The Wall Street Effect: Does Money Make Us Dishonest?

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Generally speaking, financial incentives for broader social goals do seem to work: According to Godiwalla, organizations where diversity initiatives are directly tied to performance review and compensation have been more successful than those without some form of accountability.

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Godiwalla adds that if companies want to legislate honesty, they could start looking at factors other than profit to determine an employee’s compensation, such as managerial leadership and practice of good ethics.

Everyone has a different perspective on what it means to be ethical, making it nearly impossible to enforce one set of principles. “You can’t legislate ethics—you either have them or you don’t,” says Das. “It’s very difficult to solve the problem, but that doesn’t mean we shouldn’t try.”

To put these principles into practice, solid ethics should start at the top and trickle down. But if executives have used questionable ethics for more than a decade, it will be difficult for them to lead or evaluate their subordinates, Godiwalla says.

Only time will tell if such measures will be adopted by major players like Barclays, which has yet to outline exactly how it plans to keep its employees honest.

Truly Too Big to Fail?

Despite HSBC’s recent admission of laundering billions of dollars for international drug cartels and clients with terrorist connections, the company wasn’t indicted.

O’Neil’s opinion is that the government didn’t take further action because the institution is “too big to fail, too interconnected to fail” and protected by its status.

In a corporate culture where making the most money is the primary objective, ethics are going to be compromised, Godiwalla says. It’s much harder to change the tide than simply talk more about ethics because altering the existing mindset could negatively impact profits.

If one company strengthens their ethical code and strictly adheres to it, that organization could make less money than others taking shortcuts. Investors might then choose another firm with more profit potential. “If a company only receives a hand slap—a small financial penalty—it might still benefit them to continue whatever they were doing,” Godiwalla notes.

From HSBC’s failure to be indicted to the government’s decision not to prosecute the allegations against Goldman Sachs, hand slaps appear to be bountiful.

So is there really any way to remove the desire to conduct business unethically when you’re dealing with an industry run by financial incentives? O’Neil has a bold suggestion: “Abolish bonuses altogether—as long as there are bonuses, profit will always be put over risk.”

In the meantime, regular investors can protect themselves by being financially literate … and skeptical. Ultimately, Das explains, a banker is a salesperson who’s trying to get you to buy a product, so it’s important to question the proposal and motives at play before investing. No one has your best interests in mind—or knows your toleration for risk—better than you.