Psychopathic traits behind the rise and fall of Madoff

A new study examining the actions of Bernie Madoff, the New York banker behind the world’s biggest Ponzi fraud, suggests companies do more to root out “corporate psychopaths” within their organizations to prevent financial ruin.

The study, published in the International Journal of Market Research, looked at Madoff’s behavior throughout his life including during his business dealings, his trial, and his time in prison.

It warns that while people with some psychopathic personality traits tend to get ahead in corporate finance, their recklessness and greed can bring down organizations and even entire economies.

The author of the research is an expert in corporate psychopathy. Around 0.6%-1.2% of the adult population are defined as psychopaths, meaning they possess no conscience, shame, guilt or ability to experience love for or feel empathy towards other people. The term corporate psychopath refers to well-performing psychopaths who work in corporate settings.

Madoff’s Ponzi fraud centered around the asset management branch of his financial firm and it defrauded thousands of investors across the world. The fraud was uncovered in December 2008 and was thought to be worth around $64 billion. He was jailed for 150 years in 2009 and died in 2021 in a prison for inmates with health needs.

Madoff’s actions were examined against two established scales of psychopathy. These include personality traits such as superficial charm and apparent intelligence; lack of sincerity or truthfulness; a tendency to cheat; a lack of remorse; being emotionally shallow; a lack of self-insight; calmness; and apparent rationality.

The research suggests Madoff embodied all of these behavioral traits in addition to many others. He was renowned for his bullying towards his detractors, while carefully crafting an image of rationality and competence to those whose opinion was important to him and his business. His ego reportedly remained intact even when in prison, where he showed no remorse for the victims of his crimes.

What the researcher said: “Highly psychopathic senior businesspeople who were quite plausibly genuine psychopaths are visible in commercial history. This new study aims to understand whether some corporate scandals and bankruptcies feature senior corporate officials who might be workplace psychopaths, and this has demonstrably been the case.

“People have often wondered whether Bernie Madoff was in fact a corporate psychopath, and he certainly scored highly on the two measures of psychopathy utilized within this study.

“The findings suggest that Madoff’s fraud was an outcome of his personality and that similar personalities such as Robert Maxwell and Ken Lay have behaved in similar ways.

“There are likely to be plenty of people in the world of corporate finance with similar psychopathic traits to Bernie Madoff. The job for financial corporations and firms, if they want to give themselves the best chance of avoiding crisis, would appear to be identifying them before they ascend to power.”

So, what? This is an interesting study, especially in light of all the prior research, books and articles written on the subject of “psychopaths in suits.”

Psychopathy is, like autism, a spectrum disorder which means that it can manifest in many different ways, some of them, in the right context, quite benign and even useful. In fact, probably all of us are somewhere on the spectrum and those that we label psychopaths or sociopaths are those on the severe or extreme end of the spectrum. So, what this study is really talking about are people on or near the unacceptable end of a spectrum which is very long.

In 2011 a paper set out to show that the 2008 financial crisis was largely due to the actions of corporate psychopaths. Despite this, and despite the Enron and Madoff episodes, the law has been slow to catch up with the errant behavior of corporate actors with an extreme form of this personality disorder.

Many of the research papers since 2011 on the subject refer to 2010 research which showed that although psychopaths comprise less than 1% of the population, they are over-represented in leadership roles in businesses. Below the executive suite, about 5% of corporate or firm leaders, managers and supervisors are probable psychopaths and at the top, 15% of CEOs of major organizations fit the profile of corporate psychopath.

More recent studies (reported in TR) in genetics have shown that all who aspire to be leaders, all male pure bullies (as opposed to bully-victims), and all psychopaths have the same cluster of genes. The genetics which predispose an individual to be a leader are also associated with the personality disorder and the tendency to be a bully.

This does not mean that all leaders are either psychopaths or bullies, far from it. Only 15% are. Some leaders can be “good psychopaths” and be of benefit to their firms. The question of why the same genetics predispose some individuals to be leaders who are not errant, and others that are, is still a mystery.