Archive for Scandal

Rationalization and Escalation…a possible explanation for the VW fiasco

Volkswagen recently admitted that  millions of clean diesel cars sold worldwide contain software to fool regulators. In contrast to the GM safety scandal, however, where unclear standards and communications issues contributed to the production of unsafe vehicles, it will be pretty hard for VW to find a rationale for its use of technology that blatantly violated regulations. This is particularly difficult given VW’s high profile efforts to assert its “greenness” – and many laudable efforts to support these assertions.  When this type of event happens, the question always comes up:  How do people that, in all likelihood, are reasonable, ethical people, end up making such unethical decisions.

One possible answer can be that they are able to develop rationalizations for why these decisions are not unethical.  In a paper published in Journal of Business Ethics, we argue that these clearly faulty rationalizations don’t occur over night.  We propose that corruption in organizations often spreads through a process of overcompensation, where rationalization and action interact in a dynamic way. To give people a margin of error in defending unethical behavior, rationalizations are developed that that ‘over-shoot’ the actual corrupt deed.  This overshoot then provides an impetus for more serious forms of illegality. In other words, the over rationalizations push out the boundaries of what might be considered ethical, so when the next decision is made, the reference point for ethical decision making has moved.  This occurs in a cycle, eventually leading to decisions that to the common person would seem blatantly unethical.

To avoid this escalation, you need an organization that questions these types of rationalizations early on.  This requires a strong culture, and organizational mechanisms to double check ethically questionable decisions.

See the entire paper at: http://scholarworks.rit.edu/cgi/viewcontent.cgi?article=1600&context=article

 

Is bribing always unethical?

Question to Ask the Prof: If it is the norm to bribe public officials when doing business in  a foreign country and it is hard to get anything done if you don’t, is it unethical to offer bribes?

A (Professor Barbato): Corruption and bribery distort the marketplace so that the most deserving actors don’t gain what they deserve.  This is unfair and unethical, and it results in suboptimal outcomes in the aggregate.  However, we must remember that business ethics is a practical endeavor, and cannot solely rest on lofty principles that deny the realities of the world in which we behave.  For instance, there are societies where bribery is part of the game, so to speak.  In other words, if you don’t bribe, then you can’t participate, and everyone knows that and everyone accepts that.  This would be like bluffing in poker.  It may not seem very honest, but everyone understands that it is part of the game.  However, business should not simply accept the status quo, it must also be an ethical leader in trying to change the status quo.  So honest businesses should participate in such an economy, but they should also take the lead in trying to change these economies into more honest and fair economies.  They should not use the excuse that “everyone does it” to free themselves of all their ethical obligations.  So, like so many cases of business ethics, the answer is to be practical and principled at the same time.

 

One more word about bribery.  Some societies use gifts to reinforce cooperation and loyalty; two values that lead to higher ethical behaviors.  Without a certain level of cooperation and loyalty, it is hard for businesses in some societies to arrive at optimal levels of productivity.  Although these gifts may seem like bribes that have the goal of corrupting, they can actually be seen as gifts with the goal of enhancing trust and cooperation.  Once again, business must be both ethical and practical in situation like these.

Professor Barbato weighs in on Nepotism Concern in the NBA Union

Our very own Professor Barbato was quoted in Bloomberg regarding the recent concerns regarding potential Nepotism in the National Basketball Players Association.  President Derek Fisher, who raised these concerns and asked for an investigation has been asked to resign.

Click Here to Read the Article and see what Professor Barbato things about it.  You can also see an earlier post on Nepotism.

Financial Scandal Rocks Olympus, Japan

Olympus: We Hid Investment Losses for Decades“, The camera maker has confessed to a decade’s long cover up of investments losses. Wall Street Journal’s reporter Daisuke Wakabayashi shares details of Olympus’s admission that it covered up investment losses for decades and used acquisitions to clean up its books.