Unethical Decision Making in Organizations


Guido Palazzo (Professor of Business Ethics) & Ulrich Hoffrage (Professor of Decision Theory)

University of Lausanne

Week 1

  • Ethical and unethical decision making
Week 2
  • Introduction to unethical decisions in organizations
Week 3
  • The power of frames: How people construct their reality
Week 4
  • The power of routines
Week 5
  • The power of strong situations
Week 6
  • The power of institutions
Week 7
  • The wind of change: How to fight ethical blindness
Course Intro Reading: Narrow frames and strong contexts can push good people towards unethical decisions, how to protect yourself and your organization. High integrity people can break rules if they are put into a strong context, and become ethically blind over time. Learn why and under what conditions good people make bad ethical decisions, protect individuals, respect organizations against context, analyze organizational contexts, asses risks of unethical behaviour. Draw from management, psychology, sociology, philosophy. Develop a framework for understanding unethical behaviour and analyze scandals of recent decades.

Week 1 is ethical and unethical decision making, ask why do humans act in unethical ways, under what conditions, what motivates, understand human nature and culture, what is evil, why is this relevant for us, historic evolution of modern understanding of evil, discuss evil of different times and cultural contexts, deal with situations for ethical decision making using a tool box by Immanuel Kant.

Week 2 is introduction to unethical decisions in organizations, reflect on fairy tale to understand the power contexts have on individuals, look at Ford Pinto scandal, model ethical blindness (conceptual framework and backbone for whole course).

Week 3 is the power of frames and how people construct their reality, look at Enron scandal, discuss Lehman Brothers collapse and framings organizational language. Link decision making and language and discuss how language influences what we can see and how we decide. 

Week 4 is the power of routines, look at how people and organizations can simplify information processing and decision making by using heuristics and establishing routines, examine key driving forces of ethical blindness in organizations, demonstrate the risk associated with powerful routines in military innovation case study.

Week 5 is the power of strong situations, the environment of the decision maker, inspect immediate context, understand thinking and behavioural influences (most are the presence of other people), study effects via social psychology and look at classic experiments.

Week 6 the power of institutions, examine the impact of time on decision making, discuss third contextual layer of our model of ethical blindness (institutional context where organizations are embedded), discuss the impact of ideology on ethical blindness.

Week 7 is the wind of change and how to fight ethical blindness, defence strategies, fight as individuals and as leaders.

Week 1 & Learning Outcomes:
  • Relate & describe how modern thinking of evil has developed overtime
  • Compare evil as the result of an individual and conscious violation of reason with evil as the result of social structures and dynamics
  • Analyse ethical dilemma situations
  • Solve ethical dilemma situations and apply moral philosophy to daily dilemma situations
  • Formulate your own dilemma stories

1.2 A little history of Evil:
When making decisions, we are embedded in contexts. 
Theodicy problem: evil exists, god is benevolent (well meaning), god is omnipotent (all powerful).
In the premodern understanding, evil is the result of the fall of man. Our suffering is the punishment of God.
After Lisbon (earthquake and tsunami), evil gets disconnected from theology and gets analyzed as a social phenomenon.
Evil in its modern conception is a deviation from reason.
After Auschwitz, evil gets disconnected from reason. The analysis of evil starts to focus on the context in which decisions occurs.

1.3 Dilemma, how to make ethical decisions:
Old homogeneous societies shared same values and traditions embedded in the same context thus autopilot decisions but no real freedom. Modern society is pluralistic, heterogeneous, rules are unclear, high speed change/transformation, inovaction, globalization, drowning in data, hard to make sence, information overload.
With limited resources and unlimited desires to possess them, we have violence (domination), and rules.
Need to share rules through cooperation to increase the pie we get out of the limited resource, thus need trust. Thus avoid violence and increase cooperation. 
Dilemma: Two decisions; both look similar but we must choose one. Ex. Top salesperson has sick child and overall performance drops, boss states that you will not reach target. Fire the salesperson, or ask team for improvements?
Kantian Duty Ethics: act only if it can be a uncontradictory universal law.
Utilitarian: decision, regardless of right or wrong, depends on consequences (greatest benefit to the mass)
Tools: universalizability, utility, values - but how do we remain objective in strong contexts?
Week 2 & Learning Outcomes: 
  • Describe the power of strong context over reason and the main psychological forces that drive ethical blindness
  • Analyse modern organizations according to the fairy tale "The Emperor's new clothes" (by Hans Christian Andersen)
  • Apply the concept of ethical blindness to a case study (the Ford Pinto case).
2.1 The Emperor's new clothes I & II:
The power of reason should not be overestimated, what is the atmosphere in the environment, there is both fear for social (group pressure), authoritarian leadership and uncertainty about one's own evaluations, the tailor's story is written in the king's frame and preys on his vanity, we all make use of frames when we act in the world. We use frames to reduce complexity, but frames can be too narrow, thus we run into risks. The context can be stronger than reason. The routine can be stronger than the truth, and when the context is confirmed it can be harder for following members to discredit it; commitment can escalate in the dynamic.
  • Context can be stronger than reason
  • Actors might get trapped in a very narrow perception of reality (frame)
  • What looks irrational from outside a context might look completely rational from inside the context
  • Fear is a key driving force of irrational behaviour
  • Modern organizations may look similar to the kingdom
2.3 The story of the Ford Pinto
They calculated that the design was prone to fires when hit from behind, but it was cheaper to pay for the death, burns, and injuries instead of re-constructing the vehicles thus they continued to produce but eventually got charged for reckless homicide. The engineering team was not able to prove incompetence given the framework of the company thus was unable to action on their own ethics. There was time pressure, complexity, and other factors that created a dangerous frame. If you cannot say it, how can you see it?
  • The idea that bad things are done by bad people does not help to sufficiently explain unethical decisions in organizations.
  • Different layers of context (situation, organization, society) can build powerful constellations that switch off reason in decision makers.
  • In such context, decisions makers might get blinded for the ethical dimension of their decisions. They behave unethically, but they can not see it. 
2.4 - The concept of ethical blindness I
Ethical blindness: decision maker's temporary inability to see the ethical dimension of a decision at stake. Context bound, good people doing bad things.
  • When ethically blind, actors deviate from their own values and principles. When making a decision, they cannot access those values.
  • Ethical blindness is context-bound and thus a temporary state. When the situation changes, actors will likely return to practicing their original values and principles.
  • Ethical blindness in unconscious. Actors are not aware of deviating from the rules of the game when making a decision.
Cognitive Frames: mental structures, that we use to construct reality.

2.4 - The concept of ethical blindness II
Three context layers are situational, organizational, institutional/societal.
Situational context: some situations are so powerful that they elicit similar and specific behaviour in many people forcing them to react.
Peer or majority pressure: one's own judgment would be correct, but when compared to others of differing judgment, they lose confidence in their own and join the majority.
Time pressure: people may act as if they have time and neglect the correct ethical action.
Organizational Context: orgs simplify our world perception and create increasingly homogeneous and simple world views among their members. Increasingly in successful organizations, the more feedback we receive the more we think we are right and the less we learn. Aggressive pressure of competition has a high change of narrowing a set of objectives and creating a narrow context.
Institutional Context: Are beliefs are embedded in a context, the institutions themselves embedded in a wider context. Strong norms, values, and practices can increase rigid framing. They can turn into dogmatic ideologies.
  • Ethical blindness results from a too narrow framing of decision making situations.
  • The frame we use to interpret the world and make our decisions is strongly influenced by the contexts in which we make our decisions.
  • Three contextual layers can be differentiated: situational, organizational, institutional.