978-1285428710 Section 4 SECTION 4C

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