How to Stop Psychopath CEOs from Looting and Destroying Their Own Companies
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Most importantly, besides being lousy leaders prone to risky or criminal behavior psychopaths fundamentally lack the ability to act in the interests of anyone but themselves. So how can they credibly act on behalf of their clients? Why do we tolerate a disproportionate number of people with this pathology being in charge of large aspects of global financial systems?
The banking sector has done little to address this issue, and may actively be making it worse. According to a first hand account by Brian Basham of The Independent, a banking colleague once confided to him, "At one major investment bank for which I worked, we used psychometric testing to recruit social psychopaths because their characteristics exactly suited them to senior corporate finance roles."
An accumulation of psychopaths in upper management would go a long way to explain the rash of reckless behavior and corporate fraud in the last decade. It also indicates that efforts by regulators to impose normal morality and lawfulness on the financial sector will continue to be futile.
Likewise, the legal tools available to shareholders or internal HR departments are also largely useless. Refusing to hire someone on the basis of psychopathic screening would be considered "prohibited discrimination" since it is unlawful to presume in advance that someone will commit a crime. Few companies would dare to internally screen senior managers for psychopathy, especially if there is no legal recourse to fire them.
A risk insurers can't afford
Which brings us to the insurance industry. Every company requires a variety of underwriting policies including, for directors and officers, liability insurance or fidelity coverage. Insurers are rightly fixated on risk management since they (and their shareholders) are on the hook when executives they underwrite go the way of Gordon Gekko.
Senior managers of financial companies have what is called "fiduciary duty" -- a legal obligation to act in the best interests of their clients and investors rather than themselves. Here's the rub: psychopaths simply cannot do that. They are medically impaired from acting in good faith on behalf of others.
Why isn't the insurance industry already insisting on psychopathic screening of senior managers for the companies they are covering? The rationale would be straightforward: psychopathy is a leading indicator of illegal or reckless behavior. Psychopaths should be excluded from positions that legally require fiduciary responsibility in the same way that blind people are not allowed to be airline pilots.
Insurance companies taking the lead on weeding out corporate psychopaths would also avoid a number of thorny legal issues that would face shareholders, employers or regulators seeking the same goal.
Any psychopaths identified through insurance pre-screening would not be denied employment, they would simply be deemed uninsurable. The result would be the same -- these dangerous individuals would need to find another, less influential line of work. But since insurance policies are simple legal contracts between two parties, there would be no recourse for psychopaths to launch costly legal challenges against employers based on wrongful dismissal.
Free capitalism to function rationally
This solution would also negate the need for government intervention -- a nightmarish scenario by anyone's yardstick. No right-thinking person would support regulation based on aberrant brain chemistry. That said, if psychopaths were weeded out of critically important roles in the global banking sector, governments and taxpayers would be a primary beneficiary. Public institutions the world-over have been mopping up the mess made by reckless bankers since 2007, and beyond. These massive bailouts have crippled the real economy and inflicted untold economic hardship on those that actually create wealth, not merely accumulate it.