In a previous post, I introduce the paper Why Good People Sometime Do Bad Things: 52 Reflections on Ethics at Work by Muel Kaptein, professor in business ethics at the Rotterdam School of Management of Erasmus University Rotterdam. Kaptein reviews the results of numerous “classic and recent experiments” looking at human behavior and allocates the results under seven factors.

In this post, I will highlight key takeaways from the paper on the following two factors:

1. Role-modeling among administrators, management, or immediate supervisors: The better the examples given in an organization, the better people behave, while the worse the example, the worse the behavior.
2. Achievability of goals, tasks, and responsibilities set: The better equipped people in an organization are, the better they are able to do what is expected of them.

The Doctor Called

When discussing role-modeling, Chapter 18 presents the research of Charles Hofling and colleagues on how people react to questionable requests from those in authority. The study used a placebo drug to determine whether nurses would follow orders phoned in by a doctor, when the order called for double the maximum dose printed on the medicine label.

When asked hypothetical questions, 83% of the nurses stated they would refuse to administer the medicine. When the study placed scripted calls, only 5% declined to follow the doctor’s order.

Obedience to authority is a common concern for the investment management industry. Questioning those that control bonuses or career advancement is a difficult decision. An individual’s sense of moral uneasiness is often removed when direct orders come from someone they consider an authority figure.

Thus, it is important for everyone to demonstrate the values of the organization. If firm leaders demonstrate the courage to hold their colleagues and senior staff accountable, this mindset will influence employees at all levels.

Bad Actions May Lead to Good

Staying with role-modeling, Chapter 22 presents research from Francesca Gino and colleagues on the impact of perceived outsiders on our conduct. The study uses a similar premise as one discussed in the previous post of having college students self-grade a math assessment. Gino’s study had assistants act as study participants and vocally announce they answered all the questions correctly in only a small portion of time.

The results identified an interesting outcome.

The crux of the experiment centers on the shirt worn by the assistant. In the “Associated” group, the assistant cheater wore a plain white t-shirt. In the “Disassociated” group, the assistant wore the t-shirt of a rival university.

The actions of the rival assistant were viewed by those in the room as conduct by an outsider. The participants were influenced to cheat even less than if there were no vocally announced cheater in the room. From this result, we see the importance of holding others accountable for their actions. If left uncorrected, a bad employee can infect others in the organization, more than when the same actions occur at other organizations.

I Want It All

Moving on to the factor of achievability, Chapter 25 presents research from Christiane Schwieren and Doris Weichselbaumer on the impact of competition, especially one with a single prize. The study participants completed computer generated mazes for compensation.

In the control group, each participant was paid $3 and $0.30 for every completed maze. In the competition group, each participant was paid $3, but only the one completing the most mazes would get paid the bonus. The bonus was $0.30 for the total numbers of mazes completed by the group. In each setting, the participants self-reported. Each group had six participants.

Interestingly, the average total number of reported mazes was the same for both, 28. With the computer tracking the actual completions, the cheating in the control group had an average of 1.3 mazes. In the competitive group, the cheating increased to an average of 2.9. Along with inflating their number, the competitors also exploited program features to load easier puzzles and be shown when they were on the wrong path.

In the study, the competitive group spent more time looking for ways to improve their results to the detriment of achieving the desired outcomes. The goal of winning the bonus encouraged multiple forms of shortcuts and cheating. This outcome highlights a significant negative side effect that can occur with winner take all incentives.

The Envious Slope of Misconduct

Before relating additional studies on achievability, in Chapter 29 Kaptein presents several real world examples of people or groups that lowered the bar of unacceptable behavior. His examples demonstrate that many times small misdeeds led to greater misconduct.

Kaptein describes two practices to clarify why someone might continue down the slippery slope of misconduct. First is “Escalation Commitment.” Here the person believes they cannot simply acknowledge and correct the error. The person takes greater and great risk to make up for the initial misdeed.

The second is “Induction Mechanism.” Here, each small misdeed establishes a new norm that the person will compare future behaviors with. Thus after several increasingly less ethical actions, Kaptein suggests “moral blindness is born.”

Through the many studies on these two factors, Kaptein’s messages align with those of CFA Institute. Charterholders demonstrate the importance of ethical conduct through adherence to the CFA Institute Code of Ethics and Standards of Professional Conduct. Furthermore, the CFA Institute Ethical Decision-Making Course and Webinars provide tools for learning how to achieve those ethical commitments.

In the next entry of this series, I will review the factors of “commitment” and “transparency.”

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Photo Credit: ©Getty Images/Olivier Le Moal