How effective a deterrent is the threat of a jail sentence or heavy fine? Why do managers keep stepping over the line when it come to ethical behavior? And why do the same things keep happening over and over again, despite governments constantly bringing in tougher laws.

Just some of the questions raised by this London Business School study, Why Managers Fail To Do The Right Thing: An Empirical Study of Unethical and Illegal Conduct by N. Craig Smith, Sally S Simpson and Chun-Yao Huang.

The researchers found that bringing in more stringent laws, like Sarbanes-Oxley, has little effect on changing bad behavior.

They based their research on surveys that asked managers on how they would respond to unethical and illegal acts: price-fixing, bribery or violation of emission standards. They were also measured on how they would respond to the threat of formal sanctions, how their actions stacked up against their own sense of morality, outcome expectancies (e.g. job loss, loss of respect, jeopardizing future job prospects and obedience to authority (i.e. their receptiveness to the Nuremberg Defence ["I was following orders"]). The respondents were in their mid-thirties, white and of US nationality. Two thirds were male, over half were married, all well-educated and most were experienced managers.

The alarming part of the study: across the scenarios, more than 42 per cent indicated there was at least a 10 per cent chance that they would act illegally or unethically (60 per cent for the price-fixing, 47 per cent for illegal emissions and 42 per cent for bribery).

This is not to say that laws like Sarbanes-Oxley are without merit, say the researchers.

But formal sanctions only seemed to work indirectly, that is if they were associated with the loss of respect of business associates, friends and family. What's critical here are the social controls.

All this is consistent with my argument that bringing in tougher laws can backfire and undermine trust in business. Which means, to state the obvious, that Sarbanes-Oxley is no panacea.