The Ashley Madison effect: infidelity and corporate ethics

There exists no culture in which adultery is unknown, no cultural device or code that extinguishes philandering. Helen Fisher

The real reason that we can’t have the Ten Commandments in a courthouse: You cannot post “Thou shalt not steal”, “Thou shalt not commit adultery”, and “Thou shalt not lie” in a building full of lawyers, judges, and politicians. It creates a hostile work environment. Attributed to George Carlin

I can’t worry about people thinking I’m a ghoul, because I’m pretty sure that history will treat me differently. It’s 2010, people: time to redefine morality. Noel Biderman, former CEO of Avid Life Media, the parent company extramarital affair website Ashley Madison

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Life is short. Have an affair.” This was the slogan of Ashley Madison, the world’s largest online Social Networking Community for people who wish to engage in extramarital affairs. The Canadian website was founded in 2002 by Darren Morgenstern and describes itself like this on its website:

Ashley Madison is the most successful website for finding an affair and cheating partners. Have an Affair today on Ashley Madison. Thousands of cheating wives and cheating husbands sign up everyday looking for an affair. We are the most famous website for discreet encounters between married individuals. Married Dating has never been easier. With Our affair guarantee package we guarantee you will find the perfect affair partner. Sign up for Free today.

The name of the site was created from two popular female names – Ashley and Madison. If you believe the numbers, Ashley Madison’s scope is staggering. Their website claims to have 44,450,000 anonymous members as of April 3, 2016. Their service is available in Chinese (simplified and traditional), Czech, Danish, Dutch, English, Filipino, Finnish, French, German, Greek, Hebrew, Hindi, Hungarian, Italian, Japanese, Korean, Norwegian, Polish, Portuguese (Brazilian and European), Russian, Slovenian, Spanish (European, American), Swedish, Turkish, Ukrainian. A more taxing question would be how many of the clients are women? This can be an issue on dating sites in general. Last year an article on Gizmodo suggested that only around 12,000 of the site’s 36 million members were real women. Fake profiles were allegedly deployed by the company in areas where there were few female profiles. Ashley Madison countered that the report was wrong saying that the ratio of male members who paid to communicate with women, versus the number of female members who actively used their account was 1.2 to 1.

To me it is a surprise that the site is still going, given what happened less than a year ago. In July of 2015, a group calling itself “The Impact Team” was able to hack into Ashley Madison’s computer system and download masses of compromising data, including records on its 36 million user accounts. A few names were released by the hackers in July and in late August 2015, the rest of the details of the Ashley Madison accounts were released on BitTorrent. This data dump even included information from customers who had earlier paid a $19 fee to Ashley Madison to have their data deleted.

The Ashley Madison data generated widespread media public attention. Following its release, several websites were set up to search the Ashley Madison data for email addresses, allowing spouses to tell if their husband’s or wife’s email address was associated with an Ashley Madison account Searches for prominent individuals turned up public figures in the Ashley Madison data. I did a cursory search on Google and did not come up with any names. This may be me, as I’m not very good at finding the names of celebrities caught up in these types of scandal.

It wasn’t just the high and mighty who were compromised. The hosts of a morning radio show in Sydney asked listeners to phone in if they wanted their spouse’s details run through the database. When, a woman called saying she was suspicious because her husband had been acting strangely since the news of the leak broke. The hosts typed his details into a website and said they found a match. The woman was not well pleased:

Are you serious? Are you freaking kidding me? These websites are disgusting. “

She then hung up.

But for a number of social scientists this massive dataset was an opportunity to do research. They were trying to understand whether there’s a relationship between personal ethics, as shown by the decision to join a site like Ashley Madison, and behaviour in the office. It is a research goldmine. I have looked at two papers, Do Personal Ethics Influence Corporate Ethics? and Fifty Shades of Corporate Culture, both of which you can find online.

The first paper, Do Personal Ethics Influence Corporate Ethics by John Griffin, Samuel Kruger and Gonzalo Maturana, found that firms with CEOs or CFOs who are Ashley Madison users are more than twice as likely to have a corporate infraction compared to other firms. There was an equally strong correlation with white-collar defendants in SEC litigation. They conclude personal and professional ethics of CEOs and CFOs are closely related, and the individual ethics of these executives have a large impact on corporate conduct. They reject the widely-held view that ethics are predominantly situational. This would seem to be a justification for traditional moral positions; virtues such as honesty and integrity will influence a person’s thoughts and actions across diverse contexts. But it is, I think a little bit more complicated than that.

The second study, Fifty Shades of Corporate Culture by William Grieser, Nishad Kapadia, Qingqiu Li and Andrei Simonov produced a more positive conclusion. They looked at 47,000 Ashley Madison users. These were not CEOs and CFOs, but just workers who had used their corporate email addresses to sign up for the website, which, you would have to say, does not seem to make them the smartest guys in the room.

What is striking about this research is that not only is AM membership a predictor of unethical behaviour, but also of risk-taking, and innovation. They found companies with more Ashley Madison users tended to have higher debt burden, more return volatility, were closer to defaulting on their debt and had higher credit spreads (indicating growing concern about their ability to service their debt). These are all telltale signs of a predilection for risk taking. Some of which paid off big, some of which failed big, which is exactly what you expect to see. Firms with higher AM membership also show more creativity, higher spending on R & D, a larger number of patents, greater patenting efficiency and a more diverse set of patents spanning multiple technologies.

How can we explain this result? Just like in the first study, the researchers found that risk-taking is not situational – risk-taking in one domain was correlated with risk-taking in other domains. It is safe to assume that people having affairs are risk takers. Moreover they generally need to be good liars and research in psychology and behavioural economics finds a robust positive correlation between dishonesty and creativity. They both involve breaking existing rules. The psychology literature suggests that a lower degree of risk aversion is another personality trait correlated with integrity.

One interpretation is that the firms where creativity and innovation are important concentrate on these personality traits when recruiting employees and they do not screen as carefully for high ethical standards. Creative and innovative firms will select creative and risk-taking candidates, but when they do so, they will be getting the whole package, with all the downsides that this entails.

In the end you have to judge people by how they do their jobs, and not what they do outside the office and the boardroom. It is a fascinating trade-off between integrity on one side and risk-taking and innovation on the other. Having said that, “Honey, adultery helps make me a better innovator” will probably not spare you a visit to the divorce court.

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