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describe typical psychological factors associated with corporate misbehavior

describe typical psychological factors associated with corporate misbehavior

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The increased level of corporate misbehavior is concentrated in firms with suspect CEO s who were outside hires, consistent with adverse selection in the market for chief executives.The principal purpose of the conference, Corporate Misbehavior by Elite Decision-Makers: Perspectives from Law and Social Psychology, is to offer an alternative to the understanding that corporate misconduct and scandals are due to the work of a few bad apples among corporate executives and directors. From information available on the scandals, it appeared that inner circles of top executives, corporate advisors (accountants, bankers and lawyers) and board members formed coherent social structures that engaged in illegal or unethical behavior that destroyed firm value.1 A possible determinant of the scandals, in other words, was group, not individual, behavior. If this was the case, a number of interesting questions are posed and research avenues opened that could have important consequences for legal policy-making. What is perverse group behavior and what distinguishes it from positive group behavior? How did this group misbehavior arise in so many publicly-traded firms, which suggests that corporate governance structure contributed to it? How could individual members of these circles or groups engage in behavior that, on some levels, they knew was improper, but nevertheless accepted from a group perspective? To answer these questions, it is necessary to turn to the social sciences, for one of the goals of social psychology and organizational theory is to understand and explain group behavior, including deviant group behavior. My co-organizer, Professor Larry Solan, and I thought that it would be useful to ask what researchers in these human sciences could tell legal scholars about the social psychological and other organizational causes of the corporate elites misbehavior. We decided that thebest way to achieve this purpose was to bring together at a conference prominent social psychologists and organizational and management specialists to present and to discuss their theories and research about group misbehavior that could help explain the corporate scandals. We planned to have corporate law scholars, as discussants, comment upon the implications of these findings and research for policy making on the legal regulation of corporate governance and decision-making. One goal of the conference was pragmatic: to find solutions to the misconduct of elite corporate decision makers from a social science perspective that legal policy makers, fixated on individuals as primary causes of the scandals, had overlooked. Yet the dialogue of conference participants was not addressed directly to policy makers as such, and it would have that pragmatic effect indirectly by contributing to a new direction in corporate legal scholarship. A complementary goal was then to stimulate and promote interactions and research between social psychologists and organizational theorists, on the one hand, and corporate scholars, on the other These interactions and possible joint research would help correct a tendency in the dominant direction of current corporate law scholarship to ignore group causes of corporate governance problems, which tendency has led to reforms that can only incompletely prevent corporate misbehavior. So much of this scholarship is grounded in the law and economics tradition that bases its policy prescriptions upon rational, self- interested economic actors. When faced with the corporate scandals, scholars in this tradition react in ways not unlike business reporters, members of Congress or federal prosecutors: they focus on the individual. For example, if a CEO, like Dennis Kozlowski, took too many benefits from his former company, Tyco International, it was because appropriately designed incentives had not been in place for all the corporate actors involved: his compensation package was not correctly keyed to his performance, and the members of the Tycos board did not have adequate personal incentives to check his natural self-interested behavior. From this

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