Unethical Decisions: When Ordinary People Cross The Line

3 minute read

With so many ethical scandals breaking out in recent years (e.g., Deutsche Bank and money laundering, Volkswagen and the manipulation of diesel emissions testing, Wells Fargo and unethical sales tactics), it leads one to question: What is running through the minds of the people participating in the unethical acts? At the Canadian Centre for Advanced Leadership in Business’s annual year-end celebration on April 11, the former CFO of Enron, Andrew Fastow, provided a glimpse into what his mindset was leading up to the demise of Enron.

How is it possible to be the CFO of the year and commit the greatest corporate fraud in American history for doing the same deals? Every single deal I did was approved...If I had to sum it up in one word, the word I use is ‘loopholes’…You’re technically following the rules, but you’re intentionally going around the principle of those rules.” While Fastow followed then-current accounting rules and guidelines, he also intentionally misrepresented Enron’s financials to appear like they were performing better than they were - in other words, he found a loophole. The problem for him wasn’t choosing between right and wrong – it was knowing the difference between legality and ethicality, the difference between what you’re allowed to do and what is the right thing to do.

We’d like to think that unethical decisions are only made by ‘bad’ people or criminals, but that simply isn’t true – it can happen to an average person who is highly motivated to reach a result and perform. In Warren Buffett’s words, “[w]hat starts as an ‘innocent’ fudge in order to not disappoint ‘the street’ – say, trade-loading at quarter-end, turning a blind eye to rising insurance losses, or drawing down a ‘cookie-jar’ reserve – can become the first step toward full-fledged fraud.” We are all subject to the overconfidence bias, in which we are likely to overestimate our ability or think that we are an exception to the odds. However, there is often a disparity between our intentions and our actions. Research supports this, as a study finds that when asked, 96 percent of people said that they would oppose an unethical request. In contrast, in a subsequent study, only 14 percent actually refused, and nine percent ‘blew the whistle’ and reported the misconduct to authorities.

What influences how likely we are to make unethical decisions? While some personality traits may certainly make you more likely to make unethical decisions or try to get around the rules (e.g., ‘dark-side’ personality traits like Honesty-Humility), there are also psychological processes that can tip the scales. For example, moral disengagement describes how people can mentally distance themselves from their moral standards to avoid feeling guilty about unethical conduct by justifying potential harm to others and linking it to worthy purposes or downplaying the extent of harm through comparisons to worse behaviour.

At this point, you might be wondering what kind of control you have over finding yourself in an ethical dilemma?

Although an organization does have a responsibility to ensure they are defining processes and boundaries to reward for ethical behaviour, as Fastow said, "compliance isn’t the guardrail for ethics – culture is." Research by the University of Calgary finds that when there is a culture of ethics and with supervisors role-modeling ethical leadership, employees were less likely to engage in unethical decision making. In his closing comments of the CCAL event, Mac Van Wielingen, stressed the importance of culture. “It’s not just about wrongdoing; great culture will implicitly embrace learning, commitment, transparency, accountability, trust, and reliability. That creates support and collaboration, and you can all move together towards common goals. And, that creates performance.”

This work has been funded by Viewpoint Foundation.