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Monday, October 2, 2023

Research: How One Bad Employee Can Corrupt a Whole Team

Stephen Dimmock & William Gerken
Harvard Business Review
Originally posted 5 March 2018

Here is an excerpt:

In our research, we wanted to understand just how contagious bad behavior is. To do so, we examined peer effects in misconduct by financial advisors, focusing on mergers between financial advisory firms that each have multiple branches. In these mergers, financial advisors meet new co-workers from one of the branches of the other firm, exposing them to new ideas and behaviors.

We collected an extensive data set using the detailed regulatory filings available for financial advisors. We defined misconduct as customer complaints for which the financial advisor either paid a settlement of at least $10,000 or lost an arbitration decision. We observed when complaints occurred for each financial advisor, as well as for the advisor’s co-workers.

We found that financial advisors are 37% more likely to commit misconduct if they encounter a new co-worker with a history of misconduct. This result implies that misconduct has a social multiplier of 1.59 — meaning that, on average, each case of misconduct results in an additional 0.59 cases of misconduct through peer effects.

However, observing similar behavior among co-workers does not explain why this similarity occurs. Co-workers could behave similarly because of peer effects – in which workers learn behaviors or social norms from each other — but similar behavior could arise because co-workers face the same incentives or because individuals prone to making similar choices naturally choose to work together.

In our research, we wanted to understand how peer effects contribute to the spread of misconduct. We compared financial advisors across different branches of the same firm, because this allowed us to control for the effect of the incentive structure faced by all advisors in the firm. We also focused on changes in co-workers caused by mergers, because this allowed us to remove the effect of advisors choosing their co-workers. As a result, we were able to isolate peer effects.

Here is my summary: 

The article discusses a study that found that even the most honest employees are more likely to commit misconduct if they work alongside a dishonest individual. The study, which was conducted by researchers at the University of California, Irvine, found that financial advisors were 37% more likely to commit misconduct if they encountered a new co-worker with a history of misconduct.

The researchers believe that this is because people are more likely to learn bad behavior than good behavior. When we see someone else getting away with misconduct, it can make us think that it's okay to do the same thing. Additionally, when we're surrounded by people who are behaving badly, it can create a culture of acceptance for misconduct.