Dr. Jennifer Jordan: ‘Is the Banking Code a hollow gesture?’

The Netherlands Bankers’ Association (NVB) has recently announced a ‘Banking Code’. In it, the sector promises to keep to the principles of ‘prudent and sustainable banking in the future’. This ethical declaration from the financial sector is unlikely to lead to revised behaviour among bankers, according to social psychologist Jennifer Jordan. This self-regulation may even encompass the danger of further moral decline.

Appearances May be Deceptive
In the Banking Code, the financial sector is putting the brakes on bonuses and at the same time introducing a bankers’ oath. Jordan has a number of concerns about the Code. First, it is always possible that these measures are merely window-dressing. After all, the Code is not an entirely voluntarily action on the part of the individual banks. If the sector did not come up with its own measures there existed the threat that the government could intervene. The Code could thus be a measure designed to prevent more restrictive, externally imposed rules. By implementing the current Code, citizens and the customers of the banks have been reassured and the Minister has been mollified.

Immoral behaviour
However, even if this cynical approach is incorrect and the Banking Code is a genuine attempt to restore norms and values to the sector, the question remains whether it will lead to a readjustment of the norms regarding honesty and risk management and to behaviour that is on an ethically higher plane. Many of the experiments that Jordan has conducted with her colleagues Elizabeth Mullen (Stanford University) and Keith Murnighan (Kellogg School of Management, Chicago) have revealed that people act as moral compensators – if individuals think that they are acting with a great deal of morality, they then compensate by behaving immorally, for example by cheating the people they work for. In an experiment, if people are asked to describe a situation where they did something to help someone else, these individuals are then more likely to commit fraud in a subsequent task. It appears that people derive the right to be less moral after demonstrating high morality, such as helping others.

Sombre
If we transfer this idea to the Banking Code, the outlook is sombre for its effect on the ethical behaviour of bankers. After all, if banks view the Code as a genuine attempt to favourably affect ethical behaviour, then such a view could lead to a feeling of moral superiority. Such a view may then lead bankers to believe that they are entitled to some form of compensation or to become greedy in other domains.

If the Code is mere window dressing , then even the appearance of moral superiority could be a facade to hide immoral behaviour. There is thus an urgent need for research to ascertain whether and how these predictions are realized in bankers’ actual behaviour . The first steps towards involving bankers in practical research are already underway.

Positive Effects?
Jordan predicts that the dangers of further moral decline may disappear once such a Code becomes the norm across countries or industries. Then the rules that currently apply only to Dutch banks would become a more general standard, and as a result, the inclination to derive moral superiority from the behavioural code would disappear. Swift internationalization of an ethical code is thus essential, according to Jordan.

Curriculum Vitae
Jennifer Jordan joined the department of Human Resource Management & Organizational Behavior of the Faculty of Economics and Business of the University of Groningen as a social psychologist in August 2009. She was awarded a PhD in psychology by the Graduate School of Arts and Sciences of Yale University in 2005. Her thesis was entitled 'Business experience and moral awareness: When less may be more’. After gaining her PhD, she taught at the Tuck School of Business, Dartmouth College (2005-2007). From 2007 to mid 2009 she was a member of the Kellogg School of Management at Northwestern University, Chicago.

Contact:
Dr. Jennifer Jordan