Module: Risk Management and Assurance ACCT 627
The Lucifer effect describes Philip Zimbardo’s experiment in 1971 in which college students
under took the roles of guards and prisoners in a study that was originally intended to examine
how prisoners would adapt to prison life. However, the study took on a different focus as the
behaviour of the guards (and authoritative figures) become a key point of interest.
Before the study commenced, participants were dutifully screened for abnormal psychological
traits and were randomly assigned the roles of prisoners and guards. The experiment was to be
conducted over two weeks with Zimbardo himself dual hatting as a prison ...view middle of the document...
(Investopedia, n.d). In another
definition, “(Corporate) Governance is a set of activities to direct and control an organisation
to achieve its objectives by i) providing strategic direction, ii) ascertaining risks are managed
appropriately and iii) verifying that the organisation’s resources are used responsibly.”
The activities of “directing” and “controlling” are supported by the pillars of i) structure, ii)
processes and iii) people. Structure pertains to issues like board composition, how the audit,
remuneration and risk sub-committees are constructed. It also includes issues like
organisational hierarchies, reporting lines and company-wide policies.
Processes describe the activities that the board undertakes through itself and its sub-committees
to mitigate risks and achieve the company’s objectives. Processes essentially are activities
executed to fulfil the objectives of policies. Examples of critical processes include approving
the company’s universe of risk and annual budgets as well as monitoring of managerial
The pillar of people describe the size of the board, the composition of board members (e.g
percentage of female director, independent vs non-independent), their respective competencies
and appointments. It also encompasses attitude, aptitude, values, ethics and culture.
Relevance and implications of the Lucifer effect
Zimbardo’s experiments, similar to Milgram’s experiments, demonstrated that when
individuals are placed in powerful roles, moral integrity and conscience can give way to
corrupting demands. (Cruz-Cruz & Frey, n.d). Both experiments show how the environments
of the company (ethical, organisational, economic) in one way or another, creates its own moral
ecology that constrains one’s ability to act according to his own standards. This happens as a
result of situational forces, group dynamics and daily interpersonal interactions. Interestingly,
this goes against what majority would believe that people do bad things simply because it is
inherent in their nature, what Zimbardo describes as “bad apples”. “The Lucifer effect shows
how easy it is to create situations and systems in which people are driven to do bad things by
the nature of what’s around them.” (Cruz-Cruz & Frey, n.d)
The important revelation here is that Zimbardo asserts that instead of taking the common
perspective of “bad apples” or “bad barrel”1, efforts should be focused on examining the system
in which the situation occurred, what he terms as “bad barrel makers”. Citing examples of
genocides like the holocaust and the abuse that took place in Abu Ghraib prison, he finds it
hard to accept that all the people involved were already “bad apples” themselves. Drawing
common points between the prior experiment and the historical events listed earlier, Zimbardo
1 Refers to the approach of establishing the cause of behavior by analyzing the situation the person is in.
identifies that the individuals in...