Dishonesty and Its Impact on Business

1. Dishonesty and Its Impact on Business Jennifer Sawayda Anderson School of Management University of New Mexico Albuquerque, NM

2. Sources • Based on the documentary (Dis)Honesty: The Truth About Lies 2015, YouTube, https://www.youtube.com/watch?v=evU78YFoFtM • Dan Ariely, The (Honest) Truth About Dishonesty, New York, NY: HarperCollins, 2012; O.C. Ferrell, Linda Ferrell, and John Fraedrich, Business Ethics: Ethical Decision Making and Cases, 10th ed., Mason, OH: Cengage, 2015

3. Key Definitions • Honesty: refers to truthfulness and trustworthiness • Dishonesty: lack of integrity, incomplete disclosure, unwillingness to tell the truth • Lying: untruthful statements • Wishful blindness: failing to notice warning sides due to wishful thinking • Ethical blind spot: when a person is unaware of his or her propensity to engage in misconduct

4. Common Rationalizations for Cheating • I didn’t think I’d get caught • I’m doing this to benefit myself or someone I love • Everybody does it • It’s just this one time • They owe me this • This is the only way to advance

5. Truths about Dishonesty • Cheating usually starts off small • Lying once makes it easier to lie again • Dishonesty can be contagious • Conflicts of interest make dishonesty easier • Distance makes it easier to be dishonest • Some people get a power trip from being dishonest

6. A Quick Word About Decency • Most people have the need to believe they are decent, good individuals! • This is why cheating often starts off small • In situations in which the other person has a disadvantage… • People tend not to cheat any more often • Some even give up something to “assist” the other person

7. Businesspeople and a Legally Blind Customer • Two people—one who could not see—performed tests at a farmer’s market and with taxis • Rationally, it makes sense for the businesspeople to cheat the blind individual because the risks of getting caught were less • The exact opposite happened • Cab drivers even took a pay cut to give the blind individual a better deal

8. Cheating Usually Starts Small • A matter of conscience • Because people see themselves as decent, they often won’t start off cheating by a lot even if they have the chance • Most frauds start off small (fudge factor) • Fraudsters believe it is just one time • Weston Smith of HealthSouth • Accounting fraud started off small

9. Walter Pavlo • Worked at MCI, committed accounting fraud, sentenced to 41 months in jail • Contributors to the fraud • Corporate culture that encouraged cheating • Started off small; just this once • Believed it could be fixed • Cockiness

10. Lies Multiply and Become Easier • From a neuroscience perspective, the brain adapts • Negative feelings begin to decrease the more lies you tell • Garrett Bauer • Sentenced to nine years for insider trading • It became easier and easier for him to trade on insider information guilt-free

11. Dishonesty Is Contagious • The more likely you are to identify with someone who cheats, the more likely you are to cheat • The more you identify with someone, the more you believe their behavior is socially acceptable • The opposite occurs when you don’t identify with that person • “Everyone is trading on this stuff. There’s not one person in my office that wasn’t.” —Garrett Bauer on insider trading

12. Disturbing Trends • Many employees look to their managers for guidance • About 27 percent of expense reimbursement fraud comes from employees that hold executive or upper management positions • Others commit misconduct to get ahead • One-quarter of bankers would commit fraud to get ahead if they knew they could get away with it

13. Conflict of Interest • When it’s in your best interest, it’s easier to turn a blind eye to misconduct (willful blindness) • Lynn Brewer, former Enron executive, described how a culture of complacency destroyed the firm • Some Countrywide Financial lenders knew that borrowers were lying on their loans, but because they got bonuses for sales they encouraged liar loans

14. The Impact of Distance • Token matrix experiment • When conducting the matrix experiment, students were paid in tokens which they then exchanged for money. Cheating doubled. • Golf experiment • Most golfers would not pick up a ball to move it, but some would move it with their foot and even more would do so with their club. • It is hard to justify blatant misconduct but much easier when the severity of the misconduct is farther removed

15. Bad Apples • Sometimes the people themselves are bad apples or greedy • Sam Antar • I had no remorse whatsoever as a criminal. • Bernie Madoff • However, the majority of people imprisoned for fraud admit it was not worth the consequences

16. What Do You Get with All of These? The financial crisis! • The financial crisis was characterized by greed, self-interest, organizational pressure, social norms, distance, and more

17. How to Curb Dishonesty • Reminding people about their moral codes beforehand seems to have an impact • The Ten Commandments Test • Even non-religious people who are asked to try to recall the Ten Commandments are less likely to cheat afterward • The Honor Code Test • Reading through an honors code before an experiment decreases cheating • Sign at the Top • Having people sign documents at the beginning rather than the end decreases the amount of false information