Executive Summary
What role does culture play in corporate misconduct, and why do these problematic cultures persist? Thinking of a company’s culture as a form of investment subject to market failures can help explain why companies sometimes tolerate misconduct, and why they can’t always fix it on their own. Firms may operate with sub-optimal levels of “cultural capital” due to different types of market failures. Three well-known phenomena—externalities, principal-agent problems, and adverse selection—may help explain why misconduct risk persists.
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