The Real Impact A Bad Employee Has On Their Team, According to Harvard

Bad behavior is more contagious than good behavior among coworkers in the workplace, according to recent research conducted by Stephen Dimmock and William C. Gerken at the Harvard Business Review.

"Even your most honest employees become more likely to commit misconduct if they work alongside a dishonest individual," the researchers discovered.

"And while it would be nice to think that the honest employees would prompt the dishonest employees to [make] better choices, that’s rarely the case," the researchers continued.

For companies, the actions of one problematic employee could create a domino effect, so to speak, of bad behaviors. Misconduct by one employee may, in turn, cause other employees to behave similarly, and inevitably create an unhealthy workplace culture.

Dimmock and Gerken focused on mergers between financial advisory firms, studying the peer effects of bad behavior by financial advisors after meeting new co-workers from the other merging firm. During these mergers, financial advisors expose each other to their own workplace behaviors, which may include bad behavior that is then believed to be contagious.

"We collected an extensive data set using the detailed regulatory filings available for financial advisors," the two men wrote. "We defined misconduct as customer complaints for which the financial advisor either paid a settlement of at least $10,000 or lost an arbitration decision. We observed when complaints occurred for each financial advisor, as well as for the advisor’s co-workers."

The researchers discovered that financial advisors are 37 percent more likely to engage in bad behavior if they were exposed to a co-worker with a history of said bad behavior. These results mean that each one case of workplace misconduct leads to an additional .59 cases of similar misconduct via peer exposure.

Dimmock and Gerken ultimately wanted to understand how the bad behavior of one employee can lead to a spread of similar misconduct. However, they noted, "Co-workers could behave similarly because of peer effects – in which workers learn behaviors or social norms from each other — but similar behavior could arise because co-workers face the same incentives or because individuals prone to making similar choices naturally choose to work together."

To control these variables, the two researchers looked at financial advisors that belonged to different branches of the same firm, allowing them to control for the possible incentive structure faced by all financial advisors in the firm. They then chose to look solely at changes caused during mergers, which eliminated the effect of advisors choosing their co-workers. 

"We also ran tests that included only advisors who did not change supervisors during the merger, allowing us to attribute all changes in behavior to peer effects from co-workers with the same rank," Dimmock and Gerken wrote.

"Within this restricted sample, we found strong evidence of peer effects just like in the main sample. These results show that, independent of any effects from managers, employee behavior is affected by the actions of peer co-workers."

Managers can prevent a domino effect of workplace misconduct by simply understanding why co-workers make similar mistakes.

"Given its nature, knowledge and social norms related to misconduct must be transmitted through informal channels such as social interactions. More generally, understanding why co-workers behave in similar ways has important implications for understanding how corporate culture arises and how managers can shape it."