David Cicero’s research into “the whys of corporate misbehavior” is yielding interesting insights into business practices and the ethical aspects of the decisions behind them. People are “not totally rational in our ethical behavior,” he says.

Cicero, an associate professor of finance who joined Harbert College in 2016, notes that the field of behavioral ethics studies is “just now budding” and could produce some low-cost ways of promoting more ethical behavior in the business world. It may take little more than an occasional reminder of what an organization’s ethical expectations are to help employees and executives act with integrity.

Cicero and his former PhD student, Mi Shen, are conducting “real world” studies testing the behavioral ethics results found in the experimental labs of Dan Ariely of Duke University and Francesco Gino of Harvard. Those researchers have found that study participants competing for small monetary rewards are apt to cheat when given the opportunity, but interestingly, they cheat less when ethical considerations are made more salient. In particular, they cheat less when an actor pretending to be one of the participants asks before the games begin, “Is it OK to cheat?” and the administrator indicates that they can do anything they want. In this case, there is less cheating—simply because there has been a reminder, even indirectly, of ethical implications.

Cicero’s and Shen’s research provides evidence that similar behavioral patterns are seen in the business world. Their research measures the profitability of corporate insiders’ stock trades when a high-profile local politician has been in the news for unethical behavior. Similar to the lab experiments, they find that insiders’ stock sales are less profitable during these times, suggesting that executives are more likely to consider the ethics of their own conduct when they are reminded of the ethical missteps of others. Other reminders, such as signing a pledge or acknowledging an honor code, may have similar results.

“There is an ethical context to our decisions,” Cicero says. “Warnings activate our own value systems. If you’re concerned about ethical behavior, reminders could help everyone be on their best behavior.”
Cicero and Shen are also examining greed as a motivating factor for misbehavior, such as insider trading. Seeking real-world settings where executives may experience greater feelings of greed or envy, he has reviewed metropolitan areas with large numbers of “star firms”—those significantly outperforming the stock market and rewarding executives as a result—and then looked at other companies in the same areas, where insider trading may be more likely due to a “Keeping up with the Joneses” mentality.

Another paper in the early stages of development, deals with the impact of testosterone on misbehavior. Exposure to violence, or even a violent sport such as football, has been shown to raise testosterone levels. Cicero and Shen are examining business behavior in NFL cities after a home team win and exploring whether increased testosterone results in more aggressive trading behavior.

Cicero is also involved in several other areas of research into corporate behavior. He is one of the authors of a recently published paper in the journal Management Science that examines the time CEOs spend playing golf and how that can relate to the success of the companies they head. “Shirking CEOs” may be lowering their handicaps, but they also may be lowering the performance of their companies.