On Wall St., a Culture of Greed Won’t Let Go

Ethics. Values. Integrity.

Wall Street firms spend a lot of time using those catchwords when talking about developing the right culture. Bank chief executives often discuss how much effort they devote to instilling a sense of integrity at their institutions. The firms all have painstakingly written codes of conduct, boasting, “Our integrity and reputation depend on our ability to do the right thing, even when it’s not the easy thing,” as JPMorgan Chase’s says, or, “No financial incentive or opportunity â€" regardless of the bottom line â€" justifies a departure from our values,” as Goldman Sachs says.

And yet a new report on industry insiders about ethical conduct, to be released on Tuesday, disturbingly suggests that Wall Street’s high-minded words may largely still be lip service.

Of 250 industry insiders from dozens of financial companies who responded to questions â€" traders, portfolio managers, investment bankers, hedge fund professionals, financial analysts, investment advisers, among others â€" 23 percent said that “they had observed or had firsthand knowledge of wrongdoing in the workplace.”

If that’s not attention-grabbing enough, consider this: 24 percent said they would “engage in insider trading to make $10 million if they could get away with it.”

As we approach the fifth anniversary of the onset of the financial crisis this September, it appears memories are shorter than ever. If the report is accurate, the insidious culture of greed is back â€" or maybe it never left.

The questions were posed last month by the law firm Labaton Sucharow at the behest of one of its partners, Jordan A. Thomas, a former assistant director and assistant chief litigation counsel in the enforcement division of the Securities and Exchange Commission. The results are a telling reminder of the continued challenges the industry faces, challenges that appear endemic.

While the results may not be scientific, they are stark. For example, 26 percent of respondents said they “believed the compensation plans or bonus structures in place at their companies incentivize employees to compromise ethical standards or violate the law.”

There is a view that the ethical problems come from the very top: 17 percent said they expected “their leaders were likely to look the other way if they suspected a top performer engaged in insider trading.” It gets even more troubling: “15 percent doubted that their leadership, upon learning of a top performer’s crime, would report it to the authorities.”

There is nothing acceptable about these responses.

Wall Street has a very real problem, whether the leaders of the industry want to believe it or not.

It is often said that it is unfair to paint an entire industry with a broad brush, and it is. There are clearly good people out there doing good work. A large majority falls in that category. But the numbers presented in the report reflect an unsettling reality that there may be more than just a few bad apples in the industry, too. It should be considered a red flag when insiders say this: “28 percent of respondents felt that the financial services industry does not put the interests of clients first.”

Perhaps oddly, the problem is most pronounced among the youngest employees in finance, the next generation of leadership on Wall Street.

Remember the question about whether an executive would commit insider trading for $10 million if there were no repercussions? Well, if you parse the numbers by seniority in the industry, respondents with under 10 years of experience were even more likely to break the law: 38 percent said they would commit insider trading for $10 million if they wouldn’t be caught.

That result is particularly striking since I would have expected the next generation of financiers to be the most interested in helping to build a new, anti-Gordon Gekko culture on Wall Street.

Virtually every top M.B.A. program in the country now teaches ethics classes, many of them required. In 2008, a coalition of students started the MBA Oath, a voluntary pledge among students to “create value responsibly and ethically.” So far, more than 6,000 students have signed the pledge.

And yet, the report and other anecdotal evidence suggest that whatever is being done both in the classroom and on the job is not enough. According to a controversial study called “Economics Education and Greed” that was published in 2011 by professors at Harvard and Northwestern, an education in economics surprisingly may be making the problem worse.

“The results show that economics education is consistently associated with positive attitudes towards greed,” the authors wrote. “The uncontested dominance of self-interest maximization as the primary (if not sole) logic of exchange, in business schools and corporate settings alike, may lead people to be more tolerant of what other people see as morally reprehensible.”

The problem is compounded by a trait shared by everyone, no matter their industry. “People predict that they will behave more ethically than they actually do,” according to a 2000 study led by Ann E. Tenbrunsel, a professor at Harvard. “They then believe they behaved ethically when they didn’t. It is no surprise, then, that most individuals erroneously believe they are more ethical than the majority of their peers.”

That may help explain why, in the Labaton Sucharow report, 52 percent said they “believed it was likely that their competitors have engaged in illegal or unethical activity in order to be successful.”

It may also explain why 89 percent of respondents “indicated a willingness to report wrongdoing” yet so few do.

As part of the Dodd-Frank financial overhaul law, the S.E.C. developed a $500 million whistle-blower program that pays 10 to 30 percent of penalties collected to the whistle-blower. The fund still has some $450 million in it, despite recent remarks by Stephen L. Cohen, associate director of the S.E.C.’s enforcement division, that we should expect bigger payouts soon. Mr. Thomas of Labaton Sucharow helped develop the whistle-blower program when he was at the S.E.C., and he now represents whistle-blowers.

“We are seeing a culture of silence,” he said. “There’s an unwillingness to come forward.”

Greed, for far too many, is still good, apparently. There’s still much work to be done before the catchwords become the culture.

Andrew Ross Sorkin is the editor-at-large of DealBook. Twitter: @andrewrsorkin