Psychology of Fraud: Why Good People do Bad Things – a well-considered presentation let down by weak solutions

Chana Joffe-Walt and Alix Spiegel, “Psychology of Fraud: Why Good People do Bad Things” (National Public Radio News / All Things Considered, 1 May 2012)

A very interesting multi-media presentation that consists of an online article, a podcast and a comic strip, this joint effort combines recent psychological research on unethical behaviour and why apparently good people commit fraud and engage in immoral activities with a real-life case in a way that’s easy to read and identify with for the general public. The podcast and the article can be heard and read separately or in isolation as each doesn’t add anything that the other doesn’t already have.

The podcast is in two parts: the first part features both Joffe-Walt and Spiegel talking about Toby Groves who in 2008 was sentenced to two years in prison for carrying an incredible bank fraud that US$7 million and which drove several companies out of business, cost one hundred people their jobs and sent a company president to jail also. Groves himself also appears on the podcast, talking about how he slipped into making one unethical decision after another despite having had a moral upbringing and having promised his father as a young college student that he would never copy his older brother and go to jail for fraud.

The second part deals with Joffe-Walt and Spiegel discussing the psychological research that tries to explain why people like Groves and his employees willingly fell into criminal behaviour. Psychologists like Ann Tenbrunsel of Notre Dame University explain that when we are faced with problems, we are usually in a particular cognitive frame of mind that influences how we deal with the problems; this cognitive frame of mind itself may be influenced by our physical surroundings, the networks of people in them and the information we are receiving and how it is structured.  An example is an experiment Tenbrunsel carried out with two groups of people: one group was told to think about a business decision, the other to think about an ethical decision. The groups produced mental checklists and then were given an unrelated task to distract them. Tenbrunsel presented the groups with an opportunity to cheat. The group that had thought about the business decision was more apt to lie than the other group.

The article on was structured in six chapters with a comic strip illustrating the relevant parts of Toby Groves’s case in each chapter. The psychology lesson first appears in Chapter 3 and comes to dominate subsequent chapters. What is really intriguing about Groves’s case is how readily people helped Groves do what they clearly knew was illegal, simply because they liked him a lot, thought he was a decent person and so wanted to help him solve his financial problems. This of course means that human beings do unethical and even criminal things, not because they are essentially immoral or amoral but because they want to be helpful, especially to people they like or look up to. Empathy for people who may be like us or who have been dealt unfairly overrides abstract considerations of right versus wrong, of the long-term cost to some vague concept such as the global environment versus the short-term cost of cheering up the person right in front of you.

The major weakness of the overall presentation was in the solutions suggested to combat this problem of how our decision-making and other cognitive processes may be influenced too much by situational factors. One solution that is suggested is forcing businesses to change auditors every two years to address the problem that close relationships with auditing firms developed over the years may corrupt audits themselves. This solution could be extended to many other aspects of company operations and processes: companies perhaps should change their accountants and lawyers every few years to avoid the corruption of their financial reporting and legal work. In practice, this might disrupt company operations and may even waste company resources. Other issues to consider include the business organisation’s culture and how it shapes people’s attitudes and loyalties: are people encouraged to speak their minds, to hold heterodox opinions and to challenge themselves or does the company demand conformity, loyalty and insularity? Are employees allowed to mix with outsiders and to discuss company issues with people outside the firm? What juicy company secrets might be spilled and passed on to competitors and the press?

There is also the situation, exemplified by News Corporation, in which senior management and other employees may try to guess what their managing director or his/her equivalent is thinking or would think and subtly communicate through body language and corporate customs, conventions and rituals what is required and what is discouraged. People, especially new employees, eager to please may fall into committing fraud and other illegal activities without even realising that what they are doing is wrong.

It’s not enough to conclude as Joffe-Walt and Spiegel do that right is right, wrong is wrong and people should know the difference: people like Toby Groves know that already yet still go ahead and do stupid things; and there are times also when what’s right and what’s wrong aren’t always clear and people may need standards and guidance to determine what to do. Companies can assist in this regard by encouraging staff to attend internal and external ethics courses, instill ethics and standards into the work culture so they become as natural as breathing, and provide back-up, counselling and legal advice in cases where individuals are in danger of making grave mistakes or have already done so. People also need a proper work-life balance so that they are able to pursue individual and other group-oriented interests and become well-rounded beings rather than hollow workaholics lacking a moral and spiritual dimension.

Ultimately companies don’t operate in a social vacuum; if companies and/or their employees behave in a less-than-moral fashion, that’ll be because our society sanctions their behaviour. What is it about business decision-making intrinsically that can encourage people to make bad moral decisions? It boils down to values and assumptions about doing business generally, about competition and how we define it, and about success and how we define that, that we hold and which we should examine: how did these values and assumptions originate and why, and the historical context in which they arose.

The article can be accessed here.

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