Profit-driven corporations can make management blind to ethics

Corporations like Enron that overemphasize outcomes such as profits might make their leaders blind to ethics and limit their abilities to recognize ethical or moral issues when they surface, according to a University of Washington study.

Scott Reynolds, an assistant professor of business ethics in the UW Business School, examined why some managers recognize a situation as involving moral issues whiles others do not. His research demonstrates it is not always obvious when an issue has moral overtones – people can and do disagree about whether an issue involves ethics.

In two separate studies, Reynolds asked 96 senior-level managers to rate five scenarios involving varying degrees of ethical violations designed to measure their moral awareness. Previous research has shown that when facing ethical dilemmas, individuals either focus on the ends (consequences such as happiness, harm and profits) or the means (such as don’t lie, don’t cheat and don’t steal) as they search for a solution. The study, published in the current issue of the Journal of Applied Psychology, found that this preference also influences an individual’s capacity to simply identify a problem as an ethical issue.

Reynolds found that people who focus primarily on the ends recognize ethical issues when harm is done but are much less sensitive to ethical issues that seem to only involve a violation of the means (someone lied, broke a promise, violated a policy, etc.). When it appears that no harm is done, ends-based decision-makers are much less inclined to see the issue as an ethical one. Means-focused people, however, recognize both harmful situations and those situations in which the means used were an ethical issue.

The results are surprising, he said, because they suggest that means-based decision makers are affected by a much broader range of what they consider to be ethical issues.

“For that reason, ends-based decision-makers might be very surprised to know what others call or treat as ethical issues,” Reynolds said. “You could say that ends-based decision-makers are ’blind’ to those kinds of ethical issues.”

Reynolds believes former Enron Corp. chief executive officer Kenneth Lay and others at the bankrupt trading and energy company might have been victims of this phenomenon. He speculates that Lay and other Enron executives probably saw no harm in what they did and therefore believed there were no ethical aspects to their business – it was just doing business as usual. Thus, there was an initial sense of surprise or disbelief within the culture once they saw outsiders’ reactions to their business practices.

“If you saw his testimony before Congress, he just looked dumbfounded the whole time,” said Reynolds. “He just didn’t get it – that his business decisions had powerful ethical components to them and that his decisions could be framed as either moral or immoral and right or wrong. He never really became morally aware and for that reason the rest of us have had to suffer. It’s not necessarily that he didn’t have a conscience, it’s that nothing about the situation activated or turned on his conscience.”

Enron employed more than 20,000 and had revenues of $101 billion in 2000 but questionable accounting practices and widespread corporate fraud led to its collapse. Lay is expected to go on trial soon for securities and wire fraud and making false statements, charges that carry a maximum sentence of 175 years.

“The findings of this study suggest that when attempting to improve moral awareness in organizations, leaders should take the initiative to better educate managers about the moral value of rules, principles and guidelines more generally,” Reynolds said.

“Improving managers’ appreciation for such guides increases their ability to access moral frameworks in the face of not just harmful situations, but also seemingly inconsequential violations of rules.”

For more information, contact Reynolds at (206) 543-4452 or heyscott@u.washington.edu