When Tiny Fibs Create Big Risks for Businesses

Check out this recent article from Bloomberg Businessweek on ethical practices:

Just one small ethical lapse can snowball into big trouble, according to a study released on Wednesday.

The same kind of slippery slope that Bernie Madoff said led to his $18 billion Ponzi scheme can make workers and companies vulnerable to scandal—unless managers snuff out ethical transgressions that may seem minor, write four business school professors in the study.

In what the authors say is the first empirical study on how unethical decisions compound over time, the researchers tested college students and professionals to see how they responded when introduced to cash incentives for cheating.

In one part of the study, published in the Journal of Applied Psychology, researchers asked two groups to look at a series of screens, each with two dot-filled triangles, and estimate which had more dots. The sets changed over time so that early on, more dots appeared in the left triangle, and later in the series, more showed up on the right. For one group, that change happened gradually. For the other, the shift was more sudden.

Researchers paid participants based on their estimates, with a higher payout for choosing the left triangle than the right, giving them an incentive to overstate the number of dots on the left. People in the group that gradually saw the pattern change were more likely to keep over-counting the left-triangle dots, even when there were starkly more on the right. The group that saw the pattern flip abruptly was more honest.

Conditions where incentives for little lies (just a couple of extra dots) slowly morphed into incentives for big ones (way too many dots) “more than doubled the rates of unethical behavior,” write David Welsh of the University of Washington, Lisa Ordóñez of the University of Arizona, Deirdre Snyder of Providence College, and Michael Christian of the University of North Carolina at Chapel Hill.

“Because of this rationalization process—what we call moral disengagement—people are more likely to slip into a pattern of behavior,” Snyder said in a press release. “We call this the slippery-slope effect.”

One reported Madoff quote helps capture the phenomenon, the study says: “Well, you know what happens is, it starts out with you taking a little bit, maybe a few hundred, a few thousand. You get comfortable with that, and before you know it, it snowballs into something big.”

They also cite Kweku Adoboli, the UBS (UBS) rogue trader; former New York Times reporter Jayson Blair, who was caught fabricating facts in his stories; and reporters who hacked phones for British tabloid News of the World as examples of individuals who succumbed to an ethical snowball effect.

Business schools will likely take note of the study. Soon after the financial crisis, many top programs infused ethical thinking into curriculums to prevent future alumni from starting the next economic meltdown.

The researchers call on managers to prevent ethics breaches with measures such as quickly condemning even small lapses before they compound. “More ethical behavior may result over time when employees are encouraged to be vigilant in identifying financial mistakes rather than creative in attempting to find new financial loopholes.”

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