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Dr. Carol Gill, Associate Professor of Organizational Behavior, Melbourne Business School,

University of Melbourne, 200 Leicester Street, Carlton, Victoria 3053, Australia. Email;

[email protected].

The role of discursive leadership in follower normalization of deviant behavior in two

Australian bank scandals

Developmental Paper

Abstract

Whilst there has been a tendency to blame individuals there is a growing recognition that

organization context plays an important role in shaping individual behavior. More recently,

public documents based on post hoc investigations have blamed amorphous ‘culture’ for this

deviance. To date, the mechanisms by which such cultures emerge and are sustained have

received minimal attention. In particular, the role of leader discourse in follower

internalization and normalization of deviant behavior is a promising line of inquiry. Leaders

are able to help followers make sense of paradoxical incidents through their discursive

responses. Such discursive processes normalize paradoxical incidents and categorize in- and

out-groups. In this way, leaders defend against attempts by out-groups to monitor and

sanction deviant behavior. I conclude that discursive leadership may create and sustain a

counter culture that is impenetrable by outsiders.

Introduction

The finance industry has been plagued by deviant behavior contrary to the values

publicly espoused by regulatory bodies, organizational boards, and senior leadership (Ciro,

2016). The recent interim report of the Australian Royal Commission into Banking (2018)

shows that banks and other financial institutions have been motivated by greed, avarice, and

Discursive leadership in follower normalization of deviant behavior in two Australian bank

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profit, and ignore “basic standards of honesty” (p. 74). Further, it proposed that “conduct

cannot be explained as ‘a few bad apples’” (p. 87) that “ignores the root causes of conduct,

which often lie with the systems, processes and culture cultivated by an entity” (p. 87). Public

documents based on post hoc investigations have blamed an ‘amorphous’ culture for this

deviance. This paper aims to provide a more substantive explanation of how organizations

may influence deviant behavior.

Similarly, the normalisation of deviant behavior literature has acknowledged the need

to move beyond a focus on an individual actor who rationally weighs the cost and benefits of

their actions, to examine the social forces that normalise deviance (MacLean, 2008). Thus, a

focus on the multi-level (individual, group, and organizational) determinants of deviant

behavior is a sensible line of inquiry. Rather than scapegoating a few deviant individuals it is

acknowledged that the social context is likely to shape and sustain individual behavior

(Spicer, 2009).

It has been proposed that context is likely to influence the way deviant behavior is

perceived through ‘framing’ events (Courtois, C., & Gendron, 2017; MacLean, 2008).

Consistent with this line of inquiry, several literatures have demonstrated that individuals

don’t passively perceive reality but actively filter, create, and apply meaning (e.g., decision

making, Pease, Bieser, & Tubbs, 1993; groupthink, Whyte, 1979). Thus, there may be

circumstances in which deviant behavior may be seen as acceptable or even desirable

particularly, when individuals’ immediate interests may lie in surviving within existing

arrangements rather than challenging the broader system (Earle, Spicer, & Peter, 2010).

Whilst there has been increasing attention on the socialization of deviance, the role of

leadership in this process has not been emphasised. Recently, the Human Resource


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Management (HRM) strategy literature has recognised that leaders play a critical role in

interpreting organization intentions for employees. HRM strategists have been criticised for

failing to distinguish between intended and implemented practices with the latter, logically,

having more impact on employee perceptions and behavior (Khilji & Wang, 2006). To deliver

a clear line of sight from strategy and values at the top of the organization to behavior

throughout the organization, employees must be given clear messages on what an

organization requires (Bowen & Ostroff, 2004). These messages are delivered by immediate

line managers who are instrumental in translating intended practices into implemented

practices that impact on employee behavior. This literature acknowledges that the employees

are not passive recipients of practices but active perceivers (Nishii, Khattab, Shemla, &

Paluck, forthcoming).

In light of this, I explore the role of leaders in the normalization deviance in

organizations. The purpose of this paper is to examine how discursive leadership may create

and sustain an impenetrable counter-culture that is facilitated by conflicting organizational

values. To do this I draw on sensemaking theory (Weick, 1995) to build new theory on how

sub-cultures of deviant behaviour emerge and are maintained. Sensemaking theory indicates

that discursive leadership facilitates sensebreaking and sensemaking when paradoxical

incidents provide an opportunity to do so. It is likely that these paradoxical incidents manifest

when organizations communicate competing values.

The normalization of deviance has been established in a number of contexts (e.g.,

Challenger Space Shuttle disaster, Vaughan, 1999; wage arrears in Russia, Earle, Spicer, &

Peter, 2010; and the construction industry in Quebec, Courtois & Gendron, 2017). It is

anticipated that whilst theory in this paper will draw on finance industry cases it will also be


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applicable across contexts. In this paper I draw on incidents reported in public documents

based on the National Australia Bank [NAB] (APRA report into irregular currency options

trading, 2004; article authored by Dellaportas, Cooper, & Braica, 2007; Price Waterhouse

Coopers investigation into foreign exchange losses at the National Australia Bank, 2004) and

Australia New Zealand Bank [ANZ] (court accounts & associated media reports) to inform

and illustrate theory on how leaders influence employee sensemaking of everyday

paradoxical incidents.

Theoretical Model

The role of discourse in creating culture has been alluded to in the finance industry for

the past 20 years -- for illustration consider the ‘boom-boom room suit”, named after a

basement party room, at Smith Barney’s branch office in Garden City NY which was at the

centre of systemic sexual harassment (Antilla, 2016). Further, links have been made between

discourse and deviance in the finance sector (i.e., Hargie et al., 2010; Tourish & Hargie,

2012; Whittle & Mueller, 2016).

It is already established that leaders play an important role in shaping culture (Schein,

2004). However, to date, the mechanisms by which such cultures emerge and are sustained

have focussed on what leaders pay attention to and reward. Less attention has been given to

leader discourse and its role in follower internalization of the leader’s messages. In particular,

it is not only the way leaders focus on, and respond to, critical incidents but how leaders

interpret these incidents for followers through language, metaphors, and humor. Whilst it has

been proposed that leaders use discourse to facilitate the sensemaking of others (Rouleau &

Balogun, 2011), theorization is underdeveloped (Brown, Colville, & Pye, 2015) and the role

of macro-level discourses in sensemaking requires attention (Maitlis & Christianson, 2014).


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In particular, the mechanisms by which leaders influence followers to negate or oppose the

dominant organization culture remain unexplored. Such discursive processes normalize

paradoxical incidents and categorize in- and out-groups. In this way leaders can defend

against attempts by out-groups to monitor and sanction deviant behavior that is inconsistent

with broader organizational and societal values. Thus, examining how organizations in the

banking industry initiate and tolerate deviant behavior is of significant theoretical and

practical interest.

Figure 1 presents the proposed theoretical process by which leaders influence

follower sensemaking of paradoxical events and, as a consequence, establish a sub- or

counter-culture of deviant behavior. In the following sections of this paper I will develop

theory for each of the relationships demonstrated in this figure.

Insert Figure 1 about here

Competing discourses and paradoxical incidents

NAB and ANZ bank cases indicate competing discourses: one of ethical behavior

which is demanded of banks by multiple stakeholders and another of short-term profits

demanded by shareholders, often at the expense of vulnerable employees and customers. In

this section I demonstrate that there was organizational level tension between espoused and

enacted values at both banks.

NAB investigations indicate problems with the bank’s performance management

system. The “profit is king expression” was frequently heard in interviews with banking staff

-- there was a dedication to short-term revenues at the expense of other things that were


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overlooked. Bank senior management and other parts of the organization did not want to

upset anyone on the lucrative trading floor and risk the income stream they generated.

In particular, no disciplinary action was taken when deviant behavior was suspected

or observed. Risk management, human resource management, and senior management

maintained a ‘leave it alone attitude’ evidenced by signing off on every day occurring limit

breaches. Leaders were perceived as ‘heroes of the moment’ and the trading desk was seen as

a growth area (Dellaportas et. al., 2007).

Court documents indicated that ANZ's global markets division generated income of

$1.2 billion in 2015. As head of balance sheet trading at ANZ, dismissed trader, Alexiou was

paid a $5 million bonus in 2014, in addition to a $465,000 base salary, just seven days after

being stood down for the alleged manipulation of the bank bill swap rate. He received

approximately $11.5 million in total bonuses over three years. Further, he accumulated

$37,500 in personal expenses on a bank credit card.

According to court documents, Alexiou was tested on the ANZ bank’s code in

September 2011, shortly after he started work at ANZ. Whilst he received a score of 50/100,

he was not required to undertake any additional training. It was claimed that this test

consolidated the opinion that the ANZ Global Markets group condoned behavior that was

inconsistent with the bank’s code. Further, it was alleged that senior human resources [HR]

staff within the bank expressed their frustration with the global markets’ culture. However,

HRM staff attended a strip club ‘induction’ for Alexiou. At both NAB and ANZ there was

tension between the code of ethics and the ‘profit is king’ culture. It seems that deviant


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behavior was rewarded and incentivised in these banks and senior leadership publicly

celebrated extravagance (see table 1 in appendix 1).

The banks competing discourses sent mixed messages (Argyris, 1986) to employees

based on a gap between espoused values, e.g., we have trading limits and a code of conduct,

and enacted values, e.g., you can ignore our trading limits and code of conduct and focus on

the ‘profit is king’ value. These competing discourses produced paradoxical incidents at the

operational group level that confused employees requiring them to work within the

requirements of both discourses. At times employees were aware of the clash in values but

appeared reluctant to speak publicly about their concerns. This collusion of public silence,

particularly by those who could be considered the custodians of organizational values i.e.,

HRM would spread further confusion throughout the organization requiring employees to

interpret organizational values at the group level of analysis. This will be explored in the next

sections.

Prop 1. The bank’s competing values produced competing organizational discourses

Prop 2. Competing organizational discourses facilitate paradoxical incidents

throughout the organization

Paradoxical incidents and leader sensegiving

Critical incidents generate discrepancies between expectations and reality and initiate

follower sensemaking, thus providing an opportunity for leader sensegiving. Such incidents

interrupt employees’ flow and disrupt their understanding of the world, thus initiating

uncertainty about how to act (Meyer, 1982). Sensemaking effort is required when the current

environment is different from what is expected, and individuals must engage in sensemaking


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to resume and continue action by asking what this event means and what they should do.

When organizational rhetoric or societal norms clash with group level values and behavior

employees may become confused and uncertain on how to respond. The sensemaking process

is most prominent when events are novel, ambiguous, confusing, or violate expectations. The

bank incidents related above provide opportunities for sensebreaking and sensemaking.

Prop 3. Paradoxical incidents result in follower confusion

Prop 4. Followers’ confusion requires followers to make sense of paradoxical

incidents

Organizational sensemaking processes have been attributed to both individual

cognitive processes (Klein, Moon, & Hoffman, 2006; Louis, 1980; Starbuck & Milliken,

1988) and interpersonal social processes (Weick, 1969). In both mechanisms discursive

processes may play a role (Maitlis, 2005; Weick, 1995; Weick et al., 2005). Paradoxical

incidents produce cognitive dissonance (Festinger, 1962) where people reconcile their

expectations with their experienced reality (Maitlis & Christianson, 2014). People use

language (i.e., narrative and metaphor) to share perceptions and make sense of ambiguous or

confusing incidents and in doing so define or create meaning (Abolafia, 2010). The role of

language as a building block of sensemaking has been indicated by prior researchers (e.g.,

Boyce, 1995; Hill & Levenhagen, 1995) and has links to organizational outcomes, such as

culture (e.g., Drazin, Glynn, & Kazanjian, 1999).

Leaders may create paradoxical incidents and/or help followers to make sense of

paradoxical incidents that emerge. It is likely that they do this through social learning

(Bandura, 1963) as the leader role models to followers the way they should think, feel, and


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behave in response to social phenomenon. In addition to drawing attention to social

phenomenon leaders may socially construct reality through providing a frame through which

followers can view and interpret phenomenon (Courtois & Gendron, 2017; MacLean, 2008).

Such discourse may draw attention to, or obfuscate, phenomenon and thus may challenge the

dominant narrative as occurred with NAB and ANZ where aberrant behavior was normalised

and celebrated. In this way actors may attempt “to influence the sensemaking and meaning

construction of others toward a preferred redefinition of organizational reality” (Gioia &

Chittipeddi, 1991, p. 442). It has been proposed that discourse can organize the everyday

conduct of actors or shape the normative climate so that socially constructed reality seems

inevitable and natural (Ball and Wilson, 2000). This discourse may be used to achieve

political ends (Fleming & Spicer, 2014) where the interests of a superordinate minority are

perceived as in the best interest of all organizational members.

Sensebreaking is a prelude to sensegiving (Pratt, 2000). Sensebreaking can motivate

people to reconsider the sense that they have already made, question their underlying

assumptions, and re-examine their courses of action (Lawrence & Maitlis, 2014). Discourse

can promote specific thinking and action, hide particular ideas (Vaara & Monin, 2010), and

marginalize other voices (Monin, Noorderhaven, Vaara, & Kroon, 2013).

Not only do leaders have position power to influence followers but they also have

personal power (Yukl & Falbe, 1991). In particular, charismatic leaders are renowned for

their rhetorical skills, powers of persuasion, and sense of drama (Harvey, 2001). Fleming &

Spicer (2014) found that leaders in the finance industry had more power because they had

“control over resources that were rare and central to the organization’s functioning” and were

able to manipulate organizational agendas through the proficient use of cultural resources i.e.,


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stories, narratives, and rituals. In this way leaders have power to shape the normative climate

of the organization that makes socially constructed reality “seem inevitable and natural” (p.

18) and “to question and challenge the power of the focal organization” (p. 13). For example,

at the ANZ bank one incident involved a white substance (possibly cocaine) found in a

bathroom next to an office birthday party. The leader joked the substance should be sprinkled

on the birthday cake in the adjacent room.

Employees may be further confused by a clash between their own values, perhaps

drawn from societal norms, and the deviant behavior that is being promoted. To reconcile this

conflict, bank leaders were able to demonstrate that normal rules did not apply in this specific

context and that the group was not subject to the rules of the rest of the organization and even

broader society. Various incidents facilitated the establishment of group norms that facilitated

deviant behavior (see tables 1 & 2 in the appendix). Leader discourse was able to establish

new norms that supported the notion that deviance was acceptable because normal rules did

not apply to their privileged sub group. Based on these arguments and illustrations I propose

the following.

Prop 5. Leaders’ behavior and discourse facilitate followers sensemaking of

paradoxical incidents

Distributed sensemaking and deviant subculture

The social processes through which sensemaking is accomplished have also been

explored (e.g., Maitlis, 2005). Distributed sensemaking is a social process that occurs

between people, as meaning is negotiated, contested, and mutually co-constructed (Weick,

1995). Maitlis (2005, p. 21) describes organizational sensemaking as “a fundamentally social


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process” in which “organization members interpret their environment in and through

interactions with each other, constructing accounts that allow them to comprehend the world

and act collectively”. Thus, sensemaking may also occur collectively as multiple actors

construct and transmit meaning (Maitlis & Christianson, 2014).

The ANZ and NAB cases demonstrate how entire work groups engaged in

sensemaking incidents. For example, NAB traders were aware of their power over audit

functions and developed defensive routines (Argyris, 1986) to preserve this power. For

illustration, a mockery wall was used to diminish out-groups. This involved a ladder marked

with a ‘jub’ ranking (a word used to describe outsiders they thought stupid). Names were

moved up and down this ladder and derogatory remarks were placed next to them. This

ladder demonstrated power over outsiders particularly when on discovery no disciplinary

action was taken. Traders were just asked to remove the ladder. It is likely that in- and out-

group categorization (Hogg & Terry, 2000) may have facilitated group cohesiveness and

subsequent preparedness to follow deviant group norms. Based on this I present the

propositions below.

Prop 6. Followers distributed sensemaking facilitates a sub-culture

Prop 7. Subcultures generate paradoxical incidents as sub-culture values manifest in

the behavior and discourse of the group.

Discussion

This paper provides a multilevel model of how deviance may be normalised in

organizations. At the organizational level mixed messages are sent when there is a

discrepancy between espoused and enacted values that create paradoxical incidents that


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precipitate follower confusion. Such circumstances do not provide a clear line of sight for

employees who must navigate the mixed messages that are sent and the multiple paradoxical

incidents that ensue. Consequently, alignment between organizational values and individual

behavior is less likely. In this way organizational level behavior facilitates deviant behavior at

group and individual levels. This indicates that there is an organization system that supports

the normalization of deviant behavior.

There is extant theory that supports the impact of group norms and leadership on

individual behavior (e.g., Hogg & Terry, 2000). However, the role leaders play in helping

followers make sense of paradoxical incidents through their discourse is less obvious and the

application of this to deviant behavior at the individual and group levels has not been well

considered. This mode of influence requires several ingredients, not least of which is the

paradoxical incident, which allows for sensebreaking and making.

Employees may be further confused by the clash of values resulting from their own

values drawn from societal norms and the deviant behavior that is being required of them.

However, in the case of these banks group norms around being special indicate that normal

rules don’t apply, and the group may legitimately play by the rules of a different game.

Leaders, particularly those who are charismatic, and work group norms give sense to

these incidents, helping employees to interpret what is initially confusing and make peace

with the cognitive dissonance that results from these conflicts. Eventually, new employees

are acculturated and adhering to group norms becomes, especially when these norms are

rewarded. However, these cultures may only be sustained if there is no threat of punishment,

so power is important to preventing sanction and maintaining rewards associated with the


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deviant behavior. Defensive routines aligned with sub group norms (i.e., jub wall) prevented

challenge from those who might be able to prevent the deviant behavior i.e., HRM.

There are many practical implications that arise from this theorizing and I consider

multiple levels at which interventions may be applied. Value reflexivity at all levels of

analysis is important. Firstly, there are multiple conflicting societal pressures on

organizations. Organizations must deliver short-term outcomes and CEO’s are rewarded for

doing so. The ‘profit is king’ mantra manifesting at the organizational level reflects these

pressures. Organizations must be vigilant of the mixed messages that they send throughout

the organization and the gap between espoused and enacted values. It is these mixed

messages that manifest in group level paradoxical incidents that provide fertile ground for

sensemaking delivered by leaders. At the group level a torch needs to shine on the hereto

hidden role that leaders may play in shaping deviant sub cultures or group norms. These

group level pressures, particularly in cohesive groups, are likely to influence individual

attitudes, behaviors, and outcomes. The important role that leader discourse plays in

interpreting organizations policy and practices has largely been ignored in multiple

literatures.

Future research may test the propositions in this paper as well as explore further

questions. For instance, it is likely that some leaders are more successful than others at

influencing the sensemaking of followers based on their power and status.

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https://www.afr.com/business/banking-and-finance/inside-anzs-toxic-culture-the-

highoctane-world-of-dealing-rooms-20160114-gm5mk6 [Dec, 2018]

Yukl, G., & Falbe, C. M. (1991). Importance of different power sources in downward and

lateral relations. Journal of Applied Psychology, 76(3), 416.

Appendix

Insert tables 1 & 2 about here

https://www.afr.com/business/banking-and-finance/inside-anzs-toxic-culture-the-highoctane-world-of-dealing-rooms-20160114-gm5mk6

https://www.afr.com/business/banking-and-finance/inside-anzs-toxic-culture-the-highoctane-world-of-dealing-rooms-20160114-gm5mk6


scandals

20

Figures and Tables

Figure 1. Process by which leaders facilitate a sub culture

Table 1 Possible Interpretation of Paradoxical Incidents

Case Critical Paradoxical

Incident

Interpretation Group Norm

ANZ Attendance at strip clubs

was common

Induction in Strip Club with

HRM attending.

Deviant and high-risk

behavior is sanctioned

1. Normal rules don’t apply to this

group

2. It is ok to break organizational

rules

3. We are invincible

ANZ On day following

suspension of traders

employees spent 1000s of

dollars in triple vodkas




group


rules


ANZ Alexiou being awarded a $5

million bonus seven days

after the alleged

manipulation of the bank

bill swap rate.




group


rules


ANZ Large bonuses to employees

in this group despite

counter cultural behavior



1. Our current behaviour is

valuable and rewarded

2. We are aligned with

organizational goals

3. Our contribution gives us power

and allows us to break the rules

NAB Trader accumulated

$37,500 in personal

expenses on a bank credit

card.




group


rules


scandals

21

Table 2 Leader Discourse and Group Norms

Case Critical

Paradoxical

Incident

Verbal

Content

Verbal Process Interpretation Group Norm

NAB Challenge by

risk managers

If the bank

had people

who knew

how to

multiply 6x2

they would

be marched

out the door

Humor

Categorization

Defensive

routine

Deviant and

high-risk

behavior is safe

Leaders are all

powerful

1. Normal rules

don’t apply to

this group

2. It is ok to break

organizational

rules

3. Local leaders

are most

powerful actors

who can

manage the

flow of

information

NAB Mockery wall

and ‘jub’

ranking. Names

moved up and

down. No

disciplinary

action – just

asked to remove

it.

Derogatory

remarks next

to rankings

Humor

Categorization

Defensive

routine

Deviant and

high-risk

behavior is

sanctioned

There is no

disciplinary

action for

deviant

behavior

1. Normal rules

don’t apply to

this group


organizational

rules

3. We are

invincible

ANZ A white

substance

(possibly

cocaine) found

in a bathroom at

work adjacent to

an office

birthday party.

The leader

made a joke

the

substance

should be

sprinkled on

the birthday

cake.

Humor

Defensive

routine

Deviant and

high-risk

behavior is safe

1. Counter

cultural and

high-risk

behavior is safe

NAB Limit breaches signed off

every day




group


rules

ANZ Chief Risk Officer hosted a

4-day wedding party on

Richard Branson’s 40,000

dollar a night island

Leadership models

extravagance and

displays of financial

success

1. It is ok to extravagant

2. Elite employees receive

resources and use these in a

public way

ANZ CEO penchant for race cars

and fine wine

Leadership models

extravagance and

displays of financial

success

1. It is ok to extravagant

2. Elite employees receive

resources and use these in a

public way


scandals

22

ANZ Derogatory

comments about

women, were

commonplace

on the trading

floor. 400 uses

of obscene

language in

Bloomberg

chats over 3

years.

You should

have taken

her to the

bathroom

and sorted it

out" and "I

was your

best root?"

Categorization

Obscene and

inappropriate

language

Deviant and

high-risk

behavior is safe

1. Normal rules

don’t apply to

this group


organizational

and societal

rules

ANZ Defensive

Routine

Alexiou said

he was told

by another

senior trader

that

"someone

that had to

be made out

to be a big

white

dildo" in

February

2014 after he

was stood

down

Obscene and

inappropriate

language

defensive

routine

Being charged

for deviant and

high-risk

behavior is an

anomaly. Such

behavior is

normally safe.

1. Counter

cultural and

high-risk

behavior is safe

ANZ Senior managers

use of

profanities

which was

particularly

notable during a

presentation at a

conference.

Profanity Categorization

Obscene and

inappropriate

language

Deviant and

high-risk

behavior is safe

1. Normal rules

don’t apply to

this group


organizational

rules

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