Things about firms that make them act badly

1. Things about firms that make them act badly December 6, 2010

2. 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?

3. How do businesses think? • They have particular incentives • They often think in groups • They can make it difficult to disagree

4. 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

5. 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?

6. 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)

7. Asch, 1956

8. Asch, 1956

9. Asch, 1956

10. Asch, 1956 % of participants

11. 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

12. Groupthink Antecedents of groupthink 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” • 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

13. 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

14. 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

15. 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!

16. 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)

17. Desire to come to a decision… • Can lead to rationalization of wrongdoing

18. 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

19. Deindividuation

20. Power • Businesses rely on hierarchies, so that there are layers of power within the organization

21. 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

22. Milgram, 1965 • A controversial experiment

23. Milgram, 1965

24. 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

25. 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

26. 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?

27. 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.”

28. 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

29. 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

30. 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