In cognitive neurology, ‘psychopathy’ does not mean ‘a tendency to kill someone’ as is common thought by the general public. ‘Psychopathy’ is literally a ‘suffering of the mind’, and is used by cognitive neurologists to refer to individuals who cannot understand the mental states of others. This inability to understand the mental state of another in your mind is thought to go to awry in autism, from the seminal work by Prof Uta Frith, at UCL (and who was awarded an Honorary Doctorate at Cambridge this year) and Prof Simon Baron-Cohen, Macurdy Professor of Abnormal Psychology at Cambridge. It is even thought an ability to monitor to your own mental state, in particular distinguish internally-generated mental states from those of other people, can lead to conditions such as schizophrenia, causing delusions.
Salomon v Salomon provides the pivotal House of Lords case in English law, establishing that the body corporate has a separate legal personality. The concept of a corporate having a personality allows it to commit crimes such as manslaughter and fraud. It is fitting that there should now be a term called ‘corporate psychopathy’ to describe the sickness of the organisational cultures of otherwise ‘successful’ corporates. Had Lord Denning been alive today, he would have been the first to ask his juniors to consider how best to pierce the corporate veil to bring relevant parties to justice. ENRON, News International and Barclays provides three horrific examples of the emergence of ‘corporate psychopathy’, where a company can be highly successful shareholder dividend generator, but is in fact morally and legally sick.
The shocking aspect about ENRON was that it was winning industry-level awards and highly profitable while being completely sick. In fewer than two decades, ENRON grew from nowhere to be America’s seventh largest company, employing 21,000 staff in more than 40 countries, however the firm’s success proved to have involved a giant scam. ENRON lied about its profits and stands accused of a range of shady dealings, including concealing debts so they didn’t show up in the company’s accounts. Kenneth Lay was ENRON’s former chief executive and chairman since 1986 refused to testify at the last moment after saying he had been pre-judged. That ENRON’s false accounting was not spotted sooner has prompted the accounting industry to take a hard look at itself. Strikingly, ENRON had like a malignant cancer had metasised to parts of the establishment. ENRON provided millions of dollars to finance Mr Bush’s 2000 election campaign. Mr Bush was a personal friend of Mr Lay, but has been quick to distance himself from any involvement with the firm.
News Corp provides another chilling example. A reporter and a private investigator who worked for the Murdoch-owned News of the World tabloid were convicted of phone-hacking in 2007. News International, Murdoch’s British newspaper arm, had said the hacking was limited to a single rogue reporter but more victims of hacking were revealed in 2009, suggesting the practice was widespread. On 15 July 2011, Brooks resigned as chief executive of News International, following widespread criticism of her role in the controversy. On 17 July 2011, she was arrested on suspicion of conspiring to intercept communications and on suspicion of corruption – making corrupt payments to public officials. On 13 March 2012, she was again arrested on suspicion of conspiracy to pervert the course of justice. On 15 May 2012, Brooks was charged with conspiracy to pervert the court of justice. Murdoch apologized in person to Milly Dowler’s family and his company took out full-page advertisements in British newspapers saying, “We are sorry.” Andy Coulson, who followed Brooks as editor of the News of the World, resigned after the 2007 convictions and was later appointed by then opposition leader David Cameron, Prime Minister, as his communications chief in 2007. Coulson was arrested on July 8 on suspicion of phone-hacking and corruption, and released on bail. Again, the comparisons are chilling. According to the Leveson Inquiry, Rebekah Brooks sent an effusive text message to David Cameron on the eve of his 2009 party conference speech, telling him: “Professionally, we’re definitely in this together”.
Bob Diamond is an Amercian banker, currently Group Chief Executive of British bank, Barclays Plc. He is also Chief Executive of Corporate & Investment Banking and Wealth Management, comprising Barclays Capital, Barclays Corporate and Barclays Bank. In early 2011, Barclays announced that Diamond would receive an annual bonus of £6.5 million in 2011, the largest of any CEO of a British bank. However, Diamond voluntarily gave up his bonus for 2012 after Barclays was fined £59.5 million by the FSA (£290m in total) “over the bank’s ‘serious, widespread’ breaches of City rules relating to the LIBOR and EURIBOR rates. The bank had been found to have lied, sometimes to make a profit, and other times to make the bank look more secure during the financial crisis. The UK’s Financial Services Authority (FSA), which levied a fine of £59.5 million ($92.7 million), gave Barclays the biggest fine it had ever imposed in its history. The FSA’s director of enforcement described such behaviour as “completely unacceptable”, adding “Libor is an incredibly important benchmark reference rate, and it is relied on for many, many hundreds of thousands of contracts all over the world.” Osborne has long been highly critical of City regulators for not spotting the accounting tricks used by Lehman Brothers to artificially inflate its balance sheet.
That there is something pathological in the corporate personality in the past of Barclays, what I have called “corporate psychopathy” has been vociferously criticised by Sir Mervyn King, the current Governor of the Bank of England: “That goes to both the culture in the banking industry and to the structure of the banking industry, from excessive levels of compensation, shoddy treatment of customers, to deceitful manipulation of one of the most important interest rates and now this morning to news of yet another mis-selling scandal.We can see we need a real change in the culture of the industry. And that will require two things – leadership of an unusually high order and changes to the structure of the industry.”
Mr Diamond gave the Today programme lecture in November 2011, saying that banks had to be “better citizens” and create a trustworthy culture.” (listen to this clip from the ‘Today’ programme on the BBC website); he proudly reported that, “the evidence of culture is how people behave when nobody is looking”. This is particularly horrific given the latest scandal news. What is worrying about ‘corporate psychopathy’ is that it seems to be supported by the mutual collusion of other corporates, who are often themselves healthy. For examples experts have claimed that under US law such transactions involved in the Lehman Brother affair could not be booked as sales. However, it is reported that crucially, City law firm Linklaters gave a legal opinion in 2006 that transactions booked under Repo 105 could be treated as sales under UK law. This appears to have enabled Lehmans to keep billions of dollars of debt off its US balance sheet.
There are some lessons to be learnt from cognitive neurology, most probably. One is that a psychopathic individual who has a complete inability to infer the mental states of others is incredibly hard to rehabilitate. Secondly, psychopathic individuals can function very well in other domains, some having extremely high IQs in fact. This is what makes it difficult in ascertaining the precise punishment for true ‘psychopathy’ as it is fundamentally a mental health issue. Instinctively, I feel that this makes it inherently difficult to know what precisely to do with a psychopathic corporate. Sure, you can dream up new methods of diagnosis and potential actions, as the US legislators did with their problem in the form of the Sarbanes-Oxley Act, but it is easily arguable that you are not treating the underlying cause.
