How Executive Boards Set the Stage for Unethical Behavior in the Financial Sector

E.F. van Steenbergen*, W.S. Jansen, N. Ellemers

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


Unethical behavior in the financial sector is a common and costly phenomenon. The main purpose of this study was to examine how ethical board leadership in the financial sector relates to the ethical climate and incidents of unethical workplace behavior. Surprisingly few studies have examined whether ethical leadership of the top management of organizations relates to lower levels of unethical behavior displayed by organizational members at the work floor. Moreover, the few existing studies have used generic measures of ethical leadership which provide little insight into concrete and visible leadership behaviors that should be displayed by board members to build an ethical climate. Building on Ethical Leadership Theory, Signaling Theory, and the Social Identity Theory of Leadership, we examined whether employees’ perceptions of the board’s commercial focus, unjustified board pay and the board’s focus on consumers’ interests related to an instrumental ethical climate in financial organizations, and indirectly to the incidence of observed unethical behavior. The Dutch Authority for the Financial Markets collaborated with the authors of this paper to develop an online survey. At the end of 2018 and the beginning of 2019, the survey was distributed in 18 organizations, which operated in four subsectors of the Dutch financial sector (four banks, four insurance companies, five financial intermediary companies, and five funeral insurance companies). The survey was completed by 4,144 employees in total. We do not think that the Dutch context is unique, although after the financial crisis, Dutch behavioral codes came to the fore which stated that that executive boards are responsible for preventing unethical behavior. The quantitative, correlational data of the survey were used to conduct structural equation modeling. Confirming our research questions, results showed that the board’s commercial focus and unjustified board pay related to higher levels of unethical workplace behavior, via a more instrumental climate. Moreover, the board’s focus on consumers’ interests negatively related to unethical behavior, via a less instrumental climate. Additionally, we performed content analysis of free-format comments in the survey (N= 195). Results revealed that most comments centered around board pay and addressed this in a negative sense. Perceptions of unjustified board pay seemed to lead to lower identification with the board and elicited ‘them’ (at the top) versus ‘us’ (at the work floor) thinking among employees. In conclusion, this study in the financial sector indicates that exemplary behavior at the top, regarding board pay and the board’s focus on commercial and consumers’ interests, shapes ethical climates in organizations and as such can set the stage for unethical behavior, also towards consumers. Future research on the effects of ethical board leadership should strive to use experimental or longitudinal research design and include objective measures of unethical behavior. We also hope to inspire future research on possible additional dimensions of ethical board leadership in the financial and other sectors. For practice, this study provides insight in concrete and visible behaviors that executive boards must (and must not) display when they want to invest in the ethical climate and lower the likelihood of unethical behavior. It is advisable for (financial) organizations to examine how the ‘tone from the top’ is perceived by employees via anonymous employee surveys and, possibly for board members, to reconsider what kind of ‘tone at the top’ they want to broadcast regarding consumers, profit and pay.
Original languageEnglish
Pages (from-to)108-127
JournalBusiness Ethics and Leadership
Issue number4
Publication statusPublished - 31 Dec 2023


  • ethical leadership
  • ethical climate
  • board leadership
  • consumer interests
  • financial sector
  • board pay


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