It’s easy to blame individuals for engaging in illegal or unethical activities by assuming bad behaviour is an inherent personality trait. “Only shady people do shady things,” right? We assume the CFO who reports false financial data and the hedge fund manager who commits insider trading do so because they are inherently “bad people.” The maxim of individual responsibility is comforting because it implies that, to eradicate criminal or unethical behaviour, all we need to do is identify and weed out the corrupt few. However, that maxim has two major flaws.First, it overlooks the fact that we rarely know who is corrupt until they specifically do something unethical or illegal. Some researchers have tried to identify genetic correlates of a criminal personality, but trying to select out individuals with those characteristics leads to an ethically suspect policy by presuming guilt even though many or most people with these “criminal genes” never engage in questionable behavior. Focusing on criminal or unethical personalities only allows us to remove a person from the organization after he or she has engaged in bad behavior. Personality screening doesn’t prevent the bad behaviour from occurring in the first place. Second, research has shown that situational characteristics have dramatic and sometimes disturbing effects on individual behaviour.Stanley Milgram famously demonstrated that people are willing to compromise their personal values – going so far as to inflict life-threatening physical pain on others – when instructed to do so by someone posing as a doctor. Philip Zimbardo, in his iconic “Stanford prison experiment”, demonstrated that kind, law-abiding, mentally stable individuals demonstrated sadistic, cruel and ruthless behaviour when given a position of authority in a simulated prison setting. In both cases, the situations elicited behaviour that was not inherent to the individuals’ existing personalities. This does not mean that individuals are excused from their actions. People are still responsible for the choices they make and the actions they commit. But by examining whether certain institutional structures or processes encourage problematic behaviours, we can begin to come up with solutions to reduce or eliminate those behaviours.For example, the Milgram study illustrates that authority figures wield a significant amount of influence over people. Similarly, formal institutions and societal structures – such as the physical layout of prisons, the training given to prison guards, and indoctrinated attitudes towards prisoners – can bring out bad behaviour in otherwise good people. Our research shows similar situational responses among senior business managers. Pressure to keep meeting investor expectations may be one reason corporate leaders engage in illegal activities such as price fixing, overcharging customers, and illegally disposing of hazardous waste in order to reduce environmental compliance costs. This suggests that there may be a need to reexamine how the performance of firms and individual managers are measured, and to think of ways to keep investor expectations from becoming unrealistically high.