Many were hopeful we would see changes in the behavior of banks and other financial institutions on Wall Street as a result of reform efforts like the Dodd-Frank Act of 2010. Unfortunately, the situation seems to have worsened since the financial crisis, according to survey results released in May 2015. Researchers spoke to more than 1,200 financial service professionals in the U.S. and U.K. to gather information about unethical behavior in the workplace. “There is no way to overlook the marked decline in ethics and the enormous dangers we face as a result,” the survey’s authors said.
Between sneaky deregulation efforts and the government’s refusal to send white collar criminals to prison, Wall Street offenders probably see no reason to change. The paltry fines imposed after the Recession weren’t large enough to deter illegal behavior. To the profitable companies on Wall Street, this is simply the cost of doing business. If fraudsters learned anything from the financial crisis, it was that they can get away with large-scale financial crimes with remarkable ease.
The recent survey, entitled “The Street, The Bull and The Crisis,” was a collaboration between the University of Notre Dame’s Mendoza College of Business and Labaton Sucharow, a law firm focused on protecting financial sector whistleblowers. The results suggest these unethical practices could increase even more because newcomers in the industry are aware of its reputation.
“Young professionals, people with less than 10 years in the financial service industry, tended to be more open to engaging in illegal and unethical behavior. And that’s our future — that is the future of the financial service industry and right now it looks bleak,” co-author Jordan Thomas told NPR.
Here are the study’s troubling key findings on illegal and unethical behavior:
- 47% of total respondents said it’s likely their competitors have engaged in illegal or unethical behavior to gain an edge.
- 20% said it’s at least sometimes necessary for financial services professionals to engage in illegal or unethical activity in order to succeed.
- 32% said compensation structures or bonus plans pressure employees to compromise ethical standards or violate the law.
- 27% don’t agree that the industry puts the interests of clients first.
- 22% said they have observed or have first-hand knowledge of actual wrongdoing in the workplace.
- 25% said they would likely engage in insider trading to make $10 million if there was no chance of being arrested.
- Employees with less than 10 years experience are more than twice as likely to use non-public information than those with more than 20 years experience, reporting 32% and 14%, respectively.
What the study’s authors found even more alarming than the rampant disregard for ethics was the use of tactics to suppress whistleblower activity. Here are the survey’s key findings on silencing employees:
- 16% of those surveyed said their company’s confidentiality policies and procedures prohibit reporting potential illegal or unethical activities directly to law enforcement.
- 10% said they have signed or have been asked to sign a confidentiality agreement that specifically prohibits reporting potential illegal or unethical activities directly to law enforcement.
- 25% of those who make over $500,000 annually were asked to sign such an agreement.
- 19% of all respondents said it’s likely their employer would retaliate against them for reporting wrongdoing.
“When corporate whistleblowers are prohibited, discouraged or retaliated against for reporting crime to cops, we should all be scared — very scared,” said Thomas, who is chair of Labaton Sucharow’s whistleblower representation practice. Although the results showed some faith in colleagues and law enforcement to improve the culture, the findings were largely worrisome for the current state of the financial services industry. Co-author Ann Tenbrunsel of the University of Notre Dame stressed the need to improve the culture of ethics on Wall Street and other sectors as well.
The survey authors warned, “Allowing the status quo to persist is an open invitation to the next, perhaps more devastating, financial crisis.”
An encouraging 89% of financial services professionals indicated a willingness to report wrongdoing, given protections and incentives such as those offered by the SEC Whistleblower Program. However, 37% of respondents were unaware of the program, so it’s time for regulatory bodies and financial firms to start educating employees and the public about the rights of whistleblowers. Existing reform efforts are clearly failing, so brave whistleblowers may be the only hope for avoiding yet another recession.
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