The host of a fundraising event exchanges tickets to the event for contract work on his home. This is revealed to his fundraising event partners after an accounting audit reveals discrepancies.1 MBA students analyzing this situation often acknowledge the possibility of an ethical problem, typically identified as a lack of transparency, but conclude that no one is harmed. The director of quality assurance (QA) in a manufacturing company decides to certify new products as having completed all QA checks, despite not actually completing the process, to get the product to market faster. Students describe this as being an agile organization and say it is necessary to remain competitive. This situation is also perceived to cause no harm.
These two cases represent sneaky ethical problems because the harm can be difficult to see. The fundraiser guests that paid for their tickets effectively paid the contractors who worked on the host’s home. The customers who bought products that were not fully tested for quality were not getting the assurance for which they paid. In these cases, decision makers and executives failed to notice the moral dimensions of their business decisions.
These problems are sneaky because cognitive biases that creep into our decision-making cause us to overlook their ethical implications. The biases detected in the decision-making problems illustrated in these two cases (and in many current corporate scandals) include nonmonetary transactions, the framing effect, and ill-conceived goals.
Ensuring that sneaky problems are noticed and not overlooked is a function of the character of the decision makers. For example, leaders who collaborate and exhibit humanity are more likely to think about the impact of their decisions on a variety of stakeholders. Stakeholders are more visible to collaborative leaders who tend to look for input from others. Similarly, leaders concerned about the welfare of others are more likely to ask questions about the consequences of decisions on the well-being of stakeholders.
Problems & Biases
Nonmonetary Transactions
Dan Ariely and colleagues conducted a series of experiments to test whether dishonesty increases when transactions are conducted using tokens rather than cash and found that dishonesty increased dramatically. Most people understand that taking cash is theft and is morally wrong. But when a transaction involves a barter, such as the fundraiser, or is one or more steps away from cash, the loss is much harder to see and is often ignored.
For example, employees who would never take company money from a cashbox do not think twice about taking home a ream of printer paper for personal use. Such decisions are often seen as harmless because the harm is not as easily perceived. QA affects a product, so it is an engineering issue, not an ethical one.
In 2016, it was revealed that Wells Fargo employees had created millions of fake accounts to reach aggressive cross-selling goals set by management. Employees opened savings or credit card accounts without the account holder’s knowledge. However, any money transferred from a checking account to a savings account remained safely in the savings account. Since no money was directly taken and all transactions were digital, it was easy to justify the actions as not harming anyone.
The recent implosion of cryptocurrency exchange FTX and the allegations of fraud against the founder, Sam Bankman-Fried, is another example. Cryptocurrency is a digital currency that is even more abstract than the tokens used by Ariely and colleagues in their experiments. “Federal prosecutors have charged Mr. Bankman-Fried with orchestrating a vast scheme to siphon billions of dollars of FTX customer money into political contributions, real estate purchases, charitable donations, and venture investments,” wrote the New York Times. It is not hard to imagine that Bankman-Fried had difficulty envisioning how his transfers from one business to another might result in harm since it was just digital manipulation.
Framing Effects
Framing is choosing how information is going to be presented to decision makers.
Organizations increasingly need to be able to respond to rapid environmental changes, so a desire for organizations to become more agile is a reasonable response. When cutting corners on QA or safety is framed as organizational agility, employees may fail to recognize there is the possibility of harm. Agility is a positive attribute; it implies resilience and rapid adaptability. When employees are presented with an organizational agility process, they may see it as necessary to help the company change more quickly rather than a reduction in QA or safety.
Similarly, when the fake accounts were detected at Wells Fargo, they were framed as being a consequence of a few bad apples. Then there‘s the tragic case of the Boeing 737 MAX, which was framed by the need to rapidly develop the MAX as critically important. Despite the significant reengineering required by the rapid development, Boeing released the jet with the assurance it would not require pilot retraining in order to make the plane an attractive alternative to its competition. A few months after its release, two planes crashed because of a software problem, resulting in the loss of 346 lives. Boeing framed the redesign of the 737 and its hasty deployment as an engineering problem. Framing the issue as speed, not quality, caused decision makers to overlook the moral implications of their decisions.
Ill-Conceived Goals
Business leaders are encouraged to create audacious goals to motivate employees to greater heights of creativity and efficiency. It is not a huge surprise that leaders may develop audacious goals without thinking about their potential negative consequences. There is no evidence that Wells Fargo’s CEO or CFO anticipated that their extremely challenging sales goals would result in the creation of millions of fake accounts. Boeing executives set an ambitious date to deliver a new product, resulting in hasty decisions. The recent federal investigation of poultry producers Tyson and Perdue is another example. By encouraging their suppliers to reduce their costs, both companies are alleged to have inadvertently encouraged them to employ low-wage migrant children.
Notes
1Carlin, Barbara. “Aid for Veterans.” Unpublished case study developed for use in graduate ethical leadership class, 2017.
[For more from the author on this topic, see: “Sneaky Problems: The Issue of Moral Awareness.”]
