Timeline: 1986. Why good Managers make bad choices

by Adrienne Lawler
September 24, 2018

As many of the topics being looked at throughout the full 2 days of the Responsible Asset Owners Global Symposium come back to ethical investing, I find myself returning to the subject of ethics more and more.

However, even I was surprised to see an article in the Harvard Business Review dating back to 1986 looking at the whole issue in light of Lehman-type scandals of the time.

Almost inevitably focused on the US, it quickly comes to the conclusion that the root cause of the problem is human beings. Something I constantly remind all my clients of when discussing a range of issues facing a company, whether strategic, operational or personnel. Humans are the greatest resource and highest risk factor of any organisation.

How can we explain the misbehavior that took place in these organizations—or in any of the others, public and private, that litter our newspapers’ front pages: workers at a defense contractor who accused their superiors of falsifying time cards; alleged bribes and kickbacks that honeycombed New York City government; a company that knowingly marketed an unsafe birth control device; the decision-making process that led to the space shuttle Challenger tragedy.

The stories are always slightly different; but they have a lot in common since they’re full of the oldest questions in the world, questions of human behavior and human judgment applied in ordinary day-to-day situations. Reading them we have to ask how usually honest, intelligent, compassionate human beings could act in ways that are callous, dishonest, and wrongheaded.

The article goes on to say; ‘“thousands of innocent employees and investors their jobs and their savings?” and asks “Why did managers at E.F. Hutton find themselves pleading guilty to 2,000 counts of mail and wire fraud, accepting a fine of $2 million, and putting up an $8 million fund for restitution to the 400 banks that the company had systematically bilked?

How can we explain the misbehavior that took place in these organizations—or in any of the others, public and private, that litter our newspapers’ front pages: workers at a defense contractor who accused their superiors of falsifying time cards; alleged bribes and kickbacks that honeycombed New York City government; a company that knowingly marketed an unsafe birth control device; the decision-making process that led to the space shuttle Challenger tragedy.

The stories are always slightly different; but they have a lot in common since they’re full of the oldest questions in the world, questions of human behavior and human judgment applied in ordinary day-to-day situations. Reading them we have to ask how usually honest, intelligent, compassionate human beings could act in ways that are callous, dishonest, and wrongheaded.

In my view, the explanations go back to four rationalizations that people have relied on through the ages to justify questionable conduct:

  • believing that the activity is not “really” illegal or immoral;

  • that it is in the individual’s or the corporation’s best interest;

  • that it will never be found out;

  • or that because it helps the company the company will condone it.

By looking at these rationalizations in light of these cases, we can develop some practical rules to more effectively control managers’ actions that lead to trouble—control, but not eliminate. For the hard truth is that corporate misconduct, like the lowly cockroach, is a plague that we can suppress but never exterminate.”

In the interests of transparency, I should point out that all this wisdom is taken from that article, which you can read more of here.

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