Over the last decade, industries, academics, and the public sector have turned their focus toward culture and ethics in response to the financial crisis as well as misconduct at a broad range of corporations. But what role does culture play in corporate misconduct, and why do these problematic cultures persist?
The Economics of Why Companies Don’t Fix Their Toxic Cultures
And how it leads to corporate misconduct.
March 22, 2018
Summary.
What role does culture play in corporate misconduct, and why do these problematic cultures persist? Thinking of a company’s culture as a form of investment subject to market failures can help explain why companies sometimes tolerate misconduct, and why they can’t always fix it on their own. Firms may operate with sub-optimal levels of “cultural capital” due to different types of market failures. Three well-known phenomena — externalities, principal-agent problems, and adverse selection — may help explain why misconduct risk persists.