Wanted: Hon­est ac­coun­tant. Miss Con­ge­nial­ity need not ap­ply

▶ Con­ge­nial peo­ple are more likely to flout rules, a study shows ▶ “In most cases, feel­ing and bi­o­log­i­cal im­pulses win”

Bloomberg Businessweek (North America) - - Contents - —Liam Vaughan Edited by Cristina Lind­blad and Matthew Philips Bloomberg.com

Com­pa­nies— es­pe­cially fi­nan­cial com­pa­nies—de­pend on em­ploy­ees to make tough, eth­i­cal calls un­der pres­sure. So what causes peo­ple to get it wrong? Pure greed? A love of risk? Dis­re­gard for rules? Frank Hart­mann, a man­age­ment and ac­count­ing pro­fes­sor in the Nether­lands, has come up with a sur­pris­ing an­swer: con­ge­nial­ity.

In a lab in down­town Rot­ter­dam ear­lier this year, Hart­mann out­fit­ted stu­dents in some­thing re­sem­bling a space-age swim cap and sat them in front of a screen to view clips of faces ex­hibit­ing signs of fear, dis­gust, or hap­pi­ness. As they watched, their brain sig­nals were recorded and fed into a com­puter. A few weeks ear­lier, the same 30 or so test sub­jects had been asked to com­plete a ques­tion­naire on sit­u­a­tions they might en­counter in their fu­ture ca­reers as con­trollers, the ac­coun­tants whose du­ties in­clude pre­par­ing a com­pany’s fi­nan­cial state­ments and en­sur­ing tax com­pli­ance. In each sce­nario, they were pres­sured by their man­ager to al­ter the com­pany ac­counts for vary­ing rea­sons: so the man­ager wouldn’t be fired, so the team would hit its tar­gets, and so on.

Hart­mann and his Eras­mus Univer­sity Rot­ter­dam col­leagues, Philip Eske­nazi and Wim Ri­et­dijk, de­vised their study to test the cor­re­la­tion be­tween an in­di­vid­ual’s will­ing­ness to bend the rules un­der pres­sure and his emo­tional sen­si­tiv­ity. At the core of their ex­per­i­ment is a be­hav­ioral phe­nom­e­non called the “mir­ror neu­ron sys­tem” that causes the hu­man brain to re­act in the same way when watch­ing some­one else per­form­ing an ac­tion as it would if the per­son had done it him­self. That’s why we flinch when we see some­one fall or laugh when other peo­ple chuckle, even if we missed the joke.

In the Rot­ter­dam ex­per­i­ment, the more an in­di­vid­ual mir­rored the emo­tions she saw on screen, the more likely she was to break or bend the rules. The aloof ac­coun­tant “who stays calm and con­trolled amidst an ocean of emo­tional pres­sures” is not just a cliché but highly de­sir­able, write Eske­nazi, Ri­et­dijk, and Hart­mann in “Why Con­trollers Com­pro­mise on Their Fidu­ciary Du­ties,” a peer-re­viewed pa­per that ap­peared in the April 2016 edi­tion of the jour­nal Ac­count­ing, Or­gan­i­sa­tions and So­ci­ety.

The find­ings are strik­ing be­cause em­pa­thy and so­cial re­ciproc­ity are of­ten en­cour­aged and even taught within busi­nesses, says An­dre Spicer, pro­fes­sor of or­ga­ni­za­tional be­hav­ior at Cass Busi­ness School in Lon­don, who wasn’t in­volved in the study. “Mir­ror­ing is an im­por­tant driver of so­cial be­hav­ior, and it’s of­ten seen as a pos­i­tive as it helps smooth so­cial in­ter­ac­tions,” he says. “But in the long term, it can lead to over­sights and even un­eth­i­cal ac­tions as em­ploy­ees value so­cial re­ciproc­ity over telling the truth or iden­ti­fy­ing prob­lems.”

While Hart­mann’s study may be in­struc­tive about what makes a good ac­coun­tant, it could also yield in­sights for the rest of the fi­nan­cial in­dus­try. In last year’s pros­e­cu­tions of bankers ac­cused of ma­nip­u­lat­ing the Lon­don in­ter­bank of­fered rate, de­fen­dants claimed that they were only do­ing what their man­agers asked them to do. To most peo­ple, that might sound like just a con­ve­nient ex­cuse, but Hart­mann isn’t so dis­mis­sive. “If ev­ery­body is do­ing some­thing, and you feel a lot of con­ge­nial­ity that ‘ we are do­ing this to­gether,’ and then you ap­ply rather sober rules and reg­u­la­tions that re­fer to vague [eth­i­cal] con­cepts, my pre­dic­tion is that, in most cases, feel­ing and bi­o­log­i­cal im­pulses win, be­cause they are strong and fun­da­men­tal,” he says.

One po­ten­tially coun­ter­in­tu­itive sug­ges­tion would be to re­duce the vol­ume of rules fac­ing bankers and ac­coun­tants, says Hart­mann, who’s also a con­sul­tant to com­pa­nies on man­age­ment is­sues. He says the raft of reg­u­la­tions the U.S. and Europe en­acted in the wake of the var­i­ous ac­count­ing scan­dals of the early 2000s are so onerous that they’re dif­fi­cult to fol­low. Faced with hard-to-un­der­stand in­struc­tions, peo­ple are even more in­clined to fol­low their neu­ro­bi­o­log­i­cal im­pulses, he says.

Spicer says that sim­ply rais­ing aware­ness of the dan­gers of so­cial pres­sure can help break the cy­cle. “When peo­ple are aware of the minute forms of re­ciproc­ity that be­come part of their daily lives, in­stead of mak­ing au­to­matic, sub­con­scious de­ci­sions, they can ac­tu­ally re­flect on it and say, ‘Hey, am I do­ing this just to make this guy com­fort­able?’ ”

“Mir­ror­ing is an im­por­tant driver of so­cial be­hav­ior, and it’s of­ten seen as a pos­i­tive as it helps smooth so­cial in­ter­ac­tions. But in the long term, it can lead to over­sights and even un­eth­i­cal ac­tions.”

——An­dre Spicer

The bot­tom line An aca­demic ex­per­i­ment in­di­cates that in­di­vid­u­als lack­ing in em­pa­thy may make more hon­est ac­coun­tants.

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