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The Corporate Psychopaths Theory of the Global Financial Crisis

Authors:
  • Middlesex University Business School

Abstract

This short theoretical paper elucidates a plausible theory about the Global Financial Crisis and the role of senior financial corporate directors in that crisis. The paper presents a theory of the Global Financial Crisis which argues that psychopaths working in corporations and in financial corporations, in particular, have had a major part in causing the crisis. This paper is thus a very short theoretical paper but is one that may be very important to the future of capitalism because it discusses significant ways in which Corporate Psychopaths may have acted recently, to the detriment of many. Further research into this theory is called for. Key wordsCorporate Psychopaths–The Global Financial Crisis–leadership–corporate management
The Corporate Psychopaths Theory
of the Global Financial Crisis Clive R. Boddy
ABSTRACT. This short theoretical paper elucidates a
plausible theory about the Global Financial Crisis and the
role of senior financial corporate directors in that crisis.
The paper presents a theory of the Global Financial Crisis
which argues that psychopaths working in corporations
and in financial corporations, in particular, have had a
major part in causing the crisis. This paper is thus a very
short theoretical paper but is one that may be very
important to the future of capitalism because it discusses
significant ways in which Corporate Psychopaths may
have acted recently, to the detriment of many. Further
research into this theory is called for.
KEY WORDS: Corporate Psychopaths, The Global Fi-
nancial Crisis, leadership, corporate management
Introduction
The Global Financial Crisis has raised many ethical
issues concerning who pays for the damage inflicted
and who is responsible for causing the crisis. Com-
mentators on business ethics have noted that cor-
porate financial scandals have assumed epidemic
proportions and that once great companies of
longstanding history and with previously unblem-
ished and even dignified reputations have been
brought down by the misdeeds of a few of their
leaders. These commentators raise the fascinating
question of how these resourceful and historic
organizations end up with impostors as leaders in the
first place (Singh, 2008). One writer on leadership
even goes as far as to say that modern society is
suffering from a epidemic of poor leadership in both
the private and the public sectors of the economy
(Allio, 2007).
An understanding of Corporate Psychopaths as
expressed in a recent series of papers in this journal
and in others, and based on empirical research, has
helped to answer the question of how organizations
end up with impostors as leaders and how those
organizations are then destroyed from within
(Boddy, 2005,2010a, Boddy et al., 2010a,b).
The event of the Global Financial Crisis has
hastened an already changing climate in business
research. Commentators are no longer willing to
assume that all managers are working selflessly and
entirely for the benefit of the organization that
employees them, and the study of dark, dysfunc-
tional, or bad leadership has emerged as a theme in
management research (Allio, 2007; Batra, 2007;
Boddy, 2006; Clements and Washbrush, 1999). The
onset of the Global Financial Crisis has thus led
management researchers to be increasingly interested
in researching various aspects of dark leadership in an
attempt to explain the current financial and organi-
zational turmoil around the world. Numerous papers
on dark leadership have, for example, been recently
reviewed by this author for this journal and it is
evident that there are commentators with a deep
knowledge of individual types of dark and dys-
functional leadership and with views on how these
people have contributed to the current crisis. Cor-
porate Psychopaths are one such type of dark man-
ager, and this paper investigates their possible
influence on the companies involved in the Global
Financial Crisis. This is important because when
large financial corporations are destroyed by the
actions of their senior directors, employees loose
their jobs and sometimes their livelihoods, share-
holders lose their investments and sometimes their
life savings and societies lose key parts of their eco-
nomic infrastructure. Capitalism also loses some of
its credibility.
These corporate collapses have gathered pace in
recent years, especially in the western world, and
have culminated in the Global Financial Crisis that
Journal of Business Ethics (2011) 102:255–259 ÓSpringer 2011
DOI 10.1007/s10551-011-0810-4
we are now in. In watching these events unfold it
often appears that the senior directors involved walk
away with a clean conscience and huge amounts of
money. Further, they seem to be unaffected by the
corporate collapses they have created. They present
themselves as glibly unbothered by the chaos around
them, unconcerned about those who have lost their
jobs, savings, and investments, and as lacking any
regrets about what they have done. They cheerfully
lie about their involvement in events are very per-
suasive in blaming others for what has happened and
have no doubts about their own continued worth
and value. They are happy to walk away from the
economic disaster that they have managed to bring
about, with huge payoffs and with new roles advis-
ing governments how to prevent such economic
disasters.
Many of these people display several of the
characteristics of psychopaths and some of them are
undoubtedly true psychopaths. Psychopaths are the
1% of people who have no conscience or empathy
and who do not care for anyone other than them-
selves. Some psychopaths are violent and end up in
jail, others forge careers in corporations. The latter
group who forge successful corporate careers is
called Corporate Psychopaths. Who psychopaths are
and who Corporate Psychopaths are, is discussed
further below.
Psychopaths
Psychopaths are people who, perhaps due to physical
factors to do with abnormal brain connectivity and
chemistry, especially in the areas of the amygdala and
orbital/ventrolateral frontal cortex (Blair et al., 2005,
2006; Kiehl et al., 2001,2004,2006) lack a con-
science, have few emotions and display an inability
to have any feelings, sympathy or empathy for other
people. The area of the brain known as the amygdala
has been described as the seat of emotion and fear
and is reported to be important in processing socially
relevant information and it is therefore theorized
that disruption of its functions could lead to cold
and socially inappropriate behaviour (Wernke and
Huss, 2008). This abnormal brain connectivity and
chemistry of psychopaths makes them extraordi-
narily cold, much more calculating and ruthless
towards others than most people are and therefore a
menace to the companies they work for and to
society (Brinkley et al., 2004; Viding, 2004).
Corporate Psychopaths
The concept of the Corporate Psychopaths marries
the terms ‘psychopath’ from the psychological lit-
erature with the term ‘corporate’ from the area of
business to denote a psychopath who works and
operates in the organisational area (Boddy, 2005).
These people have also been called Executive Psy-
chopaths, Industrial Psychopaths, Organisational
Psychopaths, and Organisational Sociopaths by other
researchers in this emerging area of research (Pech
and Slade, 2007). They ruthlessly manipulate others,
without conscience, to further their own aims and
objectives (Babiak and Hare, 2006).
Although they may look smooth, charming,
sophisticated, and successful, Corporate Psychopaths
should theoretically be almost wholly destructive to
the organizations that they work for. The probable
mal-effects of the presence of psychopaths in the
workplace have been hypothesized about in recent
times by a number of leading experts and com-
mentators on psychopathy (Babiak, 1995; Babiak
and Hare, 2006; Boddy, 2005,2006; Clarke, 2005;
Hare, 1994,1999).
Researchers report that such malevolent leaders
are callously disregarding of the needs and wishes of
others, prepared to lie, bully and cheat and to dis-
regard or cause harm to the welfare of others (Perkel,
2005). Corporate Psychopaths are also poorly orga-
nized managers who adversely affect productivity
and have a negative impact on many different areas
of organizational effectiveness (Boddy, 2010b).
The theory
Professor Robert Hare, the world’s leading expert
on psychopathy, has said that if he didn’t look for
psychopaths to study in prisons he would look for
them in stock exchanges. Recent newspaper head-
lines such as ‘Wall Street Shows No Remorse’ do
nothing to suggest that his viewpoint is incorrect.
Hare has repeatedly drawn attention to the possible
damage that Corporate Psychopaths could cause in
major financial and other organizations. Some of this
256 Clive R. Boddy
damage has been illuminated by the research pre-
sented in a number of recent papers while other
damage is merely hypothesised about.
Psychologists have argued that Corporate Psy-
chopaths within organizations may be singled out for
rapid promotion because of their polish, charm, and
cool decisiveness. Expert commentators on the rise
of Corporate Psychopaths within modern corpora-
tions have also hypothesized that they are more
likely to be found at the top of current organisations
than at the bottom. Further, that if this is the case,
then this phenomenon will have dire consequences
for the organisations concerned and for the societies
in which those organisations are based. Since this
prediction of dire consequences was made the
Global Financial Crisis has come about. Research by
Babiak and Hare in the USA, Board and Fritzon in
the UK and in Australia has shown that psychopaths
are indeed to be found at greater levels of incidence
at senior levels of organisations than they are at
junior levels (Boddy et al., 2010a). There is also
some evidence that they may tend to join some types
of organisations rather than others and that, for
example, large financial organisations may be
attractive to them because of the potential rewards
on offer in these organizations (Boddy, 2010a).
These Corporate Psychopaths are charming indi-
viduals who have been able to enter modern cor-
porations and other organisations and rise quickly
and relatively unnoticed within them because of the
relatively chaotic nature of the modern corporation.
This corporate nature is characterized by rapid
change, constant renewal and quite a rapid turnover
of key personnel. These changing conditions make
Corporate Psychopaths hard to spot because constant
movement makes their behaviour invisible and
combined with their extroverted personal charisma
and charm, this makes them appear normal and even
to be ideal leaders.
The knowledge that Corporate Psychopaths are
to be found at the top of organisations and seem to
favour working with other people’s money in large
financial organisations has in turn, led to the devel-
opment of the Corporate Psychopaths Theory of the
Global Financial Crisis. The Corporate Psychopaths
Theory of the Global Financial Crisis is that Cor-
porate Psychopaths, rising to key senior positions
within modern financial corporations, where they
are able to influence the moral climate of the whole
organisation and yield considerable power, have
largely caused the crisis. In these senior corporate
positions, the Corporate Psychopath’s single-minded
pursuit of their own self-enrichment and self-
aggrandizement to the exclusion of all other con-
siderations has led to an abandonment of the old
fashioned concept of noblesse oblige, equality, fair-
ness, or of any real notion of corporate social
responsibility.
The Corporate Psychopaths Theory of the Global
Financial Crisis is that changes in the way people are
employed have facilitated the rise of Corporate
Psychopaths to senior positions and their personal
greed in those positions has created the crisis. Prior
to the last third of the twentieth century large cor-
porations were relatively stable, slow to change and
the idea of a job for life was evident, with employees
gradually rising through the corporate ranks until a
position was reached beyond which they were not
qualified by education, intellect or ability to go.
In such a stable, slowly changing environment
employees would get to know each other very well
and Corporate Psychopaths would be noticeable and
identifiable as undesirable managers because of their
selfish egotistical personalities and other ethical
defects.
Changing companies’ mid-career was seen as
being questionable and inadvisable and their rise
would therefore be blocked both within their ori-
ginal employer and among external employers who
would question their reasons for wanting to change
jobs.
However, once corporate takeovers and mergers
started to become commonplace and the resultant
corporate changes started to accelerate, exacerbated
by both globalisation and a rapidly changing tech-
nological environment, then corporate stability be-
gan to disintegrate. Jobs for life disappeared and
not surprisingly employees’ commitment to their
employers also lessened accordingly. Job switching
first became acceptable and then even became
common and employees increasingly found them-
selves working for unfamiliar organisations and with
other people that they did not really know very well.
Rapid movements in key personnel between cor-
porations compared to the relatively slower move-
ments in organisational productivity and success
made it increasingly difficult to identify corporate
success with any particular manager. Failures were
257The Corporate Psychopaths Theory of the Global Financial Crisis
not noticed until too late and the offending man-
agers had already moved on to better positions
elsewhere. Successes could equally be claimed by
those who had nothing to do with them. Success
could thus be claimed by those with the loudest
voice, the most influence and the best political skills.
Corporate Psychopaths have these skills in abun-
dance and use them with ruthless and calculated
efficiency.
In this way, the whole corporate and employment
environment changed from one that would hold the
Corporate Psychopath in check to one where they
could flourish and advance relatively unopposed.
As evidence of this, senior level remuneration and
reward started to increase more and more rapidly
and beyond all proportion to shop floor incomes and
a culture of greed unfettered by conscience devel-
oped. Corporate Psychopaths are ideally situated to
prey on such an environment and corporate fraud,
financial misrepresentation, greed and misbehaviour
went through the roof, bringing down huge com-
panies and culminating in the Global Financial Crisis
that we are now in.
Writing in 2005, this author commentating on
Corporate Psychopaths predicted that the rise of
Corporate Psychopaths was a recipe for corporate
and societal disaster. This disaster has now happened
and is still happening. Across the western world the
symptoms of the financial crisis are now being
treated. However, if the Corporate Psychopaths
Theory of the Global Financial Crisis is correct, then
this treatment of the symptoms will have little effect
because the root cause is not being addressed. The
very same Corporate Psychopaths, who probably
caused the crisis by their self-seeking greed and
avarice, are now advising governments on how to
get out of the crisis. That this involves paying
themselves vast bonuses in the midst of financial
hardship for many millions of others, is symptomatic
of the problem. Further, if the Corporate Psycho-
paths Theory of the Global Financial Crisis is correct
then we are now far from the end of the crisis. In-
deed, it is only the end of the beginning. Perhaps
more than ever before, the world needs corporate
leaders with a conscience. It does not need Corpo-
rate Psychopaths. Measures exist to identify Cor-
porate Psychopaths. Perhaps it is time to use them.
Conclusions
When presented to management academics in dis-
cussion, the Corporate Psychopaths Theory of the
Global Financial Crisis is accepted as being plausible
and highly relevant. It provides a theory which
unifies many of the individual interpretations of the
reasons for the Global Financial Crisis and as such is
worthy of further development. The message that
psychopaths are to be found in corporations and
other organisations may be important for the future
longevity of capitalism and for corporate and social
justice and even for world financial stability and
longevity. Stemming from this belief that the mes-
sage concerning psychopaths in corporations is
important, an aim of this paper has been to get the
work that psychologists have been doing on psy-
chopathy, and on ‘successful psychopaths’ and
Corporate Psychopaths in particular more widely
known to management researchers and to managers
themselves. In particular the paper presents a theory
concerning the Global Financial Crisis which may
throw considerable light on its origins.
Implications for further research
The Corporate Psychopaths Theory of the Global
Financial Crisis is a theory that would benefit from
further development and research. This research
could be into the personalities and moral reasoning
aptitudes of the leaders of the financial institutions
that are most associated with the Global Financial
Crisis. Simultaneous research into the brain chem-
istry and connectivity of these people may prove to
be highly enlightening in helping to establish the
nature and extent of their psychopathy.
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Marketing,
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Room 621, 6th Floor,
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259The Corporate Psychopaths Theory of the Global Financial Crisis
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... Indeed, mean levels of psychopathic traits are higher among corporate samples than community samples (Babiak et al., 2010). High psychopathy individuals are seemingly prone to rise to positions of leadership and power in organizations (Babiak et al., 2010;Boddy, 2011;Boddy et al., 2010a;Howe et al., 2014) likely due to their ability charm, interpersonally manipulate others, cheat, and deceive others for personal gain. ...
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This article re-examines key explanations of the Global Financial Crisis—product complexity, behavioural biases in decision making, systemic risk, and regulatory arbitrage and capture—and finds a common underlying cause, namely gaming by personnel at all levels in the banking sector and its regulators. This has enabled banks to use highly leveraged, maturity-mismatched investment strategies, which were designed so that the banks retained the upside rewards, but transferred the downside risks to taxpayers, leading to the privatization of profits and the socialization of losses—behaviour that has been described as ‘banksterism’. Although governments have introduced some significant mitigatory measures, they will not be effective in preventing future financial crises, because they do not and, indeed, cannot provide the appropriate incentives to end the Great Game between bankers and taxpayers, which would involve making bankers, rather than taxpayers, personally liable for losses.
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This article re-examines key explanations of the Global Financial Crisis—product complexity, behavioural biases in decision making, systemic risk, and regulatory arbitrage and capture—and finds a common underlying cause, namely gaming by personnel at all levels in the banking sector and its regulators. This has enabled banks to use highly leveraged, maturity-mismatched investment strategies, which were designed so that the banks retained the upside rewards, but transferred the downside risks to taxpayers, leading to the privatization of profits and the socialization of losses—behaviour that has been described as ‘banksterism’. Although governments have introduced some significant mitigatory measures, they will not be effective in preventing future financial crises, because they do not and, indeed, cannot provide the appropriate incentives to end the Great Game between bankers and taxpayers, which would involve making bankers, rather than taxpayers, personally liable for losses.
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This chapter provides an overview of psychopathy in organizational settings, particularly relevant for individuals working in the corporate world. Research examining measures of corporate psychopathy and psychopathic traits in the work force are reviewed. Individuals with psychopathic traits working in corporate settings may exhibit specific work behaviors that impact their coworkers, employees, and the corporate environment. Understanding and identifying these behaviors, their influence and prevalence may benefit individuals working in this field. The nature of these “successful” psychopaths, as compared to their criminal counterparts, is explored. Historical case studies are included to demonstrate real-life examples.
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The recent global pandemic, COVID-19, has compelled the higher education sector to resort to virtual mode of teaching from the traditional methods of classroom teaching thereby causing a huge paradigm shift. In order to make online learning a more positive and meaningful learning experience teachers must resort to reflective teaching. Reflective teaching is a skilled procedure that requires teachers to take logical decisions on their own teaching pedagogy, actions and provide meaningful guidance to students for better learning outcomes. Conscious lean educational leadership can holistically transform and enhance the leadership aptitude and responsibilities of academic communities virtually. The purpose of this chapter is to integrate reflective teaching as an innovative strategy in virtual mode for the development of conscious lean educational leadership in higher education. The findings yield that conscious lean educational leadership can serve as a great means to boost teachers’ morale and enrich their understanding during worldwide crisis. Reflective teaching can assist teachers to effectively contribute to virtual academic workplace through online educational tools. This chapter complements to extant literature on the amalgamation of conscious lean educational leadership by exploring how reflective teaching can assist to achieve the desired organizational goals in the virtual academic workplace.
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This chapter takes a developmental and life-course perspective on psychopathy and criminal behavior; Fox, Jennings, and Farrington (2015) argued that psychopathy should be understood within the framework of developmental and life-course (DLC) criminology and its theories. The chapter reviews major prospective longitudinal studies that have addressed psychopathy across the life-course as well as central past findings. We will also present empirical findings from one of the most influential prospective longitudinal studies in the fields of criminology and psychology: the Cambridge Study in Delinquent Development (CSDD). The CSDD has followed 411 boys (Generation 2, “G2”) for more than half a century, and the chapter will present findings on their psychopathic traits in adolescence and adulthood and the relationship with convictions. More specifically, psychopathic traits (as measured by the Antisocial Process Screening Device; APSD, Frick & Hare, 2001) were assessed through retrospective coding of the CSDD data available in adolescence, and the Hare Psychopathy Checklist: Screening Version (PCL:SV; Hart, Cox, and Hare, 1995) was used to measure psychopathic traits at the age of 48. Conviction data is available in the CSDD up to the age of 61. As a result, the chapter will be unparalleled in its exploration of the relationship between psychopathy and crime across the life-course. Implications for criminal justice practices will be discussed.
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Purpose – Organisations sometimes select and promote the wrong individuals for managerial positions. These individuals may be incompetent, they may be manipulators and bullies. They are not the best people for the job and yet not only are they selected for positions of authority and responsibility, they are sometimes promoted repeatedly until their kind populate the highest levels of the organisational hierarchy. The purpose of this paper is to address this phenomenon by attempting to explain why it occurs and why organisational members tolerate such destructive practices. It concludes by proposing a cultural strategy to protect the organisation and its stakeholders from the ambitious machinations of the organisational sociopath. Design/methodology/approach – The authors develop an explanatory framework by attempting to combine elements of the theory of memetics with structuration theory. Memetic theory helps to analyse culture and communication of beliefs, ideas, and thoughts. Structuration theory can be used to identify motives and drives. A combination of these theoretical approaches can be used to identify the motives of organisational sociopaths. Such a tool is also useful for exploring the high level of organisation tolerance for sociopathic managers. Findings – Organisational tolerance and acceptance for sociopathic managerial behaviour appears to be a consequence of cultural and structural complexity. While this has been known for some time, few authors have posited an adequate range of explanations and solutions to protect stakeholders and prevent the sociopath from exploiting organisational weaknesses. Reduction of cultural and structural complexity may provide a partial solution. Transparency, communication of strong ethical values, promotion based on performance, directed cooperation, and rewards that reinforce high performing and acceptable behaviour are all necessary to protect against individuals with sociopathic tendencies. Originality/value – The authors provide a new cultural diagnostic tool by combining elements of memetic theory with elements of structuration theory. The subsequent framework can be used to protect organisations from becoming the unwitting victims of sociopaths seeking to realise and fulfil their needs and ambitions through a managerial career path.
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Purpose – The author argues that the causes of this current epidemic of bad leadership include the leaders' personality disorders, akrasia (weakness of will), flawed values, and avoidance of reality. The complicity of followers also contributes. Design/methodology/approach – The author offers a twin-scenario model. In one case stressed leaders become pragmatists. In the other they act out this alternative: The would-be visionary, seduced by power and a growing sense of certitude, first becomes isolated and then gets lost. When plans fail to deliver wins, the leader grows tyrannical, wields power wrongly, and devolves into a fallen star and self-serving “decider,” often surrounded by fawning acolytes. Findings – The subsequent emergence of bad leadership can be averted if leaders will pay attention to the welfare of stakeholders, listen to alternative points of view and perspectives, rely on their team for support, foster a culture of integrity, and cultivate personal awareness. Followers must give honest feedback and develop coalitions to foster a balance of power within the organization. If all else fails, externally-imposed regulation may be necessary. Practical implications – The author offers practical advice to both leaders and followers to enable them to avoid the perils of the bad leadership. Originality/value – By identifying the causes and likely cures for bad leadership and bad followership the author makes it easier for stakeholders to address the problem and take action and for boards to select the right candidates for leadership roles, a critical board responsibility.
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A number of years ago, David McClelland, in his studies of managerial motivation, identified two types of power: egoistic (using others for personal gain) and social (facilitating group cooperation and effort for the achievement of the general good). Clearly, the power motive is intimately related to the concept of leadership. However, over the last several decades, a school of thought has arisen which equates leadership with “doing the right thing”. Defining leadership in such an ethical light is both misleading and dangerous. At the same time, little has been done to address the role of followers in the influence process, and transformational models of leadership have exacerbated this problem. Failure to acknowledge the role of followers and to examine the “dark side” of leader-follower dynamics can distort efforts to understand influence processes in an authentic way. This paper provides balance to this discussion and identifies a number of critical implications for leadership education.
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This chapter examines the origins of Corporate Psychopaths as a construct and the state of knowledge regarding the potential causes of psychopathy. This is a literature review conducted as part of the wider investigation into the presence of Corporate Psychopaths in workplaces and their influence on workplace outcomes. The objective of this chapter is to use the literature on psychopathy, psychopaths and Corporate Psychopaths to determine what is known about the origins of the syndrome as it applies to the area of business, corporations and organisations. The chapter first discusses the syndrome of psychopathy and how it is assessed. This is followed by a discussion of the possible physical origins of the syndrome and of childhood factors in its development. This leads to a definition of who psychopaths are and of criminal psychopaths. The realisation, by psychologists, that non-criminal or successful psychopaths exist is then discussed, and this discussion is followed by a definition of Corporate Psychopaths.
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This chapter looks at employees as a key resource in an organisation and explains how the productivity of this human resource can be helped or hindered by organisational rules and procedures, supervisors, managers and other constraints. It defines organisational constraints and then outlines why Corporate Psychopaths can affect them. The chapter discusses the findings from an empirical investigation into whether the presence of Corporate Psychopaths in an organisation influences the level of organisational constraints within it. It concludes that Corporate Psychopaths do influence the level of organisational constraints, by a large factor. As corporate psychopathy increases within an organisation, so does the level of organisational constraints. The implications for human resource selection and management policies are discussed in terms of the potential for screening employees for psychopathy.
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Purpose – This paper aims to look at some of the implications of organisational psychopaths for organisations and corporations. Design/methodology/approach – This paper defines organisational psychopaths as being those psychopaths who exist at an incidence of about 1 percent of the general population and who work in organisations. The paper describes how these organisational psychopaths are able to present themselves as desirable employees and are easily able to obtain positions in organisations. Without the inhibiting effect of a conscience they are then able to ruthlessly charm, lie, cajole and manipulate their way up an organisational hierarchy in pursuit of their main aims of power, wealth and status and at the expense of anyone who gets in their way. Findings – The paper suggests that, just as criminal psychopaths are responsible for a greater share of crimes than their numbers would suggest, so too organisational psychopaths may be responsible for more than their fair share of organisational misbehaviour including accounting fraud, stock manipulation, unnecessarily high job losses and corporately induced environmental damage. Originality/value – The paper suggests that having organisational psychopaths running corporations that are themselves, at best, amoral is a recipe for negative consequences.