The Corporation as Psychopath

In October 2011, Michael Woodford received what should have been the best news of his career. After thirty years working at Olympus, the Japanese optics and medical equipment company, he had been made chief executive: the first non-Japanese person to run the company in its history. Six months later, he was fired.

Woodford had found something wrong with a series of acquisitions the company had made. The amounts paid were enormous, the assets were nearly worthless, and the accounting explanations made no sense. He hired KPMG to look into it and took the resulting report to the chairman, Tsuyoshi Kikukawa. Kikukawa’s response was to call an emergency board meeting and vote Woodford out.

Woodford went public. The Olympus board denied everything for a few weeks, but then the numbers collapsed, Kikukawa resigned, and criminal charges followed. The fraud—a sustained effort to conceal $1.7 billion in losses—had been running for nearly twenty years, through the tenure of multiple CEOs. What is notable about the Olympus scandal is not that individuals behaved dishonestly. It is that they weren’t necessarily bad people. It was as if the organization had developed a mind of its own, and successive leaders served it rather than the other way around.

Three years before the Olympus scandal, the Canadian legal scholar Joel Bakan published The Corporation. He asked Robert Hare, the psychologist who had spent four decades developing the clinical tools used to diagnose psychopathy, to evaluate a publicly traded corporation against his Psychopathy Checklist as if the corporation were a person.

The checklist was designed to identify individuals who are:

• callously indifferent to harm they cause to others,
• skilled at charming and manipulating people around them,
• incapable of genuine guilt or remorse,
• unwilling to accept responsibility for their own failures, and
• willing to lie and deceive when they believe they can get away with it.

Hare’s conclusion was that publicly traded corporations fit the profile.

In most jurisdictions, corporate executives have a fiduciary duty to shareholders: they are legally required to pursue shareholder interest, and a board that sacrificed profit to benefit workers or communities with no defensible business justification could be held legally liable. The resulting entity is therefore prohibited from having a conscience in the way an individual person might. It can behave ethically when ethics is good for the brand, but not when the cost cannot be justified by future returns.

None of this requires any individual inside the organization to be a bad person. It requires only that the rules governing the organization create incentives that produce a certain kind of behavior. However, this argument becomes harder to sustain when you look at who rises to the top of large organizations.

In 2005, Belinda Board and Katarina Fritzon surveyed 39 senior managers and executives in the United Kingdom and compared their psychological profiles to a matched group of patients at Broadmoor, a high-security psychiatric hospital. The executives scored higher than the Broadmoor sample on three personality disorder traits: histrionic, narcissistic, and compulsive. The researchers called this pattern “successful psychopathy”: the traits that lead to hospitalization or criminal conviction in their extreme form are, in a milder and better-managed form, associated with reaching senior management.

Paul Babiak and Robert Hare spent years studying how psychopathic individuals navigate organizational environments. Their estimate is that roughly one percent of the general population meets the clinical threshold for psychopathy, while corporate managers cluster around three to four times that rate. The mechanism is not mysterious. Psychopaths tend to perform exceptionally well in job interviews. They are confident, articulate, and skilled at saying what an interviewer wants to hear. They feel no social anxiety in high-stakes situations, and can fabricate credentials and relationships convincingly because they feel no guilt about doing so. Once hired, they are evaluated primarily on how they appear to those above them in the organization, and making a strong impression on a small number of people across a limited number of interactions is something psychopaths do better than almost anyone else.

This is where a closely related concept becomes important: impression management. The term was introduced by the Canadian sociologist Erving Goffman in 1959. His observation was that social life is fundamentally theatrical: people perform different versions of themselves for different audiences, and success in social situations depends heavily on managing those performances. In a small organization where everyone works closely together over years, this has limited scope because your actual behavior is too visible. Colleagues know when you take credit for other people’s work, when your confident predictions turn out wrong, and when your charm disappears because you no longer need something from someone.

In a corporation with thousands of employees, on the other hand, promotions are typically decided by people who have less direct contact with the person in question. They evaluate based on presentations, meetings, secondhand reports, and the impressions formed in a relatively small number of interactions. This is precisely the environment where impression management skills are most valuable, and where the gap between managing impressions and actually performing well is hardest to detect.

Researchers who study the dark triad of psychopathy, narcissism, and Machiavellianism have consistently found that individuals high in these traits do particularly well in the early and middle stages of corporate careers. Narcissists project confidence and vision. Machiavellians are skilled at reading and exploiting organizational dynamics. Psychopaths can absorb stress, make decisions that harm others without losing sleep, and deliver bad news without visible discomfort. Each of these is a behavior that, in moderation and over short time horizons, looks like leadership. Failure only occurs when a crisis requires something the dark triad cannot supply: integrity, honest self-criticism, or concern for people the leader does not need.

Wirecard was a German payments company whose rise was celebrated as a European technology success story. By 2018 it had joined the DAX, Germany’s index of its thirty largest listed companies. Its chief executive, Markus Braun, appeared at industry conferences as the model of a visionary, unflappable founder. When the Financial Times published articles suggesting that large portions of the company’s claimed revenue did not exist, Germany’s financial regulator filed a criminal complaint against the journalist who wrote them. When the fraud collapsed in 2020, €1.9 billion turned out never to have existed. Braun had not built a company. He had built an extremely convincing impression of one.

South Korea’s chaebol are a structural variation on the same theme. The heads of Samsung, Lotte, SK, and others have faced criminal convictions for bribery and embezzlement—and received presidential pardons, typically on the grounds that their imprisonment would harm the national economy. This pattern of prosecution followed by pardon describes an organization that has achieved something psychopathic at the institutional level: the normal consequences of harmful behavior have been suspended because the organization is too important to be held accountable.

None of this means that every large company is led by psychopaths, or that organizational scale inevitably produces moral failure. It means that the selection pressures of large hierarchies are not neutral. Hiring processes that rely heavily on interviews systematically favor candidates who are good at interviews. Promotion decisions made by people with limited direct observation systematically favor candidates who are good at being observed, and performance reviews based on self-assessment systematically favor candidates who think highly of themselves. These processes aren’t designed to select for the dark triad, but they are all structured in ways that make dark triad traits an advantage.

The Olympus fraud ran for twenty years because each successive layer of management found it easier to maintain the deception than to stop it. No individual needed to be a psychopath; the organization’s incentives reproduced psychopathic behavior regardless of who ran it. Bad people come and go; structures that reward bad behavior reproduce themselves.

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BabiakHare2019

Paul Babiak and Robert D. Hare: Snakes in Suits: Understanding and Surviving the Psychopaths in Your Office (revised ed.). HarperBusiness, 2019, 9780062697547.

Bakan2005

Joel Bakan: The Corporation: The Pathological Pursuit of Profit and Power. Simon and Shuster, 2005, 9780743247467.

BoardFritzon2005

Belinda J. Board and Katarina Fritzon: “Disordered Personalities at Work.” Psychology, Crime & Law, 11(1), 2005, 10.1080/10683160310001634304.

Dutton2013

Kevin Dutton: The Wisdom of Psychopaths: What Saints, Spies, and Serial Killers Can Teach Us About Success. Farrar, Straus and Giroux, 2013, 9780374533984.

Goffman1959

Erving Goffman: The Presentation of Self in Everyday Life. Anchor, 1959, 9780385094023.