Journal of Business Ethics

, Volume 159, Issue 3, pp 761–775 | Cite as

Normalization of Questionable Behavior: An Ethical Root of the Financial Crisis in Iceland

  • Øyvind KvalnesEmail author
  • Salvör Nordal
Original Paper


In this paper, we explore the 2008 financial crisis in Iceland through the lens of Donaldson’s concept of normalization of questionable behavior. We study the report published by the Special Investigation Commission, an investigation initiated by the Icelandic Parliament near the end of 2008. The report provides a detailed and systematic account of the processes leading up to the crisis. Our aim is to determine the extent to which the behaviors of professionals in the Icelandic financial sector can be explained as a gradual fading of moral concerns to the point that they perceived the sale of high-risk products to unassuming customers for their own short-term benefit to be morally unproblematic. In doing so, we consider both character and circumstance explanations of moral misbehavior. We expand on Donaldson’s initial description of normalization of questionable behavior by applying the concept of moral neutralization, which is defined by criminologists Sykes and Matza as the process of convincing oneself that an option that initially conflicted with one’s own moral beliefs is actually morally acceptable. We find indications that individuals in the Icelandic financial sector did engage in moral neutralization in their attempts to frame their own actions in an acceptable light. In our study, we identify one way of neutralizing away moral dissonance not captured in the original theoretical framework. Icelandic bankers justified their behavior by claiming that they did not break any relevant rules or regulations when they engaged in what were later labeled questionable activities. Our name for this kind of justification is claim of having breached no rule.


Moral neutralization Financial crisis Business ethics 


Compliance with Ethical Standards

Conflict of interest

The authors declare that they have no competing interests.

Ethical Approval

This article does not contain any studies with human participants or animals performed by any of the authors.


  1. Aquino, K., & Becker, T. E. (2005). Lying in negotiations: How individual and situational factors influence the use of neutralization strategies. Journal of Organizational Behavior, 26(6), 661–679.CrossRefGoogle Scholar
  2. Árnason, V. (2010). Moral analysis of an economic collapse: An exercise in practical ethics. Nordic Journal of Applied Ethics, 4(1), 101–123.Google Scholar
  3. Árnason, V. (2016). Democratic practices, governance and the financial crash. In V. Ingimundarson, P. Urfalino, & I. Erlingsdóttir (Eds.), Iceland’s financial crisis. The politics of blame, protest and reconstruction (pp. 121–139). London: Routledge.Google Scholar
  4. Árnason, V., Nordal, S., & Ástgeirsdóttir, K. (2010). Siðferði og starfshættir í tengslum við fall íslensku bankanna 2008 [Morality and work practice in relation to the fall of the Icelandic banks 2008]. Report of the special investigation commission, Vol. 8. Reykjavik: Icelandic parliament.Google Scholar
  5. Ashforth, B. E., & Anand, V. (2003). The normalization of corruption in organizations. In R. M. Kramer & B. M. Staw (Eds.), Research in organizational behavior (Vol. 25, pp. 1–52). Boston: Elsevier.Google Scholar
  6. Baden, D. (2014). Look on the bright side: A comparison of positive and negative role models in business ethics education. Academy of Management Learning & Education, 13(2), 154–170.CrossRefGoogle Scholar
  7. Bandura, A. (1986). Social foundations of thought and action: A social cognitive theory. Englewood Cliffs: Prentice Hall.Google Scholar
  8. Bandura, A., Barbaranelli, C., Caprara, G. V., & Pastorelli, C. (1996). Mechanisms of moral disengagement in the exercise of moral agency. Journal of Personality and Social Psychology, 71(2), 364–374.CrossRefGoogle Scholar
  9. Barriga, A. Q., & Gibbs, J. C. (1996). Measuring cognitive distortion in antisocial youth: Development and preliminary validation of the “How I think” questionnaire. Aggressive Behavior, 22(5), 333–343.CrossRefGoogle Scholar
  10. Bersoff, D. M. (1999). Why good people sometimes do bad things: Motivated reasoning and unethical behavior. Personality and Social Psychology Bulletin, 25(1), 28–39.CrossRefGoogle Scholar
  11. Bhal, K., & Leekha, N. (2008). Exploring cognitive moral logics using grounded theory: The case of software piracy. Journal of Business Ethics, 81(3), 635–646.CrossRefGoogle Scholar
  12. Bian, X., Wang, K., Smith, A., & Yannopoulou, N. (2016). New insights into unethical counterfeit consumption. Journal of Business Research, 69(10), 4249–4258.CrossRefGoogle Scholar
  13. Bird, F. B. (1996). The muted conscience: Moral silence and the practice of ethics in business. Westport: Quorum Books.Google Scholar
  14. Bird, F. B., & Waters, J. A. (1989). The moral muteness of managers. California Management Review, 32(1), 73–88.CrossRefGoogle Scholar
  15. Borg, E., & Hooker, B. (2017). Epistemic virtues versus ethical values in the financial services sector. Journal of Business Ethics. Scholar
  16. Brehm, J., & Cohen, A. (1962). Explorations in cognitive dissonance. New York: Wiley.CrossRefGoogle Scholar
  17. Brinkmann, J. (2005). Understanding insurance customer dishonesty: Outline of a situational approach. Journal of Business Ethics, 61(2), 183–197.CrossRefGoogle Scholar
  18. Chatzidakis, A., Hibbert, S., Mitussis, D., & Smith, A. (2004). Virtue in consumption? Journal of Marketing Management, 20(5/6), 526–543.CrossRefGoogle Scholar
  19. Cohen, M. A. (2012). Empathy in business ethics education. Journal of Business Ethics Education, 9, 359–375.CrossRefGoogle Scholar
  20. Darley, J. M., & Batson, C. D. (1973). From Jerusalem to Jericho”: A study of situational and dispositional variables in helping behavior. Journal of Personality and Social Psychology, 27(1), 100.CrossRefGoogle Scholar
  21. De Bock, T., & Van Kenhove, P. (2011). Double standards: The role of techniques of neutralization. Journal of Business Ethics, 99(2), 283–296.CrossRefGoogle Scholar
  22. De Bruin, B. (2015). Ethics and the global financial crisis: Why incompetence is worse than greed. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  23. Donaldson, T. (2012). Three ethical roots of the economic crisis. Journal of Business Ethics, 106(1), 5–8.CrossRefGoogle Scholar
  24. Doris, J. M. (2002). Lack of character: Personality and moral behavior. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  25. Festinger, L., & Carlsmith, J. M. (1957). Cognitive consequences of forced compliance. Journal of Abnormal Social Psychology, 58, 203–211.CrossRefGoogle Scholar
  26. Festinger, L., Riecken, H. W., & Schachter, S. (1956). When prophecy fails: A social and psychological study of a modern group that predicted the destruction of the world. Minneapolis: University of Minnesota Press.CrossRefGoogle Scholar
  27. Gentile, M. C. (2009). Giving voice to values: How to speak your mind when you know what’s right. New Haven: Yale University Press.Google Scholar
  28. Gentile, M. C. (2012). Values-driven leadership development: Where we have been and where we could go. Organization Management Journal, 9(3), 188–196.CrossRefGoogle Scholar
  29. Giacolone, R. A., & Promislo, M. D. (2013). Broken when entering: The stigmatization of goodness and business ethics education. Academy of Management Learning & Education, 12(1), 86–101.CrossRefGoogle Scholar
  30. Heath, J. (2007). An adversarial approach to business ethics. Journal of Business Ethics, 72(4), 359–374.CrossRefGoogle Scholar
  31. Heath, J. (2008). Business ethics and moral motivation: A criminological perspective. Journal of Business Ethics, 83(4), 595–614.CrossRefGoogle Scholar
  32. Hollinger, R. C., & Clark, J. P. (1983). Theft by employees. Lexington: Lexington Books.Google Scholar
  33. Hreinsson, P., Gunnarsson, T., & Benediktsdóttir, S. (Eds.). (2010). The Report of the Special Investigation Commission (Vol. 1–9). Reykjavik: Icelandic Parliament.Google Scholar
  34. Jóhannesson, G. T. (2009). Hrunið. Reykjavík: Forlagið.Google Scholar
  35. Jones, T. M. (1991). Ethical decision making by individuals in organizations: An issue-contingent model. Academy of Management Review, 16, 366–395.CrossRefGoogle Scholar
  36. Kelman, H. C., & Baron, R. M. (1974). Moral and hedonic dissonance: A functional analysis of the relationship between discrepant action and attitude change. In S. Himmelfarb & A. H. Eagly (Eds.), Readings in attitude change (pp. 58–575). New York: Wiley.Google Scholar
  37. Kish-Gephart, J. J., Harrison, D. A., & Treviño, L. K. (2010). Bad apples, bad cases, and bad barrels: Meta-analytic evidence about sources of unethical decisions at work. Journal of Applied Psychology, 95(1), 1–31.CrossRefGoogle Scholar
  38. Koslowski, P. (2011). The ethics of banking: Conclusions from the financial crisis (Vol. 30). New York: Springer.CrossRefGoogle Scholar
  39. Kvalnes, O. (2014). Leadership and moral neutralization. Leadership, 10(4), 456–470.CrossRefGoogle Scholar
  40. Kvalnes, O. (2015). Moral reasoning at work: Rethinking ethics in organizations. London: Palgrave MacMillan.CrossRefGoogle Scholar
  41. McLean, B., & Elkind, P. (2003). The smartest guys in the room: The amazing rise and scandalous fall of enron. London: Penguin Books.Google Scholar
  42. Milgram, S. (1963). Behavioral study of obedience. Journal of Abnormal and Social Psychology, 67(4), 371–378.CrossRefGoogle Scholar
  43. Milgram, S. (1974). Obedience to authority: An experimental view. New York: Harper Collins.Google Scholar
  44. Ribeaud, D., & Eisner, M. (2010). Are moral disengagement, neutralization techniques, and self-serving cognitive distortions the same? Developing a unified scale of moral neutralization of aggression. International Journal of Conflict and Violence, 4(2), 298–315.Google Scholar
  45. Sama, L. M., & Shoaf, V. (2005). Reconciling rules and principles: An ethics-based approach to corporate governance. Journal of Business Ethics, 58(1–3), 177–185.CrossRefGoogle Scholar
  46. Sigurjonsson, T. O., & Mixa, M. W. (2011). Learning from the “worst behaved”: Iceland’s financial crisis and the Nordic comparison. Thunderbird International Business Review, 53(2), 209–223.CrossRefGoogle Scholar
  47. Siponen, M., Vance, A., & Willison, R. (2012). New insights into the problem of software piracy: The effects of neutralization, shame, and moral beliefs. Information & Management, 49(7/8), 334–341.CrossRefGoogle Scholar
  48. Spalding, A., & Oddo, A. (2011). It’s time for a principles-based accounting ethics. Journal of Business Ethics, 99(suppl 1), 49–59.CrossRefGoogle Scholar
  49. Strutton, D., Pelton, L. E., & Ferrell, O. C. (1997). Ethical behaviour in retail settings: Is there a generation gap? Journal of Business Ethics, 16(1), 87–105.CrossRefGoogle Scholar
  50. Strutton, D., Vitell, S. J., & Pelton, L. E. (1994). How consumers may justify inappropriate behavior in market settings: An application on the techniques of neutralization. Journal of Business Research, 30(3), 253–260.CrossRefGoogle Scholar
  51. Sykes, G. M., & Matza, D. (1957). Techniques of neutralization: A theory of delinquency. American Sociological Review, 22(6), 664–670.CrossRefGoogle Scholar
  52. Tenbrunsel, A. E., & Messick, D. M. (2004). Ethical fading: The role of self-deception in unethical behavior. Social Justice Research, 17(2), 223–236.CrossRefGoogle Scholar
  53. Tett, G. (2009). Fool’s gold: How unrestrained greed corrupted a dream, shattered global markets and unleashed a catastrophe. London: Little, Brown.Google Scholar
  54. Thurman, Q. C., John, C. St., & Riggs, L. (1984). Neutralization and tax evasion: How effective would a moral appeal be in improving compliance to tax laws? Law & Policy, 6(3), 309–327.CrossRefGoogle Scholar
  55. Umphress, E. E., & Bingham, J. B. (2011). When employees do bad things for good reasons: Examining unethical pro-organizational behaviors. Organization Science, 22(3), 621–640.CrossRefGoogle Scholar
  56. Vaiman, V., Sigurjonsson, T. O., & Davidsson, P. A. (2011). Weak business culture as an antecedent of economic crisis: The case of Iceland. Journal of Business Ethics, 98(2), 259–272.CrossRefGoogle Scholar
  57. van der Linden, B. (2013). Principles as “rules of thumb”: A particularist approach to codes of ethics and an analysis of the Dutch banking code. Review of Social Economy, 71(2), 209–227.CrossRefGoogle Scholar
  58. van Hoorn, A. (2015). The global financial crisis and the values of professionals in finance: An empirical analysis. Journal of Business Ethics, 130(2), 253–269.CrossRefGoogle Scholar
  59. Vitell, S., & Grove, S. (1987). Marketing ethics and the techniques of neutralization. Journal of Business Ethics, 6(6), 433–438.CrossRefGoogle Scholar
  60. Wolf, C. J. (1999). Financial crises and the challenge of ‘moral hazard’. Society, 36(5), 60–62.CrossRefGoogle Scholar
  61. World Economic Forum. (2010). Faith and the global agenda: Values for the post-crisis economy. World Economic Forum/Georgetown University. Retreived on 1st June 2017 from

Copyright information

© Springer Science+Business Media B.V., part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of Leadership and Organizational BehaviourBI Norwegian Business SchoolOsloNorway
  2. 2.Centre of EthicsUniversity of IcelandReykjavíkIceland

Personalised recommendations