Do you see yourself as a morally strong person? Are your actions consistent with your self-conception? How would you feel if you did something bad?
These simple questions are never asked in employment interviews; candidates’ declarations of integrity would be inherently unreliable. Few recruiters and managers in the investment industry are trained in reading the facial micro-expressions that indicate whether someone is responding truthfully. Moreover, nobody’s actions are entirely predictable. Yet there is empirical evidence that individuals’ internal moral standards are indirectly related to their conduct. It seems desirable for gatekeepers—indeed, for anyone who is concerned about an organization’s culture, values, and reputation—to understand the factors that make some people more prone to misdeeds than others in like circumstances.
In a study published last year, two sociologists proposed and tested a theory of the self that explicitly links the cognitive, behavioral, and affective facets of moral choice. Jan E. Stets and Michael J. Carter wrote, “To understand the illicit behavior of some, we need to study the moral dimension of the self and what makes some individuals more dishonest than others within and across situations.” They cited the “practices of stock brokers, investment advisors, and mortgage lenders whose behavior facilitated the recent economic recession” as an example.
Among many other issues, philosophers have investigated the status of ethical codes, the nature of personhood, the meaning of virtue, and the relationships between thought, language, and action. Psychologists have examined motivation, the desire for external validation, and the affective consequences of inner conflict. Now Stets and Carter have enriched the study of moral choice by framing testable hypotheses on the basis of a sociological model of the internal operations of the self. They found that model in identity theory.
Identity theory sees people as actors, not merely reactors, and fully acknowledges the possibility of choice, but also recognizes that human action is constrained by social structure and social interaction. The theory crucially postulates that actions are shaped by the way individuals see themselves and the environment; and the meanings people attribute to themselves and to situations are developed through their interactions with others. In fact, people have as many identities as they have social roles—spouse, parent, child, sibling, manager, employee, colleague, and the like—and those roles are structured in a “hierarchy of salience” defined by individuals’ commitments to being a particular kind of person. (Salience, in this context, is the probability that a given role will be activated in a specific situation.) Sheldon Stryker, who largely developed identity theory, expresses its fundamental proposition in these terms: “Commitment impacts identity salience impacts role choice.”
In applying identity theory to the domain of moral choice, Stets and Carter emphasize the mechanism of “identity verification.” They diagram the self in its environment and explain identity theory in the terminology of control systems, with inputs, outputs, and a feedback loop. The inputs are definitions of situations (interpretations that frame situations as calling for certain roles, behaviors, and feelings) and “reflected appraisals” (interpretations of others’ reactions to one’s behavior). These inputs are fed into a metaphorical “comparator” which relates them to stored identity standard meanings and produces error signals when it registers variances. If an actor thinks others perceive her as a just and caring person to the same extent that she so perceives herself—say a “moral identity score” of 7 on a scale of 1 to 10—then her identity is verified. However, if she thinks others see her as less, or more, moral than she considers herself, her identity is not verified. Similarly, there is a discrepancy if the meaning of a situation is unaligned with the person’s salient identity. “For example,” Stets and Carter said, “if meanings in a situation are about acquiring wealth rather than behaving morally, one will have difficulty verifying the moral identity.”
It is through the internal operation of identity verification that emotions come into play. Stets and Carter focus on two negative moral emotions that may follow from the experience of non-verification: guilt (an actor judges that he did something bad) and shame (an actor judges that he is a bad person). These emotions may trigger a variety of responses, including cognitive strategies such as rationalizing one’s behavior, evading responsibility, minimizing one’s participation, understating the consequences, and blaming the victim. Often, however, they result in behavioral changes intended to reduce the inconsistency. Stets and Carter stress the social significance of these emotions. “Ultimately,” they wrote, “guilt and shame keep people integrated into society through internal monologues with the self and feedback from others.”
Stets and Carter formulated five hypotheses and designed an experiment to test them. For instance, one hypothesis was, “The higher a person’s moral identity score, the more likely the person will behave morally.” Another was, “The more a person defines a situation as containing moral meanings, the more likely the person will behave morally.” The authors recruited 369 undergraduate sociology students and conducted the study in two parts. In the first phase, they administered a survey that measured the participants’ moral identity, behavior, and emotions in scenarios that were relevant to the students’ lives. In the second phase, conducted three months later, the same population—there was no attrition— responded to a survey that measured moral meanings and feeling rules (cultural expectations about the emotions that ought to be experienced in moral situations).
Stets and Carter’s article in the American Sociological Review presents the design, results, and limitations of their study in considerable detail. In general, they state, their hypotheses were supported. For example, both the moral identity and situations with moral meanings are positively associated with moral behavior, and reports of moral emotions are positively associated with identity non-verification.
This brief treatment does not remotely do justice to Stets and Carter’s meticulous study. Well written and insightful, it repays careful reading. What are the implications of their research for investment professionals? To open the dialogue, here are two suggestions.
- Senior management should set clear expectations for ethical conduct.
Because role choices guide behavior, the firm should commit itself to creating a culture that prizes integrity and to defining its employees’ role in terms that prominently include ethical behavior. Staff should know, for instance, that they are expected without reservation to place clients’ interests ahead of the firm’s and their own interests. Moreover, because codes of conduct are all too often seen as meaningless totems, managers throughout the organization should consistently enforce internal controls, taking care to ensure there are no mixed messages that would interfere with moral identity verification. Establishing solid cultural and social expectations within the firm, and communicating them in practice every day, might encourage moral behavior—or at least discourage wrongdoing.
- Training should importantly include practice in identifying and articulating the moral meanings of situations.
People can change, even radically. Examples of moral conversion come to mind readily: Constantine. Augustine. In our own times, the late Charles Colson. But these men may be so easily recalled precisely because their stories are extraordinary. Change is hard, and radical change betokens a profound spiritual experience. Identity theory appears to consider the actor’s internal standards inalterable; and, realistically, an adult’s moral identity is fixed, at least in the short term. Investment management firms may, however, be able to influence the other input to the comparator, the moral meanings of situations that are likely to arise in the course of business. Helping staff perceive the ethical dimensions of their work might facilitate moral identity verification.
Understanding identity theory, and especially the mechanics of identity verification, is not particularly helpful in spotting likely miscreants, but it does suggest why they might make unfortunate choices. They may have relatively low internal standards; define their professional role in a way that minimizes or excludes ethical obligations; overlook moral meanings in situations; and/or fail to experience moral emotions, at least with the same intensity as others. Because these are hidden characteristics, it remains possible that bad actors will occasionally slip through the hiring process—all the interviews, reference calls, and background checks—and disrupt the organization or put its reputation at risk. Let those people find themselves alone at investment management firms that take ethical conduct seriously.
 See “Pants on Fire,” December 16, 2011. http://middle-office.com/2011/12/16/unclassifiable/. Accessed March 4, 2012.
 Jan E. Stets and Michael J. Carter, “A Theory of the Self for the Sociology of Morality.” American Sociological Review, 2012, 135. http://asr.sagepub.com/content/77/1/120. Accessed March 2, 2013. DOI: 10.1177/0003122411433762. Many thanks to Sharon Gould for bringing this research to my attention.
 Sheldon Stryker, “Identity Theory,” Encyclopedia of Sociology (Macmillan Reference USA, 2001), 1253-1258.
 Stets and Carter point out that non-verification of moral identity can result from surpassing as well as from falling short of one’s identity standard. “Exceeding one’s moral standard may generate the view that one is a moral fraud, while failing to meet a moral standard may result in feeling morally inadequate.” Op. cit., 135.
 Op. cit., 125.
 Ibid. The authors cite Jonathan H. Turner, “Natural Selection and the Evolution of Morality in Human Societies,” in S. Hitlin and S. Vaisey, eds., Handbook of the Sociology of Morality (New York: Springer, 2010), 125–145.