Lead researcher Dr Di Fan said the research showed high-performing firms became overconfident in their own skills, breaking regulations to maintain their profits or build on them in the belief they could get away with it.
“Outstanding performance can lead to arrogance or overconfidence. Such hubris can lead to unethical or even unlawful behaviour when people think they can get away with actions that others cannot get away with,” he said.
Previous research has suggested that struggling firms and managers were more likely to cut legal corners in a bid to stay afloat. But the ANU study shows that firms perceived to be doing well may seek to build on that performance by breaking the law.
Dr Fan and his fellow researchers found regulators might have to re-think their approach when it came to looking at potential regulatory breaches.
“Regulators have typically focused their efforts on firms in dirty or dangerous industries. But the present research, along with other recent studies, suggests that enforcement can be much more targeted based on the firm’s operational resources and performance,” they found.
“While we would expect most regulators to intuitively conclude that poor performers could take risks at the expense of their workers or the environment, the likelihood of top performers also behaving irresponsibly is probably not their conjecture; our results suggest it should be.”
For these guys, the best way to mitigate their hubris is to appeal to it with financial incentives.
Dr Fan said large fines, up to six times current levels, were one way to deal with the temptation to breach regulations.
He said firms that engaged in illegal behaviour compared the cost of complying with environmental and safety laws against the cost of being caught. The small number of firms that did break the law did so in part because the potential benefits outweighed the potential costs.
Non-government organisations that monitored firms’ behaviour were useful in drawing attention to potential illegal behaviour. Changes to the financial incentives offered within firms was another option.
“For these guys, the best way to mitigate their hubris is to appeal to it with financial incentives, for example by linking their salary to a good corporate social responsibility performance,” he said.
“Top managers need to be cognisant of the fact that irresponsible behaviour could manifest when things are going well and that their top performers, especially in a multi-facility company, may also be the ones most likely to behave irresponsibly.”
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.