Anthony Hilton: If the boss has an affair, it will likely lead to misconduct

Should investors care if their chief executive has an affair, or are such matters irrelevant? According to an academic study in the US, they are highly relevant.

In Do personal ethics influence Corporate ethics? the authors — John Griffin, Samuel Kruger and Gonzalo Maturana — claim that a boss with a record of marital infidelity is likelier than someone who is faithful to indulge in corporate misconduct. Worse, they were also more likely to cause others in the company to misbehave too.

The data for infidelity comes from Ashley Madison, the dating website which advertises “discreet encounters” for married people. It turned out to be not so discreet after all when a computer hacker put a vast treasure trove of clients’ names online in 2015.

The researchers trawled though the Ashley Madison names and matched these with corporate information series such as Lexis Nexis, or other sources where those hacked had covered their tracks by using a different name or credit card but were still identifiable.

They then matched some of them to the Financial Industry Regulatory Authority’s BrokerCheck, which had sourced 1319 male financial advisers who had a record of serious misconduct.

They discovered their sample was more than twice as likely as the mainstream group to have committed such an offence. They also collected US Securities and Exchange Commission information from 2010 to 2015 with regard to insider trading, Ponzi schemes, pump-and-dump operations and other fraud. And again the data shows this sample is two to three times as likely as other executives of similar age and location to engage in misconduct.

Finally, they examined chief executives, financial directors and other top executives who were known Ashley Madison users, who were also part of a firm which had a class action lawsuit or was engaged in some sort of financial misstatement.

They found that chief executives and chief financial officers were twice as likely to commit corporate infractions than were other users.

The authors say this new dimension of unethical behaviour would seem to involve trust and dishonesty elsewhere too. They also say there is a body of literature which shows chief executives influence others in the firm, and also that the other employees perform better if they think the top management is trustworthy and ethical. So the chief executives’ lack of integrity rubs off on other people.

There has been a long-standing debate in America on whether ethics are situational. That means whether they think there is always a right and a wrong whatever the context; or alternatively whether people behave depending on what they are doing at the time.