much charisma that his

employees followed him blindly (Khurana 2002, p.1). As typical for Corporate Psychopaths

and charismatic leaders alike, the CEO rejected every limit and rebelled against all rules and

norms that applied to others at Enron (Khurana 2002, p.7). As a result, he advanced his vision

of converting Enron from a natural gas pipeline operator to a new economy, asset-light

corporation by convincing people of his idea (Khurana 2002, p.6). However, the specialty of

this case is that there was not only one Corporate Psychopath in a leader position and their

characteristics could be seen as a charismatic league of senior management.

3. Madoff Investment Securities

Bernard Madoff is the third leader being examined, that is said to have a psychopathic

personality (Creswell and Landon 2009). The New York stockbroker was caught swindling

to investors over many years in a massive Ponzi scheme and was therefore described as a

prototype of a Corporate Psychopath by Skeem et al. (2011, p.96). As an investor he was used

to apply his superficial charm to prey on the human nature of his clients (Carozza 2009) so

they entrust him with their savings. Simultaneously Madoff courted regulators, despite the

risk of exposing his own illegal actions. But due to his grandiose sense of self-worth he saw

himself above the law and was able to manipulate the opinions of the regulators for decades,

developing them as his allies (Creswell and Landon 2009). Fooling the analysts and

regulators would have been an intoxicating experience for Madoff and consequently boosted

his need for excitement (Creswell and Landon 2009). This experience became so normal

for Madoff, that the estimated losses are estimated to be between 10 billion and 65 billion

dollars (Glodstein, Glodstein, and Fornaro 2010, p.2). Similarly to the described cases before,

Madoff was also unable to lose his control without exposing his Ponzi scheme and him as a

pathological liar (Boddy 2015, p.2420). As Investors were genuinely blinded by his resumé and

35

his good status in his community, they did not see any need to research his methods and

furthermore did not want to question him too much as he was known for his poor behavioural

control (Carozza 2009). For decades Madoff lied to his investors and never showed any

indication of remorse for robbing them (Arvedlund 2010). When publicly accused, his victims

were left wondering about his motives and lack of bad conscience

(Creswell and Landon 2009). However, it became obvious, that he never had a realistic

long-term goal as Madoff confessed: „I always knew this day would come. I never invested the

money. I deposited it into a Chase Manhattan bank.“ (Arvedlund 2010).

Conclusively Madoff could be described as a charismatic leader who was able to move

comfortably among power brokers on Wall Street as well as securing seats on important boards

and commissions (Creswell and Landon 2009). Without his callous charisma he would have

never received all the money and due to his characteristic lying he could even win the

regulators over. It is a perfect example how favourable charm can distract people from the

necessary verification.

4. Wells Fargo

The fourth leader that is analysed in order to prove the hypothesis is Wells Fargo´s CEO John

Stumpf. He was famous for using and establishing the slogan “eight is great” which was

supposed to encourage his employees to get the average customer to purchase eight products

(Witman 2018, p.131). Incentives and disincentives were closely tied to how well the

employees performed in relation to their sales goals (Witman 2018). As many fake accounts

were created to achieve those high goals, Stumpf was made responsible for the ongoing scandal

as this strategy was direct cause for the fraudulent tactics (McGrath 2016). With a grandiose

sense of self-worth, he was convinced of Wells Fargo´s culture and success that when

complaints of illegal activities reached the CEO, they were generally ignored or downplayed

as unique incidents. In most cases, the whistle-blowers that informed the senior management were

fired after reporting those violations (Ochs 2016).

It prevented an early end to the scheming (Sison, Ferrero Muñoz, and Guitián 2018) and helped

its escalation as the volume of fake accounts was still increasing. This downplaying of the senior

management can be explained through their need for money and power, Stumpf in particular was

not ready to give that up, as they were more focused on their own financial impact than the damage

for the corporation (Ochs 2016). Even after the scandal leaked, Stumpf could not stop his

pathological lying and refused to hear any criticism of the bank’s culture. Furthermore, he did not

36

react as he got to know that 1 percent of employees were fired by Wells Fargo in 2013 for

violations: “In his view, the fact that 1 percent of Wells Fargo employees were terminated

meant that 99 percent of employees were doing their jobs correctly.” (Tayan 2019, p.4). This

statement shows that he lacked any remorse or guilt over these violations and was consistently

known as „someone who did not want to hear bad news or deal with conflict.” (Tayan 2019,

p.5). He also clearly lacked empathy for the stress that his strategy put on his employees as they

were expected to meet the numbers “without regard” (Witman 2018, p.131). The whole strategy

also lacked realistic long-term goals as Stumpf tried to explain the scandal as a predictable part

of doing business (Ochs 2016). John Stumpf ultimately “retired” (Cavico and Mujtaba 2017) as

a result of the breadth of this fraud and inability to address it effectively.

Even though Stumpf appears to have several characteristics of a Corporate Psychopath, he did

not have a particular charismatic character. However, he was able to hold up the fraud for

several years and made the organization with his forcing strategy „organizationally psychotic“

(McKay, 2016).

5. Steinhoff

The last and probably most charismatic leader in the selected examples is Markus Jooste. He

was the CEO of Steinhoff until it was thrown into financial turmoil due to an accounting scandal

(Rossouw and Styan 2019a). He was overly recognised for his apparent charm and intelligence

and as a result for his ability to raise significant amounts of capital. His grandiose sense of self-

worth led Jooste to participate in unconventional business tactics as well as a fast personal life

with exclusive properties and extramarital relationships (Naudé et al. 2018, pp.25f). He

appeared to live in an environment with the rich who believed themselves to be above the law

(Naudé et al. 2018, p.34).

Due to his need for excitement he started to buy shares and other corporations. When the

expected return did not occur, he acquired even bigger corporations to absorb the losses

(Rutledge, 2018). This created a vicious cycle where Jooste had to constantly lie about his

dwindling success (Naudé et al. 2018, pp.25f). Jooste boasted that “every competitor of

Steinhoff in my 29 years, we either own today or they are bankrupt − all of them” (Talevi,

2017) however due to his unrealistic long-term goal, the purchase spree did not work out. But

he was so conning that the board of Steinhoff had no insight into the finances as they trusted

the judgement of their CEO (Rossouw 2018). Even though he is not the founder of the

corporation, he acted as if Steinhoff and all its assets belonged to him and started to take great

37

liberties with Steinhoff’s money and in the progress crossed several ethical limits without any

remorse. He also did that with poor behavioural control as is evident in a humiliating public

ranting in which he told an employee to “get out of my f***g factory” (Naudé et al. 2018, p.27).

And even when he needed to resign as a CEO of Steinhoff he did not accept responsibility for

his actions as his resignation mail suggested that he only misled some people instead of taking

responsibility for the growing scandal at this point (Naudé et al. 2018, p.35).

In conclusion Jooste was a symbol of a charismatic leader. Due to his apparently successful,

aggressive international expansion and acquisition drive he was called a “retail star” (Retailers

News 2017) as well as a business genius (Stellenbosch University Business School 2018).

Furthermore, due to his extreme charisma Jooste had a group of employees who “worshipped

him unquestioningly” (Retailers News 2017). With his charisma and his traits of a Corporate

Psychopath he was also able to fool directors and employees alike, who failed to remain alert

and exercise any oversight (Naudé et al. 2018, p.26). The Steinhoff scandal is therefore a perfect

reminder that charismatic leaders are capable of directing people in dangerous directions

(Naudé et al. 2018, p.26).

Conclusion

While analysing the different cases it gets obvious that the hypothesis of today´s requests for a

charismatic executive within a corporation promoting typical traits of a Corporate Psychopath

is nearly always true. At this point it is important to recognize that there are also examples of

charismatic leaders who are not Corporate Psychopaths which are not taken into account here.

As this thesis is about Corporate Psychopaths, those are the ones analysed in the examples.

Research has shown that characteristics of charisma are going to spread more quickly in

corporations with well-established social networks (Naudé et al. 2018, p.26) so the natural

network of the corporation is important for the Corporate Psychopaths to be able to use the full

potential of their charisma. In a bigger network Corporate Psychopath can purposefully find the

employees in the corporation that are willing to defer to the authority of the leader (Hughes,

Ginnette, and Curphy 2012). This would explain why Corporate Psychopaths always have a

certain group of people around them that follow them unconditionally. However, it is noticeable

that they are all manipulative enough to create an insider/outsider atmosphere where they

deliberately deploy their charm on the insider group with colleagues that help their cause which

lets them appear charismatic. Another example of apparently charismatic Corporate

Psychopaths is the attribute of grandiose sense of self-worth paired with the need for

excitement. All of the Corporate Psychopaths in the analysed cases were identified of

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possessing these traits and in all cases it was firstly seen as part of a charismatic personality and

as a leader that was confident enough to try a new strategy. Even though all of their new

directions failed, the desire to have a charismatic leader guiding a corporation into a new

innovative direction with confidence is unbroken. With a charming façade, Corporate

Psychopaths are able to display all the traits that corporations want in an employee and appear

like an ideal leader (Boddy 2005, p.33). The author Deutschman (2005) even expressed the fear

that corporations tend to intentionally use measurements of psychopathy as a recruitment tool

to get those charismatic, manipulative leaders that are able to go new ways due to their need

for excitement and a grandiose sense of self-worth. Most corporations search this charisma in

their leaders at the expense of their actual suitability for the job (Khurana 2002, p.1). So

unfortunately, this choice helps Corporate Psychopaths and their typical traits to be promoted

as a seemingly charismatic executive and it leads to people being rewarded for embodying these

traits.

Corporate Psychopaths as Leaders

Hypothesis 2:

Based on the analytical framework of Behavioural Agency Theory the next

proposition is, that the more Corporate Psychopaths as leaders gain power, the

more risks they are willing to take and thus the more destructive their actions

become for the corporation.

4.4.1 Psychopaths rising within corporations

The latest figures suggest one in ten managers are psychopaths . . .” (Skeem et al. 2011, p.96).

Corporate Psychopaths are described as the most crucial threat to moral corporate behaviour

(Marshall et al. 2015), so the examination of such Corporate Psychopaths is an important new

area in general leadership research (Gudmundsson and Southey 2011) as well as leadership

fraud (Perri 2013). In the selected cases the Corporate Psychopaths could all rise to the top of

their Corporation and perpetrated different kinds of leadership fraud. As mentioned in part 3,

Corporate Psychopaths appear to be more adroit to getting promotions and can be found four

times more frequent in senior ranks than in junior ones (Boddy 2016a), which explains the

disproportionate numbers of psychopaths within leader-ranks (Smith, Watts, and Lilienfeld

2014).

39

According to evolutionary psychology all humans have the natural wish to be liked to acquire

social advantages (Boddy 2006). As Corporate Psychopaths are generally aware of this need

they are capable of using it by presenting themselves as people who approve and help others.

In return this presentation facilitates a fast growing support networks for themselves (Boddy

2015, pp.2408f). It is a clear sign that being a member of the dark triad can be a social advantage

in a corporation (Jakobwitz and Egan 2006). Even though most research about Corporate

Psychopaths is concentrated on their negative influence, there is also a comprehension of the

existence of positive sides of members from the dark triad in a corporation. Wille, De Fruyt,

and De Clercq (2013) were able to find a positive connection of antisocial tendencies with their

hierarchical position and general financial achievement. Psychopathic traits like boldness, a

better performance in negotiations due to their rationality and a natural preference for jobs with

greater responsibility (Spurk, Keller, and Hirschi 2016, p.113) are some features that are

generally associated with successful functioning in certain work domains (Skeem et al. 2011).

Researchers see different traits of the dark trait as superficially successful for the corporation.

So consequently, Corporations are eager to hire these people, but generally do not realise how

to use their skills on the corporations’ terms. It has to be clear that "they use their corporations

as vehicles for their own vision.“ (Maccoby 2003, p.105). The first step of entering a

corporation is a recruitment interview where Corporate Psychopaths mostly do well due to their

charm and being accomplished liars (Kirkman 2005). People high in psychopathy tend to rise

quickly in organisations mostly due to their trained social skills which helps them show a facade

of normalcy (Boddy 2005, p.33) and possibly their trait of remaining calm and unemotional in

pressured situations. Hirschi and Jaensch (2015) found out that narcissists earn higher salaries

and are generally more satisfied with their careers as narcissists perform well in impression

management, especially for selected collaborators that could help them obtain more prestigious

positions (Spurk, Keller, and Hirschi 2016, p.2).

The dark trait of Machiavellianism has a long research history within leadership studies

(Dahling, Whitaker, and Levy 2009). Even though Machiavellians are associated with a

tendency to abusive behaviour, they are positively related to political skills and the aim for

achievement (Spurk, Keller, and Hirschi 2016, p.3). Consequently, the “psychopath density” is

very high, especially in top management (Kühn 2012, p.173). McConnell (2004) is confirming

this by stating, that “the world of business often rewards people who have these traits, and

common sense suggests that some are occupying high office”. Once Corporate Psychopaths are

40

inside a corporation they start to methodically plan their rise to the top management (Gettler

2003). According to Babiak and Hare (2006) two factions develop during their ascent to power.

One contains the supporters and mentors of the Corporate Psychopaths whereas the other

faction is full of their critics, who realised that they have been manipulated and abused (Babiak

and Hare, 2006). With their group of colleagues that are on their side, Corporate Psychopaths

often try to reduce regulations under the specious goal of increasing profitability (Bakan 2012,

p.52). However individual executives high in dark traits were overall rated negatively on their

performance, including their accomplishments and management skills (Babiak, Neumann, and

Hare 2010, p.174). They are also associated with diminished organisational and team

commitment (Zettler, Friedrich, and Hilbig 2011) and furthermore if their attempt to gain power

by sticking to routines is unsuccessful, they might attempt to get their power through illegal

ways (Pech and Slade 2007).

4.4.2 Leadership mechanisms & its Impact

McGregor (1960) suggested that manager´s values influence the manner in which people are

managed by them. This is mostly important for leaders of the dark triad as their in general

negative attitude could create a managerial style that results in a very authoritarian and toxic

management. Bad leadership influences all those who are under its authority (Kaiser, LeBreton,

and Hogan 2015) and even if the job might still be done, the method is often unnecessarily

offending their subordinates (Pech and Slade 2007). The general term used for the following

chapter is toxic leadership. This phrase describes a style of leadership in which leaders inflict

harm directly on their colleagues which could lead to serious financial and productivity losses

for the whole corporation. Even though defining “toxic leadership” remains a difficult task,

Mehta and Maheshwari (2014, pp.19f) described it as „a series of purposeful and deliberate

behaviours and acts of a leader that disrupt the effective functioning of the organization and are

intended to maneuver, deceive, intimidate, and humiliate others with the objective of personal

gains“. Toxic leaders often use their power to abuse, bully (Einarsen, Aasland, and Skogstad

2007) or humiliate their subordinates to complete their task. But since a tyrannical leader is able

to achieve their assigned goals, their direct supervisors assess their behaviour very differently.

However, at some point they might also start to engage in anti- organisational behaviour of

fraud or stealing resources from the organisation (Aasland et al. 2010).

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Leadership mechanisms to influence employees

To be able to remain in their position of power, toxic leaders use different mechanisms to

influence their employees. The first one follows the ancient saying of „divide and conquer“.

As mentioned above the people that are connected to Corporate Psychopaths in the business

world are either intimidated and attracted by their apparent charisma and therefore also

favoured by the psychopaths themselves or feared and opposed on the other side. Corporate

Psychopaths are deliberately generating hostility between colleagues in order to create

confusion in their workplace which enables them to better push through their own agendas

(Boddy 2015, p. 2416). CEOs that are part of the dark triad were all found to deny any opposing

voice or opinion from those working under them (Boddy 2017) which is often at the price of

the organisation’s true interests. Toxic leadership is consequently creating an environment

where employees are rewarded for concurring with the respectable leader and punished for

challenging their authority. Corporate Psychopaths are ignoring input of colleagues and making

all decisions by themselves in the office to fulfil their desire for full control (Boddy 2017).

Consequently, Corporate Psychopaths are not relying on the most competent colleagues but the

ones that are the most impressed or intimidated by them. These colleagues are therefore easy

to manipulate and approve of all the CEO’s ideas.

Corporate Psychopaths also tend to go on so called acquisition sprees (Boddy 2015, p.2421)

as soon are they are in a position of power. This means that they would buy different other

corporations as their appetite for control and especially power is impossible to satisfy and a

growing corporation is feeding their own grandiosity (Boddy 2015, p.2421). And Corporate

Psychopaths like to be feared to reinforce their sense of greatness. This constant drive for

acquisitions associated with growing power can eventually become an addiction for some

leaders. This insatiable desire often becomes so strong, resulting in an increased risk of

leadership toxicity (Mehta and Maheshwari 2014, p.20) as behavioural theory predicts that high

targets are increasing their general risk taking (Cannella, Finkelstein, and Hambrick 2009,

p.339). In the mergers and acquisitions context a toxic leadership is especially dangerous as it

is shown that the return on assets after the acquisition ultimately depends on the

complementarity of the management teams in both corporations (Omar, Wisniewski, and

Yekini 2019, p.1197).

The new acquisitions simultaneously create a certain sense of chaos through the change in the

affected corporations. Corporate Psychopaths especially thrive in an ever changing work

environment as it helps them to hide their actions and can more easily deflect attention away

42

from themselves (Boddy 2015, p.2421). Even without an acquisition Corporate Psychopaths

tend to perform several re-organisations within a corporation which are nearly always

unnecessary. These structural changes do not underlie any aim for the corporation’s longevity,

in contrary they often result in a weaker and less independent main board (Boddy 2015, p.2416).

In the chaos competent directors can be replaced by a guidable senior manager mostly without

experience. These new directors are intimidated by their CEO and consequently easier to

control as well as dependent on the CEO for their appointment (Boddy 2017). Summarized this

deliberate chaos creating might contribute to a general reduction in profitability (Omar,

Wisniewski, and Yekini 2019, p.1197).

Impact

Leadership in general affects the performance of teams and the whole corporation and should

promote effective group performances as well as the general well-being of all involved (Hogan

and Kaiser 2005). Therefore, the characteristics and consequently their behaviour as a leader

has an impact on the corporation.

The first indication of a toxic leader is, that employees are significantly less likely to agree with

the leader’s views as well as the corporation views (Boddy, Ladyshewsky, and Galvin 2010,

p.1). Employees that can express their opinion on organisational decisions tend to have a

positive attitude towards this corporation as they feel their input is valued (de Vries, Jehn, and

Terwel 2012). With regard to that, the attitude quickly changes when a toxic leader takes over

and does not listen to any other ideas or opinions. As soon as Corporate Psychopaths are in a

leadership position, employees start to disagree with how the corporation does business in a

socially and environmentally manner as well as being less likely to agree with how the

corporation is treating their employees as they do not feel recognized (Boddy, Ladyshewsky,

and Galvin 2010, p.1).

In this kind of work environment the important factors of enthusiasm, creativity, challenges and

innovativeness dramatically decline as only the leader’s interest are assumed to be of

importance (Mehta and Maheshwari 2014, p.19). Research has shown, that respondents

received less recognition and no proper reward for doing a good job under a Corporate

Psychopath as leader (Boddy 2010). Consequently, employees are reported to become cynical

about the corporation and especially its toxic leadership as the common behaviour of Corporate

Psychopaths sabotages the job satisfaction of subordinates. Ultimately, these employees

become aimless and directionless with regard to their workplace activities (Boddy 2017) and

43

drastically reduce their efforts to further corporate goals (Mitchell and Ambrose 2007). This

lack of motivation and goals often causes a low self-esteem which is leading to deterioration of

their performance (Kusy and Holloway, 2009). The perceived ignorance or even injustice by

the toxic leaders leads to counterproductive behaviours of the affected employees such as

providing false or no information and thereby sabotaging operations as well as being

uncooperative and inflicting harm to colleagues (Mehta and Maheshwari 2014, p.21). Other

than producing systematic damage to the corporation, the presence of toxic behaviours can also

negatively affect attracting qualified candidates from outside (Sutton, 2007) Corporate

Psychopaths negatively affect the environment as stress-related illnesses increase due to the

toxic workplace environment they create. A reduced mental health often leads to emotional

exhaustion (Hershcovis and Barling 2010) and even depression.

This harmful workplace often includes bullying, exploitation or even extensive fraudulent

activities (Omar, Wisniewski, and Yekini 2019, p.1197) and can be a substantial factor in the

decrease of the corporation’s performance (Boddy 2017). Affected employees of toxic leaders

are showing symptoms of anxiety and frustration going as far as suffering from suicidal

thoughts (Michalak and Ashkanasy 2018). Additionally, those who speak up against this

negative workplace behaviour are being shunned or even excluded at work, which explains why

the behaviour often remains undetected. However, the numbers show what magnitude it can

have, as 75% of workers' compensation claims were related to work pressure and from these

allegations 94% were linked to abuse by managers (Aasland et al. 2010, p.438). Moreover, the

WHO stated that depressive disorders are one of the main cause of global diseases and

consequently Corporate Psychopaths are contributing to the 12 billion working-days which

account for $ 1.15 trillion in productivity loss worldwide due to anxiety and depression (WHO

2016). So when working with toxic executives, the affected employees often only have two

options, conform or leave (Mehta and Maheshwari 2014, p.22).

In general, human capital can be an important competitive advantage for corporations and solid

connections of employees with the corporation they are working for can boost the overall

organisational performance (Michalak and Ashkanasy 2018). However, as more and more

toxicity emerges due to the leadership of Corporate Psychopaths, more experienced

subordinates tend to move away and consequently there is a higher employee turnover in the

concerned corporations (Mehta and Maheshwari 2014, p.21). Boddy et al. (2015, p.534)

discovered that with a Corporate Psychopath in the corporation, the departmental employee

44

turnover was twice the average for this particular industry. Employees were even reported to

leave the toxic workplace without any further job offering, which indicates their extreme desire

to leave a hostile corporation (Boddy 2017). The toxic leadership created by Corporate

Psychopaths also eliminates the subordinates who would possibly question their authority or

decisions (Mehta and Maheshwari 2014, p.19). To sum up, the inability to retain important

members of the staff is a major contributing factor to a reduction in profitability (Omar,

Wisniewski, and Yekini 2019, p.1197). The effects of the Corporate Psychopaths in leadership

positions are reported to be responsible for a declining financial position of the respective

corporation. Their increasing staff turnover, a general decline in morale as well as a missing

direction or appropriate leadership weakens the strength of the corporations resources in

general, including its revenue (Boddy 2017).

Leadership toxicity itself often comes from a perceived threat to the status of the respective

leader. Even minor changes or accomplishments that are not initiated by the leader are

perceived as a threat which can cause extreme defensive reactions as they see their own power

and control at stake (Mehta and Maheshwari 2014, p.20). Ludeman and Erlandson (2004, p.2)

explain the trigger of increasing toxic behaviour as follows „the more executive authority

people achieved, the more pressure they felt and the more prominent their faults became“. As

researchers have generally stated concerns with agency problems in business and how leaders

are acting in their own interests rather than those of the corporations they work for (Foreman-

Peck and Hannah 2013), behavioural agency theory includes the necessary association between

the leader´s performance and their risk choice. Behavioural agency theory estimates that the

risk-taking behaviour of the leader is changing with problem framing as managers compare

problems to some reference point (March & Shapira 1987) including factors as current wealth

and prior success (Cannella, Finkelstein, and Hambrick 2009, p.337). Conclusively the

prediction is, that leaders take on more risk to avoid any potential loss than to create some gain

(Cannella, Finkelstein, and Hambrick 2009, p.338).

4.4.3 Pay for performance and Behavioural Agency Theory

The status and power of a leader is often reflected in their income. Therefore, the above

described behaviour and risk-taking is directly linked to their paycheck and the fear of it

reducing. First of all, the concentration of psychopaths in senior management is in part

explained in the literature by the design of incentive systems, which are largely based on the

concept of the rational decision-maker in economics. This model is based on a completely

logical and maximizing market participant (Lingnau 2011) and as Kühn (2012) analysed these

45

descriptions, he came to the conclusion that the personality of the described „Homo

oeconomicus“ widely overlaps with that of a Corporate Psychopath. As the image of the

perfectly economic decision-maker is the basis for the incentives systems, the highest

beneficiaries of them are consequently those who match the characteristics (Lingnau 2011, p.

37). Therefore the traditional incentive systems attract and even promote psychopathic

behaviour in corporations (Lingnau and Dehne-Niemann 2016). The amount of compensation

can also influence their behaviour as the higher the executive compensation, the greater the

extent of self-interested actions to manipulate accounting systems or their reputations. In the

case of incentive systems, behavioural agency theory suggests that the more Corporate

Psychopaths are paid, the more they are becoming risk averse as there is more to lose for them

if the corporation performs poorly (Cannella, Finkelstein, and Hambrick 2009, p.346).

However, the executive wealth is impacted by corporate performance and bad performance

could be perceived as a threat to future base pay. As behavioural agency concludes that leaders

are more loss averse than risk averse (Cannella, Finkelstein, and Hambrick 2009, p.338) they

are willing to use all actions necessary to counteract this threat.

So consequently, one of the most critical tasks of a board is the determination of the CEO’s

compensation (Daily et al. 1998). During the last years the public took more and more interest

and concern over any possible, favourable relationship between the board committee and the

CEO which could cause a too favourably outcome for the executive (Young and Buchholtz

2002, p.296). Especially after increasing compensations enjoyed by top executives this issue

received a lot of media attention and it is often discussed to which extent CEOs deserve to be

paid these large compensations. The widening gap between the leaders and their employees is

referred to as madness (Loomis 1982) and its effectiveness is often questioned. This question

of the effectiveness of executive pay is consequently also found in academic research. The

seemingly simple question of „What is the relationship between CEO pay and firm

performance?“ (Gomez-mejia and Tosi 1989, pp.184f) was the content of over 250 empirical

papers, dating back to the 1920s. Most of them have in common, that the amount of explained

variance in executive pay credited directly to corporate performance is minimal, „seldom

exceeding 15 percent and often well under 10 percent“ (Gomez-Mejia and Tosi 1989, p.184).

With those outcomes and the evidence of Behavioural Agency Theory, it becomes obvious that

promising high-powered incentives is not an efficient way to motivate agents. This is due to the

fact, that it is not feasible to set up an incentive system for an executive, which incorporates all

46

the current objectives of the corporation and is flexible enough while dealing with all possible

external factors that could occur during the performance (Pepper and Gore 2015, p.1062). Due

to the leader’s bounded rationality the designing of the incentive contracts, that should tie the

corporation´s and executive´s interests, is very complicated and has often a negative effect on

the work motivation. Furthermore, having an already high level of compensation also means

the lost intrinsic motivation can only be compensated by even proportionately higher increases

in extrinsic rewards (Pepper and Gore 2015, pp.1062f). Evidence shows, that financial

incentives can work but are mostly in opposition to the sought behaviour and culture, especially

when they “reward employees for achieving a metric without regard to the actions they took to

achieve that metric.” (Graham, Harvey, and Rajgopal 2016, p.13). As stated by a participant in

their study, “People invariably will do what you pay them to do even when you’re saying

something different.” (Graham, Harvey, and Rajgopal 2016, p.12). There is a number of

approaches to develop a reward system that strengthens individual task performance rather than

calculating behaviours, removing performance barriers (Giblin 1981). However, to this day

executive decision-making still suffers from harmful reward systems, continuing to recompense

narcissistic behaviours (Pech and Slade 2007, p.255).

4.4.4 Collation

1. Maxwell Communication Corporation

Robert Maxwell was able to build a media empire in the UK and was famous for being a

successful but also ruthless entrepreneur. As part of his entrepreneurial personality, he was

always willing to take considerable risks (Smith 2013) and in course of his career often took

more risk than his corporation could actually bare. The first warning sign for this reckless

behaviour was in 1969 when Maxwell apparently made false claims about the profitability of a

publishing corporation that he sold, which even led to an official investigation of the

Department of Trade and Industry (Boddy 2016a). The investigation eventually presumed, that

he is “not in our opinion a person who can be relied on to exercise proper stewardship of a

publicly quoted company” (Clarke 1992). However, this scandal was forgotten very quickly

and unfortunately no lessons were learned, as it proved to be a forecast to future events

regarding Maxwell`s risk taking and his fraudulent management (Vinten 2002). Maxwell was

generally sensitive to his status (Pottow 2007, p.223) and therefore did not stop his acquisition

spree after that failure. In the 1980s Maxwell used the era of buyouts and his reputation as

media mogul to gain the trust and money of banks to purchase other corporations. The bankers

would often jokingly describe this target setting as "Bob's gone shopping," (Pottow 2007,

47

p.223). After several apparently successful takeovers, Maxwell`s reasons became more

motivated by fame than finance. Famous examples were the prestigious American publishing

company Macmillan, for which he paid more than $2 billion and the buyout of the New York

Daily News which was described as overly quixotic (Pottow 2007, p.224). One reason why he

was capable of taking so much risk, was his dictatorial leadership style (Smith 2013). He

generated fear by threatening with litigation if someone dared to criticise his corporate affairs

and in the course of it, many journalists received warrants (Tricker 2012, p.26). In an ever

changing work environment, Maxwell could create a tangled web of over 400 public and private

corporate entities under his corporation (Boddy 2015, p.2421). Within this chaos even the

independent non-executive directors were ill-informed, which made it difficult to figure out,

that the several businesses were completely unprofitable (Clarke 1992). Indeed, he did not just

go after anyone who spoke out or wrote about him but was also famous for his acerbic style of

communicating. His communicational style to his employees as well as colleagues was

intimidating and bullying (Smith 2013).

He was well known for being preferably addressed as "Captain Maxwell" for long time after

the war (Pottow 2007, p.223) and his domineering and egoistic character was well known in

the English press. In spite of it all, Maxwell could thrive for nearly five decades in British

business life (Clarke 1992, p.463). In conclusion Maxwell was willing to take a lot of risk to

keep his power and became more and more destructive. In this case the second hypothesis is

proven true and the compensation increased for Maxwell with every new acquisition without

the corporation noticing the toxic actions.

2. Enron

The executives of Enron were able to use the leadership mechanism of divide and conquer, as

they had favourites on the team. Those top performers, that were determined through day-to-

day bottom line results, received big incentives and consequently bonuses. Especially Skilling

always surrounded himself with colleagues, that had identical ethic values and work

assumptions (Sims and Brinkmann 2003, p.251). However, the leaders forced all employees to

participate in the system “Rank and Yank” , where they were ranked in five categories

according to their performance and everyone in the worst category was subsequently fired

(Huber and Scheytt 2017, p.24). This system helped to create a group of employees, who

benefitted from the unscrupulous ways of the executives and a method to divide the employees

with middle management outbidding themselves (Huber and Scheytt 2017, p.24) and a

48

willingness to cross moral lines (Sims and Brinkmann 2002). In this tense environment critical

voices from inside were not audible and voices from outside were shut down through threats

(Huber and Scheytt 2017, p.21).

The CEO and CFO were an archetype for taking risky and reckless opportunities to become

rich and powerful. Fitting to this, Skilling described the pursuit of risks as one of the principal

topics in the Enron strategy. The personal willingness for taking risks also shaped the work

principles at Enron and their trading of contracts got so aggressive that they even settled

contracts for yet to be built power plants (Huber and Scheytt 2017, p.22). Another risk was

diversifying their businesses, which then ranged from paper products to a global broadband

network. Not all the new businesses turned into profit and consumed billions of dollars (Downes

and Russ 2005, p.84). Even though the executives praised high-risk opportunities, the question

how Enron was supposed to turn a profit in the long-term was never asked by the loyal followers

and consequently never discussed internally (Huber and Scheytt 2017, p.21).

The reward system was matched to the values of the executives and had a clear “win at-all-

costs” focus. The employees were rewarded for consistently outdoing each other, with no

consideration to the ethics and behaviour behind it (Sims and Brinkmann 2003, pp.250f), as

Enron's compensation policies focussed entirely on profit growth and its stock price (Li 2010,

p.38). High bonuses were issued to employees and other executives, who worked in the desired

manner. The annual bonuses of traders could be up to $1 million, so those of the leaders were

accordingly higher (Sims and Brinkmann 2003, pp.250f). To be able to keep this level of

incentives, the leaders were willing to hold the stock price up at all costs (Sims and Brinkmann

2003, p.251). Conclusively in this case the Corporate Psychopaths took high risks as leaders of

the corporation and just as the hypothesis stated, became destructive. Due to the seemingly

successful acquisitions of the CEO and CFO, their compensations drastically increased.

3. Madoff Investment Securities

Madoff also used the tactic of divide and conquer, but not in his corporation directly. He was

using his reputation as top market maker in NASDAQ to gain investors. His solid record created

curiosity and envy, which he could use to sell the investment into his business as an exclusive

privilege (Gregoriou and Lhabitant 2011, p.5). The privileged investors, who were invited to

work with him, knew that questioning his methods would risk their position (Azim and Azam

2016, p.124) and Madoff had therefore created the „perfect fly trap“ (Carozza, 2009) of being

49

in or out of the elusive club. In terms of risk-taking, Madoff made sure that he had the total

control of all activities. In his corporation BMIS (Bernard L. Madoff Investment Securities,

LLC) he held all major roles to himself, as he was not only the owner and sole decision-maker,

but also the transaction executer, the assets manager, and the financial report writer (Drew,

2010) at the same time. These functions were performed with no third-party oversight

(Gregoriou and Lhabitant 2011, p.10) and Madoff himself liked to present himself as a protector

of investors by being active in trying to change the rules of securities trading on Wall Street.

His former employees stated, that this need for control and order helped to not let them question

the promises Madoff made his investors (Creswell and Landon 2009).

However, he was not actually investing the money but instead paid earlier investors the

promised profit with the money of new acquired investors. It is a scheme that is well known

under the name Ponzi (Arvedlund 2010). As a culprit of a fraud, he was well aware of the risk

of being exposed as well as the damage he amounted over decades, however he gave into his

desire of own wealth and the need to show that he is apparently the smartest in the room

(Creswell and Landon 2009). The tendency of society to assume, that individuals who seem

successful and earn a lot of money are good at their job, helped him build his empire (Kruggman

2008). In the end he always knew that at some point the risks would catch up with him, as

previously stated he said “I always knew this day would come. I never invested the money. I

deposited it into a Chase Manhattan bank.“ (Arvedlund 2010). Summing up, the hypothesis

proved to be right in this sample. Madoff was willing to execute destructive actions to keep his

power and his increasing compensation from the investments made him to continue his fraud.

4. Wells Fargo

The bank established a rigorous system that measured the results of every employee. Their main

goal was having as many as eight or more contracts with a customer and consequently they

were measured in terms of new accounts opened. This constant reporting of results affected the

behaviour of the employees, as it was made clear that the goals must be met, while the ‘how’

is not important. They were encouraged to meet the aims “without regard” to ethics (Witman

2018, p.133). The corporations practice of performance measuring came with a fear of being

threatened and penalized for failing to meet those goals (Tayan 2019, p.4). This measuring was

ultimately used for the reward system which helped to compensate the employees for reaching

the numbers without asking how. This pressure eventually increased the risk-taking of the

employees, as the high goals increased the percentage of cheating immensely. The focus on

50

numbers of new accounts got employees to sell unwanted products and even go so far to open

unauthorized accounts (Tayan 2019, p.4). The executives were tolerating the bad behaviour to

reach the set goals, even though data showed that higher sales goals were connected with the

rising rate of misconduct (Tayan 2019). The employees later testified that their misbehaviour

came less from the potential for earning incentives, but more from the pressure to produce the

right numbers (Witman 2018, p.134).

Even though the CEO Stumpf knew about the pressure on his employees, he did not react

shocked to the news, that 1 percent of all Wells Fargo employees were terminated in 2013 for

sales practices violations (Tayan 2019, p.4). The high turnover rate was a common phenomenon

at Wells Fargo (Witman 2018, p.134), but in the executives eyes a successful manager should

push the employees aggressively to create the right mindset (Ochs 2016). Stumpf`s commitment

to the established sales practice helped him to understate the problems with it. He clearly did not

understand the scope of misbehaviour, as his reaction to the bad news of the high turnover rate

showed. In his opinion, it meant that 99 percent of employees were doing their jobs in the right

way (Tayan 2019, pp.4f). In conclusion this is the perfect example of how the incentive and

threat setting can lead to destructive actions. As the leaders became more powerful they were

willing to put high pressure on their employees which was known to be risky.

5. Steinhoff

As Jooste became CEO of Steinhoff, the corporation started to take over bigger pieces of their

supply chain which increased their profit margins in the beginning. However, in later years he

started a global acquisition spree which already raised suspicion (Cameron 2018a). Jooste tried

to replicate the early success, without taking the new risks and the increasing challenges of the

growing corporation into account (Skae 2018). This got evident when Steinhoff paid double the

market price for an American mattress firm, that was already suspected of fraud (Rose 2018).

Considering the high speed at which they were absorbing other corporations, they were not able

to properly analyse their core businesses and due diligence to see if they are comparable to their

own. The behaviour of Jooste was described as “someone that loses a job, but decides to max

out the Mastercard anyway, confident that they’d get a job next month” (Rose 2018). Even

though the acquisitions were not successful, until this made public the increasing compensation

and power for Jooste made him take high risks. He was actively destructive for the corporation

and thus proving the hypothesis true.

51

Conclusion

It is evident, that without proper control, incentive-based compensations or pressure can lead

to intense risk-taking by either the CEOs itself or by employees. The wrong incentives are

rewarding excessive risk and consequently leading to financial loss (Mims 2017, p.429). In all

the analysed cases, the compensation as well as the threat of not making the set goals, were

only based on short-term profit.

In the examples of Maxwell, Madoff and Steinhoff, the responsible CEOs were led on by

incentives and took on more and more risk to be able to keep them. In the examples of Enron

and Wells Fargo the employees were involved in the excessive risk-taking, due to incentives or

pressure. However, all examples showed that Corporate Psychopaths, who gained power in a

corporation, were willing to take more risks and thus became more destructive for their

corporation. The executives are normally responsible for conducting risk assessments as well

as thorough due diligence in case of an acquisition and auditors should review this process and

should ensure that it stays an ongoing effort (Azim and Azam 2016, p.135). The incentive

policies should bind pay for performance with continuing risk assessment (Mims 2017), which

could be essential when a Corporate Psychopath is in a leadership position.

Multiplier Effects of Corporate Psychopaths

Hypothesis 3:

The previous arguments lead to the proposition that intra-organizational ganging

dynamics in combination with weak Corporate Governance lead to a multiplier

effect of dark traits in corporations. The impact of Corporate Psychopaths as

executives can be so extensive that a whole corporation can transform into a

Psychopath.

4.5.1 Intra-organizational ganging dynamics/ Corporate Culture

After analysing the different effects of a Corporate Psychopath in a leadership position this

section deals with the question, how the psychopathic tendencies of this one individual leader

is spread within the affected group. According to Schein (2009), culture consists of the shared

thinking and acting which are embedded in the members of a corporation. Even though this

definition describes a collective phenomenon, leaders are influencing and developing it (Huber

and Scheytt 2017, p.18) by assigning tasks and competences within their responsible fields of

52

activities. This constellation is explaining how the dark triad dispositions of an individual is

evolving into a collective phenomenon and even into pathological conditions (Huber and

Scheytt 2017, p.18).

The negative behaviour of toxic executives can provoke retaliation of the employees, not only

against the responsible leader but the whole corporation and other colleagues. The aimed short-

term profitability of the Corporate Psychopath does not go unnoticed by the subordinates as

they adapt to the priorities displayed by the top management (Boddy et al. 2015). As soon as

those practices spiral out of control, the behaviour of the subordinates is starting to resemble

that of the Corporate Psychopath at the top (Omar, Wisniewski, and Yekini 2019, p.1202).

When the behaviour of the Corporate Psychopath is modelled, the focus shifts to the interests

of the individuals instead of the corporations interest (Mehta and Maheshwari 2014, p.20). This

toxic culture results in employees incline to turn toxic themselves in order to survive in this

surrounding, as „Evolution is considered to be competitive game in which victory comes from

outscoring the competition“ (Lawrence and Nohria, 2002 in Mehta and Maheshwari, p.20).

Research confirms, that the top executives are responsible for setting the ethical climate and

culture within a corporation (Treviño, Brown, and Hartman 2003) which makes it easy for toxic

leaders to create a climate of improper behaviour. However, employees with high dark triad

characteristics are less affected by abusive supervision, which allows them to stay in the

workplace and even thrive in a culture of mistreatment (Hurst et al. 2019).

In recent years, a lot of attention has been paid to the topic of corporate culture and the impact

that it can have on the corporation´s outcome. Even though the effect of the workplace culture

in a corporation is clearly identified, the actual mechanisms for implanting the preferred values

is not well analysed or understood (Tayan 2019, p.1). Therefore, the term corporate culture

must be looked at and be defined. Witman refers to the term as „the beliefs, values, and

behaviours that govern how employees of a company interact with each other and with

outsiders, including customers and suppliers“ (Witman 2018). Even though most employees

are familiar with the general term, the aspects of a corporate culture are seldom explicitly

documented (Tayan 2019). This contradicts with a survey by Deloitte, that states that 94 percent

of executives do believe that organizational culture is important for their success, and 62 percent

believe that “clearly defined and communicated core values and beliefs” are vital (Tayan 2019,

p.1). Especially as the majority of the population in the western world spends the majority of

their time in the office, ethical business practices and the well-being of employees are the most

important elements of corporate governance and responsibility (Verschoor 2008). This becomes

53

evident in an organisational climate research from the mid-1950s to 1990, where 75% of all

participants stated that the worst part of their work was their immediate supervisor (Hogan,

Curphy, and Hogan 1994, p.5). As soon as the subordinates are treated more like liabilities

instead of essential assets, it leads to a decay of morale (Macklem, 2005). The various forms of

destructive behaviours and general abuse are costing corporations an estimated $6 billion a year

(Michalak and Ashkanasy 2018, p.25) and the total cost of bullying in Australia alone is

estimated to be between $6 and $36 billion a year (Commonwealth of Australia, 2012, p.13).

Research also shows that active retirement costs the US estimated $450- $550 billion per year

(Gallup 2013 in Michalak and Ashkanasy 2018, p.25) and is highly correlated to the culture in

the workplace.

However, a distinction can be made between the internal and external cultural aspects. While

the internal aspect covers the consistency of culture within a corporation, the external one

focuses on the alignment between the corporate culture and the overall corporate strategy

(Arogyaswamy and Byles 1987). Any misalignment between the corporation´s culture and its

strategy negatively influences the implementation, and consequently the outcome of the

targeted strategy itself (Scholz 1987). An internal threat of a cultural disruption of the current

norms can occur when radical changes are made in the strategy or structure of the corporation

(Heracleous and Werres 2016, p.493). Both cultural aspects can be manipulated by a toxic

leader, as they tend to develop ever changing, short-term strategies as well as using fast changes

in the corporation for their advantage. Those decisions are shaping the corporation´s culture

and therefore also its strategic direction and core competency development (Beal and Yasai-

Ardekani 2000). Despite the unfavourable impact of Corporate Psychopaths for the corporate

culture, research shows that the corporate culture does not only tolerate manipulative and self-

centred behaviour of executives but often favours them (Jones et al. 2004). Donald (2002, p.

320) even argues that workers in corporations are “married to culture and fated to play out its

algorithm in our conscious acts” (Pech and Slade 2007, p.255).

4.5.2 Key characteristics of corporations as psychopaths

As the culture of a corporation can so easily be converted into a psychopathic one, the next

consequential step is, that corporations themselves might be psychopathic. The declaration that

a culture can become narcissistic is not new (Huber and Scheytt 2017, p.18), however the

connection of Corporate Psychopaths and whole corporations turning psychotic has only

recently been developed. The parallel of a Corporate Psychopath and a psychopathic

54

corporation can be drawn due to the status of “legal person”, which is given to corporations

under corporate law (Brueckner 2013). Therefore, corporate actions can be evaluated by their

moral standard analogous to human actions. The single aim for profit as the only driver

without the inclusion of other, more humane interests can be seen as the manifestation of

corporate psychopathy (Brueckner 2013). Furthermore, a corporation can have all

characteristics, that are typically observed in a Corporate Psychopath, according to the

definition of the World Health Organisation. The WHO definition includes the corporations

lack of conscience, their recklessness towards the safety of others and their inability of

experiencing guilt (Boddy 2015, p.2421).

Unsurprisingly, the checklist for psychopathic traits (Appendix 8.3.) is a close match to the

general character of international corporations (Bakan 2012, p.31). The first typical

characteristics that apply for corporations are their manipulative ways as well as their grandiose

sense of self-worth, as corporations try to “manipulate everything, including public opinion,”

and insist “that we’re number one, we’re the best.” (Bakan 2012, pp.31f). Furthermore,

corporations are prepared to influence their stock prices to benefit the shares of executives

(Boddy 2015, p.2421). Corporations also possess a sense of superficial charm, as “their whole

goal is to present themselves to the public in a way that is appealing“ (Bakan 2012, pp.31f).

And even though it might not be representative of their real social responsibility, they are

presenting themselves as compassionate and concerned about others. A lack of empathy and of

conscience are essential characteristics of a corporation, as “their behaviour indicates they don’t

really concern themselves with their victims” according to Hare. This fits to corporations not

feeling guilty for their actions and sometimes not complying with social norms and laws. Even

when they are getting caught, they usually do not take responsibility for their own actions, “if

[corporations] get caught [breaking the law], they pay big fines and they (..) continue doing

what they did before anyway.“ (Bakan 2012 p.32).

Just as they are capable of breaking the law, they are also constantly trying to deregulate the

laws and norms that possibly restrict their actions. Trough lobbying and sophisticated public

relations campaigns, corporations are influencing the democratic process to boost their self-

interested missions and turn political systems and public opinions against regulating them

(Bakan 2012, p.45). In their attempt to reach their corporate goal, they are willing to put humans

at risk and therefore act irresponsible from a morale point of view. This offers an explanation

as to why some corporations are committed to seek out loopholes in the law to avoid taxes

55

(Boddy 2015, p.2421) and to manipulating their pension funds. As they know that they are

behaving in a wrong manner they start illegal accounting to cover up their actions, regardless

of the long-term consequences for their employees. Especially in those cases Whistleblowers

are seen as a big threat to the corporation’s actions. Their lack of realistic long-term goals is

also evident in their constant competition for short-term profit as they are „not particularly

concerned with what happens to the general public as long as they’re buying the product.”

(Bakan 2012, p.31). Often only the concern for its own interests and goals are often found in

corporations, however recent corporate scandals were violations of the corporations’ own

interest as corporate shareholders became victims as well. This could occur due to Corporate

Psychopath on the top, who were acting irresponsible and at their own interest and on their way

to an actual scandal already harmed workers, consumers, and the environment.

In today`s society this behaviour of corporations tends to be seen as inevitable and acceptable

with consequential “externalities” in the jargon of economics (Bakan 2012, p.33). The

increasingly complex nature of the economic world is one major reason (Pech and Slade 2007)

for the normalization of psychopathic corporations in our midst. Boddy et al. (2015) argue, that

until the last third of the twentieth century corporations were slow in change and therefore

stable with employees and often rooted in their communities. In this environment, employees

knew each other and the culture of the corporation well, so Corporate Psychopaths were better

identifiable and therefore undesirable as leaders who are responsible for the corporate culture.

However, as the corporate changes sped up due to the globalization and rapidly changing

technologies, job switching became more common and employees are now increasingly

working with new colleagues in an entangled international corporation. These changes make it

difficult to identify Corporate Psychopaths early on as well as a psychopathic culture which

enables them to flourish relatively unopposed. The typical characteristics of Corporate

Psychopaths demonstrate as useful to the merely profit oriented form of corporation and

consequently create a culture of extremes (Boddy et al. 2015, p.530). If corporations themselves

already are psychopathic, Corporate Psychopaths have even better chances to get promoted

which is multiplying the psychopathic effects with the absence of a moral leitmotiv (Boddy

2006). So rather than filtering out the Corporate Psychopaths, a psychopathic culture rewards

their behaviours. In conclusion, a psychotic corporation is pursuing corporate self-interest,

regardless of the consequences (Brueckner 2013) and most likely with the help of Corporate

Psychopaths at their top.

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4.5.3 Passive Board of Directors

These descriptions of a toxic corporate culture, which can ultimately lead to a whole corporation

becoming a psychopathic entity, conduct the proposition that a passive board of directors is

necessary for a corporation turning in a psychopath. Westerlaken and Woods (2013) found a

significant correlation between psychopathy and passive leadership as they will not reject or set

limits for Corporate Psychopaths and are not willing to take responsibility. First of all, it appears

that a board is a sufficient solution for potential Corporate Psychopaths as leaders, as they

should be able to detect and prevent any exploitative behaviour. The members of the board are

paid to objectively supervise and for taking on the responsibilities of a director. The

examination of the culture of a corporation is a challenging undertaking for people “from

outside”, as analytical testing methods are not able to verify a toxic behaviour. The integrity of

the considerable executives and the ethical principles and regulations (Scheytt and Junne 2015)

can only be identified from within the culture, which makes it even more important to have

members in the board who are critical of the lived attitudes (Huber and Scheytt 2017, p.25).

Consequently a board of directors should reduce the scope of any misbehaviour of top

executives that could be potential Corporate Psychopaths through the use of their governance

mechanisms (Downes and Russ 2005, p.94). Unfortunately, the objective position is often not

taken seriously, as well as the managerial power in creating their compensation arrangements

(Bebchuk and Fried 2006). The managerial power can not only explain the current landscape

of executive compensation but also explains the various economic incentives that directors have

by supporting high compensation arrangements for the executives (Bebchuk and Fried 2006).

Many of the directors have either direct business relationships or even a prior social connection

with the executives, they have an incentive to be re-elected as well as committing ratcheting in

comparison with rival corporations (Bebchuk and Fried 2006, pp.9f). Therefore any kind

opposition to the top management might have negative consequences for their business

contracts (Downes and Russ 2005, p.96). So ironically, as soon as directors themselves show

opportunism, it overpowers their sole purpose and fails its obligation to shareholders.

To fulfil their role as members of the board, directors should be able to proactively seek the

truth in any situation instead of being reactive. Even though this job description is immanent,

it is generally difficult to see in advance which members of the board are willing to risk their

status in favour of their corporations principles (Downes and Russ 2005, p.94). A passive board

of directors are not in a position to stop a Corporate Psychopath rising through the ranks or a

culture getting more toxic. This is in order with the general expectation of Corporate

57

Psychopathy in corporations and is a practical addition to the understanding on psychopaths as

leaders (Boddy 2015, p.2419). A possible result for this dilemma could be an adequate

Corporate Governance, as codes could help to significantly reduce bad governance practices

tolerated by a passive board (Haxhi and Aguilera 2015).

4.5.4 Corporate Governance

In general, Corporate Governance is always evolving in response to the changing environment

and therefore flexible (du Plessis, Hargovan, and Harris 2018, p.4). As a framework of rules

and systems by which authority is exercised and controlled, an important aspect of Corporate

Governance are the mechanisms that holds those in control accountable (du Plessis, Hargovan,

and Harris 2018, p.5). Consequently, Corporate Governance failed as soon as a corporation

becomes psychopathic, however it could help to detect early signs of toxic tendencies in a

corporate culture and also to distribute responsibilities. Corporate Governance consists of

creating value while managing risk (Tricker 2012, p.21) and core principles include the laying

of solid foundations for management and oversight to create sustainable growth in value for the

corporation. Therefore, a listed entity should establish and also announce clear roles and

responsibilities of its board and executives and how all their performance is monitored. The

next core principles affect Corporate Governance itself and its transparency. Adequate

corporate governance should be part of the business strategy and not just seen as a compliance

obligation and thus is best solved through collaboration and market-based redesigns (Tricker

2012, p.23). Another critical component of good governance is its transparency and integrity in

the corporate reporting, as well-governed corporations should possess appropriate disclosure

practices (Tricker 2012, p.23) as well as formal rules to independently guard the integrity of

corporate reporting (du Plessis, Hargovan, and Harris 2018).

However, the main principles concern the board directly as members lack adequate incentives

to only focus on shareholder interests when dealing with Corporate Psychopaths as leaders

(Bebchuk and Fried 2006). The structure of the board should generally add value due to their

appropriate size, composition and skills to fulfil their duties effectively. This effective

composition should also help the board to act ethically and continuously responsible (du Plessis,

Hargovan, and Harris 2018, p.17). The codes recommendations often suggest to increase so

called board committees with independent, non-executive directors (Cuomo, Mallin, and

Zattoni 2016), with a greater diversity by gender but also by business experience and skills

mirroring the diversity of the affected society (Tricker 2012, pp.23f). Another important area

58

to improve upon is managing the risk within the corporation. The responsible board should

establish a risk management framework with a regular review of its effectiveness (du Plessis,

Hargovan, and Harris 2018, p.18). To be able to do so, a board needs to acquire a deeper

understanding of the corporation and its strategies to create value as well as to maintain a

professional relationship with their executives and track their development and succession

(Tricker 2012, p.20). All those principles should encourage the directors to play a more active

role in controlling the top management and the general behaviour in a corporation (Cuomo,

Mallin, and Zattoni 2016) as there is empirical proof that shows that a legitimate corporate

governance is economically beneficial for corporations.

In today`s business world with global finance, trading and services, more and more people are

affected by the corporations and thus the need for socially responsible behaviour is constantly

increasing. As a consequence, the society raised concern for the consequences of a corporations

actions on their stakeholders and the affected communities (Tricker 2012, p.25). The societal

perspective of Corporate Governance comes to the fore and is described as holding the balance

between economic and general social goals (Cadbury 2000). Its aim is aligning the interests of

individuals, corporations and society (Tricker 2012, p.32). Nevertheless, todays practice of

Corporate Governance is often still based on a 19th century legal concept and consequently

inadequate in a global environment (du Plessis, Hargovan, and Harris 2018, p.16). Due to the

„comply or explain“ rule that was previously described in section 4.1.2., codes could

significantly reduce bad governance behaviours, but are not in a position to urge the universal

adoption of best governance practices in all corporations (Haxhi and Aguilera 2015). Thus, the

need for a contemporary Corporate Governance is still gaining significance in the light of

corporate scandals and essential reforms concerning the division of power in a corporation are

necessary (Bebchuk and Fried 2006).

4.5.5 Collation

1. Maxwell Communication Corporation

Robert Maxwell was ruled unfit to hold a leadership position long before his psychopathic

tendencies as well as his fraudulent activities were uncovered (Boddy 2015, p.2421). With his

ruthlessness he was able to bust the unions in the corporations he acquisitioned (Pottow 2007,

p.223) and therefore destroyed the cohesion of the workers. Maxwell furthermore deployed his

family members in the highest positions, so they would not challenge his status or work ethics.

This strategy helped to ensure that the behaviour of the management started to resemble that of

the Corporate Psychopath at the top and the combination of his characteristics and the

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organizational strategy can explain, why his business activities remained hidden (Smith 2013).

Even the independent directors were ill informed about the business and its profits or lack

thereof. The corporation’s complex network made it nearly impossible to see the whole picture

and keep an overview (Tricker 2012, p.26). In an internal memo, the main auditor wrote „The

first requirement is to continue to be at the beck and call of Robert Maxwell, his sons and his

staff, appear when wanted and provide whatever is required“ (Tricker 2012, p.25). Some of the

directors eventually grew suspicious but when a director asked Maxwell directly about

irregularities, he was told not to worry and that the private side accountants would look into it.

Every damaging information was hidden or remained unquestioned, as the board of directors

depended on their salaries (Pottow 2007, p.227).

That is why Maxwell could get away with fraud for nearly five decades in business and why

this example showed the weak standards of corporate governance (Clarke 1992, p.463). This

case raised concerns about the ownership of pension fund assets as well as effective checks and

balances practiced by the directors of the boardroom (Clarke 1993, p.141). And as the Maxwell

Communication Corporation was founded and headed by a Corporate Psychopath, the

psychopathic nature of the whole entity is inevitable.

2. Enron

The culture of Enron was described as aggressive and with a clear focus on economic success

(Huber and Scheytt 2017, p.20). The culture was based on the motto “Profits at all costs” (Sims

and Brinkmann 2003, p.247) with attributes of constant competition, a sense of superiority, and

low reflectivity within the whole corporation (Huber and Scheytt 2017, p.20). In this

atmosphere, rules became merely obstacles to the potential profit (Sims and Brinkmann 2003,

p.247). The CEO Skilling created a culture that considered pushing limits as a surviving skill

within the corporation and thus forced the employees to ignore rules for the pursuit of the next

big success (Josephson 1999). Consequently, Enron was named a psychopathic corporation that

tried to lobby and manipulate regulations regarding energy supply (Boddy 2015, p.2421). The

impact of a Corporate Psychopath as CEO was also noticeable in their corporate governance

codes. The culture of Enron escaped any control and criticism due to its inner competition

(Huber and Scheytt 2017, p.25). The lack of independent oversight of the activities of the

management contributed to the corporate governance and ultimately corporations failure (Li

2010, p.38). The board members had a high salary but were too involved with the executives

and unfortunately failed to recognize warning signs, even when the top management abruptly

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left the corporation or the auditors informed them that Enron was following high-risk

accounting practices (Downes and Russ 2005, p.84). Ironically the board was active in granting

the CEO and CFO exceptions from the ethics code, which helped them earn more than $30

million from their partnerships (Downes and Russ 2005, p.84). The members of the board as

well as the middle management „did not ask the tough questions“ (Downes and Russ 2005,

p.96).

In this case the hypothesis of intra-organizational ganging dynamics and weak Corporate

Governance leading to dark traits in the whole corporation proved to be right. The complete

culture of Enron transformed into a psychopathic one.

3. Madoff Investment Securities

In the case of Madoff, earning millions was not special in the time before the collapse and high

incomes were common by part of his clients as high pays were normal on Wall Street

(Kruggman 2008). Due to Madoffs apparent success very few were willing to criticise him as

it meant putting their own careers in danger (Gregoriou and Lhabitant 2011, p.5). This enabled

Madoff to gain enough authority to create his own internal control as well as corporate

governance code, which was mainly for his own advantage (Azim and Azam 2016, p.128).

Firstly, he gave major positions at BMIS, Madoffs corporation, to members of his own family

(Gregoriou and Lhabitant 2011, p.11). Secondly, the corporation had only between one and five

employees who were listed to carry out investment advisory functions while disclosing over

$17 billion of assets under their management (Gregoriou and Lhabitant 2011, p.12). Those

factors helped Madoff to establish a fraudulent culture around him, that made it possible to keep

the Ponzi scheme alive. And while the culture of the corporation should have raised some red

flags by the clients and regulators a lot of the people from Wall Street “believed their own hype”

(Kruggman 2008) and did not question it.

In this particular case, the passive part is not taken by the responsible members of the board, as

Madoff itself was the chairman, but by poor stock exchange supervision. He was idolized and

trusted by the so-called elite (Kruggman 2008), as they did not question the underlying culture

of the investment corporation or how it would even function with so few employees. In

conclusion, a weak Corporate Governance in combination with the impact of the Corporate

Psychopath led to a psychopathic corporation.

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4. Wells Fargo

The cross-selling scandal of Wells Fargo perfectly shows the tensions that a toxic corporate

culture can create (Tayan 2019, p.1). The success of the corporation was always based on an

engaged sales culture, however this was led to an extreme, as the executives began to cultivate

competition like daily score cards and monitoring on an hourly basis (Zamry and

Syafinaz 2019, p.3). The pressure of this culture became even more excessive as the

management started to call out the various region’s performances in comparison to the other

regions and simultaneously encouraged their employees “to do what it takes” to be ranked

higher than the other regions (Witman 2018, p.134). Managers started to encourage their

employees to open multiple accounts for one customer to be able to meet the aggressive sales

goals and even scheduled training programs regarding fraudulent sales practices (Cavico and

Mujtaba 2017, p.5). The “boiler room atmosphere” not only facilitated breaking the law

(Calabresi, 2016), but also created a culture of fear and daily intimidation by managers (Ochs,

2016). The CFO at the time, rejected any criticism of the sales system and quoted “I’m not

aware of any overbearing sales culture.” (Reckard 2013).

Even though Wells Fargo had a corporate governance code and controls to prevent any abuse,

the protections were not sufficient (Tayan 2019, p.2). Despite five years of repeated warnings,

the bank ignored and even fired employees who tried to voice the unethical practices, sending

a signal to everyone else that they should keep quiet (Ochs, 2016). The board itself received

note, that the occurring sales practices were receiving attention and that the risks decreased

(Tayan 2019, p.5). Apparently, they were misinformed, however, they did not investigate any

of these arising problems and were satisfied with the answers the top management gave them.

The scandal showed, that Wells Fargo had no effective corporate governance policies to be able

to monitor and eventually reduce the excessive risk-taking and fraudulent activities (Mims

2017, p.450).

In the aftermath it got obvious that it was a serious corporate governance issue, as the

misconduct violated several principles which dramatically affected its reputation (Zamry and

Syafinaz 2019, p.3). Conclusively, this is a perfect example for proving the hypothesis. The

intra-organizational ganging dynamics in combination with weak Corporate Governance lead

to a multiplier effect of dark traits in corporations to a point of turning the whole culture

psychotic.

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5. Steinhoff

The Steinhoff scandal is a classic case of corporate governance failure due to an all-powerful

chief executive (Rossouw and Styan 2019). As a feared and authoritarian leader, Jooste could

influence the corporate culture and convince the loyal employees, that there is a justification

for dubious activities, including boosting the profit or personal benefits for their own career

(Naudé et al. 2018, p.28). Not getting penalized and even reassured in their behaviour laid the

foundation for a repetitive cycle (Long, 2008) and toxic culture. Steinhoff seemingly complied

with all requirements which established a sense of security for investors and stakeholders

(Cameron 2018b). However, Steinhoff never set up any formal process for keeping ethical

compliance in the corporation and used the same phrase on ‘working on it’ in all its latest

reports. This fact shows that the board was not actively trying to establish corporate governance

codes (Cameron 2018b).

Many of the board members were on this board for a long time (Naudé et al. 2018, p.19) and

were victims of a group-think culture and lost their willingness to critically questioning the

decisions of the executives (Cameron 2018b). The lack of independence of the plainly biased

non-executive directors was welcomed in the corporation (Naudé et al. 2018, p.18). Thus the

board failed its task of having an oversight over the executives activities, as well as not

questioning any financial statements (Rossouw and Styan 2019, p.166). In this case, the

overpayment of the board is problematic, as the members confused it as reward for their

knowledge and insight, which was not the case and just boosted their ego (Rossouw and Styan

2019, p.168). Summarized, in this example the hypothesis is right as well, as the internal

ganging dynamics in combination with weak Corporate Governance led to a psychopathic

culture under the leadership of the Corporate Psychopath Jooste.

Conclusion

In all the cases, an intra-organisational ganging dynamic and a weak corporate governance were

present in the corporations. In all cases this led to different manifestations of a toxic culture.

Whereas the cases of Maxwell and Madoff are more based on the doings of the executives

alone, the cases of Enron, Wells Fargo and Steinhoff are just as famous for their toxic culture

as their Corporate Psychopaths as leaders. The hypothesis that the impact of Corporate

Psychopaths can be extensive enough to turn a whole organisational culture psychopathic,

could therefore be confirmed. A certain amount of narcissism is normal and healthy for

entrepreneurship and new ideas in a corporation (Campbell et al. 2011). However, as soon as it

turns into the belief in one’s superiority, arrogance and an exploitative attitude, the entire

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organisational culture is at stake (Huber and Scheytt 2017, pp.24f). A strong corporate

governance could stabilize corporate culture and is very dependent on an active and capable

board, so that all activities of the executive team is closely watched and motivated (Cameron

2018b). In all the cases, the board was deceived by the executive team and was not ready to ask

the critical and objective questions (Downes and Russ 2005, p.96). Consequently, the

hypothesis of internal ganging dynamics in combination with weak Corporate Governance

leading to a multiplier effect of dark traits is proven by the samples. All of them showed clear

signs of a completely missing or not practiced corporate governance due to their tone at the top.

A serious reconsideration of the remuneration and general practice understanding for directors

seems long overdue (Rossouw and Styan 2019, p.168). Corporate governance should never be

taken for granted and requires constant attention in the implementation (Cameron 2018b).

Corporate Fraud

Hypothesis 4:

The following hypothesis is regarding corporate fraud and proposes that

Corporate Psychopaths ultimately conduct a form of (white-collar) crime in their

careers.

Fraud in corporations is a subject with growing attention not only from the public but also from

regulators and responsible auditors (Kassem and Higson 2012, p.191). It is estimated, that

around 15% of publicly traded corporations are committing fraud every year (Dyck, Morse, and

Zingales 2011, p.21). The term fraud describes intentional actions performed by leaders to

deceive, swindle or cheat stakeholders and mainly the investors (Zahra, Priem, and Rasheed

2005). Possible forms of fraud are embezzlement, insider trading, general lying about facts,

corruption as well as cover-ups (Moberg 1997). Fraud can also differ in scope as some are

limited to a few transactions whereas some fraudulent activities are going on for years (Zahra,

Priem, and Rasheed 2005, p.805). Usually, only greater fraud that occurs in bigger, well-known

corporations can become the substance of a corporate scandal (Zona, Minoja, and Coda 2013).

The arising question is, why people even participate in fraud if it can lead to a scandal. This

question was first raised and examined by Cressey (1950). His research was about what leads

individuals to violate trust (Cressey 1950). He found three factors that could lead to committing

fraud, the so-called Fraud Triangle. The first factor is a non-shareable financial problem which

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is often considered by the people committing fraud as high pressure, which needs to be

combined with the opportunity to commit the violation, and thirdly the rationalisation by the

violator (Cressey 1950, p.742f). As soon as individuals high in hierarchy surrender to this

perceived pressure they will often strive to enrich themselves by either increasing their financial

position, or their social status through a dishonest image of themselves (Albrecht et al. 2008,

p.2). An opportunity is presented when the violator spots a way to misuse their rank and trust

to solve its own financial problems. They also need to be in a position to rationalise their

actions, as they believe they are honest people, that are just caught in a bad situation (Kassem

and Higson 2012, p.191). Cressey described, that “many trust violators expressed the idea that

they knew the behaviour to be illegal and wrong at all times and that they merely kidded

themselves into thinking that it was not illegal” (Cressey 1950, p.741).

One evident explanation for leaders who engage in corporate fraud is their greed as it is

presumed that managers who commit economic crimes work in a culture where material success

and individual wealth is of high value (Blickle et al. 2006, p.221). And although money itself

is an eventual goal of fraudulent activities, the greed is not only about richness but about using

money as a signal for power and status of the executive. Therefore corrupt behaviour of

seemingly already rich and successful leaders, is less guided by rational cost vs. benefit

calculations but more by the representative of success (Naudé et al. 2018, p.27). As soon as this

moral boundary is crossed by an individual (Long 2008), fraud is breeding more fraud and can

easily spiral out of control with increased frequency and seriousness. Successfully

accomplished frauds can inflate the inhabited narcissism and leaders begin to believe that

accomplished norms need to be sacrificed to reach higher values (Naudé et al. 2018, pp.29f).

The explanations as to why a person would be willing to commit fraud apply to all kinds of

leaders, however Perri and Brody warn that Corporate Psychopaths are an additional risk factor

for fraud (Perri and Brody 2012). In current research a significant connection between

psychopathy and white-collar criminal behaviour can be drawn (Ragatz, Fremouw, and Baker

2012) and fraud was recognized as a particular crime that Corporate Psychopaths tend to

commit (Kirkman 2005). This is not surprising, as fraud has been directly linked to

predispositions, including lack of integrity, low self-control (Marcus and Schuler 2004) and

little empathy (Eisenberg 2000), which can all be seen in Corporate Psychopaths. A personality

with those characteristics would not need any pressure or rationalizing behaviour to commit

fraud but only the opportunity (Stout 2005). Therefore, an individual with a dark triad

personality can only be deterred of fraud if there is an absolute absence of opportunity, even

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though a high ranking Corporate Psychopath is possibly capable of creating new opportunities

for it (Epstein and Ramamoorti 2016, p.18).

Studies have shown that the ethical profile of CEOs is a key factor for the emergence of fraud

and corporate scandals (Carson 2003). After major collapses in the early 2000s the unrealistic

expectation for the executives as moral standards and agents of social improvement started to

crumble (Zona, Minoja, and Coda 2013). One reason might be, that Corporate Psychopaths are

willing to falsify financial results to get either promoted or be paid big bonuses (Boddy 2015,

p.2414). They are also known for having no scruple with having to make unethical choices that

are either opposing accepted codes or illegal (Boddy 2015, p.2418) and their ongoing

aggregation of increasing wealth is a source for a lavish lifestyle (Long, 2008). Research backs

this argument by acknowledging that leaders of high-growth corporations are more likely to

take part in corporate misconduct (MacLean 2008).

In general, members of the dark triad are more constantly violent than non-psychopaths.

However, their use of violence seems to be directed toward particular goals. Of the

approximately 1 percent of the general population of psychopaths, around 15 percent of the

prison population is estimated to be psychopathic (Babiak et al. 2012, p.2). Corporate

Psychopaths in general understand right from wrong but are willing to ignore them for pursuing

their own interests (Babiak et al. 2012, p.2).

4.6.1 White Collar Crimes

The general term „elite deviance“, describes illegal and unethical behaviour committed by the

corporations leaders and often results in physical, financial, or moral harm of the employees or

the corporation as a whole. Its goal includes increase in profit and power, economic domination

and control and in many instances has the support from the elites who oversee such corporations

(Simon 2018). Elite deviance covers a variety of behaviours, including white-collar crime,

corporate crime and general corporate violence (Robinson 2009). Especially white-collar crime

has various definitions, with Sutherland (1949, p.9) first defining it as “a crime committed by

a person of respectability and high social status in the course of his occupation.” The Cambridge

Dictionary broadly describes a white-collar crime as a „crime in which an office worker or

someone in business illegally takes money from their employer or the people they deal with in

their business.“ (Cambridge Dictionary). It generally violates public trust and their

responsibility in a corporation and is done for personal or organizational gain. Even though,

white‐collar crimes are normally devastating for individuals as well as private, non‐profit, and

governmental corporations, they often seem to be less serious than other crimes (Perri 2011).

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The expression corporate crime is described as illegal actions performed by corporate officials

for the benefit of their corporation as well as felonies of the corporation itself (Clinard, Quinney

and Wildeman 2014, p.191). In addition to actually breaching existing law, corporations might

practice legal acts, that can have negative social consequences (Pardue, Robinson, and Arrigo

2013).

With the creation of corporations as autonomous entity in law, executives and directors are

nearly almost guaranteed immunity. Consequently, shareholders are also not liable for the

liabilities of corporations or for any legal costs that could result from their actions. Corporate

lawyers call this protective shield the “corporate veil” which keeps the shareholders of the

corporation from having to take responsibility for the harms caused by the corporation (Whyte

2018, p.6). Thus, the modern and complex chains of ownership make it easy for executives and

shareholders to avoid actual legal consequences for their practices (Whyte 2018). For

executives is the compliance with law is a matter of costs and benefits. So, whether corporations

are willing to obey the law is often connected to its cost effectiveness and the expert of corporate

governance Robert Monks describes it as follows: “If the chance of getting caught and the

penalty are less than it costs to comply, our people think of it as being just a business decision.”

(Bakan 2012, p.42). Although there is an ongoing debate about holding criminal individuals

responsible within a corporation, the illegal practices were fined against the corporations itself.

However, in the last years, fines of several billion dollars were charged for illegal practices, to

hopefully make the costs higher than the benefits of not complying (Whyte 2018, p.5). The

nature of continuous law breaking is described in research studies across all industrial sectors

and often seems to be beyond the capacity of any criminal justice system (Whyte 2018).

Nonetheless, the efficiency of big corporations is often seen as justification for their

concentration of corporate power as well as a measure of their social contribution (Tombs and

Whyte 2015, p.13).

This superficial efficiency helps Corporate Psychopaths, as they have no scruple to undertake

immoral decisions even if their actions are illegal. To better understand the connection between

white-collar crimes and leaders in a corporation, Collins and Schmidt (1993) compared prison

inmates that were incarcerated for white‐collar crimes with employees in positions of authority.

In this study white‐collar criminals showed a proneness towards irresponsibility and a high

disregard for rules, which is consistent with Corporate Psychopaths. All examined participants

were capable of high risk‐taking, unreliability and dishonesty, which are also correlated with

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counterproductive work-behaviours such as violence and stealing (Blickle et al., 2006, p.224).

As early as 1949, Sutherland detected that white‐collar criminals do require specialised

knowledge of the corporation which is in line with a Corporate Psychopath in a leadership

position that is pursuing private interests. Within a global corporation there are a lot of

opportunities for committing white-collar crimes and the chances of detection are very small

(McCormick and Burch, 2005) which makes it easy for Corporate Psychopaths to seize those

opportunities.

The consequences of the described elite deviance varies from diminished public confidence, an

increase in organized crime to even death of employees due to disregard for workers’ safety

(Pardue, Robinson, and Arrigo 2013, pp.118f). Contrary to public attention, elite offences are

causing greater damage than street-level ones. Corporate and white-collar crimes cause an

estimated $404 billion, while street-level damages amount to only $20 billion (Robinson and

Murphy 2009 in Pardue, Robinson, and Arrigo 2013, p.118). In Europe alone, 42.5% of large

corporations were victims of fraud within them, with most cases being breach of trust and

embezzlement (Blickle et al. 2006, p.221). Additionally, 62 percent of Americans believe that

corruption is extensive across corporations with 75 percent believing that this corruption has

actually increased in recent years (Shank 2018, p.163). It becomes obvious, that every

corporation can become a victim of white-collar crimes within their ranks or, in case of a

psychopathic culture, be a violator itself.

4.6.2 Audit Failure

One of the main reasons why corporations are generally not obliged to pay for any expenses

for their activities, is the current accounting system. The problem is, that the corporate balance

sheets are only reflecting particular costs and many of the fees associated with long-term

damages caused by the corporation do not appear on those annual accounts (Tombs and Whyte

2015, p.14). In standard accounting systems some costs can be externalized and thus

corporations are only liable for a proportional part of their harmful activities. This principle

enables corporations to act as „externalising machines“ (Bakan 2012, p.33). After several

accounting scandals were uncovered, society called for better regulatory oversight. However,

the WTO stated, that regulations could be an unintended barrier in services so in response to

industry groups a set of new rules were established, ensuring that states do not regulate

accounting standards too much (Bakan 2012 p.15). To this day there are still scandals going

public, where the auditing system has failed their task and was not able to see fraudulent

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activities. As we shall see in the following analysis, in almost every case of corporate scandal,

there was a corporate crime involved and in the aftermath corporations could escape liability

for the burden of the social costs (Tombs and Whyte 2015, pp.15f).

4.6.3 Collation

1. Maxwell Communication Corporation

The business life of Maxwell appeared to be in order until his mysterious death on his yacht in

1991 (Spalek 1999, p.214). In the aftermath it became obvious, that he had used his position as

chairman and CEO to shift money out of the pension funds of his corporation to finance his

other interests (Tricker 2012, p.26). He was in a position to expand his empire by moving assets

in both his private and public parts of his corporation, which also allowed him to use all these

assets as collateral for new bank loans (Bower, 1988). Consequently a large numbers of not

only corporate employees were affected by this behaviour, which later added up to over 32,000

victims (Spalek 1999, p.227). Even though there were some obvious structural flaws, the banks

were always willing to grant more loans to the famous publisher. In the end, Maxwell took out

new loans to be able to pay back another one and to hide the growing debt (Pottow 2007, p.225).

The sheer pace of the businesses of Maxwell made keeping track nearly impossible, even for

the banks. At one point in their corporate history Maxwell Communication Corporation paid

out a dividend of £112 million while simultaneously only making £97 million in profit (Pottow

2007, p.225). However, Maxwell made sure to not raise suspicion and said in a Mirror Group

house video, that “Your pension fund is safe with me.” (Lloyd and Walton 1999, pp.43f). The

regulations and therefore defences of the law, including directors, pension regulators and banks,

failed to recognise the seriousness of debt in this case (Clarke 1993, p.141). Even though

Maxwell constantly broke the law, he stayed unscathed during his lifetime (Clarke 1992, p.463).

However due to his misconducts, one after another, his companies were declared insolvent and

the whole corporation collapsed (Tricker 2012, p.26). Robert Maxwell was guilty of

misappropriation as well as embezzlement. Misappropriation is the intentional and illegal use

of property, including funds, for one's own use, which was clearly the case as Maxwell used

the assets without authorization to further his private interests (Smith 2013). Embezzlement is

the act of actively stealing assets by an individual to whom such assets have been entrusted to.

As Maxwell was not able to pay the stolen money back to the corporation prior to his death, he

committed embezzlement of approximately £400 million from the Daily Mirror Group Pension

Fund (Smith 2013) and another £1.3 billion disappeared from his corporations (Spalek 1999, p.

215).

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The white-collar crime of pension fraud however, has always an immense human impact, as

the group of pensioners that became victims of the fraud experienced not only substantial

financial costs but experienced also psychological, emotional, and physical affects (Spalek

1999, pp.213f). This fraud is expected of corporate psychopaths (Perri and Brody 2011) as this

act requires callousness which is a typical characteristic of a Corporate Psychopath. The

numerous fraudulent activities prove the rightfulness of the hypothesis. After Robert Maxwell

disappearance, it took four years until an agreement was made to give back parts of the pension

assets (Spalek 1999, p.217).

2. Enron

In 2001 the chairman of Enron, Lay passed his position of CEO to Jeffrey Skilling (Fersch

2006) and in the same year the Federal Energy Regulatory Commission introduced price

controls for the electricity markets. As a consequence, the prices fell about 80 percent, which

was a problem for Enron as it bet on stable prices and now had billions of dollars of contracts

which were now worth only a fraction of that (Bakan 2012, p.51). Only shortly after the

introduction of the new price controls, Skilling abruptly resigned as CEO of Enron and

simultaneously sold his shares that were worth an estimated $66 million dollars (Sims and

Brinkmann 2003, p.244). The stock prices of Enron fell dramatically at the same time, but due

to a sell ban, the employees were unable to remove their investments, which they had previously

been encouraged to make (Sims and Brinkmann 2003, p.244). Enron had to report a loss of

$638 billion and therefore filed for bankruptcy (Pardue, Robinson, and Arrigo 2013, p.121).

The top management was aware of the corporation’s condition and previously tried to hide the

losses from their investors for their personal gain. Even though there are various factors that

are responsible for the bankruptcy, the crimes committed by its leaders rank very high among

them (Bakan 2012, p.51). In order to achieve constant growth, Enron used questionable

accounting methods to look more profitable (Sims and Brinkmann 2003, p.245). One specific

practice, was accounting future sales immediately, so in the books it looked as if they already

made high growing profits (Huber and Scheytt 2017, p.20). Their auditor Arthur Anderson was

simultaneously a consultant to Enron and was therefore responsible for managers and

shareholders at the same time (Li 2010, p.39). They chose to maximise their profit and in order

to do so, betrayed the shareholders by not auditing correctly (Li 2010). When the FBI entered

their building, the employees of Arthur Anderson were destroying Enron related papers and the

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whole corporation had to eventually pay for their complicity in the scandal with their existence

(Huber and Scheytt 2017, pp.22f).

But auditing fraud was not their only crime, as the Corporate Psychopath CFO Andy Fastow

not only started to set up fraudulent entities to keep several liabilities of the official books but

also spanned a web of partnerships to engage in deals which quickly made tens of millions of

dollars for him but caused a billion dollar loss for the company’s shareholders in the end

(Deutschman 2005). He engineered complex financing structures which allowed Enron to hide

losses by overstating its earnings by $1 billion in 2000 alone (Fersch 2006). Large banks made

this possible with a tactic known as prepay (Downes and Russ 2005, p.84) which allowed

Enron to borrow about $9 billion in the decade before the collapse and label it as their own

revenue (Pardue, Robinson, and Arrigo 2013, p.121). All these white-collar crimes led to the

destruction of the whole corporation and CEO Skilling, chairman and former CEO Lay as well

as CFO Fastow were sentenced for charges, including securities and wire fraud, and misleading

investors as well as the public in general.

3. Madoff Investment Securities

For over 17 years, Bernard Madoff could operate one of the most successful investment

corporations, however it collapsed during the financial crisis in 2008. The FBI had arrested

Madoff due to a security fraud charge against him and his corporation BMIS. Madoff stayed

calm and informed employees and prosecutors, that his investment business was “just one big

lie” (Gregoriou and Lhabitant 2011, p.5). Banks, hedge funds and otherwise sophisticated

investors were blindsided by this fraud, that is to this day is called one of the biggest Ponzi

schemes in history (Gregoriou and Lhabitant 2011, p.2). Madoff was stealing the money instead

of investing it and exposed the investors to risks that they did not understand (Kruggman 2008).

The damage of this Ponzi scheme was approximately $50 billion and more than 8,000

customers were victims of it (Gregoriou and Lhabitant 2011, p.5). Madoff however, rationalised

its crime by saying, “it was their fault for trusting me”. His point of view was that the financial

professionals should have known, that his promises were too good to be true (Azim and Azam

2016, p.130).

The corporation had a large amount of assets but chose a small auditor called Friehling and

Horowitz. The size itself should have raised suspicion but any additional investigation would

have shown that the audit corporation declared, that they were not conducting any audits

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(Gregoriou and Lhabitant 2011, pp.10f). This means, that the corporation was never peer

reviewed and also that the customers never actually examined the business and Madoff

thoroughly. The sentence for Madoff was 150 years in prison as a statement that this sort of

system manipulation is not just another white-collar crime on paper, but instead impacts

thousands of lives (Perri 2011).

4. Wells Fargo

In order to reach the high sales targets, the bank’s employees committed fraud by opening

normal bank and credit card accounts without the customers authorization (Witman 2018,

p.133) as well as having used fake e-mail addresses for opening online accounts and even

transferring money between their created accounts (Cavico and Mujtaba 2017, p.4). Those

activities were done without the knowledge of the customers and therefore illegal. In 2016

Wells Fargo finally admitted to this behaviour and to creating over 2 million fraudulent

accounts over a five-year period (Tayan 2019, p.2). The government reached a settlement with

Wells Fargo, forcing the bank to pay a $185 million fine as well as a $2.6 million refund to

their customers (Cavico and Mujtaba 2017, p.5). Even though the financial impact was trivial

for the size of the bank, 5,300 employees were terminated due to this scandal (Tayan 2019, p.2)

and the reputation took a bigger damage. The U.S. Senate especially condemned the directors

for not penalizing the responsible executives John Stumpf or former retail banking head Carrie

Tolstedt, who retired with a $124.6 million payment (Tayan 2019, p.3). The audit committee

of the board received papers that referred to this fraud but the executives did not allow the

management, including the Corporate Risk Officer, to help or even intervene (Zamry 2019) and

therefore made the situation even worse.

5. Steinhoff

The South African business world was shocked by the financial collapse of one of its top ten

corporations on the Johannesburg Stock Exchange. This failure started with the surprising and

sudden resignation of Steinhoff’s CEO Markus Jooste, after the responsible auditors refused to

sign off the corporation’s financial statements in 2017 (Rossouw and Styan 2019, p.163).

Before this became public, Steinhoff and its CEO were regarded as a valuable asset in market,

however it turned out to be more of an enrichment programme for the top executives (Rose

2018). This small group of executives inflated their asset value for years (Cronje 2019) and

even though the Steinhoff board had some highly respected members, they failed to

acknowledge the irregularities and therefore to critically govern the corporation (Cameron

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2018a). Jooste himself could earn more than $400 million (Dreyer 2017, p.5) while the

Steinhoff share lost over 90 percent of its value (Cronje 2019) which was over R194 billion in

value ($11,22 billion) (Dreyer 2017, p.5). It is consequently to this day the biggest corporate

failure in the history of South Africa (Swazi Observer, 2017).

The first tax investigations against Steinhoff started in 2015 but were downplayed by the

executives. Their off-balance sheet entities brought up concerns but the fund managers still had

confidence in the corporation until the end of 2017 (Rossouw and Styan 2019, p.163). In this

case the government and stock exchanges were relying on the results of small external auditors,

who were based in another country. Even though the fraud apparently took place over several

years, Jooste downplayed his involvement and only admitted to making some minor mistakes.

Research has proven, that people use rationalisation and denial of their fraudulent behaviour

and even allow it to continue (Naudé et al. 2018, pp.28f). The accounting irregularities caused

over €10 billion in damage, while Jooste and the other executives avoided any responsibility

(Rossouw 2018).

Conclusion

The cases demonstrate, that the hypothesis proved to be right, as all the Corporate Psychopaths

started to commit some kind of white-collar crime at some point. Especially misappropriation

and embezzlement could be found in all examples in different manifestations. This fraudulent

behaviour was often supported by audit failure. This was particularly true, in the scandals of

Enron, Madoff and Steinhoff, where the failure to detect audit fraud was essential for the

collapse. In theory, an auditor is appointed by the shareholders and should therefore report to

them. However, mostly they are employed by the corporation’s executives and as accounting

companies often also sell consulting services to the same clients. Therefore, the auditors do not

want to lose a profitable assignment and thus tend to audit in the clients favour causing the

quality of the audit to reduce (Cohen et al. 2017, p.644). Especially when there are good

opportunities for committing fraud, the auditor should be critically examining the internal

control system (Azim and Azam 2016, p.135). The auditors should be in a position to identify

any signs of fraud or even toxic behaviour that could lead to fraudulent activities (Azim and

Azam 2016, p.131). In all cases the losses were mostly burdened by the victims of the crimes

instead of the executives who were responsible (Tombs and Whyte 2015, pp.15f).

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5 Cross-Case Analysis

The following chart illustrates the different factors, that were analysed in Chapter 4.

Description of the Factors No of Hypothesis

Factor 1: Charismatic Corporate Psychopaths 1

The charisma of the Corporate Psychopaths in the cases helped promoting them as leaders Factor 2: High risk-taking 2

Toxic leaders divide and intimidate the employees with spreading fear

An aggressive growth strategy via acquisition and ambitious investments is conducted

Factor 3: Toxic incentive system 2

The system rewards employees & leaders for achieving a metric without regard to their

actions and behaviour

The traditional incentive system attracts and even promotes psychopathic behaviour Factor 4: Psychopathic corporate culture 3

Cultures can become toxic and inward looking, which turns whole corporations psychopathic

Toxic and authoritarian leadership and passive, dominated board of directors leading to failure Factor 5: Poor corporate governance codes 3

An established risk management framework for a solid corporate governance is not existent

No transparency and integrity in corporate reporting

Factor 6: White-collar crime 4

Misappropriation and embezzlement

Pension Fraud

Factor 7: Audit failure 4

Auditing systems failed their task and could not detect fraudulent activities

Figure 4: Description of Cross-Case Factors

The following Cross-Case Analysis Chart demonstrates the similarities and differences between

the cases.

Factors Maxwell Enron Madoff Wells Fargo Steinhoff

1 Yes Yes Yes Partly Yes

2 Yes Yes Yes Yes Yes

3 Yes Yes Partly Yes Yes

4 Partly Yes Partly Yes Yes

5 Yes Yes Yes Yes Yes

6 Yes Yes Yes Yes Yes

7 Partly Yes Yes Partly Yes Figure 5: Evaluation of the Cases

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Based on this cross-case analysis, it becomes clear that the cases have a lot of similarities,

however there are also some major differences. The first factor deals with the character of the

Corporate Psychopaths and four out of the five leaders could be clearly identified as

charismatic. In case of Wells Fargo, CEO John Stumpf was not described as particularly

charismatic, however he had the typical trait of a grandiose sense of self-worth and always

believed in his strategy, even when evidence of misbehaviour was presented to him.

Consequently, he had at least a convincing character, which can be seen as part of a charismatic

personality and is therefore partly present.

The second and third factor are about the risk-taking of leaders and employees as well as the

existing incentive system within the corporation. It is proven, that all the above analysed

Corporate Psychopaths took high risks and intimidated their employees so much that they did

not say anything about the actions of the leader or even pressured them to take high risks

themselves. Especially in the case of Wells Fargo, the threat of not achieving the predetermined

goals led to high risk-taking of nearly all the employees of the corporation which led to an

aggressive sales spree. The other cases also show different versions of growing acquisitions or

investment sprees. The extent of the acquisitions often lead to chaotic post-merger conditions,

including increasing organisational complexity, power plays between employees as well as high

takeover costs (Heracleous and Werres 2016).

Even though the corporation itself and the power of the CEOs are growing together with their

compensations, it is mostly based on short-term profit. Without a holistic incentive-based

approach, the reward is only based on firm measurements and does not take long-term damage

of possible toxic behaviour into account. In four out of the five examples traditional incentive

systems promoted their psychopathic behaviour, however due to the different kind of business,

Madoffs incentive was to gain more power and money of clients instead of getting a higher

salary, so in this case is more of an external incentive system and therefore only partly true.

The fourth and fifth factor handle the topics of corporate culture and governance codes. In the

cases, toxic cultures could be identified, however not all of them had a passive and dominated

board of directors. The cases of Enron, Wells Fargo and Steinhoff are famous for their toxic

culture and had very passive boards, but the examples of Maxwell and Madoff show, that an

apparent one man show with a CEO as chairman can be just as toxic. With those different

manifestations of toxic cultures, the factor is only partly true for them. Once the ethical rules

are obsolete within a corporation, the willingness to compromise even more extreme boundaries

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is increasing (Sims and Brinkmann 2003, p.246). This can not only affect the culture but also

the core competencies (Heracleous and Werres 2016) and in combination with a passive board

of directors, who do not provide guidance and control it can ultimately lead to a complete

corporate failure. All cases had no effective corporate governance codes in place and their

reporting mechanisms were neither transparent nor correct. The analysed corporations all had

problems with high risk-taking as they lacked a solid framework for the risk management,

which is essential for a good corporate governance. One task of the board is supposedly to

ensure, that corporate governance principles are an integral part of the corporation and

consequently are applied at all levels (Rossouw and Styan 2019, p.169). In general, culture as

well as corporate governance are crucial factors for corporate success or failure.

The sixth and seventh factor are about committing white-collar crime and general audit failures.

In the examples, the Corporate Psychopaths that were leaders in their corporation all started to

commit a white-collar crime at some point in their career and therefore misused their power.

Misappropriation and embezzlement are the most common white-collar crimes and could be

found in all examples in different manifestations. This unethical behaviour could often be found

in combination with audit failure, however not all failures were directly linked to it. In the

scandals of Enron, Madoff and Steinhoff the failure of detecting the ongoing audit fraud was

essential for their collapse, but in the cases of Maxwell and Wells Fargo the scandals could not

directly be linked to audit failure. Even though the auditors of Wells Fargo could have noticed

the unusual high numbers of new account openings, it was no active audit fraud and therefore

only partly true. The corporation of Maxwell was partly private and the accountants never had

access to all the necessary information, however they were also not willing to ask critical

questions.

The various factors illustrate that Corporate Psychopaths should not be understood as simply

harming their profit but show that it can have many consequences within a corporation. It also

highlights that corporate failure is not a result of one single wrong action but rather a process

that evolves over time (Heracleous and Werres 2016, p.502). The comparison of the cases

shows, that there is a big similarity between the example of Enron and Steinhoff as well as

Maxwell and Madoff. With respect to differences, Wells Fargo has the most deviations of the

examples regarding its CEO. However, the corporate failures had shockingly similar factors,

which raises the question if some of the scandals could have been prevented. Because even

though the cases happened in different business fields and in different years, the extreme

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similarities are showing that the topic of Corporate Psychopaths is relevant and the recent

occurrences of Wells Fargo in 2016 and Steinhoff at the end of 2017 demonstrate, how

important a possible guideline or an early warning system could be.

6 Guidelines to cope with Corporate Psychopaths

Within the last decades, people with dark triad tendencies have gained popularity. Especially

literature and media named these individuals antiheroes and the most famous representative is

James Bond, as he is known for breaking laws and only playing by his own rules without

considering the damage for others as he has a license to kill (Jonason et al. 2012, p.192). He is

the perfect example of the increase in narcissism (Jonason et al. 2012, p.194), which in

particular can be seen in corporations and culture. Traits of the dark triad can help individuals

gain fame (Southard and Zeigler-Hill 2016). These rising levels of dark individuals can also be

observed in politicians and their political ambition (Blais and Pruysers 2017) as well as violent

criminals, that received high amounts of media attention (Bushman and Baumeister 2002). In

modern culture, the narcissistic and psychopathic elements are getting more and more defining

(Campbell, Miller, and Buffardi 2010, p.227) and therefore also more desirable in other

individuals. Especially Madoff is the perfect example of how easily people are willing to follow

a confident fraud without questioning their methods. His clients and Wall Street in general

wanted to believe the hype (Kruggman 2008). Research confirms that the tendency of Corporate

Psychopaths grows, as psychopathy scores are higher in finance students than any other group

of scholars (Andrews, 2015) and psychopathy measurements were used to specifically recruit

conscience-free employees for being ruthless in their actions (Boddy 2016b). As a consequence,

corporate scandals could occur on a more regular basis without proper regulations in place. And

corporate scandals are often perceived as traumatic events by the public and for the whole

business world as it portraits the existing gap between the assumed organizational success and

the actual condition of the corporation (Zona, Minoja, and Coda 2013). The scandals often

reveal the true personality of a before reputable CEO as well as the support of stakeholders in

committing fraud or misconduct. The higher the reputation before, the bigger is the general

shock and mistrust in other corporations afterwards (Zona, Minoja, and Coda 2013).

In the selected samples, the Corporate Psychopaths were all middle-aged men, however it is

important to note that women can also show traits high in the dark triad score. It is just more

difficult to find examples for it, as women with those characteristics often face more serious

consequences than their male counterparts if they show them such as general aggressive

77

behaviour (Jonason et al. 2012, p.195). It is due to nature, that psychopathic women have

different strategies as for example using violence could be more problematic as they are

generally smaller in statue (Jonason et al. 2012, p.195). One exemplary case is Elizabeth

Holmes, who founded the corporation Theranos with the aim to revolutionise healthcare. She

was able to convince several investors and raised millions for her cause before it turned out to

be a complete fraud as there was no new product. She managed to become the youngest female

billionaire before the scam became public and was afterwards called a calculated Corporate

Psychopath (Watt, 2019). It shows, that the following chapter can be used for both men and

women as Corporate Psychopaths.

Even though there is a growing understanding of violent, criminal dark triad members, scholars

are calling for more research in the area of successful psychopaths (Lilienfeld 1994) such as

Corporate Psychopaths. And despite existing research in the extensive topic of agency theory,

the link between corporate governance, its structure and the risk-taking of the agents is still

unclear (Cannella, Finkelstein, and Hambrick 2009, p.337).

Recognition of psychopathic traits within a corporation

Leading management theorists as well as psychologists agree, that a lot of agency problems

including corporate failures and scandals could be stopped if corporations had the right tools

and knowledge to screen their employees for dark traits in their character. If those affected

employees were already established in the corporation, it should make sure, that they are not

promoted in senior positions where they could harm the whole corporation (Deutschman 2005).

As the analysed Corporate Psychopaths all committed some sort of white-collar crimes, the

relevance of screening and recognizing them cannot be exaggerated for law enforcement and

the related courts (Babiak et al. 2012, p.3). Hence, knowing the signs of those Corporate

Psychopaths, the possible harm they can cause as well as how to handle their character and

manage them as employees is highly important for today`s corporations.

Babiak and Hare (2006) noticed, that the abilities of successful Corporate Psychopaths make it

difficult to actually identify them. However, there are various red flags that could help

corporations recognise a Corporate Psychopath among their employees. In the following chart,

red flags and the associated effects within a corporation are analysed, as well as ways to

calculate key figures.

78

The effects of Corporate Psychopaths

No Having

Corporate

Psychopaths in

a corporation

leads to….

Resulting warning

signals (red flags) of

those Corporate

Psychopaths:

Key Figures

1.

..high termination

rates

High staff turnover

numbers 𝑥 =

no. of retired employees

avg. no. of employees

(during an observation period, with X being

higher than previous observation periods)

2.

…increased

mobbing and

mental stress

High sickness rate 𝑥 =

no. of sick days

no. of target working days

(during an observation period, with X being

higher than previous observation periods))

3.

…decreased job

satisfaction

Low employee

satisfaction-index 𝑥 =

Sum of satisfaction ratings ∗ their weight

Sum of all weighting factors

(with X being lower than previous observation

periods)

4.

...increased

workload

High overtime rate 𝑥 =

no. of overtime hours

no. of the normal working hours

(during an observation period, with X being

higher than previous observation periods)

5.

…less Corporate

Social

Responsibility

Higher recruitment

periods

Number of positions to be filled based on various

differentiations (e.g. apprenticeship versus

specialist)

6.

…decreased

corporate

commitment

Low participation in

corporation suggestion

scheme and general

lower intra-

organisational volunteer

work

𝑥 =no. of new suggestions

Average staff level

(during an observation period, with X being

higher than previous observation periods)

7.

…increased

organisational

restrictions (e.g.

initial and

continuing

education)

Low percentage of

internal manned

executives

𝑥 =no. of new internal manned executives

Total no. of executive positions to be filled

(during an observation period, with X being

higher than previous observation periods)

8. …language Use of specific words

Automatic linguistic analysis

9.

…excessive risk-

taking

High acquisition and

internal restructuring

rate

Computer tomography to show the blood flow in a

brain

Factor 1-7 (Lingnau and Dehne-Niemann 2016, p.35)

Figure 6: The effects of Corporate Psychopath

79

The numbers 1-4 are described in Chapter 4 in the section „leadership mechanisms & its

impact“ in more detail. Even though all of those first warning signs are important to look out

for, the earliest to notice would be the workplace bullying. The saying „Jekyll and Hyde

character“ (de Silva 2014, p.5) is a good description for the behaviour of Corporate Psychopaths

as they are looking for followers by first being superficially charming but also for victims of

their abusive and toxic behaviour. The fifth red flag deals with the topic of the necessary

Corporate Social Responsibility within a corporation and the sixth warning signal can be seen

as a direct consequence of a corporation neglecting this topic. The disregard of Corporate Social

Responsibility (CSR) as a warning signal should be taken very seriously, as it can statistically

be seen as a direct warning for future shareholder losses (Omar, Wisniewski, and Yekini 2019,

p.1218).

The philanthropy in particular appears completely absurd for a leader with traits from the dark

triad as it seems to be counterproductive for not being directly beneficiary for them (Omar,

Wisniewski, and Yekini 2019, p.1207). However, corporate philanthropists show higher brand

recognition as well as an increased reputation (Brammer and Millington 2005) and increasing

customer perception thus growing the overall revenue of the corporation (Lev, Petrovits, and

Radhakrishnan 2010). As corporations with Corporate Psychopaths as leaders are expected to

donate less money to good causes, those corporations are also expected to experience reduced

returns in the future (Omar, Wisniewski, and Yekini 2019, p.1213). The connection between

the general ignorance of CSR and decreased corporate commitment can be drawn, as low

participation in intra-organisational volunteer work is a result of dissatisfaction of the way a

corporation and its culture are operating. This definitely includes their charitable work and

general corporate social responsibility.

The seventh factor can be explained by the lack of interest of Corporate Psychopaths in the

well-being of their employees which includes their career path. Another reason would be that

high educated employees could be seen as a possible danger for the position of the Corporate

Psychopath. The eighth factor attends the topic of language and how it can be used to filter out

possible warning signals. An FBI Law Enforcement Bulletin argues, that Corporate

Psychopaths can be recognised by their use of words (Woodworth et al. 2012). Even though

Corporate Psychopaths have the ability to show superficial emotions, the use of language and

specific words is automatic and therefore much more difficult to change (Omar, Wisniewski,

and Yekini 2019, p.1204). The first indication would be the expression of the Corporate

Psychopaths grandiose sense of self‐worth by often referring to themselves and their grandiose

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achievements. The second sign is the complete ignorance of the well-being and general feelings

of their colleagues and therefore they tend to avoid personal pronouns, family members or other

relations, as well as other words that describe groups of people (Omar, Wisniewski, and Yekini

2019, p.1204). The third signal is the usage of impulsive, aggressive words such as demolish,

conquer, or attacking which show their weak behavioural control. The last indication is their

refusal to take responsibility for their faults and therefore they regularly use words to blame

and diminish their employees such as undependable, terrible, stupid (Omar, Wisniewski, and

Yekini 2019, pp.1204f). Therefore, the recommendation would be to first of all be sensitive of

those characteristic words or absence of words and secondly an automatic linguistic analysis

software could be used to analyse the written language of possible Corporate Psychopaths

(Omar, Wisniewski, and Yekini 2019). Summarized, research suggest that Corporate

Psychopaths have their own unique phrases and ways to communicate, which could be

identified.

The ninth factor deals with the excessive risk-taking of Corporate Psychopath. This topic and

warning signal of a high acquisition rate is already described in Chapter 4 in the section

„leadership mechanisms & its impact“, however their need for constant excitement is probably

because of their brain connectivity. There is research that directly connects the dark triad to

making high risks decisions (Snowden, Smith, and Gray 2017) and another approach of

recognizing Corporate Psychopaths starts with this knowledge. A study used computer

tomography to show the blood flow of the participants and revealed that Corporate Psychopaths

demonstrate abnormalities in the brain (Intrator et al. 1997) which explains their need for

ongoing stimulus. The last and consequently too late recognition of a Corporate Psychopath is

an actual corporate crime in a corporation. As soon as theft or embezzlement is recognized,

there are ways to measure the damage internally and be able to address unjustified costs

(Michalak and Ashkanasy 2018). However, in most cases this recognition already leads to a

scandal and in the worst case to a failure of the corporation.

Recognising that Corporate Psychopaths concern every corporation and that people who

embody these traits are all around us (Jonason et al. 2012, p.192) are important steps towards

getting a hold of this increasing problem within economies. There is a scientific consensus, that

only about 50% of personality is influenced by genetics and the rest of the dark triad members

are moulded by our culture just as much as they are born among us (Deutschman 2005).

Therefore, it is even more important to understand the relationship between personality traits

and economic losses to be able to develop better methods to avoid future conflicts and reduce

81

decreases in productivity. There are two possibilities to address this issue of Corporate

Psychopaths, with the first opportunity already preventing them from entering the corporation

in the first place and the second possibility of managing the possible toxic employees after

recognizing them.

Prevent Corporate Psychopaths from entering a corporation

One possibility to deal with Corporate Psychopaths is the prevention of them entering the

corporation. It has to be acknowledged that not all Corporate Psychopaths should be rejected

per se. As previously mentioned, a member of the dark triad can have traits that could be

beneficial for a corporation. However, the recognition of them is necessary for managing them

when they enter a corporation. As the recognizing is difficult until the toxic individual is a part

of the corporation and is often only recognized over a longer time period, the provision and

early recognition should not be taken lightly. The responsible employees should be highly

sensible for identifying possible warning signals. So while making the important recruitment

decisions, practitioners should evaluate potential dark triad characteristics for the overall

efficiency of a corporation (Özsoy 2018, p.752). Therefore, a multi-perspective and multimodal

conduct of recruitment should be mandatory but this presents the corporations with possible

structural and financial challenges. The biggest prevention lever is obviously the personnel

management due to its organizational weight and responsibility to recruit new employees. Even

though high standards of personnel diagnostics helps to grasp toxic personalities, there are

challenges in the selection context (Externbrink and Keil 2018, p.66).

The first challenge is to select the dark personalities without excluding individuals with

particularly strong motivation for performance and leadership, for whom there is only little risk

to be destructive (Hossiep und Ringelband 2014). The second problem is the detection of typical

traits, as the conventional personality questionnaires in the selection process are susceptible for

answering in a socially desirable way especially by Corporate Psychopaths due to their ability

to act out empathy and thus be able to hide their dark side from the diagnostician, at least in the

short-term (Externbrink and Keil 2018, p.67). The third challenge deals with the general fact,

that dark trait members who are already in management position are automatically increasing

the number of new recruits with a similar personality structure. It may be difficult to break this

internal process, therefore external reports from diagnosticians should therefore be based on

predefined standards (Hergert 2013). Especially the today’s fast turnover of managers in

corporations and the common speed of the recruitment process (Furnham et al. 2014) makes it

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possible for charismatic Corporate Psychopaths to outshine the less outgoing candidates in an

interview (Boddy 2016b, pp.254f).

Potential solutions start with human resources in the recruitment stage, where they should

undertake a thorough screening which starts with reviewing and verifying all the information

and records that were provided by the candidates. In the case of Corporate Psychopaths the

verification of criminal records is just as important as that of the academic degrees (Omar,

Wisniewski, and Yekini 2019, p.1197) and normally employers can request a criminal record

check. The screening should also include extensive reference checking not only from the

candidate’s former bosses, but also their former colleagues and subordinates (Boddy 2015,

p.2419), who might have a different opinion over the characteristics of the possible new

employee. It is important to not just ask the stated contacts, as potential new employees could

be pathological liars, who falsely claim a friend as their past supervisors or colleagues (Omar,

Wisniewski, and Yekini 2019, p.1223). Even though these precautions are time consuming,

there are corporations who are specialized in it and the whole process can be outsourced (Omar,

Wisniewski, and Yekini 2019, p.1223).

The next step would be to abandon the simple interview approach (Boddy 2015, p.2419) and

widen the recruitment process. Each selection procedure should ideally take the illustrated

trimodal approach (Schuler 2000) into account, in which a candidate should be put in situations

where they may be overwhelmed and or even fail a task to better judge their character

(Externbrink and Keil 2018).

Figure 7: Trimodal approach (Externbrink and Keil 2018, p.68).

The trimodal approach is based on a larger number of individual procedures which can be

divided into characteristic-, simulation-, and biography-oriented processes (Rowold, Cohrs, and

Block 2015, p.160). This generally leads to a thorough requirements analysis, special interview

Tests & Questionaires

Simulation

Requirements analysis

Biography

Characteristics

• Intelligence & cognitive skills

• Personality and motivation

Results

• Biographical information

• Data from interviews

• Special services

Behaviour

• Lead & decide

• Interact & present

• Cooperate &

collaboration

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technique, various tests and questionnaires as well as the use of simulation methods. For the

detection of possible Corporate Psychopaths, the requirement profile should not only contain

positive competencies that are connected with leadership success, but also include dark

personality traits (Externbrink and Keil 2018, p.68). The use of psychometric information of

the psychopathy checklist for this is worthy of consideration (de Silva 2014, p.5).

After checking the biography of a candidate, the next part of the trimodal recruitment are tests

and questionnaires to analyse the character of the candidates. The common problem with

normal questionnaires are, that their response format is allowing socially desirable response

behaviour (Externbrink and Keil 2018, p.71). Therefore the measurement in the forced choice

format can make a better contribution for the screening of Corporate Psychopaths as it

minimizes the possible faking in recruitment testing (Jackson, Wroblewski, and Ashton 2000,

p.373). In this format several equally attractive or equally unattractive questionnaire items are

presented and the candidate has then to decide the statement that applies to him or her the most

or least (Externbrink and Keil 2018, p.71). This makes individual preferences clearer and also

considerably more difficult to give socially desirable answers (Jackson, Wroblewski, and

Ashton 2000, p.373).

While case studies and presentations are good tasks to measure the candidate`s management

skills as well as test behaviour in ethically challenging situations, role-playing tasks are suitable

for identifying possible leadership skills. For correctly screening Corporate Psychopaths,

special attention should be paid to the reaction of a candidate when criticised by employees or

when confronted with resistance (Externbrink and Keil 2018, p.72). All the mentioned methods

and procedures are taking more time than just a simple interview, which also means that

members of the dark triad are going to have a hard time maintaining their superficial and calm

impressions (Externbrink and Keil 2018, p.72). The exercises are helping to show facets of their

real characters and therefore could be vital to prevent Corporate Psychopaths from entering a

corporation.

Managing psychopathic personalities and cultures

The second possibility to address the issue of Corporate Psychopaths is actively managing toxic

employees. To achieve that, there are various instruments at hand. However it is important to

know, that even though Corporate Psychopaths can be manageable, psychopathy itself is not

curable (Babiak et al. 2012). So the instruments to manage destructive leaders and employees

84

are not able to change their characteristics or help their underlying personality disorder

(Externbrink and Keil 2018, p.72). Accordingly, it can be dangerous to get into a direct

confrontation or power struggle with Corporate Psychopaths due to their likely revenge which

could be emotional or even physical harm (Boddy 2015, p.2419). Different more indirect

personnel development methods are addressing variables that should help to manage the

Corporate Psychopath (Externbrink and Keil 2018, pp.72f). The first important aim of the

development is the goal to increase self-awareness of the affected employee, the second one is

to develop social skills and the third aim is to teach the ability to regulate oneself, which can

be extremely important when dealing with an actual psychopath (Hogan, Hogan, and Kaiser

2010).

The first steps of managing Corporate Psychopaths is to sensitize all employees about this topic

so they can help in monitoring and managing possible dark triad members internally (Langbert

2010). Furthermore, fixed internal controls should be established that would make it tough for

any leaders or subordinates to abuse power or show signs of antisocial behaviour without

detection. One of those controls has to be an internal, anonymous complaint procedure to secure

whistle‐blowers from revengeful Corporate Psychopaths (Omar, Wisniewski, and Yekini 2019,

p.1223). A good working reporting system could be a valuable investment (de Silva 2014) as

employees should always have the chance to report and regularly rate their current leader

without fearing retribution in any form. With a regular performance assessment in place,

there is a higher opportunity to recognize the above mentioned warning signals at an early stage

and thus counteracting them with further personnel development measures (Kanning 2014). If

possible, the evaluation criteria of the performance assessment correspond to the beforehand

determined requirement profile (Externbrink and Keil 2018, p.74). Typically high-scoring

leaders in psychopathic tendencies are eventually recognized by their subordinates (Boddy

2016b, p.265). Those reported employees can be examined with the help of specific

psychopathy measures based on the already mentioned PCL-R Model (Figure 3). An

identification early in a leader’s career can reduce the change of increasing strong destructive

behaviour. Once a destructive leader has been identified, exposed and the reasonable actions

were taken in a corporation, the procedure has the chance to become a fundamental part of the

rating process for leaders in the future. With a standardized process in place, possible growth

of toxic leadership could be prevented as well as moderate toxic tendencies and behaviours

within a corporation (Mehta and Maheshwari 2014, p.23). Another assessment mechanism

can be to allocate executive mentors to corporate leaders. Those mentors should assess the

85

leader’s teamwork with their subordinates and if they show signs of potentially destructive

behaviours provide appropriate feedback especially to the board. If a corporation does not

possess the necessary procedures, they should hire external counsellors for professional help of

re-educating the leaders and possible mentors. The last resort would be to offer a generous and

safe exit for leaders who are showing signs of toxic behaviours and appear to be unmanageable

(Mehta and Maheshwari 2014, p.23).

One way to provide a profound review of the employee’s work is a 360-degree-feedback. This

is a valid, objective and most importantly reliable method for measuring a candidates

competencies by getting a full view of their interactions with their immediate surroundings,

including their superiors, colleagues, subordinates as well as customers (Conway and Huffcutt

1997). Research suggest, that this feedback and personnel development method is fitted to

generally increase self-awareness which can cause changes in their behaviour, even if only to

a moderate extent (Externbrink and Keil 2018, p.73). Especially for a position with high

responsibility, possible candidates should be considered for this tool (Omar, Wisniewski, and

Yekini 2019, p.1223).

As mentioned in Chapter 4.1.1. the behaviour and risk-taking of members of a corporation are

directly linked to their payment and incentive setting. As the traditional incentive system is

proven to attract and promote psychopathic behaviour (Lingnau and Dehne-Niemann 2016), it

is important to revise the incentives to manage potential Corporate Psychopaths. Evidence

shows, that financial incentives work but are rewarding the employees for achieving a specific

metric without regard to the actions they had to take to achieve it (Graham et al. 2016). So the

corporation needs to make sure that their reward system includes soft skills and important

values of their culture in it. Even though it is difficult to measure those soft skills, the

corporation should rethink their core competencies and what makes them successful and should

try to put the necessary skills into numbers. Padilla et al. suggests for example the inclusion of

employee development in the performance evaluation catalogue of executives to prevent self-

absorbed, toxic executives (Padilla, Hogan, and Kaiser 2007)

As behavioural agency theory suggests that decision makers are generally more sensitive to

losing wealth than increasing it (Wiseman and Gomez-Mejia 1998, p.135), fines for proven

misbehaviour by breaching cultural standards could be one solution. For an actual introduction

in the incentive system, the fines and their reasons must be clearly defined and consequently

implemented in order to not just be a hollow threat with no consequences. The performance

86

must be made quantifiable and appropriately rewarded (Pech and Slade 2007, p.264), so even

when it might not deter a Corporate Psychopath from entering, it can bring them to abide to the

internal codes.

Another essential recommendation for managing Corporate Psychopaths within a corporation

is a stable culture with emphasis on teamwork and a multilateral distribution of power (Conger

1990). Thus, it is important to define the overall corporate profile with a mandatory cultural

part for the organizational structure. A corporate mission statement (Schein 1990) and guiding

principles (Felfe and Franke 2014) can solidify the cultural profile, so that transparency and

integrity are present in the day-to-day business (Externbrink and Keil 2018, p.84). A stable

culture can also establish an inner resilience in the employees and automatically limit the scope

for action and the sphere of activity of destructive personalities (Externbrink and Keil 2018,

p.86). Because we know, that Corporate Psychopaths are able to infiltrate a corporate culture

and turn it toxic, it is even more important to have a strong cultural construct in the first place.

The culture ensures standards for work procedures and behaviour and provides the necessary

boundaries as well as processes which should actively secure the corporation against dark

individuals. Such a culture is implemented through internal cooperative systems and policies

as well as external laws and appropriate checks and balances (Pech and Slade 2007, p.266). To

maintain the cultural standards, Buchen (2005) proposed a rotating CEO and leadership system,

which could prevent Corporate Psychopaths from infiltrating the culture as “there is nothing

like rotation to task the egos of all alpha dogs” (Buchen 2005, p.5). The corporate culture should

especially make sure, that a potential Corporate Psychopath has no chance to play off the

colleagues against each other and build up powerful in-groups. One way to do so, is

encouraging the whole staff to articulate all possible destructive behaviour or group building

and all reasons for possible discontent within their teams (Pech and Slade 2007). If the culture

is re-examined on a regular basis (Pech and Slade 2007, p.267), corporate members will speak

up if they witness any toxic or manipulative behaviour in their ranks.

6.3.1 Manage psychopathic subordinates

Commonly, unwanted behaviour leads to a direct discussion between the individual and the

leader, talking about the actions and potential repercussions if the behaviour is not changing.

However, if the leader is dealing with a Corporate Psychopath this approach could easily

backfire, so the leader should rehearse the talk with a mentor that has knowledge of

organisational politics (de Silva 2014, p.5) and manipulative characteristics and possibly even

include this individual as a back-up in the conversation. But there are steps that can be taken

87

before there is a need for a direct confrontation, which helps leaders to deal with potential

Corporate Psychopaths in their team.

No Managing a Corporate Psychopath as Subordinate

1 Increasing leadership skills A high level of leadership competence makes a

potential attack more difficult and ensures the

support of others

2 Strengthen relationships with

your own team

The more transparent all communications are, the

sooner the team will confide in a leader if there are

any problems.

3 Strengthen the relationship with

your direct superior

With a good relationship, a subordinate is able to

address important issues before they actually become

a problem.

4 Take detailed notes

A leader should write down exactly what has been

discussed and decided, what has happened and who

has performed well or badly. These notes can also be

passed on to the superiors if necessary

5 Invest time in performance

reviews

Possibility to regularly give constructive feedback to

employees and to officially document destructive

behaviour. Ideally, the assessments can be linked to a

target agreement.

6 Timely support from the

Human Resource Department

The affected employees should not be outed as

member of the dark triad but possible destructive

actions should be known by the department.

Figure 8: Managing a Corporate Psychopath as subordinate (Externbrink and Keil 2018, p.81).

As described in figure 8, there are various solutions for managing a Corporate Psychopath as

subordinate. These steps work often hand in hand and assume that the managers are actual

aware of the negative influence in their team and are prepared to take various steps in the long-

run. These measures are important first actions against a possible Corporate Psychopath but not

always sufficient. If all these precautions do not work, an unconventional way of dealing with

those destructive individuals is called „gas lighting“ (Lund and Gardiner 1977). This approach

is often used to avoid a messy disciplinary process and has to be enacted by a supervisor. The

technique should subtly make the employee doubt their perception and more importantly the

confidence in the work they are doing in the corporation. This should lead to them leaving on

their own. However, it has to be highlighted that this form can only be used on members of the

dark triad with only a few typical characteristics. As soon as they score high on the psychopathic

checklist, this method does not work. To be able to actually use the technique on a possible

88

Corporate Psychopath and make sure that it is appropriate as the last resort, a leader needs to

check one’s perception with a mentor who is independent and ideally has experience with gas

lighting (de Silva 2014, p.5). As this technique is very drastic and can obviously be used against

a whole range of employees it has to be used with a lot of care. All in all, for a leader to

successfully manage their team, they need an „ear to the ground“ (de Silva 2014, p.5) to be able

to early identify possible toxic individuals and start to take precautions against them.

Preventing corporate failure

The managing of Corporate Psychopaths is based on internal activities and rules. However, to

prevent whole corporations from failing due to dark characters as their leaders, mandatory laws

and general framework conditions should be established. In today`s fast transitioning

economies, scholars are asking for stronger enforcement mechanisms (Wanyama, Burton, and

Helliar 2009). The first subject that needs to be looked at are compliance and corporate

governance codes as well as reasons for possible deviations from those.

6.4.1 Corporate Governance

It is a well-known fact that the corporate governance of a corporation influences the financial

performance (Alabede 2016) and that one main purpose of it is to prevent and manage

fraudulent practices (Abid and Ahmed 2014). The corporate governance should create a

structure that encourages transparency and accountability of the board in order to raise

confidence among possible investors (Zamry and Syafinaz 2019). The corporate governance

codes were kept flexible and voluntarily, so that the individual corporation can implement the

best practice for them. This however, gives the corporations the opportunity to deviate from the

recommendations (Cuomo, Mallin, and Zattoni 2016). Though, one reason why corporate

governance can fail is that the compliance approach helps corporations to use their creativity to

explain why they could not implement the best practice in an effort to try and beat the system

by playing a game of „How Not To Get Caught“ (Zamry and Syafinaz 2019, p.6). So it is

important, that there is no creative escaping from ensuring that the corporate governance codes

hold the ones in power responsible as accountability is a foundation of corporate governance

(Luo 2005). Social justice and general corporate social responsibility are another important

aspect of corporate governance and should be taken seriously by the leaders, as the number of

Corporate Psychopaths is clearly connected to corporate social responsibility, or a lack thereof.

So continuous and transparent control of work processes and making sure that they corporation

is still acting in a socially responsible way can prevent psychopaths from remaining members

of the corporation (Externbrink and Keil 2018, p.85). To be able to put an effective corporate

89

governance into place, certain framework conditions have to be established. This framework

mainly includes independent board members as well as an independent advisory environment.

Another important aspect is a system that generates transparency including performance

evaluation and a clear succession planning process (Externbrink and Keil 2018). The last part

of the framework is to illuminate the board’s responsibilities to the management and equip them

with sanctioning power against destructive leaders (Padilla, Hogan, and Kaiser 2007).

In order to make sure that the necessary framework and further corporate governance codes are

in place, various researchers are against the current voluntarily, soft law approach as it has not

proved to be efficient in cases of corporate failures. Moreover, implementing a regulatory body

as well as putting sanctions or fines for noncompliance in place could be the next step (Keay

2014).

6.4.2 Auditing Methods

The tendency of Corporate Psychopaths to commit fraud at some point in their career can

become problematic for them in corporations with regular audits. In a survey, 69 percent of

Danish auditors had at least one experience with a toxic executive (Jeppesen and Leder 2016,

p.875). As leaders are aware of the impact of a negative audit report on the reputation as well

as the profit, they tend to convince the auditors that no changes are required. However, the

auditors often show their discomfort about specific numbers or statements in the „Emphasis of

Matter“ section in these situations. The entries in this section signal that the responsible auditors

are not fully confident with the reported numbers (Omar, Wisniewski, and Yekini 2019,

p.1206). This reluctance of approving a report without additional warnings in the „Emphasis of

Matter“ section is a clear signal for future problems as well as lower returns. Research has

proven, that just one year in the future the returns are drastically lower with remarks in the last

annual report (Omar, Wisniewski, and Yekini 2019, p.1213).

The first step would be to sensitise already practicing auditors as well as use the opportunity to

educate the current accounting students against possible manipulative and destructive

individuals which could actually risk their audit (Epstein and Ramamoorti 2016, p.20). One

approach to improve the quality of an audit, is requiring an auditor to take management control

philosophy as part of the control environment into consideration (Cohen et al. 2017, p.655).

Especially in case of a Corporate Psychopath being part of a corporation, audits should be able

to check if characteristics of the management’s personality could potentially compromise the

culture and leadership ranks. When encountering a toxic leader an auditor should be able to

90

exercise healthy professional scepticism towards the executive’s personality, as their behaviour

could spill over into their own business (Nelson 2009). A better knowledge of dark personalities

as their clients could resolute in an improved fraud risk assessment. Moreover, as the

destructive leaders would know about the higher sensitivity of auditors, it might scare off any

fraudulent activities (Epstein and Ramamoorti 2016, p.20). Based on this knowledge about

manipulative clients, auditors should adjust their risk assessment tools to depict any impact a

dark personality can have on the financial reporting (Epstein and Ramamoorti 2016, p.21).

Another step would be to adjust the accounting policies for intangible assets accounting for

costs of toxic workplace behaviour as liabilities. A rough basis could be established by an

evidence-based analysis, so these costs can be quantified. By creating this basis, corporations

would be able to better quantify the cost of culture and behaviour that could potentially be toxic

and therefore harmful (Michalak and Ashkanasy 2018).

Principles of lean accounting could also be integrated in new decision-making models in order

to make the financial information more transparent (Swanepoel 2018, p.167). Due to a

constantly evolving management accounting system (Ofileanu and Topor 2014) the main aim

of auditors is to deliver accurate and understandable financial data, not just for financial users

but for all. An important aspect of lean accounting are value stream reports. As those reports

show the real costs of a value stream, they could be really helpful in identifying domains that

needs to improve in performance as well as decision-making (Swanepoel 2018, p.170). The

accumulated information can assist to manage financial and operational information (Ofileanu

and Topor 2014).

Lessons learned

After pursuing a case study design, the following guidelines analysed possible solutions for

Corporate Psychopaths. Even though the cases were used as a base for the guidelines, it has to

be recognized, that these were all examples where the corporations failed. There are researchers

that emphasize, that corporations need a healthy mixture with various different traits in all levels

of hierarchy (Williamson 1981). Some even admire the successes of dark trait individuals and

parts of their characteristics such as their coolness under pressure, their assertive and confident

approach (Boddy 2015, p.2422) as well as a natural preference for jobs with greater

responsibility (Spurk, Keller, and Hirschi 2016, p.113). Especially the dark characteristics of

narcissists can be associated with innovative business personalities that are able to break new

ground and thus expand the business of corporations. The author of "The Productive Narcissist“

91

(Maccoby 2003) acknowledged that narcissists were able to inspire and shape the future with

their visions through history. Corporations are therefore often eager to hire such people, but

often do not realise the downsides of their characteristics.

A main lesson that should be learned, is to not actively keep all Corporate Psychopath out of

corporations but to have an early understanding of their characteristics and alert to their dark

tendencies. A corporation should be prepared for Corporate Psychopaths in their midst and be

able to contain their influence on their environment. The lessons learned from the cases and

failures from the past should include to develop a plan B if tendencies get out of control. It has

to be clear that Corporate Psychopaths use the corporations as vehicles for their own visions

(Maccoby 2003). However, the past scandals showed that the internal control systems of

corporation can fail due to Corporate Psychopaths. In order to prevent those scandals in the

future, the lesson learned should be that creating a solid framework can ensure that fraudulent

activities of Corporate Psychopaths are detected before destroying whole corporations.

7 Conclusion

The case study design with the established hypotheses enabled a thorough understanding of the

key factors of corporate scandals due to Corporate Psychopaths. The analysed cases helped to

understand the process of escalation over time including leadership, culture, and fraudulent

activities. Afterwards the cross-case analysis combined the individual cases to examine

potential patterns across the five cases, which could be clearly identified. Based on this cross-

case analysis, various similar factors could be determined and the gathered data as well as the

comparison, helped to understand the how and why of the scandals. This knowledge could be

used to creating guidelines to cope with Corporate Psychopaths with the insights of the samples

serving as a base for the prevention and management of them. However, could the knowledge

from the corporate scandals in recent history prevented the newer ones like Wells Fargo and

Steinhoff? And could the guideline have prevented the approaching scandals in the first place?

The first hypothesis was based on the superficial charm of the Corporate Psychopaths in

combination with today`s requests of charismatic executives. In the samples, the typical

characteristics of a Corporate Psychopath helped the individuals to be promoted as leaders. If

the responsible former executives or the board would have been sensitized, in some of the

samples it could have prevented the entrance or rise within the corporation. Especially in the

cases of Enron, Wells Fargo and Steinhoff the boards could have recognized the traits of their

CEOs and therefore could also try to manage those characteristics.

92

The second hypothesis acknowledged the high risk-taking behaviour of Corporate Psychopaths.

All the leader in the analysed cases demonstrated tendencies is to divide and intimidate and

were known for spreading fear. One possibility to contain this, is a strong corporate governance

and culture to prevent any kind of internal division of employees in a „in or out“ club. Integrated

processes for transparent communication as well as clear and transparent decision-making

should be part of the everyday corporate culture. High risk-taking was found in the samples and

could have been read as an alarming warning signal for boards and investors. However, an

emphasis on corporate social responsibility within the respectable corporations could have

helped to slow these processes down, as the internal chaotic structures were very stressful and

not responsible for all employees involved but were good for the Corporate Psychopath.

Another possible solution would be the system of a rotating CEO in the corporation. Even

though this option is controversial and not feasible in every corporation, it could have prevented

unsuccessful acquisition sprees. The next factor for this hypothesis of high risk-taking is a toxic

incentive system. The Behavioural Agency Theory shows, that decision makers are more

sensitive to losing wealth than increasing it and in the samples of Enron, Wells Fargo and

Steinhoff new incentive settings could help to manage the CEO Corporate Psychopaths. In the

samples of Maxwell Communications and Madoff Investment Securities the leaders were also

chairman, founder and name-giver of their corporation and therefore had more power as CEO

than in the other cases.

The third hypothesis is, that intra-organizational ganging dynamics leads to a multiplier effect

of dark traits in corporations. In the edited samples the cultures around the Corporate

Psychopaths became toxic and inward looking and a dominated board of directors did not stop

this development. The first step against this process could have been a clearly defined corporate

profile with a mandatory part of the expected values and transparency that is imbedded in their

culture. Such a profile can subsequently be used as a foundation for structural internal control

mechanism. Another need for such a base is that it can be used as a framework for the code of

conduct and should go hand in hand with an internal, anonymous complaint procedure to secure

whistle‐blowers and create a safe space for victims of bullying and other destructive behaviour.

With that in place, a corporation is able to register early warning signals in different teams and

manage it before it is spreading. Another possible way to manage the spread of toxic culture

due to Corporate Psychopaths are regular assessment mechanism that not only asses the

numbers but also soft skills like the internal teamwork. Those established assessments can shed

93

light on those skills and show the employees that those skills are valued and wished for in a

corporation. A toxic culture often arises in combination with a weak corporate governance in

place without an established risk management framework. Unfortunately, none of the samples

had an active and independent board as well as an independent advisory environment, which

could have been another warning signal for investors and the economic environment.

Implementing a mandatory regulatory body as well as putting sanctions or fines for

noncompliance could have been a solution.

The fourth hypothesis is stating that Corporate Psychopaths ultimately conduct a form of white-

collar crime in their careers. Sadly, this was true for all the cases, as all the analysed Corporate

Psychopaths committed misappropriation or embezzlement. In the cases of Maxwell

Communications and Madoff Investment Securities, they were even involved in pension fraud.

As in most of the examples, there were employees who knew about the fraudulent activities but

had no way to speak up or were not listened to. If there was a working, internal system for

anonymous complaint procedures to secure whistle‐blowers, the activities would have been

recognized earlier and could have been stopped. Independent board members are necessary, so

even the CEOs can be held accountable if a whistle-blower points out destructive actions of

theirs. The auditing systems failed to detect fraudulent activities and one reason might have

been, that the auditors were not aware of the characteristics of their clients.

Independent auditors should be made aware of possible dark traits and how they could affect

their work. So, if the auditors had checked the characteristics of the leader’s personality, it could

have potentially showed them warning signals. Another possibility is to use lean accounting

with value stream reports. Those reports could have shown the Ponzi Scheme of Madoff as well

as the unprofitable acquisition sprees in Enron and Steinhoff. The comparison shows, that the

analysed cases could have been prevented or at least warning signals could have been

recognised. If the topic of the dark triad is recognised within corporations the chances are high,

that somebody can spot early warning signs.

Reflection

The purpose of this thesis is to give an overview of different organizational factors, that are

caused by Corporate Psychopaths and can ultimately lead to corporate failure. The factors all

have their specific impacts and can therefore be used as warning signals of Corporate

Psychopaths in a corporation as well. The general question of why these individuals are often

94

promoted, their high risk-taking praised and whole psychopathic cultures tolerated was

addressed. In order to figure out the behaviour of Corporate Psychopaths in corporations,

Behavioural Agency Theory as well as the topic of Corporate Governance was used. The goal

was to develop possible solutions by examining past cases and to filter out possible warning

signals that could help corporations recognize Corporate Psychopaths. Even though the

characteristics of the dark triad are not curable, a corporation should be able to manage them.

The guidelines are showing approaches for corporations to handle the topic of Corporate

Psychopaths as well as approaches for better mandatory frameworks to protect stakeholders.

Today`s corporations must be prepared to acknowledge the significance of this subject matter

in order to actually make a change.

Limitations

The limitations of the data are obvious in this subject. There is only a little possibility to actually

figure out the real motivations of Corporate Psychopaths and their reasons to show certain

behaviour, as they are seldomly identified and even more seldomly interviewed and then telling

the truth. That is the reason, why this thesis had to rely on historical data. Another limitation is

the selection of samples for the analysis, as the cases became all famous for their scandals and

failures. The identification of Corporate Psychopaths is still only done when their behaviour

escalates and becomes public, so there was no chance to include an example where a

corporation was able to successfully manage a member of a dark triad. Consequently, the

approaches of the guidelines are based on the failures and not on possible already working

examples. As there is often no awareness of this topic another reason for this limitation is the

low priority and emphasis on Corporate Psychopaths and their effect on the future profit of a

corporation.

Implications for further research

There are some issues for further exploration derived from this thesis, including Corporate

Psychopaths in comparison to other expressions of psychopaths. Researchers have concentrated

on discussing violent-criminals with characteristics of the dark triad and neglected the area of

white-collar crimes and their perpetrators (Boddy 2015, pp.2423f). These issues suggest that

there is also a need for research into possible prevention and treatment efforts. If the “shaping

forces“ of psychopathic tendencies are explored, they could be targeted early and eventually

shaped (Skeem et al. 2011, p.121). Future studies could then work with a bigger sample size.

Another important implication for further work is the leadership in corporations. Due to the

existing focus on charismatic individuals, Corporate Psychopaths have it easy to gain access to

95

a corporation, so further studies of different necessary characteristics and additional measures

of their likely excellence (Boddy 2016b, p.265) are required. The thesis presents a number of

implications of how to deal with Corporate Psychopaths, but this section still needs a lot of

research in the future. The first task would be to validate the warning signals and do research

on the right measurements for them. One important contribution to future research in the

prevention of Corporate Psychopaths entering a corporation is the forced choice format

(Externbrink and Keil 2018, p.71). For the framework conditions of preventing corporational

failure, future studies should collect more data on reasons for compliance or non-compliance

as well as their justifications for any deviations (Cuomo, Mallin, and Zattoni 2016). It is just as

important is to heighten the awareness of auditors for Corporate Psychopaths and academics

should consider investigating the best methods to implement this necessary understanding of

behavioural diagnoses (Epstein and Ramamoorti 2016, pp.20f). All in all, the subject of

Corporate Psychopaths should be taken seriously as the consequences could be even more

severe in the future if corporations are not willing to recognize them.

96

8 Appendix

Table of possible candidates

No Corporati

on

CEO &

Associates Year Scandal

Invol

ving

fraud

Named

Corporate

Psychopaths

Why not an

example

1

Ford

Motor

Company

Henry

Ford

1903

Henry Ford hired

thugs to break up

unions and deployed

machine guns at his

factories which

indicated his lack of

care towards his

workers as well as

egoistic behaviour

(Boddy 2016a).

No Partly, as he was

called a

narcissist but not

a Corporate

Psychopath

(Brugger 1974).

As there is no

consequential

scandal and just

some narcissistic

traits, this

example is

unsuitable for

the analysis.

2

Worldcom Bernard

Ebbers

2002

The company gave

around $400 million

to its CEO Bernard

Ebbers in off-the-

books loans and

overstated cash flows

by falsely booking

$11 billion as capital

expenses (da Silveira

2012).

Yes Yes, as Bernie

Ebbers was

considered a

“risk-seeking,

deal maker” who

created a

destructive

corporate culture

(Jeppesen and

Leder 2016) and

mentioned as a

possible

psychopath

(Boddy 2016a).

The scandal is

closely linked to

the Dotcom-

bubble and it is

not entirely clear

how much the

scandal is due to

Bernard Ebbers

or the general

crisis.

3

Lehmann

Brothers

Dick Fuld

2008

The company filed

for bankruptcy

protection after huge

losses due to complex

financial operations

which led it to

insolvency. There are

still suspicions of

fraud (da Silveira

2012).

Uncer

tain

Yes, the former

CEO was called

an example of a

toxic leader and

as having a

psychopathic and

narcissistic

personality

(Stein 2013).

As it is

uncertain, if

there occurred a

fraud and how

the fraud

unfolded, it is

not compatible

for the analysis.

4

Nortel

Networks

Corporatio

n

Frank

Dunn

2009

The company

manipulated its books

to show a profit to

boost its earnings and

had to pay $35

million to settle civil

charges related to this

scandal (Dabrowski,

2008). The

corporation had to

declare bankruptcy in

2009 (Heracleous and

Werres 2016)

Legal

ly no

No, even though

the Nortel

executives were

under the

suspicion to alter

accounting

reserves to trigger

more than $12-

million in bonuses

and share

payments for

themselves

(McFarland &

Backwell, 2018).

As the CEOs

were found not

guilty of a fraud

and also not

actually named

Corporate

Psychopaths, this

scandal is

unsuitable for

the analysis.

5

Barings

Bank

Nicholas

Leeson

1995

In 1995 Britain's

oldest merchant bank,

Barings, collapsed

after a series of big

Yes No, even though

he was called the

man “who lost

Although the

available

evidence suggest

that Leeson was

97

losses on trading

complex financial

instruments (Tickell

1996).

Nick Leeson was

held almost solely

accountable for the

bankruptcy of

Barings, losing

around £850 million

of its assets (Greener

2006).

Barings" (Tickell

1996).

Leeson was

described as an

expert in

blinding people

with science

(Drummond

2002).

deceptive, the

picture painted

by Barings

management

misrepresented

his position

within the bank

and in the

scandal. It is

therefore not

compatible for

the analysis.

6

Sunbeam

Corporatio

n

Albert

Dunlap

1998 Albert J. Dunlap was

part of a big

accounting fraud as

CEO of the Sunbeam

Corporation

(Norris,2001).

Sunbeam had to

restate financial

results dating back to

1996. Over t $60

million of Sunbeam's

1997 earnings were

fraudulent and about 11,000 people lost

their jobs as a

consequence

(Canedy,1998).

Yes Yes, Albert

Dunlap scored

highly on a

measure of

corporate

psychopathy and

mentioned as

a possible

psychopath

(Deutschman

2005).

Dunlap called

“Chainsaw Al Dunlap” for his

willingness to

make big cuts

(Boddy 2015).

Sunbeam's

fortunes were

already bad

before Dunlap

became CEO

and even though

it initially

seemed to

improve under

him, the

recovery was a

myth (Norris,

2001).

98

Criteria check of the used examples

No

Corpora

tion

CEO

&

Associ

ates

Year Scandal Involving fraud

Named

Corporate

Psychopaths

Why a good

example

1

Maxwell

Commu-

nication

Corporati

on

Robert

Maxwe

ll

1991

His complete

empire crashed

down with over

£300 Million

missing from

The Daily

Mirror pension

fund (Boddy

2016a).

Yes, after his

mysterious

death in 1991 it

became clear,

that he was

constantly

breaking the

criminal law as

well as social

norms.

Maxwell scores

highly on the

measure of

corporate

psychopathy by

the acclaimed

author Hare

(Boddy 2015,

p.2413), who

personally

named the

disgraced

British media

tycoon Robert

Maxwell as a

possible

psychopath.

Maxwell’s well

disguised fraud

during his time

as CEO is well

documented

and can

optimally be

examined for

this thesis.

2

Enron CFO

Andy

Fastow,

CEO

Jeff

Skilling

2001

The

corporation had

to file for

bankruptcy.

Enron's

bankruptcy

filing shows

over $20

billion in debt

with more than

$20 billion

more off the

balance sheet

(Downes and

Russ 2005

p.84).

Yes, the

committed

corporate fraud

could be

labelled as the

biggest

governance

failure in

corporate

history

(Downes and

Russ 2005).

Yes, Fastow and

Skilling were

generally

described as

being

manipulative,

bullying,

egocentric and

lacking any

remorse of

their crimes,

which are

definite traits

of Corporate

Psychopaths

(Perri 2013).

Enron began to

transform itself

by diversifying

its products

(Bratton 2005)

which

consumed

billions of

dollars.

Their culture

can be described

as hyper-

aggressive

(Huber and

Scheytt 2017,

p.20) with

apparent

Corporate

Psychopaths in

their top

management.

3

Bernard

L.

Madoff

Investme

nt

Securitie

s LLC

Bernar

d

Madoff

2008

Revealed a $50

billion Ponzi

scheme that not

only destroyed

the lifes of

individuals, but

also led to

corporation

collapses in the

aftermath (Court

Documents,

2009).

Yes, a large

scaled Ponzi

scheme for

decades,

resulting in

considerable

losses for his

approximately

4,800 investors

(da Silveira

2012).

Yes, his own

power and profit

explains his

destructive trait

of remorseless

scheming and

manipulating,

which is

typically seen in

a psychopath

(Creswel &

Landon, 2009).

Various authors

shared this

observation and

called Madoff a

either a

It is compatible

for the analysis

as Madoff

showed clear

signs of

Corporate

Psychopathy

and was

responsible for

the downfall of

the corporation.

99

sociopath

(Henriques,

2012) or a

psychopath

(Winarick

2010).

4

Wells

Fargo

John

Stumpf

2016

The CEOs

mantra were

"eight is great”

(McGrath 2016)

meaning to sell

eight Wells

Fargo products

to each

customer. This

instruction was

so burdensome

for their

employees, that

they began to

open deposit

accounts

for Wells

customers

without their permission to

reach the set

goal (McGrath

2016). The

reputational

damage proved

to be enormous.

Yes,

in 2016 Wells

Fargo had to

admit to open

over two million

accounts

without

customer

authorization for

over five years

(Ochs, 2016).

The scandal

caused a $185

million payment

for a lawsuit

settlement, a

$2.6 million

payment to

refunded their customers and

the termination

of 5,300

employees

(Tayan 2019,

pp.2f).

The CEO is

generally

considered to be

the origin of the

scandal as his

strategy was

responsible for

the fraudulent

tactics

(McGrath 2016)

The behaviour

of the high-

performing

executive

ultimately did

not align with

corporation

values (Tayan

2019, p.6).

The scandal

deals with their

whole unethical

corporate

culture instead

of just one

Corporate

Psychopath.

It is a perfect

example of

putting extreme

pressure on

employees, and

failing to hold

senior

management

accountable for

it (Tayan 2019, p.3).

5

Steinhoff Markus

Jooste

2017

A small group

of top

executives led

the corporation

in the country’s

biggest

corporate

scandal (Soko

2018) and

bankruptcy.

Over years,

wrong

transactions led

to the material

overstatement of

the group’s

income and

asset values

(Naudé et al.

2018, p.23).

Yes, at the end

of 2017 it got

clear that the

audit of

Steinhoff’s

financial

statements was

incomplete

(Rossouw and

Styan 2019,

P.165).

Steinhoff had

overstated

profits in an

accounting

fraud, which

caused a loss of

more than 216

billion rand

from Steinhoff’s

market value

(Motsoeneng &

Rumney, 2019).

Yes, the

leadership style

fostered a

culture of

uncritical

subservience

and a member

of parliament

quoted one of

Jooste’s former

colleagues

saying „he was

a psychopath“,

(Magwood,

2018).

CEO Markus

Jooste

administered

deals, that

inflated the

group’s profit

and

implemented

unethical

practices,

including

accounting

irregularities

and tax evasion

(Soko 2018).

Steinhoff is a

perfect example

of corporate

governance

failure, which

shows the

danger of an all-

powerful CEO

(Rossouw and

Styan 2019,

p.163).

100

Hare’s original checklist for psychopathy summarized:

1. Glibness/superficial charm

2. Grandiose sense of self-worth

3. Need for excitement

4. Pathological lying

5. Conning/manipulative

6. Lack of remorse or guilt

7. Shallow affect (emotion)

8. Callous/lack of empathy

9. Parasitic lifestyle

10. Poor behavioural control

11. Promiscuous sexual behaviour

12. Early behavioural problems

13. Lack of realistic long-term goals

14. Impulsivity

15. Irresponsibility

16. Failure to accept responsibility for actions

17. Many short-term marital relationships

18. Juvenile delinquency

19. Revocation of conditional release

20. Criminal versatility

(Boddy 2005, p.32).

101

Guideline Checklist

1.) Prevent Corporate Psychopaths from entering a corporation

For detecting Warning Signals of Corporate Psychopaths, see figure 6.

Multi-perspective and multimodal conduct of recruitment

• Widen the recruitment process with various recruitment stages

• Trimodal approach is based on a larger number of individual procedures which can

be divided into characteristic-, simulation-, and biography-oriented processes

1. Reviewing and verifying all the information and records that were provided

• Verification of criminal records

• Extensive reference checking not only from the candidate’s former bosses, but also

their former colleagues and subordinates

2. Tests and questionnaires to analyse the character of the candidates

• Measurement in the forced choice format

3. Case studies and presentations tasks to measure the candidate`s management skills

• Role-playing tasks are suitable for identifying possible leadership skills

• All CPs are going to have a hard time maintaining their superficial and calm

impressions

102

2.) Managing psychopathic personalities and cultures

• Dangerous to get into a direct confrontation or power struggle with Corporate

Psychopaths

Actively managing toxic employees

1. Sensitize all employees about this topic

• help in monitoring and managing dark triad members internally

2. Fixed internal controls should be established

• internal, anonymous complaint procedures to secure whistle‐blowers from revengeful

Corporate Psychopaths

3. A regular performance assessment

• recognize the warning signals at an early stage and counteracting them with further

personnel development measures

• specific psychopathy measures based on the already mentioned PCL-R Model

• allocate executive mentors to corporate leaders

• assess the leader’s teamwork with their subordinates

4. 360-degree-feedback

• for full view of their interactions with their immediate surroundings, including their

superiors, colleagues, subordinates as well as customers

5. Revise the incentives to manage potential Corporate Psychopaths

• reward system needs to include soft skills and important values of their culture in it

• fines for proven misbehaviour by breaching cultural standards

• incentives and fines can bring CP to abide to the internal codes

6. Stable culture with emphasis on teamwork and a multilateral distribution of power

• define the overall corporate profile with a mandatory cultural part with f.e. corporate

mission statement and guiding principles

• culture is implemented through internal cooperative systems and policies as well as

external laws and appropriate checks and balances

7. Rotating CEO and leadership system

8. Manage psychopathic subordinates

• rehearse the talk with a mentor that has knowledge of organisational politics

• Additional steps: see figure 8

• Gas lighting technique to doubt their position in the corporation

• leaders need to have an ear to the ground

103

3.) Preventing corporate failure

Mandatory laws and general framework conditions should be established

1. Corporate governance

• should create a structure that encourages transparency and accountability of the

board for raising confidence among possible investors

• No creative escaping from ensuring that the corporate governance codes hold the ones

in power responsible

• Corporate Social Responsibility: corporation is acting in a socially responsible way

to prevent psychopaths from remaining members of the corporation

• Framework mainly includes independent board members as well as an independent

advisory environment

• Illuminate the board responsibility for the management and equip them with

sanctioning power against destructive leaders

• Implementing a regulatory body for corporate governance

2. Audits

• Auditors show their discomfort about specific numbers or statements in the

„Emphasis of Matter“ section - a clear signal for future problems

• Sensitise already practicing auditors as well as use the opportunity to educate the

current accounting students

• Audits should check characteristics of management’s personality

• Auditors should adjust their risk assessment tools to depict any impact a dark

personality can have on the financial reporting

• Evidence-based analysis: corporation would be able to better quantify the cost of

toxic culture and behaviour

• Principles of lean accounting could be integrated in new decision-making models to

make the financial information more transparent

• Value stream reports show the real costs of a value stream and could identify domains

that needs improving

104

9 Bibliography

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