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Culture as Contagion

by Nicholas Christakis

This is an Out-take from our 2019 Compendium

With the Hayne Royal Commission having issued its final report, executives across the Australian financial sector are asking how to correct the circumstances that led to past misconduct. Budgets for governance, risk and compliance measures will swell, but those added resources are unlikely to produce the desired result without a reappraisal of what drives human behaviour within firms.

Management theory, as it is applied among firms worldwide, persistently elevates the importance of incentives in driving employee behaviour. These incentives are seen as primarily financial. Moreover, they also presume the well-known “rational actor” model of human behaviour. This results in the belief that, if incentives are properly “aligned”, all will be well and that the optimal way to motivate behaviour is one employee at a time.

 

Peer Pressure
 

But people are not just motivated by money, nor are they always rational, nor do they act in isolation, and nor do they necessarily realise the factors that shape their own behaviours.

“When people are free to do as they please, they usually imitate each other,” social critic Eric Hoffer once said. The social circumstances in which people find themselves, their social networks and the norms within those networks are extremely powerful forces motivating behaviour, often much more powerful than monetary incentives or individual desires.

When people are free to do as they please, they usually imitate each other

Peer pressure is powerful in all domains of human behaviour — from eating to smoking to voting to violence. In the past few years, my lab has done many experiments in online and offline settings exploring diverse interventions to change collective behaviour and documenting the impact of social contagion. We have shown that public health interventions ranging from vaccination to vitamin supplementation can spread between people; that we can strategically seed rural villages with information about well-baby care and create artificial tipping points in cultural norms for such care; and that we can foster the ability of online groups to cooperate and coordinate on shared goals.

 

Behaviour is Contagious
 

We have also shown that the behaviours of professionals within their own networks can be linked, as in the case of the diffusion of innovations among networks of doctors. And in large-scale studies involving millions of people, we have documented the spread of emotional states, spreading from person to person to person. Behaviour, in short, is contagious.

These findings hold lessons for the financial industry.

Researchers have demonstrated, using inventive experiments, that people who work in banks, when primed to think of themselves in the context of their workplace, are more likely to behave dishonestly. This was not the case for subjects in such experiments who worked in other industry sectors.

These results suggest that the prevailing business culture in the banking industry may undermine a commitment to honesty. “What is common is moral.”

Dishonesty, proscribed behaviours and fraud may well spread via processes of social contagion like all other observed human behaviours. It is not about bad apples; it is about bad barrels. People will behave in a risky manner when they perceive that their peers are doing similarly.

There is growing acceptance among regulators and risk managers that culture shapes conduct in banking. It is often argued, however, that culture is “soft stuff” that cannot be measured, and that, consequently, it cannot be managed. It is also often presumed that, since “culture” is not restricted to specific individuals, it cannot be changed. But our work using network methods in settings around the world suggests quite the opposite. Network science offers a number of models for diagnostic techniques and behaviourchange interventions for the financial industry.

With adequate information about both the structure of employee interactions (e.g., by studying email communication patterns in a manner that we have validated) and information about any known cases of bad behaviour, it is possible to ascertain whether there are outbreaks of such behaviours and whether there is evidence of social contagion. More generally, network methods can help identify clusters of employees at greater risk of succumbing to such contagion.

 

Using network methods to drive culture change
 

Perhaps more importantly, it is possible to use network methods to implement interventions that will drive change in the culture within banks, even absent any known bad behaviour, and to manage conduct risk. This can be done in two ways.

First, by understanding the structure of employee interactions, it is possible to target “inoculations” (in the form of trainings, enforcement actions, or other management interventions) on individuals or groups who, by virtue of their location in the network, have an outsized impact on the culture within the firm. Such individuals are not necessarily the ones identified by a formal organisation chart.

Secondly, and distinctly, the structure of the network itself might matter. An analogy is helpful. If one takes a group of carbon atoms and connects them one way, one gets graphite, which is soft and dark. But if one takes the same carbon atoms and connects them another way, one gets diamond, which is hard and clear.

There are two important ideas here. First, these properties of softness and darkness and hardness and clearness are not properties of the carbon atoms: they are properties of the collection of carbon atoms. Secondly, the properties one gets depends on how we connect the carbon atoms together.

It is the same with social groups. This phenomenon, of wholes having properties not present in the parts, is known as “emergence,” and the properties are known as “emergent properties”. Culture within firms operates similarly, and is itself an emergent property with implications for employee behaviour: connect employees in one way, and they do not engage in risky conduct. Connect them another way, and they do.

Those hoping to drive improved conduct in the Australian banking sector would do well to keep these learnings from the behavioural sciences in mind as they begin their reform efforts.

 

This piece first appeared in Thomson Reuters on February 13, 2019.

Starling author

NICHOLAS A. CHRISTAKIS, MD, PHD, MPH, directs the Human Nature Lab at Yale University co-directs the Yale Institute for Network Science. With James H. Fowler he authored, “Connected: The Surprising Power of Our Social Networks and How They Shape Our Lives.” His latest book, Blueprint: The Evolutionary Origins of a Good Society, is due to be released this month. He serves on the Academic Advisory Board of Starling.