The Enron/Andersen debacle demonstrates yet again how easy it is for basically decent people to step over ethical and legal lines in the pursuit of success. From what we know, these were not people who set out to deliberately defraud their employees of their pensions or shareholders of their investments. In many ways they were pillars of the community, supporters of charities and the arts, creators of jobs. They love their families. But they made decisions that eventually had disastrous effects for many people, including themselves. At least some of them are likely to face criminal charges as a result of their actions.
They are not unique. Every year business people find themselves on the wrong side of the law as a consequence of decisions they have made. Most cases are not as high profile as the Enron case, but as an attorney who has often defended business clients, I know their stories all too well. These are not people who sit down and deliberately formulate some strategy to commit a crime. Instead, they usually find themselves in the justice system because of one or more of the following three factors:
- Incremental decisions made without consideration of where they are leading,
- A sense of corporate collectivity that leads to a loss of the sense of individual ethical accountability, and
- A lack of critical thinking skills that might have helped them deal with each of the other factors. Moreover, these factors are frequently inter-related.
Decisions follow other decisions, often without a conscious awareness of their consequences and the alternatives that are being eliminated. The effects are often incremental, and, of themselves, may seem innocuous. The problem is that these decisions are often made without an awareness of other decisions being made within the same organization and how they all will interact. Sometimes they are decisions not to act because the options are unpleasant, and sometimes they are decisions to ignore something because no one thought that this might be a real problem. Sometimes the decision not to act is a form of not exercising personal responsibility. Because there has not been a clear analysis of possible – and at times, probable – consequences, people find themselves in a place they never intended to be, a place with few good options left.
Cognitive Levels and Critical Thinking:
Psychological literature suggests that there are several different cognitive levels or activities that need to be differentiated when talking about critical thinking. These are:
- Recall – Recalling previously-memorized or experienced data.
- Comprehension – Expressing recalled information in one’s own terms.
- Application – Reordering the comprehended information and reaching a conclusion or coming up with a solution to some situation based on that information. Legal reasoning, for example, is largely the process of applying legal principles to a particular situation.
- Analysis – Breaking the information into parts, with each part considered separately as well as in terms of how it fits into the larger whole.
- Synthesis – Integrating all of the other levels. Usually it involves application to a new problem. Synthesis is required when there is not a single right answer to a problem, but the best answer still needs to be found.
Incremental and Uncoordinated Decisions:
The Story: As one example, a chemist in a manufacturing company decided to add a trace of acetone to the water used in an outdoor humidifying system as a means of getting rid of used acetone from the manufacturing process. It amounted to less than one percent of the water in one sprinkler head out of several that were spraying water, and no one noticed. However, the process was automatic, and over the course of several years no one checked on the amount of acetone being used, even though manufacturing processes were changed. In time employees began to complain about the odor. Management did not think critically. They did check the humidifying process or investigate the water source. They made the assumption that the employees were just looking for things to complain about. When some employees finally went to the County Department of Health with complaints about the odor, it was discovered that the water from that sprayer head was now more than three percent acetone — certainly an irritant if not a health hazard.
When County officials came out to check the humidifying system they also observed hundreds of barrels of hazardous waste that were being stored even though the company did not have a hazardous storage permit. (The latter situation was largely due to the fact that the paper work to apply for the permit had been lost, and the manager decided it was too much work to re-do it.) This discovery triggered a wider investigation and a request for more information. The manager did not respond to the County’s request within the required time frame because he was not ready to reveal that they had deferred making some required environmental modifications largely to save money in that fiscal year. Year-end bonuses were tied to the division’s financial performance. The environmental violations in themselves were not major, but the combination of decisions (including one by the safety officer not to expeditiously complete and forward to the management a long memo that he had written detailing their environmental problems) added up to a major case and jail time for two executives. There had been no critical thinking about consequences of all of these decisions, or lack thereof.
Application: Looking at this series of decisions, no one seemingly even recalled the fact that the acetone level was linked to a particular manufacturing process, let alone moving to the stage of comprehending what that meant or analyzing what would need to be done to limit the percentage, or deciding if it was even appropriate to dispose of the acetone this way. No one comprehended that employees might complain over a lack of management action, or analyzed what their actions would look like to government authorities. No one synthesized the information that once the authorities became involved, many facets of the company business would come under scrutiny and that it would be well to respond quickly and affirmatively to limit the liabilities. Although the managers were well-educated and decent people, they did not employ good critical thinking skills.[1]
Corporate Collectivity and Personal Accountability
Especially in large organizations there is often a sense of “corporate collectivity” that encourages some people to lose their sense of accountability as well. When many persons touch the process or product without having fixed accountability for the final product or decision, critical-thinking questions such as potential risk, risk assessment, and risk management do not have the same sense of importance they would have were one individual responsible for the entire task or the ultimate decision. No one has specific responsibility for challenging what appears to be a deficient process or decision. Indeed, the group norms may discourage questioning the efforts of others. It becomes easy to rationalize and assume that if there is a problem, someone else — somewhere — must be expected to catch it. “It is not my responsibility. It is not something I decide.” It is difficult to make people recognize that in their willingness not to openly challenge something that they sense is problematic or unethical, they are often, in fact, making a decision to adjust their personal ethical standards.
The Story: As an example of both a lack of critical thinking and the passing of ethical responsibility, consider the case of another client, Bill, a hard working blue-collar independent contractor for a tool distributorship similar to Snap-On Tools. Bill had some credits from a junior college, but no degree. He was a good salesman in his field, a friendly guy, and most people liked him and trusted him. Similarly, Bill trusted most of the people he met. Along the way Bill met a teenager with a gift for salesmanship (something he should have recognized and comprehended given his own activities) who had just opened his own carpet-cleaning business. As a favor, Bill allowed this young man to use his resale number to purchase cleaning supplies. He also let him use his company checking account before helping him set up his own business account. The young man soon became very successful, and shortly thereafter took his business public.
In what Bill assumed to be a gesture of thanks for his help, the young man asked him tojoin his Board Of Directors, a position which Bill accepted, even though he had little business training or understanding of the legal responsibilities of a board member. The Board had a core group of business people who were close to the owner. There were also others, like Bill, who were long-time friends, but who were ill-prepared for this type of activity. The latter group basically went along with whatever the owner and his coterie proposed. They did not ask questions at board meetings. In fact, Bill did not even really understand what was happening when the company began to engage in insurance and securities fraud, although had he been willing to ask about things he did not understand, he could have found out much more.
At one point the cleaning company submitted fraudulent bills to an insurance company for chemicals that were allegedly to be used on a major restoration project, listing Bill’s company as the one submitting the claim. Initially the insurance company did not check on the claim and paid the bogus bill with a check made out to Bill’s business. He did not question why his company was involved. Rather than informing the insurance company that he had not filed a claim, he endorsed it over to the cleaning company believing that it was the appropriate payee. He genuinely thought that he was doing the right thing, but he was charged with bank fraud since he had endorsed a check to which he knew he was not entitled. When the government started investigating, he was also was convicted of a securities violation because on the IPO registration of the cleaning company, he had allowed them to say that his company had sold more than $1 million worth of product to the cleaning company.
Application: Bill initially made the decision to let the young man use his resale number as a favor to a friend. But even without a college degree, if he did not know, he should have known, that this was not legal. Likewise, the decision about the checking account. The decision to accept the board appointment, even though he realized that did not have the business background that others on the board had, was something he should have questioned, but did not. He was flattered to be a part of something that was receiving glowing reviews and so ignored the implications of his increasing involvement. When he had questions at board meetings, he chose (another decision) not to ask them rather than to appear ignorant. There were plenty of signs that things were not proper, but he went along, accepting the idea that if everyone else thought it was all right, he did need to worry about being accountable. He let himself be used.
Bill was beginning to feel uneasy about some of this, but he was either unable, or unwilling, to think critically about what was happening. He could have comprehended much of what was happening, but he had accepted the notion that it really was the responsibility of others on the board who understood these things better than he to make the ethical judgments. He passed the buck. As a result he was sentenced to two years in prison.
The Refusal to Think Critically:
There are many other examples that could be recounted. Let me give only one. Joe was a pillar of his community, owned a family business, was a good family man and church member. Yet, because he did not ask the right questions, he sold chemicals to people who were making methamphetamines. He decided to believe them when they said that they were buying the chemicals to use in servicing automobiles, even though they wanted them delivered after hours, paid in cash, did not have a business address nor any business identification, and did not use a proper vehicle to transport chemicals. Blinded by the prospect of easy money, he also rationalized that he was not accountable if he did not specifically know that the chemicals he was selling were being used to manufacture the drug. He chose not to ask the questions that would have forced him to critically evaluate his actions. He now faces the potential of a significant prison sentence where he can ponder his lack of critical thinking.
Conclusion:
These were not bad individuals deliberating trying to defraud or commit crimes. But they did not think through where their decisions could possibly lead, and they were willing to ignore even their own professed ethical standards in the pursuit of the golden ring of money, status, or acceptance. They did not make the effort to comprehend, analyze or synthesize the information that was right before them. Had they been in the habit of critical thinking, it is much less likely they would have found themselves starting down the path of decisions that led them into the justice system.
Think about it.
[1] For a more detailed description and analysis of this case see Magasin, M. & Gehlen, F. (1999) “Unwise Decisions and Unanticipated Consequences;” Sloan Management Review, 41 (1), pp. 47-60
