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SECTION 4C – THE PSYCHOLOGICAL AND BEHAVIOR FACTORS
READING 4.9 – THE LAYERS OF ETHICAL ISSUES: INDIVIDUAL, ORGANIZATION,
INDUSTRY, AND SOCIETY
Use PowerPoint Slide 145.
Answer and Key Discussion Items
1. Initially, the use of steroids began at an individual level – individual players and trainers discovered
that they could get ahead by doing something illegal, and so they did it. It was an individual choice
that was wrong, but the rewards were great. The clubs realized that players were involved in using
2. Incentives are the key component – what an organization rewards and recognizes is the behavior that
it will get.
3. The steroids in bicycling were another example of peer pressure. We also had the subprime lending.
4.
CASE/READING INDIVIDUAL ORGANIZATIONAL INDUSTRY SOCIETY
Parable of the
XXX XXX – Peer
XXX – Valuing
want
Résumé Puffing XXX – If everyone
puffs, then I am at
a disadvantage if I
don’t do it
XXX – Everyone
does what
needs to be
done to get
ahead
it took to get
ahead
Rigged Election XXX – Individual
decided to throw
election; faced
pressure of
getting a job once
school was done
XXX – Peers were
willing to help
no big deal
CASE 4.10 – ROGUES: BAD APPLES OR BAD BARREL: JETT AND KIDDER,
LEESON AND BARINGS BANK, KERVIEL AND SOCIÉTÉ GENERAL, THE LONDON
WHALE AND CHASE, KWEKU ADOBOLI AND UBS, AND LIBOR RATES FOR
PROFIT
Answers and Key Discussion Items
1. See the chart in PowerPoint Slide 146.
2. The compensation systems rewarded them and no one in their organizations took a closer look until
the losses starting coming in – they should have been looking when the high gains were coming in to
Compensation systems needed to be realigned. Little investigation was done when there were flags
and even because their trading activities seem to exceed all levels that were humanly possible or
even possible given the markets they were trading in. In many situations like Jett’s at Kidder,
In Jett’s case, firing those who question practices and figures allowed Jett to continue. The fear of
losses and reporting those losses; under-reporting to cover future losses are troubling to employees.
Earnings were everything in the atmospheres of Kidder and the two banks. Also, all three had some
The compensation system of a company does set its ethical tone without more guidance on
parameters and the limits for achievement: how much people make and how they make it are often
3. This is a credo question – they needed to have lines they would not cross, whether risk levels, or
Compare & Contrast
Robert Citron did not stand to make any gains for his trades – it was classically hubris that drove him and
not the gains.
NOTE FOR ADDITIONAL DISCUSSION – Classifying these rogues in moral categories can be a fun
exercise for the students. Jett may have been a moral postponer or he may have been a moral
chameleon – taking on the characteristics of Kidder. Or perhaps his moral compass was just lost
(temporary moral insanity) because of the pressures he was facing to finally make good in a job. It has
been said that there are two reasons for dishonesty: need and opportunity. The opportunities for
dishonesty are available and the high stakes/high pay atmosphere makes many Wall Street employees
feel the need to make more and more money.
CASE 4.11 – FINOVA AND THE LOAN WRITE-OFF
Answers and Key Discussion Items
1. The write-off of the loan meant a fall in the stock price, a loss in value of their options, the loss of their
bonuses tied to stock price performance, less earnings (and resulting loss in bonuses). There was
2. Incentive plans serve a role in motivation, but the motivation can result in excesses as managers
attempt to meet the goals because of the financial rewards that are tied to those goals. Such
incentive plans must be encased in a set of values so that managers understand not only the
3. FINOVA’s culture was one of treating employees very well and employees did feel a certain sense of
loyalty to a company that treated them so well. Also, they would be extremely hesitant to lose their
4. No, FINOVA did not make clear the levels of risk in its loan portfolio. The market it was in was, by
very definition, more risky because they were taking on the clients and borrowers who cannot get
Compare & Contrast
One former employee described it as either leaving a void on the résumé or admitting that they had
worked for a company that became the 7th largest bankruptcy in the history of the United States. They
were employed at a company that failed to disclose its risk, financial position, and possible losses.
Prospective employers presume that they either had some role or they were silent and/or complicit in the
problems. One of the great difficulties is that prospective employers see them after we have full
information about the extent of the accounting issues, the scope of which makes them wonder, "What
CASE 4.12 – INFLATING SAT SCORES FOR RANKINGS AND BONUSES
Answers and Key Discussion Items
1. Mr. Franek does not appear to have any clear lines – it is as if he thinks that this is going to happen
2. There was a pattern of decreasing scores and the Claremont official did not think that would be good
3. If they were rewarded on the basis of rankings, then they would be motivated to inflate the scores. In
this case, there was some evidence that the admissions officer disagreed with the admissions policy
The report says that he did so to try to keep the president (Pamela Gann) happy, not that he was
worried about rankings. Vos told investigators that Gann and college leaders wanted to see the SAT
averages and other admissions statistics rise, and that Vos feared angering them if he failed to
Read more:
http://www.insidehighered.com/news/2012/04/18/claremont-mckenna-admits-extent-deception-admis
sions-statistics#ixzz2VAmnb6To
CASE 4.13 – HIDING THE SLIP-UP ON OIL LEASE ACCOUNTING: INTERIOR
MOTIVES
Answers and Key Discussion Items
1. Yes, there was just simply a mistake. The employees forgot to let the formula for the higher amounts
kick in and when they realized the mistake, they were too embarrassed to admit the mistake. The
2. The cover-up was an ethical issue because the employees were involved in deception, false
impressions, forgery, lying, and a host of other cover-up tools. It is important for the students to
3. The issue is whether the oil companies were aware of the cap. There may also be statute of
limitations issues. And then there is the ethical issue of just because you can get away with paying
