Ethics programmes ineffective in nudging bank employees towards ethical behaviour

After the financial crisis of 2008, governments and the financial sector introduced various “soft measures” such as ethics programmes to promote an ethical culture in banks. But do these measures actually work? To find out, PhD Graduate Job Harms of Erasmus School of Economics and his colleagues conducted a field experiment with bank employees.

The measures that were introduced by banks were essentially meant to steer bank employees away from acting in their own interest, and stimulate acting in the interest of others. Harms explained that traditionally, such altruistic behaviour is often overlooked in the field of economics, which usually uses models in which humans act primarily in personal interest.

A growing body of research from psychology and behavioral economics indicates that people often act for the benefit of others. Moreover, research indicates that integrity is influenced by workplace culture: "For example, previous research shows that bank employees act dishonestly only when they are reminded of their identity as bank employees, but not otherwise," says Job Harms. "In one experiment, employees played a game in which they earned more money by lying. Prior to the game, employees in the treatment group answered questions about their work at the bank while those in the control group answered questions about their previous holiday. While the latter group behaved honestly, the ‘professionally primed’ employees were prone to lie for personal financial gains."

This suggests that bank employees are not dishonest as such, but that the organisational culture in banks can undermine their integrity.

Harms: "Based on this we wanted to explore how to promote a culture in banks that stimulates ethical behaviour. With ‘ethical behaviour’ we mean: acting in the client’s best interest, for example by discouraging them from buying financial products that might be unsuitable."

Soft measures

After the crisis of 2008, many banks introduced “ethics programmes” to make employees more aware of the importance of integrity. But do such programmes actually change employee behaviour?

Harms: "To find out, we teamed up with a commercial bank to test the effectiveness of ethics programmes. In this programme, employees collectively discussed ethical dilemmas during their weekly meetings. An example of such a dilemma: a customer is worried that his dog will damage his new sofa and wants to buy an in-house insurance. The bank employee knows this kind of damage isn't covered buy this insurance. Do they inform the client or simply sell the product?"

Around a hundred banking shops participated in the experiment. Half were assigned to the programme and the other half to the control group. Employees in the experimental group discussed ethical dilemmas during their weekly meetings.

Ethics programmes are ineffective in nudging bank employees towards ethical behaviour

To measure the behaviour of bank employees, Harms and his colleagues sent mystery ‘shoppers’ to all the banks before and during the programme. These ‘shoppers’ used various scripts to find out if employees were giving them advice that was in the client’s best interest. The mystery shoppers then reported the employees’ behaviour to the research team.

Did it work?

So, does talking about ethics result in more ethical behaviour? Harms: "Unfortunately the programme had no significant effect. In many instances we find that bankers did not provide optimal advice to the client, and this did not change when the programme was implemented.”

Sign on top

Harms thinks other approaches should be tested in banks to promote honest and ethical behaviour. "For instance, we do know that people who have to fill out an insurance form are less likely to commit fraud when they have to put their signature at the top of the form instead of at the bottom of the form. The idea is that the signature serves as ‘moral reminder’ right before the critical moment." Similar approaches might be tested in the context of the banking sector.

Finally, Harms indicates that more experiments are needed. “As this study has shown, even well-intended approaches can be ineffective. If we really want to change the culture in the financial sector we need more experiments to find out which programmes and policies do work, and which don’t.”