Corporate law and corporate psychopaths

Abstract

For more than three decades there has been a growing interest, and concern, in the role that psychopathy plays in corporate affairs. The literature in this field is essentially interdisciplinary, drawing heavily on advances in neuroscience, behavioural and organisational psychology and criminology. In this paper, the authors open a line of enquiry on the role that law can play in the regulation, and remedies, available to deal with dysfunctional and psychopathic management. In this paper we argue that the impact of corporate psychopaths – particularly the sub-clinical types – is sometimes potentially devastating for the organisation, its mission, its employees and, where they exist, shareholders. In this article we outline the nature of corporate psychopathy and its impact on corporate entities and outline a range of potential legal remedies.

Introduction

The aim of this paper is to explore an important new area of research, policy and practice connecting two discrete but intimately related domains: corporate psychopathy and corporate law. The paper explores some of the ways in which corporate psychopaths and law interact, the ways in which they facilitate the manifestation of the worst aspects of the person as well as the limitations of law in dealing with this type of problem. It identifies at a theoretical level potentially conflicting legal, moral and for-profit norms of business organisations (usually using the legal corporate form),¹ and at a practical level it identifies an imperative on organisations and their policy frameworks, procedure and practices with respect to this issue. It proposes new areas of research in both theoretical and practical levels.

Corporate collapses not only make dramatic headlines, but cost economies billions of dollars and millions of jobs as well as destroying communities, people’s lives and pensions. In addition, corporate collapse often leaves behind substantial infrastructure, which presents issues about disposal, lasting environmental harms and restoration. In the resources sector, for example, collapse can mean significant environmental hazards that need to be cleaned up, often at public expense. Although a variety of causes lie behind corporate collapses, a significant number of high-profile collapses are arguably linked to a specific psychological profile – the psychopath. Psychopathic behaviour and characteristics are evident in people such as incarcerated Bernie Madoff, who defrauded investors of $50 billion (SEC Press Release 2008–293), and indicted former CEO Kenneth Lay, whose Enron empire was, at the time, the largest bankruptcy in United States history, which wiped out in excess of $40 billion including thousands of employees’ pensions. In both examples, psychopathy has been identified as a likely factor. For example, Madoff was nominated as a potential financial psychopath by Mesly and Maziade in a description of financial scandals in the banking and financial sector,² while Boddy has explored psychopathy in Enron’s leaders in a paper detailing characteristically psychopathic behaviour such as lying, lack of remorse and denial of responsibility.³ The consequences of Lay’s behaviour was surpassed by financial losses in the next year resulting from the actions of the incarcerated former CEO of Worldcom, Bernie Ebbers. Arguably some of the leading executives of various Wall Street banks that have cost the world over a trillion dollars are psychopathic.⁴ In Australia, the former CEO of collapsed HIH Insurance and now ex-convict Rodney Adler demonstrated certain characteristics that could be psychopathic, contributing to the largest corporate collapse in Australia. The potential harm of placing psychopathic people in positions of power is all too easily seen in the sagas of the senior executives just mentioned. The evidence suggests, however, that psychopathy and associated traits are equally damaging in any management relationship, especially middle management. Executive leaders tend to emerge out of organisations that require hierarchies and complex divisions of labour, which effectively multiplies the potential impact. Psychopathy is a major problem for the performance of organisations, affecting productivity, long-term stability and especially the health and wellbeing of employees being supervised by managers with psychopathic traits. Indeed, it is likely that psychopathy is more widespread in organisations with revenues well below the examples outlined above. In one recent Australian study, it was estimated that individuals with psychopathic traits make up between 3% and 21% of the ranks of executives,⁵ while in the United States, in one sample of senior executives, about 3.5% were psychopathic.⁶ Furthermore, Levenson and others found that 23% of the males in his sample exhibited high enough levels of some psychopathic traits to pose the risk of their behaviour entailing considerable social costs.⁷ Thus, while only 1% of the adult population is psychopathic,⁸ a further minority share some of their traits. The eight most prototypical traits of the psychopath, according to 137 leading psychopathy researchers, are those of being lacking in remorse, un-empathic, self-centred, manipulative, unemotional, deceitful, insincere and self-aggrandising,⁹ and these characteristics are used to reliably identify corporate psychopaths in the workplace.¹⁰

Understanding psychopaths and corporate psychopathology

The threshold problem in discussing psychopathy is terminology.¹¹ ‘Psychopathy’ is a blanket term that encompasses a wide range of cognitive and personality traits, and there is debate about its independent existence as a diagnosable condition in psychiatry or psychology. As discussed further below, we are speaking about a cluster and concentration of certain personality traits that are severe enough to locate the person on a spectrum of perception and conduct different from what might be considered normal.

It may be useful to think of dysfunctional management behaviours as being on a spectrum as set out below (Table 1).

Table 1.

Management spectrum.

Management-psychology spectrum
Severity	Very severe	Severe	Moderate	Mild
Nomenclature	Psychopath	Corporate psychopath	Aggressive incompetent	Incompetent

At the extreme end of the spectrum, there are individuals with significant psychopathy whose conduct is so erratic and maladaptive they are effectively unable to function with others in a meaningful way. Such individuals are often incarcerated or institutionalised and rarely succeed in careers that involve organising or relating to others. At the other end of the spectrum are those individuals who are not necessarily ‘malignant’, but are often egocentric and basically unable to successfully organise the environment, relate or listen to staff or value experience. In a word, this kind of manager is basically incompetent. In contrast with the extreme end of the spectrum, this category is relatively common. Hogan, for example, reviews evidence that 50% to 60% of managers are inept or ineffective,¹² and ‘the base rate for managerial incompetence in any organisation (sic) is quite high’.¹³

At the one end of the spectrum, there are the very dysfunctional humans, often incarcerated, the psychopaths that we know from the movies. This population is unable to function in day-to-day life with any degree of success and by and large, are incarcerated or institutionalised elsewhere. At the other end of the spectrum are incompetent managers whose poor management skills create disarray, demoralisation and disorganisation, the result of which is that the workplaces they are trying to manage become toxic. Such leaders are an unfortunate but common reality for many people and organisations: for example, Hogan reviews evidence that 50% to 60% of managers are inept or ineffective.

In the middle are two categories who share traits in common with both the severely dysfunctional people identified as psychopaths and those incompetent managers making a mess of things. The more ‘successful’ category we identify as the corporate psychopath. These individuals seek out leadership roles in various organisations, particularly profit-oriented corporations. This group appears to excel in using their ‘psychopathic’ strengths, to exploit others and the organisation without empathy or remorse to achieve their own individual ends. We turn next to explore these ideas and the underlying psychological constructs in greater detail.

The pioneering work on psychopaths was conducted by Hervey Cleckley in the early 1940s, outlined in his book The Mask of Sanity.¹⁴ This work was later further developed by Robert Hare while at the University of British Columbia in Canada from the 1970s until his retirement in 2000. During that time, Hare developed the Hare Psychopathy Checklist-Revised, an instrument designed to be a reliable test for psychopathy. He popularised his work through his book, Without Conscience: The Disturbing World of the Psychopaths Among Us¹⁵ and in the business world through his collaboration with Babiak in Snakes in Suits.¹⁶ Although there are questions about the validity of the underlying construct¹⁷ and the appropriateness of the measure in organisational¹⁸ and clinical¹⁹ contexts, the idea has taken hold in organisational settings, both as a field of academic study and as a matter of discussion and experience broadly in organisational life.²⁰

Looking into the mid-spectrum (between institutionalised psychopaths and incompetent managers), researchers in the fields of psychiatry and psychology sought to identify and study populations in the 1970s identified as having a set of ‘sub-clinical’ traits – that is, characteristics present in the general public, but often employed in a maladaptive or destructive way. These individuals displayed a set of behaviours and views that were often well suited to personal survival, but at times dysfunctional and especially disruptive in relationships and interactions with others.

Over time, what emerged from this research is the identification of a set of overlapping sub-clinical characteristics known as ‘Dark Triad’ traits (see Figure 1).²¹ The Dark Triad involves the intersection of narcissism, manipulative behaviours and ‘psychopathy’. In this context the term ‘psychopathy’ refers to a cluster of maladaptive traits, including fearlessness, disinhibited behaviour, high levels of confidence, an egocentric world view, absence of remorse, willingness to manipulate others to achieve personal ends and notably low levels of empathy and anxiety.

Figure 1.

Dark Triad traits.

In the sub-clinical context, these Dark Triad traits will vary in intensity and be influenced by a host of factors ranging from personal experiences to the broader social environments in which they matured and operate. For the most part individuals with these traits function normally and effectively, and in certain contexts with great effect. It seems that the ‘Dark Triad’ is a cluster of behaviours that is well suited to ensuring the survival and success of the person in a particular context, but less suited in interactions that require empathy, organisation and relating to others.²² Some are less effective and less beset with the Dark Triad, but nevertheless still aggressive, incompetent managers, though not quite corporate psychopaths, and so we have given them their own location on the spectrum. Our main concern is the person just below the clinical level of psychopathy dedicated to exploiting executive leadership roles for egocentric purposes. Although there have been differences in the nomenclature with terms such as ‘executive psychopaths’, ‘industrial psychopaths’²³ and ‘organisational psychopaths’,²⁴ psychopaths’,²⁵ preferable as more legally accurate, a more widely accepted term in the management literature for psychopaths involved in business is ‘corporate psychopath’.²⁶

It is important to distinguish the corporate and the clinical psychopath. Broadly speaking, clinical psychopaths are often easy to recognise without formal testing, but certainly identifiable through psychological testing. This is not normally the case with corporate psychopaths. In this respect they are better understood as ‘sub-clinical’. As sub-clinical psychopaths, they are quite able to present a façade of normalcy²⁷ and appear to be suitable candidates for employment, and because of certain characteristics related to their psychopathology, such as cool-headedness, risk taking and strong persuasion skills, they may be viewed as particularly suited to advancement to executive levels.²⁸ Indeed, in some cases their personalities can be dynamic, and (theoretically) could make substantial contributions to the growth of an organisation.²⁹ The dilemma for organisations is the apparent attraction of a dynamic motivator with a track record of achievement in the face of the potential damage in making the wrong choice. While we acknowledge these characteristics as potential strengths, our concern is when things go wrong and the role law could and should play in protecting individuals, organisations and society from destructive management.

Corporate psychopaths appear to be suave, successful and competent;³⁰ they dress to impress and readily mislead.³¹ Such appearance easily dupes the unwary and sophisticated alike.³² The evidence of corporate psychopaths in practice reveals that they are particularly ruthless, conscience-free managers who are largely motivated by greed and aggrandisement.³³ Where they excel is their ability to adapt their conduct as need and context requires. They excel in recognising those they need and those who can make their lives difficult, as well as those they can intimidate and discount. They learn, in effect, to ‘kiss up, and kick down’. Corporate psychopaths who achieve an executive level position are often highly intelligent, well educated and tend to celebrate the ‘art’ of ‘scientific management’, seduction, war and the exercise of power.³⁴

The corporate psychopath and organisational leadership

Corporate psychopaths tend to cause the most harm when they assume positions of leadership and authority in organisations.³⁵ Corporate psychopaths often look for positions of power in order to exploit that power to achieve their own personal ends. In these positions, corporate psychopaths often exact a high cost from organisations in financial, personal and other terms. Research in the United Kingdom among a tightly defined sample of managers, for example, found that 35% of all workplace bullying was associated with the presence of psychopathic leaders.³⁶ Similarly, a sample of managers in Australia concluded that around 26% of all bullying is accounted for by 1% of the employee population, and it would appear that in many cases, the bullies are corporate psychopaths.³⁷

The literature indicates a tendency for corporate psychopaths to both seek out leadership roles and be sought for them. One of the reasons organisations may value a corporate psychopath comes from two sets of ideas: the needs of the organisation and the nature of leadership. The nexus between the two occurs when there is the idea that (i) the organisation is underperforming (if not dysfunctional) and therefore in ‘need’ of a ruthless approach to introducing change, (often code for dealing harshly or unempathetically with people), ‘nudging’ the remainder and removing inefficient work practices; and (ii) the belief that a ‘tough’ leader is good for productivity and performance. In other words, the solution to ‘underperformance’ is to intentionally hire a remorseless, goal-directed change agent. Troublingly, as observed by Goldman, some of the kinds of sub-clinical and toxic behaviours exhibited by corporate psychopaths have become part of ‘normal’ management practices.³⁸

From a human resourcing perspective, such a decision is quite understandable. As Babiak and Hare observe, ‘some core psychopathic personality traits – we might call them talents – seem attractive in job applications’.³⁹ The authors then go on to note four particular ‘talents’: (1) charming and manipulative traits; (2) a style of leadership – ‘taking charge, making decisions, and getting others to do what you want are classic features of leadership and management’, although he goes on to note that ‘they can also be well-packaged forms of coercion, domination, and manipulation’;⁴⁰ (3) a lack of empathy (which can be seen as confidence, strength and calm) in difficult circumstances; and (4) ignoring rules to get things done – the innovative disruptor – all appear to be strengths.⁴¹ With the increasingly fast movement of personnel and the concomitantly shallow processes involved in recruitment and selection processes,⁴² corporate psychopaths are increasingly appointed to senior positions.⁴³ They gain promotion and advancement because of their willingness to manipulate the realities of their qualifications and achievements and their cool, unflappable character.⁴⁴ Once settled, psychopaths tend to enjoy a honeymoon period, fuelled by their habit of moving between relationships and social settings, exercising charm and their charismatic agenda for change. Over time, however, the reality begins to emerge, particularly as the metrics start to appear.⁴⁵ Once employed, the Dark Triad leader, the corporate psychopath, is likely to inflict considerable harm on the organisation, resulting in increased organisational dysfunction, loss of human capital, possibly business declines and even harsh legal consequences. These results often outweigh any benefit.⁴⁶

Key characteristics of corporate psychopath leaders include a tendency for decisions and strategic goals to be intensely personal, inflexibility to approaches other than a prescribed strategy, intolerance of dissent, a focus on appearance over substance and aims to achieve outcomes within a contractual period with little regard or interest in the long term.⁴⁷

Corporate decline and undesirable legal consequences arise because psychopathic leaders routinely engage in manipulation of people and systems, high-risk decision-making and sometimes unethical and even criminal behaviours, often causing irreparable damage to the health and wellbeing of an organisation and its employees. Corporations and their leaders are heavily regulated in private and public law, precisely because of the damage they can cause intentionally or unintentionally. A great deal of corporate and commercial litigation takes place because of the harm done by senior leaders through decisions and practices both within the organisation and in relationship with other organisations. This reality is the foundation reason why corporations are regulated through public and private law.⁴⁸

We believe corporate psychopathy is more common than is generally acknowledged, and further, that the root cause of organisational breakdown and decline may sometimes lie with one or more individuals with psychopathic traits in corporate leadership roles. In support of this view, recent research indicates that of the 69% of auditors who have reportedly come across and interacted with corporate psychopaths in their client management careers, 43% reported that those psychopaths committed fraud.⁴⁹ That finding is consistent with other research that corporate psychopaths are not infrequently also involved in other forms of white-collar crime.⁵⁰

We argue that current corporate governance controls and related law is often inadequate to protect organisations, and their employees, from corporate psychopaths. Corporate governance controls and laws were designed to deal with people closer to the norm, engaged in common corporate issues such as self-dealing and exploiting minority shareholders and not the extraordinary corporate psychopath whose skill sets include deep abilities with respect to manipulating people, lying and breaking rules. We turn next to consider the amplifying effect the corporate form offers the corporate psychopath and then examine the organisational effects.

The critical nexus: corporate psychopaths and organisational outcomes

The legal corporation constitutes a mechanism that can greatly multiply the effects of a single decision or decision-maker. Whereas most decisions are individual and limited in scope to the direct spheres of personal influence, carry no legal authority and offer no protective mechanism for the decision-maker, the legal corporation provides for broad authority, affecting multiple people and potentially billions of dollars, with legal enforcement and near-complete protection for the decision-maker. Where a psychopath is able to gain control or at least considerable influence in this context, his or her ability to utilise legal tools and invoke legally sanctioned authority to support Dark Triad decisions and behaviours and pursue his/her own corporate psychopathic agendas, the level of destruction is multiplied commensurately. As corporations provide the preferred vehicle for most organisations, we turn next to review consequences of empowered corporate psychopaths wielding the levers of legally sanctioned corporate power.

Organisational consequences of corporate psychopaths

As supervisors, executives and peers, corporate psychopathic leaders are, at best, hard to work for, and at worst, nightmarish abusers. Because they are often hired as disruptors to provide ‘strong leadership’ and make ‘hard decisions’ in hierarchies, they are often invulnerable to the effect of complaints. They do not tolerate dissent or entertain complaints and relish the power they exert over subordinates and the abusive reputation they have as leaders. Where dissent or complaint is tolerated, it is usually ignored, or at least placed in a system where the outcome can be controlled. They are masters of containing complaint, not only through effective control of their subordinates, but also through the careful management of information flowing upward and laterally. Bullying in this context is normal; but usually done in ways just beneath the threshold of legal action. These activities include “conversations” in the office, behind closed doors; bullying indirectly through line managers; denying necessary resources granted to favourites; actions intended to retard career progression, and deniable verbal abuse. Such conduct is always calculated to avoid direct evidence of bullying, or done in ways that allows reframing.

The results of this kind of leadership are potentially destructive for the organisation and certainly one of the factors in organisational and corporate decline via lost productivity, dysfunctional workplace dynamics, legal action, loss of human and actual capital, reduced creativity and entrenched organisational dysfunction that can take years to repair.⁵¹ Corporate psychopath managers are often the direct cause of employee distress, ill health and in some cases, suicide or suicidal thoughts.⁵² As can be seen, there are a range of consequences of putting corporate psychopaths into positions of power.

Corporate decline and malaise

While high-profile collapses make headlines and draw attention, and as we have argued, there may well be a corporate psychopath behind the collapse, there is undoubtedly a much higher number of smaller organisational collapses, failing businesses, dysfunctional departments and other organisational levels that fail or flounder as a result of psychopath-related toxic leadership. Closely aligned with large corporate decline is the smaller but more prevalent problem of organisational malaise.

Organisational malaise is a state where despite efforts to intervene and introduce change in areas of the organisation that are not functioning well, little or no meaningful change results. Such malaise is the result of systemic problems, and while interventions may produce short-term benefits, due to failure to identify systemic issues or corporate psychopathic busy activity, malaise sets in.⁵³ Malaise is, in fact, more common than actual collapse. Often all that happens in these situations is the incurring of substantial costs associated with re-organisation, excessive meetings, public relations exercises and failure of the organisation to achieve its strategic goals. Because long-term changes are often required to address malaise, there is a tendency for a focus on aggressive rebranding and changing internal work practices.

Malaise is common under corporate psychopath leadership because of the need to create ‘new directions’, ‘disruption’ and engage in ‘risk taking’. Whereas a prudent leader might be inclined to consolidate wins and focus on strengths engaging in incremental developments, narcissists overestimate their intelligence and abilities, preferring to do things quickly, with drama and publicity.⁵⁴ This short-term focus aligns with market interests in short-term gains, without regard for long-term interests of the organisation and often to their detriment, and so is not opposed by the rest of the executive leadership. The general ambivalence toward the long term arises in part because executives are routinely planning their next move and have little incentive to consider the well-being of the organisation in the long term. Newly appointed managers tend to enjoy a honeymoon period, but over time the traits and mismanagement of corporate psychopaths begin to appear. At this point the newcomer frequently begins planning their departure, sometimes before the consequences for the organisation become clear.⁵⁵

As noted, in some cases the dynamism created by the corporate psychopath works, at least in the sense of generating profits and market share in the short term, and this fact poses a great challenge for business. Additionally, organisational change is sometimes needed; however, the problem for staff and the organisation is the potential inability of the executive to recognise the warning signs and over-invest in practices that are little more than forms of aggrandisement of the corporate psychopath, rather than valuable strategic investments. This dynamic arises because of the ability of the psychopathic leader to seduce peers and seniors and carve off dissenting subordinates. Dissent is routinely explained away as ‘dysfunction’ among employees, justifying the conduct of the psychopathic manager.

Human resources: reduced job satisfaction

Corporate psychopathy in leadership correlates with reduced job satisfaction among staff.⁵⁶ This finding is not trivial in that corporate psychopathy has been found to be a main determinant of low job satisfaction in the workplace as it influences other determinants such as abusive supervision.⁵⁷ Job satisfaction deteriorates and is ultimately destroyed because of the toxic environment created by psychopathic workplace leaders. Their behaviours undermine autonomy, mastery and purpose – well-known internal motivators of human behaviour.⁵⁸ Employees’ enjoyment, commitment or engagement is destroyed. Where management practices affecting job satisfaction are identified as caused by a psychopathic manager, the issues are often attributed to the shortcomings of the departing employee, as not having anything to do with the manager and sometimes with a range of ‘acceptable’ attrition.⁵⁹

Human resources: employee distress, illness and counter-conduct

Beyond the impact on the workforce generally, the way in which a person is managed in the workplace has a direct effect on the psychological, economic and social well-being of the individual with direct effects on their family. The research indicates that psychological distress is strongly associated with psychopathic management practices.⁶⁰ That psychological harm has a range of effects, including distress, decline in mental health, dissatisfaction with work and life and finally, family conflict and domestic violence.⁶¹ As discussed further below, these issues expose organisations to legal risk well beyond mere lost productivity.

Further, there is evidence that employees will retaliate against an organisation that subjects them to toxic and destructive leadership. They may retaliate by engaging in counterproductive work behaviour such as sabotage and workplace production deviance and devolve into dysfunctional factions characterised by mistrust and conflict.⁶² These dynamics reduce the overall productivity of the organisation.⁶³ In addition, toxic leadership drives union membership commonly associated with costly and protracted enterprise bargaining activity and an increase in the likelihood of industrial action.

Human resources: loss of human capital

A major problem for organisations that rely on human actors for productivity is retaining a skilled and talented workforce. As a general rule, employees who are high performers, qualified and in possession of expertise are in high demand. This is especially so in professions such as medicine and law, where professional reputation, research money, experience and monopoly of knowledge can make such professionals particularly attractive to competitors. Loss of these employees is a significant loss to any organisation, not only for the loss of capital, but also because of the loss of corporate knowledge and, in some cases, loss of broader social capital. One of the major ‘push’ factors motivating talented professionals to move from one workplace to another is toxic leadership.

Human resources: redundancies and on-costs

As noted, employees in organisations subject to corporate psychopathic leaders become disillusioned and even antagonistic, and many who have the talent and opportunity simply vote with their feet, leaving an organisation with corporate psychopaths as leaders.⁶⁴ Departments with corporate psychopath leadership have had the entire staff resign within time periods as short as one year.⁶⁵ Similarly, Clarke reports that 70% of employees in one division left one company in a two-month period following the appointment of a manager with many of the traits of an organisational psychopath.⁶⁶

In case of organisation-wide corporate psychopathic leaders, often it will be the vast majority of the staff who begin looking to leave as soon as possible.⁶⁷ This turn-over of staff has significant human resourcing costs, from payment of outstanding liabilities to recruitment and training of new staff.

Beyond the direct staffing costs are the human resource costs associated with the corporate psychopath as a corporate executive. It has been estimated that the cost to an organisation for a single failed leader is in the range of $1.5 to $2.7 million (US). Since the research indicates that approximately 50% of executive managers fail, half of whom are terminated, and further studies indicate that 30%–60% of managers act in a destructive or self-interested fashion during their careers,⁶⁸ the financial costs associated with both employing and terminating a corporate psychopath are significant.

Executive capture

Executive capture occurs when the senior leadership of the organisation is effectively controlled by a cluster of individuals with psychopathic and/or Dark Triad traits. A major problem for the organisation suffering executive capture is the general inability of executive management to actually recognise the warning signs and listen to experience and the over-investment in practices that are basically forms of aggrandisement, rather than valuable strategic investment.

One of the disturbing dynamics that emerges in organisations when a corporate psychopath is involved is a tendency for groups to form around these individuals and effectively capture the senior level of organisations, regularly engage in self-congratulatory behaviours, rewarding and praising one another for their respective achievements. This inward-focused group behaviour is a core feature of ‘group think’.⁶⁹

There are three implications. The first is the effective immunity and suppression or disregard of protest and expression of dissatisfaction from employees. Because psychopathy routinely involves a combination of reality-shifting and intellectual militancy, this class of executive constantly engages in factual distortions to re-interpret the ‘facts’ in order to bend evidence that would otherwise paint them in a poor light, twisting the ‘facts’ into something positive, or where unable to do so, attributing fault to someone else or some process beyond their control. This process of distortion is commonly manifested in verbal statements to employees, very often in a venue where the only voice that can be heard is that of the individual manager, such as a staff meeting or email. But it can also take on a more formal role, such as an organisational newsletter, or a report on surveys that emphasise only favourable findings and omit, or distort, the unfavourable.

Corporate psychopaths sometimes excel in what is effectively personal and organisational propaganda. One of the common examples of executive capture is the distortion of staff satisfaction surveys. Executive capture can be quickly spotted where there is systematic and strategic manipulation or redaction of data that subsequently presents everything in a positive light, or where the information reported is carefully selected to maximise support for the present executive. In those cases where there is overwhelming dissatisfaction, the routine response is to convey a disingenuous statement of ‘learnings’,⁷⁰ combined with a re-interpretation of the problem as one of ‘failure of management to communicate with staff’. The solution: ‘get better at telling the message’, rather than recognise the problem IS the message, the decisions made have been poor and the people who have made the decisions are incompetent as leaders. This dynamic is common and arises largely because of two core aspects of the psychology of psychopathy and narcissism: (i) the subject cannot conceptualise that they are actually a problem; and (ii) the information and related facts are seen as threats that must be contained, distorted or eliminated.

The process of organisational control through fact distortions is not only deployed in a vertical manner to manage employees and public perception, it is also a tactic that is deployed laterally against other managers, both in defensive and offensive modes. The corporate psychopath’s management tactics in this environment are primarily concerned with cultivating allies and keeping ‘good’ with seniority, using power to undermine individual opponents; however, they extend equally in overt displays of strength in order to deter would-be challengers and protect fields of interest and influence. Examples of this conduct include aggressive behaviour at staff meetings and threatening legal action if formally challenged.

Because many management positions are three- to five-year contracts, the emphasis is on absolute achievement of personal key performance indicators in as short a time as possible. Ensuring such success depends not only on mobilising those systems needed to achieve those goals, but also on defending decisions from interference. The focus is on demonstrating ability to get things done as quickly as possible, but equally to move on before the strategic failures manifest. The facts are often distorted by focusing on how quickly and effectively a project has been mobilised and avoid mentioning the inevitable failure or limited, short-term viability of what has been done. And certainly, the damage to employees in the process is never mentioned.

Reputation declines

Declines in organisational reputation can be expected when leadership is under sway of corporate psychopaths.⁷¹ Corporate psychopaths, through their direct action and via their example to others, often undermine some of the key drivers of corporate reputation such as staff training, good communications, job satisfaction and corporate social responsibility.⁷² Corporate reputation has a direct economic value, not only measured through the accounting category of goodwill, but evident in the share collapses associated with corporate scandals such as VW’s recent fraud concerning diesel emissions,⁷³ Parmalat⁷⁴ and money laundering scandals of banks worldwide.

Product/service quality declines

The corporate psychopath is generally unconcerned with the well-being of others or the organisation as a whole. One consequence may be the re-allocation of resources to non-productive activities or activities that serve the psychopath’s political agenda, personal aggrandisement or grab for power. Such re-allocation takes resources away from productive, quality-producing activities and processes, leading to quality declines. Beyond mere declines, among the outcomes can be expected a fraud on consumers, regulators, supplies and other stakeholders associated with the organisation. To a greater or lesser extent, this could be expected to be manifested in false and misleading advertising, as was the case with VW’s vehicle emissions fraud.

In summary, there are significant, organisation-wide costs and effects that can arise from corporate psychopath leaders. It is important to note, of course, that we are not suggesting that some or all of these issues will always appear. Nor are we suggesting that these issues are essentially linked to the presence of one or more corporate psychopaths. What we are suggesting is that these elements are often associated with corporate psychopathy and can be linked to the kinds of decisions made by individuals and groups with Dark Triad and psychopathic traits. We also recognise that these kinds of results can equally be linked to a corporate culture that provides disproportionately high financial incentives to engage in high-risk ventures and remorseless employment micromanagement.

Corporate law and the corporate psychopath

A core issue to be addressed is: how can law deal with corporate psychopaths? The discussion that follows takes two approaches: a principles approach and a categories approach.

Legal principles

A basic principle of contemporary law is that people are not targeted based on their natural or social origins. Such laws are referred to as status laws – laws that reflect the natural and social status of the legal subject and are considered unjust and discriminatory.⁷⁵ For example, laws against discrimination on the basis of race, gender or ethnicity, part of international law, demonstrate a wide-spread agreement that, as people do not choose such status, laws against them cannot be accepted as just.⁷⁶ It is not and cannot be illegal to be male, female, tall, black, white or a member of a clan or nation. Similarly, law ignores social characteristics. For example, law does not grant additional or different rights to people of different social classes, educational backgrounds or occupations. So, in principle, a person who is a high-level manager has the same public legal rights and duties as a contract employee. What is markedly different are the respective private law arrangements, particularly with respect to the ‘sovereign’ powers inside the institution. In that context, a high-level manager has a very wide range of authority with considerable enforcement power including termination of employment, discretionary powers over working arrangements, workplace surveillance and the physical workplace, with all its potentially significant personal hardships, imposed at the will of the powerful manager. The power to terminate employment has a particular dread to it in a monetary economy, evoking the medieval idea of ‘sacking’ as an act of personal and economic violence.

As a general rule, law focuses on behaviour.⁷⁷ That is, instead of prohibiting status, a law usually prohibits or encourages specific behaviours. So, for example, law may encourage safe driving and prohibit killing other humans. This latter consideration leads to a further important distinction at law – the distinction between intentional and unintentional behaviours. Driving at dangerous speeds or insider trading are considered potentially harmful to other people, and so law places restrictions on them. They are volitional or intentional behaviours. As a result of the involvement of human volition, such laws often include an additional element in enforcement, namely, a punishment or punitive measure, in contrast to law dealing with unintentional behaviours, which, while also potentially harmful, are unlikely to carry a punitive element (at least in the non-criminal context).

Finally, while laws in the form of legislation are created in advance of events, law as judgement usually acts after the fact. In any given case, law provides judgement about whether behaviour is compliant with the rights and duties enacted in legislation and precedents, and, in the context of private law, contract.

This discussion of law leads to a number of inferences about the limits of law and its potential for dealing with corporate psychopaths. In the first instance, if, as neuropsychological studies indicate, psychopathy is a natural occurrence involving abnormal brain area responsiveness and connectivity in psychopaths as described by Blair and others,⁷⁸ then it cannot be illegal to be a psychopath as such. Neuropsychology appears to indicate that psychopathy is a neuropsychological condition, perhaps inherited from the gene pool of our ancestors. Furthermore, not all psychopaths and psychopathic traits are overtly undesirable. Indeed, some of their abilities, such as the ability to lead or manipulate large numbers of people, are highly desirable if used for beneficial ends. In one sense, law, using its anti-discrimination principles, helps understand that a single characteristic, such as psychopathy, need not define the whole person nor deprive that single person from the rights enjoyed by the rest of society’s members.

Turning the discussion from law of status to understanding law as regulating behaviour, we find a differentiation between intentional and unintentional behaviours. For example, whereas unintentional errors in accounting may cause significant harm to investors, fraudulent accounting practices are not only likely to be harmful to investors but are intentional. Law treats these cases differently. The first case may simply be a civil suit for negligence while the second case is a matter of criminal fraud or conspiracy, often in addition to a civil suit to recover losses. Where corporate psychopaths intentionally defraud or otherwise harm an organisation, law is likely to impose harsher penalties and to do so more broadly to encompass others drawn into the corporate psychopath’s web of influence.

Perhaps most significantly in the case of corporate psychopaths is the issue of law’s orientation. Law generally focuses on ex post facto restitution, as opposed to a preventative ex ante approach.⁷⁹ Whereas a preventative or pre-crime approach may attempt to prevent crime by precluding corporate psychopaths from attaining higher levels of power in organisations and limiting the harm that they could potentially cause, to do so transgresses one of law’s hallmark principles, the principle that prohibits punishment when the crime has yet to be committed – a view distinct from the preventative orientation of criminologists.

Finally, the proverbial ‘match that lights the fuel’ is placing the corporate psychopath into the corporate form. The corporation is an amoral vehicle, readily put to a wide range of tasks within the legal system and within society.⁸⁰ While this construction makes the corporation a highly versatile and useful actor in the system generally, in the context of for-profit activity, the corporation becomes parasitical on social well-being in the sense that it is accepted and indeed expected to generate social costs.⁸¹ The for-profit corporation, exploiting people and resources, has become a norm and as such, corporate psychopaths readily justify their amoral and anti-social behaviour as aligned with for-profit norms, colloquially expressed as ‘corporate norms’.⁸²

Legal categories

As one would expect, there is no law targeting corporate psychopaths per se. Indeed, as Babiak, Nuemann and Hare note:

[O]rganizations are often reluctant to use measures of psychopathology except under special circumstances, such as the hiring of critical public safety staff (e.g., police, fire, nuclear power plant operators; Lowman, 1989). The fear of violating privacy laws and the risk of lawsuits inhibit research in this area.⁸³

It is not that law has no solutions; rather, law has a variety of categories which indirectly deal with the issues the corporate psychopath raises at both organisational and personal levels. Law divides human activities and behaviours into two broad categories: public, as in dealing with government and public bodies, and private, essentially all other actors and locations. Law, as the institutionalisation of political decisions, operates by providing rights and duties to persons, both human and legal.

These rights and duties which regulate behaviour are granted to humans and corporations alike, and in the case of corporate law, extend to regulate relationships within the corporation. Thus, law provides rights and duties to the organisation as well as to all the individual people affected by corporate psychopaths including, as noted above, to the psychopathic person him/herself.

It is important to note that, in the first instance, the law does not discriminate between behaviour performed in private organisational contexts – as business is considered a private activity – or private life elsewhere. In other words, the law that applies in organisations applies to the population generally.⁸⁴ The basic categories are corporate law, labour law dealing with unionised workforces and employment law, which deals with individual employment, a species of regulated contract (private law). We see all three areas impacting the workplace at different levels of the organisation.

As discussed above, we suggest that psychopaths have a range of manifestations depending on where they are located within an organisation. Further, we note that their behaviour can have a range of operational effects and organisational impacts. Finally, we note that law plays a major role across the spectrum of behaviours, of effects and of impacts. These behaviours, effects and impacts at the different levels of the organisation can be represented in the following diagram (Table 2):

Table 2.

Organisational position, effect, impact and area of law.

	Executive	Middle management	General staff
Behaviours manifested	Executive fraud and theft Mislead markets, investors, regulators	Fraud, theft group level 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	Union Award/ Enterprise agreement	Employment law

Different areas of law are engaged depending on the level within the organisation considered, meaning, if the corporate psychopath is operating as a director, for example, directors’ duties will be engaged. Alternatively, acting as a lower-level member of the general staff, that person will engage in lower levels of inappropriate behaviour but be subject merely to individual termination under employment law, while mid-level psychopathic managers may find assistance in union-negotiated enterprise agreements. We turn next to discussing the different areas of law.

Corporate law

Corporate law creates the relationships, rights and duties between different corporate actors: directors, shareholders and contractors of all types, from employees and suppliers to customers.⁸⁵ This statement comes with an important caveat, namely, that corporate law does not regulate the relationships between the corporation and contractors beyond allowing the contracts to exist at law and granting certain rights to contractors against the corporate body.

The core duty in corporate law is the directors’ duty to advance the well-being of the corporation.⁸⁶ Although this duty is often equated with the long-term financial prosperity of its member-shareholders, it encompasses more than that. While law refines the general duty by identifying a number of more narrowly specified directors’ duties, these can readily be summed up positively as a duty of care, to look out for the best interests of the corporation, and a corollary negative duty, to avoid misuse of power.⁸⁷ The duty to the corporation is obviously in direct opposition to self-interest, a basic challenge of corporate governance in the for-profit corporation which aims to restrain directors’ greed. It is a much greater challenge in the context of the narcissistic corporate psychopath, and similarly, the directors’ duty to refrain from abusing their power is directly opposite to the corporate psychopath’s plan. This broad statement of principle is complicated even further by different corporate structures, including corporations containing multiple but separate corporate entities, as well as corporations that are not established for profit, but for the provision of public goods, such as health and education. Those organisations are particularly vulnerable to corporate psychopathy, as they often lack the scrutiny available through shareholder accountability and composite boards of directors. However, in principle the primary duty required in corporate law remains the obligation to act in the best interests of the organisation modus operandi.

Alongside these duties are correlative rights. Corporate law grants rights to directors, giving them wide leeway to take risks to put invested capital into play.⁸⁸ Unlike trustees, whose task is a conservative one to preserve capital, corporate directors are expected to seek out and weigh risks rationally and objectively.⁸⁹ The basic issue of exercising the duty of care for the corporation requires directors to identify potential profitable opportunities, then to accumulate and deploy appropriate resources, develop, implement and manage procedures, including the various related risks in order to realise the planned profits. This duty and related set of tasks requires directors not only to identify and respond to markets, but to take into account legal requirements and related risks of breach of duty/non-compliance.

The focal point in the exercise of this duty of care can be identified and occurs in three realms: (1) at the level of the separate legal entity – ie the corporate body; (2) internally in executive recruitment, incentivising and monitoring, and in human resource policies and procedures which require monitoring of internal culture, watching staff turn-over, stress leave, staff surveys and other indicators of staff experience; (3) externally, the duty of care can be discharged through monitoring contractor and other stakeholder communications, watching in particular for lawsuits, complaints and other interactions and providing special attention to whistle-blowers – the insiders who risk all to go outside the organisation to air complaints. While both realms, internal and external, require directors to act to faithfully discharge their legal duties, they both contain hidden stumbling blocks and challenges.

Corporate body

As stated, the overarching purpose of the directors’ role and duty is the well-being of the corporation. This well-being has a broad focus, includes the community through compliance with law and principles of local ethics (corporate social responsibility)⁹⁰ and has a longer-term focus. While directors who fall within psychological and institutional norms can be expected to fulfil these obligations, corporate psychopaths generally do not demonstrate such tendencies. Indeed, corporate psychopaths often have no inclination toward compliance generally, or ethics as represented in corporate social responsibility⁹¹ and are willing to engage in all types of illegal activity, from such things as the irresponsible disposal of toxic waste materials to outright fraud.⁹²

A critical aspect of directors’ duties is effective management of the resources of the corporation to ensure its longer-term financial sustainability. Corporate psychopaths may not only engage in outright fraud, but they often create environments of minimal oversight and divert corporate resources to provide themselves with personal benefits. Thus, the core directors’ duty, which is to protect the corporation and ensure the on-going well-being of the corporation is put at risk by inserting the corporate psychopath into the legal body of the corporation as a corporate executive.

Internal focus: corporate officers – senior executives

Among the main operational tasks of directors is the appointment, incentivising and monitoring of senior executive officers such as the CEO, CFO and others. These roles of power, if staffed by corporate psychopaths, are clearly positions which make the business vulnerable and indeed put the whole business in jeopardy. It is clear that one thing directors have routinely failed to do in cases of large corporate collapse has been the incentivising and monitoring of executive officers.⁹³ The distinction between and division of the directors’ role of monitor and the executive officers’ role of management execution is an area of study and argument in corporate governance policy which advocates for separating the CEO and chair of the board roles.⁹⁴ Efforts to create a strong monitoring body over the CEO are critical to protecting a business, as are efforts to constrain directors in the first instance by legal duties. Such organisational structures and procedures which, among other things, ensure transparent monitoring, are precisely those that a corporate psychopath will seek to avoid or undermine by way of denying information or other similar tactics.

Internal focus: organisational culture

Directors have a duty of care which includes a legal liability for the systems they put in place, not only to positively incentivise, but also to identify and monitor risks. Directors are not only responsible for formal systems; they are also responsible for informal systems, namely, corporate culture which underpins the working environment of staff. Various regulators, legal reform programs and cases have pursued directors for failings which have been attributed to corporate culture – as the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry made clear.⁹⁵ At law, corporate culture can be used as proxy for mens rea in corporate wrongdoing.⁹⁶

Provided directors can demonstrate that they have followed appropriate risk management procedures and implemented appropriate systems, they are likely to be excused from liability for failures of those systems.⁹⁷ Nevertheless, the director conscientiously fulfilling the duty of skill, care and diligence, will watch closely matters such as staff turn-over, stress leave, staff surveys and other indicators of staff experience. These matters, as discussed, where strongly negative, are indicators of a corporate psychopath in a senior post.

One legal issue for corporate directors is that the corporation, as an employer like any other employer, has a duty of care to provide a safe working environment for staff to ensure that staff are protected from harm, whether in the general law or as a feature of health and safety law.⁹⁸ Corporate psychopaths are found to be abusive, manipulative and bullies,⁹⁹ and may therefore expose the corporation to legal liability for injuries suffered by employees – in particular psychological injury. Where employees have been subjected to a psychopath’s abusive behaviour, and related inordinate distress,¹⁰⁰ the corporation may well have legal liability in workplace law. If corporate organisations are not taking a proactive approach to dealing with corporate psychopaths, then they may be subject to litigation for any psychological injuries that employees may experience from working under the direction of a corporate psychopath, in addition to absenteeism and workers compensation claims.

External stakeholders

Only in very limited circumstances do corporate directors’ duties extend to external parties, in particular, corporations and corporate directors personally liable to external parties where fraud and other crimes are committed. In certain instances, directors may be liable for obligations to creditors, employee claims and other matters such as environmental harms. Corporate psychopaths have a history of breaching laws, disregarding others’ legal rights and corporate legal duties. Having them in powerful positions within corporations puts not only the organisation and the legal body at risk, but also puts at risk fellow directors who fail to fulfil their duty of skill care and diligence to protect the corporation and its stakeholders from the corporate psychopath.

Legal remedies

Acting within corporations, corporate psychopaths are subject to directors’ duties and the remedies available when those duties are breached. As noted, the most significant hurdle to using directors’ duties to remedy the harm from corporate psychopaths is law’s post facto orientation – focusing on remedying a wrong or harm already done.

Directors’ duties are enforceable in the first instance by the corporation itself. That is, the corporation will have to take legal action against directors abusing their power, exploiting corporate resources.

The law requires a majority of the board of directors to support taking corporate action against the corporate psychopath. If the corporation was structured so that the role of the CEO is also chairperson of the board, the corporate psychopath is even more likely to escape legal action. Even without that poor governance structure, in most instances the corporate psychopath will be a director, engaged in a C-suite role or have captured the executive, and so it is unlikely that the corporation will litigate against its leadership. In all these instances, there is little likelihood that the board will take action against a corporate psychopath until it is well and truly too late. This state of affairs leaves it to parties outside the boardroom to bring enforcement proceedings.

Outside the boardroom, legal action from within the corporation is rare. It is most likely to be initiated by regulators, such as the securities exchange regulators where the company is publicly traded, by insolvency professionals such as company administrators acting for creditors after the company collapse or by the class actions of shareholders using a derivative action, or finally, by suppliers or customers using an oppression remedy. None of these legal procedures can generate a remedy within the short time frames necessary to stop corporate psychopaths from executing their damaging plans, and particularly not when that person is being shielded by a capture executive. Even where these legal actions are eventually successful, they are likely to evidence law’s weakness as a post facto remedy, delivering a hollow victory with a judgement against a bankrupt corporation offering a return of pennies on the dollar at best.

Critique of existing law and directors’ duties

In analysing corporate law remedies, we note the post facto focus of the law. Corporate law, like most other areas of law, does not permit intervention to prevent harm to an organisation. In fact, corporate law includes a specific doctrine providing a defence to corporate directors when engaged in corporate decision-making, the business judgement rule.¹⁰¹ This rule provides directors a defence against claims when their decisions have harmed the corporation, provided certain obligations have been fulfilled. In sum, corporate law has no provisions which would preclude psychopaths from taking power. Further, it has no provisions to challenge the decisions of corporate directors which can reasonably be characterised as an inappropriate or abusive exercise of directors’ discretion. Shareholders do not have a right to challenge directors’ decisions except in a few very narrow avenues of activity. Accordingly, corporate law as it stands provides little opportunity for preventing or addressing the impacts of a corporate psychopath’s behaviour.

Directions for law reform

The massive costs and broad repercussions of corporate decline and collapse, from lost pensions and ruined lives to destroyed careers, require consideration of law reform options. Philosophically, law favours a least restrictive approach where individuals are exercising private rights. Accordingly, people of various types are able to act as they see fit in both public situations, such at the workplace, and in their private lives, and those freedoms include behaviours such as lying, manipulation and even bullying on occasion.

One of the challenges for corporate law is to achieve an appropriate balance between individual private rights and the wider public rights, a challenge for all areas of law. In the case of the latter, the public has a clear interest in the safe investment of pension funds and in safe workplaces. Placed at this intersection of public and private rights is the corporate director. The corporate director is to operate in a mediating role, balancing and coordinating team and organisational issues¹⁰² such as workplace safety and human resource management with external issues such as accepting and accounting for public funds and compliance with the legal regulatory environment.

The real challenge in dealing with corporate psychopaths is that, because of the structure of corporate law as outlined above,¹⁰³ legal liabilities are unlikely to be visited upon the individual corporate psychopath personally. Rather, the organisation will bear liability. Given that psychopaths are often in leadership roles, additional complexities arise. The corporation may pay their personal legal fees; directors’ insurance might pay out any award; and more importantly, the corporate psychopath’s actions are likely to be defended as the exercise of management prerogative, and explained as having done the necessary job of clearing out underperformers, organisational restructuring or other similar management initiatives.

This situation leads to the suggestion that law requires new and creative thinking involving the corporation, its use of and role in public pensions and markets. Further, there is new and creative thinking required on corporate directors’ duties. Detailed law reform proposals are well beyond the scope of this introductory paper; however, the aim of this paper in this regard is to draw attention and spark some thought about what more might be done to protect corporations and people affected by the corporate psychopath. Given the nature of the topic, it is a discussion that must involve an interdisciplinary approach, as it necessarily involves expertise from several disciplines, including law, management, psychology and psychiatry.

Perhaps the greatest potential for avoiding the negative impacts of corporate psychopaths lies in the field of organisational policy. Organisations have broad discretions to set policies including policies concerning executive recruitment, review, compensation and dismissal as they see fit. While using psychopathy as a reason for not employing someone, as discussed above, may be illegal under anti-discrimination laws, more careful attention could be paid to recruitment policies and practices, incentive schemes including delayed compensation, rewarding collaboration and positive corporate cultures.

Beyond legal solutions and law reform lie practical steps and interventions. We turn next to considering some of these.

Pragmatic strategies and solutions

One of the major problems with legal solutions to executive psychopathy is that, by the time those interventions are implemented, the damage has been done, and the objective is recovery of ruined lives, squandered assets and missed opportunities. This result is unsatisfactory on many levels. It seems prudent that alternative preventative measures be developed earlier in the process, starting with preventative recruitment. Like a key strategy in crime reduction is getting structural design right, we believe that organisational design provides important opportunities for prevention, early detection and containment. A series of pragmatic solutions are proffered to identifying the problematic applicant before recruitment, managing that person during and after their term of employment and containing damage within the organisation.

Prevention: sceptical due diligence in recruitment

The health strategy in medicine expressed in the aphorism ‘an ounce of prevention is worth a pound of cure’ is apt in the context of corporate psychopaths and organisations. In this context, due diligence in the recruitment process is the opportunity for prevention. The well-known rule in recruitment is that it is much better not to hire than to be forced to deal with an underperforming or worse, rogue employee. This issue is applicable exponentially in the case of the corporate psychopath whose reach and destructive ability is a multiple. We propose four pragmatic strategies to avoid mistakenly hiring this type of person in the first instance. Discussed in detail below, they are a sceptical use of social media; reconsidering the referee system; redesigned interview questions; and psychometric testing.

To implement this strategy, new social media provides an unexpected aid. One characteristic identified among corporate psychopaths is their almost obsessive tendency to cultivate their public image. Social media is a vehicle perfectly suited to the types of distortions psychopaths use for defensive, offensive and aggrandising purposes. Social media sites such as Twitter, LinkedIn and Facebook are common platforms where psychopaths are able to publicise their delusional views without restriction. Recruiters, who often rely on such social media sites for first impressions and quick assessments, could also use them slowly, for careful, sceptical reading of posts, looking for overstatement and excessive self-promotion, belittling or disrespectful comments about others and extreme views. The latter can be a challenge for recruiters who may be asked to look for someone with ‘beyond the square’ thinking. It should be done sceptically, and above all, be based on objective evidence.

A second strategy or line of defence involves the referee system. This system may well fail to sift out the corporate psychopath. One of the problems of referees is the tendency for a referee to be selected to offer supportive and affirmative views. The issue here is particularly acute where referees are sourced among like-minded or Dark Triad executives, other psychopaths and workplaces only too happy to provide a positive reference to move on a disastrous appointment. How then to ensure due diligence? Consider the case of an executive who promotes him/herself as a ‘Wall Street Banker’ but fails to disclose that the position held was an unpaid and short-term internship at a time when the GFC was in full swing. Similarly, consider an applicant who claims to have been successful in implementing a new educational program at a university but fails to disclose that the program was an economic failure and its implementation drove out more than half the staff including many of the most talented. In both instances, a careful, sceptical review of social media and further investigation of prior employment claims – beyond referees – would likely disclose the problems. Such extra effort is particularly merited in executive recruitment. These observations are not controversial. It is well recognised that references are not an accurate measure of actual performance. As observed by Schmidt and Hunter, referees have a variety of motives when presenting a reference – not the least of which is personal relationship with the applicant, but of equal importance is a concern about legal action on the part of the applicant if the referee makes statements that might be considered defamatory.¹⁰⁴

Executive recruitment has particular problems because recruitment at this level is routinely outsourced to specialist recruitment companies that may or may not make the extra effort needed. In such recruitment, private contractors are paid for the service – the process, rather than the product, is the focus of attention, and as a result, there is little incentive for a private recruiter to pay the extra attention needed. The most cost-efficient method of initial selection is electronic, which means the information available is critical. International recruitment, in particular, relies heavily on initially identifying potential employees through social media. Recruiters often identify a set of promising prospects from a wider range of potential employees who are marketing themselves globally. The problem for the recruiter then becomes one of being presented with an array of promising candidates, which may or may not contain one or more corporate psychopaths. How can this problem be solved? Again, more careful due diligence. For example, contacting former employees, or undertaking enquiries about the programs supposedly introduced by the applicant, may go a considerable way towards ascertaining a more truthful, rounded picture. A broader-based inquiry may be required, with attention paid when wildly divergent opinions are encountered. Recruitment in this context should engage in a principle of consistency in third-party reporting.

A third strategy for due diligence in recruitment is structuring recruitment interviews in ways that screen for psychopathic and Dark Triad traits, as well as test the candidate’s integrity. Because seduction and the absence of empathy are key indicators of the corporate psychopath, designing interviews that balance heavy structure¹⁰⁵ and rapport building¹⁰⁶ may offer valuable modes of selection, noting that corporate psychopaths will likely excel in seductive communication. The use of general aptitude tests together with integrity tests have been found to be effective in selection procedures,¹⁰⁷ as psychopaths have been found to be deficient in multiple measures of integrity.¹⁰⁸ Therefore, selecting for integrity should be effective in de-selecting psychopaths.

As to the second set of questions, as noted, manipulative individuals can excel in flattery and grooming adulation in others. That skill can be extremely useful in an interview context, for in many ways, the interview is an environment in which psychopaths excel, because they are faced with individuals in a position of power, who are instrumental to something they desire; and as such it is likely that person will be as charming as they possibly can be. Corporate psychopaths, like narcissists, excel in making excellent first impressions, and their apparent energy and utopian visions tend to convey the impression of strong leadership.¹⁰⁹ Faced with such a person, interviewers need to be alert to their intuitive reaction: charm and seduction can often be identified viscerally.

In the interview context, what can be useful is to ask questions that are intended to derail charm; such as how the person deals with conflict, or what failures the person has been part of during their career and what they have learned from them and to ask about complaints that have been made about them in the past. Corporate psychopaths will routinely attempt to avoid admitting failures and will seek instead to distort the question to present themselves in the best possible light.

A third set of questions, a set to test the veracity of the interviewee, is the critical third part of this preventative defence. Having conducted sceptical due diligence, the interviewer is well prepared to test for the integrity in answers. Questions to be considered may include frequency of staff departures in the preceding 12 months, although there may be a range of other, legitimate factors beyond psychopathy to be considered. The reason for this focus is that, in organisations where there are psychopathic leaders, a three-fold effect can be seen in staffing. First, talented staff who are mobile tend to leave and find employment elsewhere. Second, incompetent staff tend to become entrenched within the organisation, often becoming willing collaborators in destructive management. It is not uncommon for ‘local allies’ to be groomed, as the corporate psychopath needs allies to get things done, and simultaneously enjoys the reverence and fear s/he is able to instil in this cohort. Third, talented staff who are not mobile become less productive, as they disengage and withdraw from social life and unnecessary work. The net result is a local decline in productivity. While we acknowledge that in some cases motivated managers are of value to an organisation to break open local dysfunction and motivate the unmotivated, excessive and on-going staff turn-over is the sign of unhealthy corporate culture, driven by incompetent and/or abusive management. While there will always be a degree of criticism of managers, a generally consistent report of negativity or wildly differing reports are worth listening to.

The final strategy we propose is using psychometric testing for positions that involve substantial corporate risk. A number of psychological tests function reasonably well in identifying psychopathy (see discussion in Appendix), notably Hogan’s Development Survey and Personality Inventory.¹¹⁰ There is good reason to argue for making psychometric testing mandatory in organisations that have substantial shareholder responsibilities, are funded by public funds including pension funds or are in effective control of a reasonably large number of staff. Psychometric testing is not controversial in many sectors. Psychometric screening is routinely used in the military and is certainly being debated as a requirement for public office.¹¹¹ It is relatively easily administered and certainly a cost-effective option when weighed against the potential significant losses and organisational dysfunction where a corporate psychopath is engaged.

While none of these strategies operating solo is a guarantee, used collectively, they improve the chances of avoiding the disaster of a corporate psychopath in the organisational hierarchy.

Managing: red alerts and delayed performance incentives

A red alert system is easily developed using today’s technology. ‘Hot’ areas in an organisation, areas where staff express high levels of stress and dissatisfaction or areas where there is high absenteeism are areas where independent investigation is likely merited. Rather than simply asking the person in charge to explain – a common strategy that plays into the hands of the dishonest, manipulative, corporate psychopath, an independent investigation querying staff ought to help identify whether a corporate psychopath has entered the organisation.

Such a strategy, however, will be particularly difficult with the most senior levels of the organisation. Once committed to a course of action, senior leaders are constrained from reversing direction. Such conduct can be seen as indecisive and can bring its own costs. But more importantly, doubt in the face of a commitment requires a level of insight that the individual may or may not possess. It is a rare executive who is able to imagine ‘Yes, I am the problem. My leadership and fit with the organisation is not working. The organisation would be better off without me’. Where the executive is on the Dark Triad spectrum, such realisation is highly unlikely. Rather, the tendency is to explain staff revolt or disengagement as a response to ‘hard decisions that had to be made’ or a ‘failure to communicate’ obviously good decisions.

Contractually delayed incentives

As one would expect, the primary motivation of senior executives is financial remuneration. This motivation is problematic in a number of contexts, as the Royal Commission into Banking and Financial Services indicated. It is particularly problematic when a person is engaged in time-limited contracts. There is no incentive to create lasting benefits. In fact, such benefits may well decrease the short-term benefit for which the executive has been engaged.

The organisation’s purpose in recruiting is often to implement some agenda that the person has promised to achieve, and the organisation has promised to reward the person for achieving those ends. While an initial analysis of the situation may make it appear that the two motives are aligned, the deeper analysis makes it clear they are routinely at odds. In the worst-case scenario, the executive is motivated by the reward, not by the process of achieving it, and has no compunction about how it might be achieved. This motive, combined with the tendency to distort reality and manage information, results in the predictable outcome of a set of manipulated reports declaring a chain of successes.

One method of addressing this problem is through use of contractual terms that make performance payments contingent on the longevity and viability of projects that were contracted to be managed. A contractual term that provides for contingent performance, longevity and viability is a simple mechanism that serves to discourage what might be regarded as ‘locust’ behaviour.

Containment

Corporate psychopaths’ position of power and authority within an organisation exacerbates the problem. People once appointed to executive positions are exceedingly difficult to remove. After all, the people who made the judgement to appoint the person must reverse support for the person. Additionally, given the predictable response of the corporate psychopath, their removal is highly likely to deteriorate into threats, intimidation and litigation, highly aggressive posturing, manipulation and even sabotage. Such conduct is to be expected, because the corporate psychopath not only wields the powers of seduction and emotional manipulation, but also aggression in equal measure, and with manipulation as a fall back when other strategies fail.

Employees need to be protected from corporate psychopaths in management, and so a containment strategy needs to be put in place. When regular employees complain, the corporate psychopath will default to reality distortion to explain the complaint as the fiction of an underperforming or disgruntled employee, not uncommonly targeting individual complainants if their identity becomes known and sometimes accompanied by a ‘collective shaming’ in a staff meeting by berating everyone. In these cases, the corporate psychopath will often respond by assigning unpleasant tasks, withdrawing resources and unilateral changes of environment (such as moving offices). The result of this behaviour is that, in the circumstances, many employees are reluctant to make complaints or utilise forums in which they can be identified. Putting a manager on to paid administrative leave or moved elsewhere pending an investigation is an important step to be taken early in the investigation process, unlike situations where employees have been left under the supervision of a corporate psychopath for weeks or months while the organisation conducts an investigation.

Ultimately, responsibility for monitoring and control of the executive rests with a Board of Directors. No board can escape responsibility for a failing organisation. The law of directors’ duties makes it clear that the job of the director is not honorary. Rather, it is to ask the hard questions, make the hard calls and make the right decisions in response. It requires sceptical smelling of the wind, not burying information, nor excusing questionable behaviour on the basis of promises, nor turning a blind eye.

Conclusions

In this paper we have attempted to map out some of the complex issues arising in organisations where leaders exhibit psychopathic and severe Dark Triad traits. The emerging research into who corporate psychopaths are and of the damage they can do to other employees and to organisations poses important questions for corporate law that have not been addressed or discussed to date. As we have outlined, the topic itself is complicated not only by the available knowledge as to what constitutes psychopathic and Dark Triad conduct, but also the tensions that exist within organisations to achieve their strategic aims. The research and understanding of personality and the ‘Dark Triad’ is still evolving. To be clear, the causes involved in corporate decline and collapse are multi-factorial. We emphasise that our claim is not to suggest that all corporate decline is the result of incompetent or one or more corporate psychopaths. On the contrary, there will be numerous components, many of them economic and linked with social, technological and historical change(s) that are more important. Further, as the Royal Commission into Banking in Australia observed, the single most important factor in corporate and individual misconduct, as well as aggressive management, are the twin factors of corporate survival and profit.¹¹² Where certain forms of behaviour are incentivised, especially through substantial financial rewards, the climate is created that encourages certain kinds of behaviour. In that environment, strong leaders with clear goals and methods can provide important benefits for organisations. The problem, we suggest, is that this is a climate in which the corporate psychopath is effectively mobilised and encouraged. The tendency for Dark Triad and psychopathic personalities to exhibit reckless decision making, manipulate information, cause financial losses and cause significant harm to employees, the public and even markets, carries with it a powerful incentive to restrict or exclude the corporate psychopath from executive leadership, or at the very least ensure there are significant constraints that ensure accountability for the more aberrant forms of conduct. The challenge is finding the right balance and mechanisms. In this paper, we suggest some strategies before, during and after recruitment, drawing on private and public law, that may serve that purpose.

The emerging research into who corporate psychopaths are and of the damage they can do to other employees and to organisations poses questions for corporate law that have not been addressed or discussed to date. This paper raises some of these issues and invites further elucidation from other scholars and practitioners.

Appendix 1. Appendix: psychopaths, corporate psychopaths

The use of the term ‘psychopath’ in the nomenclature ‘corporate psychopath’ has been a matter of debate. Hare, drawing on Cleckley, (who established the main characteristics for psychopathy), objects to the further use or refinement of the test as Boddy has developed it for use in the organisational context. Among the differences of opinion is the criminal paradigm for psychopathy that Hare and his students favour, a view in which psychopathy necessarily entails criminal, anti-social behaviour and impulsivity.

Psychopaths can be impulsive, but they do not have to be. Levenson repeatedly reminds us, impulsivity is not a facet of psychopathy.¹¹³ This was again pointed out in 2011 when psychopathy researchers reviewed the claimed impulsivity of psychopaths and concluded with the statement ‘the blunt assertion that “psychopaths are impulsive” is no longer defensible’.¹¹⁴ Impulsivity is rather an outcome of studying the criminal samples of psychopaths which characterise early work and much current research, in the subject. However, even within criminal populations of psychopaths you may find high levels of planning and reduced impulsiveness.¹¹⁵

Nonetheless, often the association of impulsivity with psychopathy is a facet of a tautological approach to research. If characterisations of psychopathy are based on research involving criminals or criminally oriented people, then of course criminality and impulsiveness are found – a reflection of the chosen sample. Sampling decisions determine findings and paradigms determine sampling.

In support of stepping outside the criminally and impulsivity-oriented paradigm of psychopathy, it is of note that the differences between criminal psychopaths and the majority of psychopaths may be underpinned by neurological differences.¹¹⁶

While psychopaths make up a relatively small proportion of the population generally, as a portion of senior managers and executives, they appear to be over-represented. Psychopaths when compared to a normal population using fMRI scanning technology¹¹⁷ and neurochemistry testing have impaired physical brain connectivity and chemistry particularly in the emotional areas of the brain.¹¹⁸ These differences are associated with different cognition including different ethics and empathy with the critical result of different decision-making processes and outcomes. In terms of attitude and behaviour, psychopaths are characterised by an uncaring, callous and unemotional attitude towards others¹¹⁹ and in terms of behaviour, may engage in extreme forms such as pathological lying, extreme manipulation and actions often associated with criminality.

We define corporate psychopaths as people whose brains function differently in the way described above with the noted behavioural consequence of acting without conscience or concern for others’ well-being¹²⁰ and who work within organisations holding higher-level management and executive positions.

Ethical standards

Declaration of conflicts of interest

Clive Boddy has declared no conflicts of interest

Benedict Sheehy has declared no conflicts of interest

Brendon Murphy has declared no conflicts of interest

Ethical approval

This article does not contain any studies with human participants or animals performed by any of the authors.