Things about firms that make
them act badly
December 6, 2010
Overview
• How does the way that corporations “think”
affect how ethically they behave?
• How does the way that corporations are
organized affect how ethically they behave?
How do businesses think?
• They have particular incentives
• They often think in groups
• They can make it difficult to disagree
Traps & Fences
• Incentives of employees and incentives of consumers
are very different; incentives of companies, too
• Traps: Each decision maker’s own interests are to
engage in some behavior that, repeated by many, leads
to collective harm
– Tragedy of the commons, short-term versus long-term
effects
• Fences: Each decision maker has incentive to fail to
engage in some action that, if taken, would benefit the
organization
– Concealment, missing hero, forgetting symbolic power
Make sure to shift your focus
• Shareholders versus stakeholders
– Think carefully about who you’re working for
• Money versus products
– Do you think about what you’re producing, or the
money that what you’re producing will earn?
• Short-term versus long-term
– How are stock prices determined?
– How are the consequences of an employee’s actions
measured, versus how the company’s actions?
Fixed Pie Bias
• Often, corporations and other parties enter
into negotiations assuming a zero-sum game
with no integrative potential
– Meaning, one party’s gain comes at the other
party’s expense
– And there’s no opportunity to expand the pie of
resources
– Most negotiators enter into negotiations with this
mindset (up to 80% in some surveys)
Asch, 1956
Asch, 1956
Asch, 1956
% of participants
Asch, 1956
Groupthink
• “A kind of faulty thinking on the part of highly
cohesive groups in which the critical scrutiny that
should be devoted to the issues at hand is
subverted by social pressures to reach
consensus”
• Basically, groups try to agree with one another,
and they can ignore problems with their plans to
do so
• Bay of Pigs is the classic example
• Enron is a tragic modern day example
Groupthink
Antecedents of groupthink
• High cohesiveness
• Insulation of the group
• Lack of procedures for
information search and
appraisal
• Directive leadership
• High stress w/little hope of
finding a better solution
than the leader’s proposed
one
Symptoms of groupthink
• Illusions of invulnerability
• Collective rationalization
• Belief in inherent morality of
group
• Stereotypes of outgroups
• Direct pressure on dissenters
• Self-censorship
• Illusion of unanimity
• Self-appointed “mindguards”
Groupthink
• Leads to a variety of decision making
problems:
– Incomplete surveys of alternatives
– Incomplete surveys of objectives
– Failure to examine risks of preferred choice
– Poor information search
– Selective bias in processing information at hand
– Failure to reappraise alternatives
– Failure to work out contingency plans
Challenger disaster
• Illusion of invulnerability:
– Engineers were asked to prove the O-rings would fail,
which they couldn’t do definitively
• Conformity pressures:
– CEO asked engineering VP to “take off his engineering
hat and put on his management hat”
• Illusions of unanimity:
– CEO polled only management, not engineers, about
recommendation to launch
• Mindguarding:
– The NASA official who made the final call never heard
about the engineers’ reservations
Pluralistic ignorance
• Happens when virtually every member of a group
privately feels one way, yet believes that virtually
everyone else privately feels another way
– People mistakenly think they’re “out of step” with the
rest of the group
• Trigger: Discrepancy between people’s private
feelings and public acts
• Results in conformity from almost everyone
– People end up conforming to a norm that almost no
one is happy with!
Examples of pluralistic ignorance
• Gang members
• College drinking (Prentice & Miller, 1993)
– Women: own comfort = 4.8, other comfort = 7.0
– Men: own comfort = 5.8, other comfort = 7.0
– This discrepancy leads to conformity
• How to dispel pluralistic ignorance?
– Peer session (about pluralistic ignorance) vs. individual
session (about responsible alcohol choices)
– Interviewed months later, they reported drinking:
• 3.0 drinks a week (peer session)
• 4.9 drinks a week (individual session)
Desire to come to a decision…
• Can lead to rationalization of wrongdoing
How are businesses structured?
• They provide many places to hide
• They give many of their members power over
others
• They place many of their members under the
authority of others
Deindividuation
Power
• Businesses rely on hierarchies, so that there
are layers of power within the organization
Power
• It turns out that being in a position of power
over others changes the way that we think
– It makes us stereotype more
– It makes us less able to empathize and express
compassion
– It makes us less able to take other people’s
perspectives
– It makes us more likely to objectify those around us
– It makes us more optimistic and more likely to make
risky choices
– It makes us more likely to act, period
Milgram, 1965
• A controversial experiment
% of people who disobey
Milgram, 1965
100
90
80
70
60
50
40
30
20
10
0
Predicted
Observed
450
420
390
360
330
300
270
240
210
180
150
120
90
60
30
0
Shock level
More on Milgram
• Other variations:
– No response from learner = more obedience
– Bridgeport office = less obedience, but not much
– Learner in room = less obedience, but not much
– Place learner’s hand on shock plate = less
obedience
– Second, objecting experimenter = much less
obedience
More on Milgram
• Not blind obedience…
• But ineffective disobedience
• Incredibly unhappy with procedure—nervous
laughter, protests, crying
• Experimenter stonewalled them, gave only four
responses, left no channel for escape
– Wouldn’t take back money, which gave feeling of obligation
– Objecting experimenter leaves an out, most take it
Slippery slope
• Participants started at 15 volts and inched up
• Very little difference between 100 and 115
volts
– People start quitting after 285, when the learner
stops responding
• Similar process in 1930s Germany—
Nuremburg laws started small (boycott) and
progressed to citizenship laws, and worse—at
what point do you protest?
Obedience in the real world
• “The trouble with
Eichmann was precisely
that so many were like
him, and that the many
were neither perverted
nor sadistic, that they
were, and still are,
terribly and terrifyingly
normal.”
Obedience in the real world
• Hofling et al., 1966
• 21 out of 22 nurses attempted to administer a
lethal dose of a medication on the orders of a
doctor they had never met
To encourage ethical decision
making...
• Have mechanisms in place to:
– Keep the focus on the long-term success of your
company, and the long-term consequences of
your actions
– Create the possibility of dissent
– Be charitable about the causes of other people’s
behavior and about their values
Summary
• The goals and measures of a business can
encourage unethical behavior
– The wrong outlook can lead to bad behavior
– Trying to make a decision can lead to bad decisions
• The structure of a business can encourage
unethical behavior
– People can feel anonymous
– Power and authority can make us do things we
wouldn’t otherwise