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Ethical Standards and Cultural Assimilation in Financial Services

50 Pages Posted: 21 Apr 2016 Last revised: 22 May 2017

Alan D. Morrison

University of Oxford - Said Business School; University of Oxford - Merton College

John E. Thanassoulis

University of Warwick - Warwick Business School; Oxford-Man Institute, University of Oxford; Nuffield College, University of Oxford

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Date Written: May 17, 2017

Abstract

We study a firm with ethical employees who can adopt a profitable working practice that may harm their customers. Their response to this dilemma reflects their compensation contract as well as their ethical willpower. We identify optimal compensation contracts under utilitiarian and deontological (duty-based) ethical standards. With utilitarian employees, and irrespective of employee willpower, a profit maximising firm with sophisticated customers generates the ethically best outcome. Organizational culture emerges as an equilibrium phenomenon. If the firm is a partnership, if sales commissions are hidden, or if customers are naive, the firm may use bonuses to create a culture of malpractice.

Keywords: Culture, ethics, behavioural norms, bonuses

JEL Classification: D03, G02, G20

Suggested Citation

Morrison, Alan D. and Thanassoulis, John E., Ethical Standards and Cultural Assimilation in Financial Services (May 17, 2017). Available at SSRN: https://ssrn.com/abstract=2766996

Alan Morrison (Contact Author)

University of Oxford - Said Business School ( email )

Department of Finance
Park End Street
Oxford OX1 1HP
United Kingdom
+44 18 6527 6343 (Phone)
+44 18 6527 6310 (Fax)

University of Oxford - Merton College

Merton Street
Oxford OX1 4JD
United Kingdom
+44 18 6527 6343 (Phone)

John E. Thanassoulis

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://https://sites.google.com/site/thanassoulis/

Oxford-Man Institute, University of Oxford ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

Nuffield College, University of Oxford ( email )

New Road
Oxford, OX1 1NF
United Kingdom

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