‘Making villains’ ignores wider truth behind corporate scandals 

A fixation with ‘toxic leaders’ ignores the wider context that is often as much to blame for major corporate scandals, a new study suggests. 

The study, published in the British Journal of Management, examines the high-profile cases of Theranos, Purdue Pharma, Enron, and Wirecard, and claims the desire to pin the blame on individuals has allowed the systemic environment enabling each collapse to be overlooked.

“We found that the harmful organisational outcomes in each of these cases would not have been possible without the wider network of internal, external and regulatory factors,” said Dr Peter Stephenson from the University of Exeter.

“We uncovered a tendency – on the part of academics, the media and wider society – to focus on the ‘dark side of leadership’ and make villains of the individuals involved, which does not help us understand how these corporate scandals unfurled or – more importantly – how to prevent similar cases in the future.”

In each of the four corporate scandals, the researchers highlighted a web of internal factors such as a culture of overpromising and weak internal governance, external factors such as market expectations, and the role of regulators as contributing to the downfall of each firm. 

Analysing all available media reports and academic literature, the researchers identified external influences and conflicting interests such as the relationship between Enron and Wirecard and their auditors, in which the auditor received payment for their services from the company they were auditing.

The study digs into testimonies, such as those of an independent analyst after the bankruptcy of Enron that attested that the analysts involved had all the information they needed to call out discrepancies in the firm’s accounts – however, the firms employing the analysts were also vying for Enron’s business.  

The researchers argue that in each case regulators “actively enabled the process”, saying in the case of Wirecard that fraudulent practices were enabled through the significant levels of protection offered by the German financial regulator BaFin, and in the case of Purdue Pharma highlighting the legal responsibility of the FDA to ensure the drugs it approves are safe.

The researchers also examined the role of the media, which elevated leaders such as Elizabeth Holmes into visionary figures and later reduced the complex systemic failure of Theranos into a personalised story of blame.

They also question a startup culture where founders are rewarded for their over-confidence with investment, which for Holmes trapped her in a “web of deceit”.

Observing that a competitor produced a blood testing device similar to the one Theranos was developing, the researchers reflect on a fake-it-till-you-make-it culture, with Dr Stephenson observing: “What Holmes was doing with Theranos was in some way no different to what Steve Jobs did with Apple: exaggerate, be optimistic, over-promise and hope that you’re going to get there. The business model is no different, but we celebrate these iconic leaders because they managed to overcome their problems.”  

Dr Stephenson, alongside co-authors Professor Richard Bolden from the University of the West of England and the University of Exeter’s Morgen Witzel, have developed their own framework called the ‘Dark Pyramid’ to analyse harmful organisational outcomes by looking beyond individual leaders and examining the interaction between internal factors, external pressures, regulatory failures and the resulting social, economic or environmental outcomes.

They believe it could serve as an auditing and risk-analysis tool for organisations to make areas of risk visible earlier as well as inform future scholarship. 

“Comforting as it may be to assign the blame for catastrophic events to specific individuals, the dark side of leadership is a more complex, multifaceted process in which hierarchical leaders play a part alongside a host of other individuals, organizations, societal cultures, context specific factors and even non-human entities, all of which influence the process,” added Dr Stephenson. 

The Dark Pyramid: Unpacking the Multidimensional Nature of the Dark Side of Leadership is published in the British Journal of Management.