Corporate collapses not only make for dramatic headlines, but cost economies billions of dollars and millions of jobs in addition to destroying communities, people’s lives, and pensions. Beyond such social harm, corporate collapse often leaves behind significant physical debris, which presents additional challenges, including disposal to lasting environmental damage. While there are a range of reasons for these collapses, a significant number were predictable outcomes, not merely of bad management, but of psychopathic leadership. In our new paper, ‘Corporate law and corporate psychopaths’, we explore whether legal mechanisms can be used to control and deal with the problem. We suggest they can.

Our paper opens a new line of enquiry exploring the role that law can play in the regulation of sub-clinical psychopathic managers. We suggest that a variety of areas of law, from criminal to tort, contract and corporate law, all have potential roles to play. These areas, however, are to some degree limited in their ability to address the problem by law’s design. For example, law aims not only to promote group well-being, but simultaneously to protect individual rights, prohibit status discrimination, and avoid retrospectivity. Law is generally ex post facto while the most effective approach to organisational well-being is ex-ante—medicine’s ‘an ounce of prevention is worth a pound of cure’. Nevertheless, law is not without tools to address this problem which grows in importance as business organisations grow in size, power and wealth. 

The initial challenge is defining corporate psychopathy. Grounded in a literature review, we define corporate psychopaths as individuals sharing a cluster of behaviours and traits involving ruthless, conscience-free and unethical conduct and personality. The difficulty in the corporate world is that such conduct is often valourised, and exceedingly difficult to regulate. We consider psychopathy on a spectrum that manifests itself in clinical, sub-clinical and borderline ways. We suggest that the popular conception of a psychopath (at the extreme end) fails to recognise the sub-clinical and borderline cases, and it is here where most corporate psychopaths are found. Accordingly, it is not an overstatement to say that psychopathy is a significant problem for organisations affecting productivity, longevity, the health and wellbeing of employees, with a predictable social and economic impact. In an age where individual corporations now turnover a trillion dollars annually, the problem is global.

Psychopaths are not distinguished by appearance: they are distinguished by a cluster of character traits and behaviours. It is difficult to identify them on first meeting because many of these traits are shared with the general population, exist in various strengths between individuals, and in some instances have functional benefit, such as high conflict, high pressure contexts. 

The literature indicates eight common traits in the psychopathic type: the general lack of remorse; the absence of empathy; self-centredness; manipulative; unemotional; deceitful; insincere and self-aggrandizing. While the most severe examples of psychopathy are unlikely to be found in organisations because their conduct and reputation is well known, the larger (sub-clinical) population are relatively more common in upper management, often identified as having ‘Dark Triad’ personality traits: narcissism, manipulation, and psychopathy. Studies suggest that people with these traits make up between 3% and 23% of the executives of business organisations. 

Undoubtedly, readers will have met someone who fits this group. Indeed, a significant percentage of people will suffer the experience of working under these managers at some point in their career. The impact of their actions can range from the eccentric to the catastrophic, ranging from corporate collapse, financial losses, through to loss of skilled employees, absenteeism, mental breakdown and suicide. In addition, groups of corporate psychopaths are sometimes found in the leadership of the organisation, manifesting ‘executive capture’, where the group is in the effective control of the entire organisation. These issues often require legal remedies.

We believe that different areas of law answer these problem personalities depending on where the individuals are located within an organisation. 

Organisational position
Executive
Middle Management
General Staff
Behaviours manifested 
Executive fraud and theft 
 
Mislead markets, investors, regulators, executive bullying
Fraud, theft 
 
Department dysfunction, bullying
Individual fraud, theft
 
Team issues, bullying
Operational effect
Failed corporate strategy and performance
Poorly functioning department
Dislike, friction, us-and-them
Organisational Impact
Outcome: Corporate collapse
Outcome: Departmental harm
Outcome: Discipline of overseers/ Culture of fear
Law
Directors' duties/Contract
Union Award/Enterprise Agreement
Employment law

We argue that a combination of legal mechanisms can address the issue, which includes preventative and retroactive approaches. These include due diligence recruitment strategies, workplace and contractual executive impeachment provisions, authorised industrial action, workplace health and safety investigations, and carefully structured contractual terms, that include linking any bonuses to longevity targets. 

Our paper is exploratory and our findings preliminary. It is an area ripe for study and an area of great importance whether one considers it from the perspective of social harm, organisational sustainability, economies, or individual lives.

 

Benedict Sheehy is an Associate Professor, Canberra Law School, University of Canberra.

Clive Boddy is a Professor of Management, University of Tasmania.

Brendon Murphy is a Senior Lecturer at the Thomas More Law School, Australian Catholic University.