Ethical Traps

Chapter 6 opens with three learning outcomes. After reading the chapter, you should be able to:

1. Summarize the characteristics of defective ethical reasoning and evaluate the reasons and rationalizations for employees to engage in misconduct or participate in business decisions with unethical results.
2. Examine common external stimuli that compel people to engage in unethical behavior in business.
3. Analyze cognitive biases that interfere with ethical decision making.

The chapter opens with Toby Groves, who grew up in Ohio believing he was a good person with strong ethical values. After his older brother's 1986 conviction for bank fraud, Toby vowed to run his own business transparently and ethically. Just over 20 years later, Toby Groves was sentenced to 2 years in prison for bank fraud — a fraud that began with small steps to cover financial obligations from poor management of his mortgage lending business.

In 1989 Toby founded Groves Funding Corporation, which became Greater Cincinnati's 19th largest home mortgage lender by 2007 (Watkins, 2007). The company had a strong values statement and espoused ethical conduct; a loan officer recalled, "Our culture was if you do things right, you know, you'll be successful and there's no need to ever be dishonest. You knew you don't cross those lines" (Joffe-Walt & Spiegel, 2012, 03:48). In 2004 Toby discovered his company was less profitable than he believed — small errors in mortgage loan calculations had accumulated into a $250,000 fund shortfall. To cover it, he mortgaged his own home and inflated his income on the bank's application. It felt like a small lie, and inflating income on mortgage applications was common practice at the time, so the risk of detection seemed small. Toby rationalized that the funds would save his company and his employees' livelihoods.

The need for funds only grew as Toby discovered greater losses from risky mortgages. To save the business, he began securing false mortgages — loans on houses that did not exist. The complexity of loan applications meant he could not complete the fraud alone, so he drew his staff in, convincing them it would be "just this once." By his 2007 arrest, the fraud had grown to $5.2 million (Baverman, 2008).

Toby's story illustrates that ethical misconduct is not the result of a few bad people — it can happen to any employee who fails to recognize the ethics of a decision. Recall from Chapter 1 how Wells Fargo's compensation structures and aggressive sales goals pressured employees into fraudulently opening fake accounts using existing customers' information for 15 years (Lilly, Durr, Grogan, & Super, 2021), and how professionals and board members at the now-defunct blood-diagnostics company Theranos were threatened into supporting unproven technology and silence about fraudulent practices (M. Williams, 2022). Pressures to follow orders, hit business goals, and ignore bad news lead to defective ethical reasoning.

Six Signals of Defective Ethical Reasoning

The chapter names six characteristics that signal a decision has gone through defective ethical reasoning (Sims & Sauser, 2013):

• Few ethical alternatives are perceived; not all possible alternatives are considered.
• The chosen unethical alternative is not reexamined; it is justified as being the only choice.
• Rejected ethical alternatives are not reexamined — the decision made is final.
• Rejection of dissenting opinions; stakeholder input is discouraged.
• Selective bias of new information; research is conducted to find data that supports the chosen decision.
• Win at all costs; meeting company goals overrides ethical alternatives.

Social psychologist Darley (1992) posits that most unethical actions are not committed by evil actors, but by individuals acting within an organizational context. Most people look for others to guide them toward the right behaviors and "do what others around them do or expect them to do" (Treviño & Brown, 2004, p. 72). Behavioral ethics is the field that studies the reasons for individual behaviors that occur within larger societal expectations, examining the biases — individual and group-level — that hinder ethical decision making (Treviño et al., 2006). This chapter focuses on why well-intentioned people sometimes make bad decisions and fail to follow their own ethical standards, and introduces common traps for unethical behavior along with suggestions for avoiding them.

One common response to ethical lapses in business is to blame the perpetrator — "that manager was greedy and didn't care who was hurt." Some people consider criminals like Toby Groves to be psychopaths, displaying superficial charm, grandiosity, deceitfulness, a lack of remorse, lack of empathy, failure to take responsibility, impulsivity, and antisocial behavior (Kluger, 2008). Elizabeth Holmes, founder of Theranos, has been described in similar terms — one author argued her charm, egoistic tendencies, secrecy, and power contributed to fraud, lying, and surveillance of employees (M. Williams, 2022). Media reports lean on the bad apple analogy — a rogue employee — to explain misconduct (Divers, 2023). But not all misconduct is perpetrated by people with psychopathic tendencies or by one rogue employee (Andrews & Furniss, 2009); in fact, business ethics scandals typically involve normally good people acting contrary to their own ethical standards. Behavioral ethics psychologists study why moral people engage in unethical behavior.

Bounded Ethicality

Bounded ethicality is an unconscious favoring of self-serving biases that impedes a person's ability to follow ethical standards (Tenbrunsel, Diekmann, Wade-Benzoni, & Bazerman, 2010) — it restricts an individual from even seeing the ethics of a situation. Ann Tenbrunsel, ethics professor at Notre Dame, gives the example of deciding to save a business financially rather than considering the ethics of the decision: "The way that a decision is presented to me, very much changes the way in which I view that decision and then, eventually, the decision it is that I reach" (Joffe-Walt & Spiegel, 2012, 11:53). As employees focus on hitting business goals, attention to ethical standards fades, and they may fail to see a blatant rule violation. This connects to inattentional blindness — the inability to recognize unexpected events or ethical issues during a routine task — which helps explain why companies miss environmental impacts (Wakeman et al., 2022), workplace sexual harassment (Tenbrunsel et al., 2019), and financial statement errors (Edmonds et al., 2021).

Table 6.1 — Psychological Traps for Unethical Behavior (Hoyk & Hersey, 2008)

Experiential research offers many reasons and rationalizations for unethical behavior, often using different terms for the same underlying stimuli. Hoyk and Hersey (2008) organize these into three categories of social-psychological traps that distort perceptions of right and wrong. Primary traps ("external") are the main traps that impel people to move in a certain direction without regard for ethical principles, including situational accommodation to group norms. Defensive traps ("rationalizations") are justifications for unethical behavior offered after the act; relying on them predisposes a person to repeat the behavior. Personality traps ("internal") are personality traits that make some people more susceptible to misconduct than others.

Prentice (2007) offers four steps for overcoming situational factors and biases in ethical decision making:

1. Know the cognitive biases facing decision makers.
2. Be motivated to correct the bias.
3. Recognize the magnitude and direction of the bias.
4. Adjust the response accordingly.

The first step is the capacity to recognize rationalizations that restrict ethical reasoning. The second requires actually wanting to overcome the biases that inhibit ethical decisions. The third evaluates how likely organizational or individual pressures are to influence the ethics of a given decision. The fourth asks employees to evaluate decisions for bias and adjust — this final step aligns with the monitoring-outcomes step of the ethical decision model from Chapter 5. Not every ethical trap Hoyk and Hersey (2008) catalogue will appear in every situation, but understanding the common ones lets employees avoid misconduct and respond more effectively to others' rationalizations.

The Theranos Scandal — A Running Case Through This Chapter

The chapter returns repeatedly to Theranos and founder/CEO Elizabeth Holmes as its central worked example. In 2022 Holmes and president/COO Ramesh "Sunny" Balwani were found guilty of fraud. A Stanford dropout, Holmes started the blood-testing company in 2003 at age 19; "Theranos" derives from "therapy" and "diagnosis." The goal was to revolutionize healthcare with a blood diagnosis providing 240 tests from a single finger prick, faster and cheaper than existing technology.

The company, once valued at $9 billion, attracted $945 million in investment from Tim Draper, Donald Lucas, Betsy DeVos, Larry Ellison, and Rupert Murdoch, with an advisory board including Henry Kissinger, retired General James Mattis, and former Secretary of State George Shultz (M. Williams, 2022). Forbes listed Holmes as a billionaire worth an estimated $4.5 billion. What investors and the board did not know: the device never worked as marketed, and marketing presentations used fraudulent results. Employees testified they were pressured to falsify laboratory tests and threatened with lawsuits if they challenged company practices (McGinn, 2022; Primeaux, 2019). A 2015 exposé by CNN reporter John Carreyrou drew on former employees' concerns and triggered investigations, indictments, and the company's closure.

Behavioral ethics research shows that the interpersonal influence of peers and leaders in the workplace shapes ethical behavior (Treviño, den Nieuwenboer, & Kish-Gephart, 2014). An organization's authority structure and culture pressure employees to accommodate workplace norms, and psychologists recognize that humans seek to conform to group expectations and minimize social disruption. Szanto (2014) found language in corporate settings often frames decisions as belonging to the group rather than the individual — "The committee really made a mess of that decision," "The team tried its hardest," "The corporation regrets the decision of its subsidiary to use child labor in its factory" (p. 100).

Pressures from others include following orders from a supervisor, peers, and teams. Striving to meet an organization's expectations for immediate results creates time pressure that can produce shortcuts and misconduct. Compensation and monetary incentives also shape ethical behavior as employees strive to succeed (C. X. Chen & Sandino, 2012; Tenbrunsel, 1998). Personality traits interact with these pressures: individuals from high-collectivism cultures tend to promote obeying supervisors and group conformity even when it conflicts with personal values (Snell, 1999). Hofstede (1980) describes collectivism as "a tight social framework in which people distinguish between in-groups and out-groups; they expect their in-group (relatives, clan, organizations) to look after them, and in exchange for that they feel they owe absolute loyalty to it" (p. 45).

Employees who hold a moral belief of loyalty to their work group or organization tend to mimic the behavior of other group members (P. Murphy & Dacin, 2011). Maintaining loyalty to a supervisor fosters obedience to authority — following orders without weighing conflicts with ethical principles. Loyalties to family, friends, or the firm can become more important than loyalty to unknown customers or shareholders; an employee may see fraudulent accounting entries as helping the organization despite inevitable harm to shareholders (P. Murphy & Dacin, 2011). Toby Groves's justification — save jobs, keep the company viable — is exactly this kind of loyalty. An obligation of loyalty also creates reluctance to report unethical behavior (MacGregor & Stuebs, 2014), which is why Toby's employees went along with the fraudulent mortgage applications.

Obedience to authority manifests in two forms. First, many employees immediately obey a supervisor without pausing to consider conflicts with their own ethics — a tendency rooted in childhood lessons to obey parents and teachers (Hoyk & Hersey, 2008, p. 6). Second, an employee may recognize an order as unethical, yet the obligation to obey is resilient enough to override moral judgment, often driven by fear of retribution or job loss. Snell (1999) quotes a Hong Kong worker: "I did what he asked and went to the other office although I was not completely willing. I was confused and did not know whether I did the right thing. I followed his instructions because he was my boss. It was very difficult to refuse as I was afraid there might be a negative impact on my career prospects" (p. 514).

Milgram's Obedience Experiments

Stanley Milgram's 1960s experiments — ethically questionable in their own right — remain the classic evidence on blind obedience. Subjects were paired as "teacher" and "learner"; the learner took a word-association test, and the teacher was instructed to deliver increasing electric shocks for each wrong answer. The "learner" was actually a confederate who screamed and pleaded for the test to stop as shocks intensified. Even though many teachers were visibly uneasy, almost two-thirds followed the experimenter's instructions to administer injurious shocks to a seemingly innocent victim (Milgram, 1963).

Subsequent research ties obedience to authority directly to business contexts. Treviño et al. (1999) found organizational cultures demanding unquestioning obedience create environments where employees are unwilling to report ethical or legal violations and reluctant to deliver bad news to management. N. C. Smith et al. (2007) found managers are more likely to break the law or act unethically when a supervisor orders it. Carsten and Uhl-Bien (2013) found employees who hold an inflated view of a manager's importance are more likely to follow orders regardless of ethical considerations.

Obedience to Authority at Theranos

At Theranos, young professionals fresh out of college — eager to work for a charismatic CEO — were pressured to follow procedures contrary to professional standards for doctors, engineers, and scientists. Over 15 years, some kept following orders while others quit or were fired for raising unethical or dangerous conduct. Surekha Gangakhedar, pressured for 5 years to validate unreliable tests needed for commercialization, resigned after the unreliable testing was used on Walgreens patients (McGinn, 2022). Clinical lab director Adam Rosendorff, M.D., testified he was expected "to 'come up with reasons other than test performance' to explain unusual results to patients' doctors" (McGinn, 2022, p. 39); he resigned after almost 2 years. Two whistleblowers left far sooner: Tyler Shultz, concerned that Holmes's marketing claims didn't match the equipment's real abilities (and whose short tenure owed partly to family connections; Primeaux, 2019), and Erika Cheung, who resigned after 6 months when her concerns about quality-control failures on hepatitis tests and data manipulation were ignored — she later reported her concerns to the Centers for Medicare and Medicaid Services, triggering investigations (McGinn, 2022).

Obedience to authority isn't limited to human supervisors: with AI now common in the workplace, the same trap applies to blindly following biased algorithmic recommendations. Ghasemaghaei and Kordzadeh (2024) found in an experimental study that managers followed a computer-generated recommendation to select a male candidate with less experience over a more-experienced female candidate.

Figure 6.1 in the chapter tracks the percentage of U.S. employees who feel pressure from others to engage in ethical misconduct, showing a consistent increase over the past decade, with a double-digit jump in 2021 attributed in part to COVID-19 pandemic disruptions (Ethics & Compliance Initiative, 2021b) — in 2020, 30% of U.S. employees reported experiencing such pressure.

What To Do When a Supervisor Says "Look the Other Way"

Employees should immediately refer to the organization's code of conduct or mission, a professional or industry code of conduct, or applicable government regulations, then look to other authorities — the supervisor's boss, the ethics department, or government regulators — explaining why the direction conflicts with standard and legal policy. The intense anxiety this trap creates (fear of job loss, missed promotions, poor evaluations, low merit increases) is real; having savings or awareness of other job options can make it easier to walk away. Theranos whistleblower Tyler Shultz credited family values with helping him quit and speak up: "you can't love your job too much otherwise you'll do things you won't ordinarily do in order to keep your job" (Markkula Center for Applied Ethics, 2019, 16:02).

Managers or employees often fail to recognize the ethics of a situation because of small changes in behavior over time. Terms for this include incrementalism (Prentice, 2007), the boiling frog syndrome, and the slippery slope. Suh et al. (2020) quote a convicted chief accounting officer describing the difficulty of recognizing when aggressive reporting crossed a line: "I call it increment… incrementalization, whether that's even a word. You… you get to here so it must be okay to go here. And if you're here, it surely is okay to go here. It's really fuzzy where you cross the line […] At what point do you cross the line where that act becomes illegal? I don't know. I don't know." —Elliot, CAO (Suh et al., 2020, p. 662).

This progression happens partly through just-noticeable difference — the smallest difference between two stimuli a person can notice (Palazzo et al., 2012). In business, the reference point for today's decision is yesterday's decision; today's choice transgresses ethical norms only slightly more than yesterday's, so it feels acceptable — after all, it's not that different from what was done before. Small steps of violation feel not perfect, but acceptable, because each one deviates only slightly from what the person still perceives as the right thing to do.

Bernie Madoff — who died at 82 while serving 150 years for running a multibillion-dollar Ponzi scheme affecting 16,519 investors — described his own slide down the slippery slope to the court: "When I began the Ponzi scheme I believed it would end shortly and I would be able to extricate myself and my clients from the scheme. However, this proved difficult and ultimately impossible" (United States District Court Southern District of New York, 2009, p. 23).

The theory of social proof holds that most people evaluate others' actions to define proper behavior. The desire to fit in, be a team player, and get along with coworkers creates a culture of conformity — people are more likely to act unethically when peers do the same, and less likely to blow the whistle when peers seem to accept it. Hoyk and Hersey (2008) identify three related traps — conformity, conformity pressure, and "don't make waves" — that together describe conformity bias: the tendency to align one's judgments with a reference group. Conformity to group norms is a normal, useful part of work life (office etiquette, how to address coworkers, celebrating success), but conformity bias can drive unethical decisions when it means following the group's ethical judgments instead of one's own (Prentice, 2007).

Conformity pressure is the use of sarcasm and punishment to enforce conformity — employees who break from the norm get labeled naïve, not a team player, or not committed to the organization. Wachter (2011) describes a general manager telling an employee reporting safety problems that he was being "both absurd and naïve" (p. 50). John Carreyrou's Bad Blood recounts Elizabeth Holmes firing CFO Henry Mosley for not being a team player after he cautioned her against lying to investors (Carreyrou, 2019). "Don't make waves" or "don't rock the boat" are the phrases that compel conformity (Hoyk & Hersey, 2008, p. 44); fearing retribution for breaking confidentiality agreements, Tyler Shultz anonymously asked the New York State Health Department about equipment-testing compliance using a hypothetical company rather than raising it directly (Primeaux, 2019). Expressing views contrary to peers' creates emotional stress that makes whistleblowing exceedingly difficult (Prentice, 2007).

Overcoming social pressure to conform takes courage. Hoyk and Hersey (2008) tell of a newly hired Monsanto chemist required to work unpaid Saturday mornings despite a Monday-through-Friday agreement; by refusing to keep showing up unpaid, he prompted every other employee to refuse as well, changing company policy. Gentile (2010a) frames speaking up as setting a powerful example for coworkers — conformity pressure can work in the ethical direction, too.

Groupthink is a psychological phenomenon in group decision making where pressure to achieve unanimity impairs each individual's ability to consider alternative courses of action (Janis, 1973). Groups striving for consensus can fall into the Abilene Paradox, ending up with a solution no one actually wanted. Management scholar Jerry Harvey (1974) developed the term from four adults enjoying a hot day in Texas playing dominoes: when the father suggests a 100-mile round trip to eat in Abilene, everyone agrees — only to discover on returning that no one actually wanted to make the trip, but no one wanted to disappoint the others who'd agreed to go. Group members become so intent on reaching a decision as a cohesive unit that they set aside personal ethical principles; like conformity bias or fear of standing out, groupthink discourages dissent and is one reason employees fail to report unethical behavior, product safety issues, or legal violations.

Table 6.2 — Janis's Eight Symptoms of Groupthink

The first two symptoms reflect inflated confidence in the group's decision-making ability. The next two reflect closed-mindedness that limits consideration of alternatives. The remaining four are the processes that enforce cohesiveness and agreement (Aldag & Fuller, 1993).

Preventing Groupthink — Ben-Hur et al.'s Three Behavioral Levels

Ben-Hur et al. (2012) identify three behavioral levels for encouraging debate, open expression of concerns, and good decision making:

1. Knowing — understand the information needs for good decisions and manage the flow of information to the executive team.
2. Saying — make sure people can say what needs to be said.
3. Sustaining — make solutions sustainable.

Knowing means encouraging openness in communication — exploring outside sources for relevant data, encouraging each member to be a critical evaluator, and having the leader avoid taking a strong early stance to keep information flowing. Saying means overcoming conformity biases that inhibit members from voicing concerns, while the leader still sets boundaries if some members become too assertive. Sustaining means building durable group decision-making habits: refrain from seeking unanimous agreement and allow dissent; assign (and rotate) a devil's advocate role to promote intentional, non-personal conflict (Sims, 1992); establish a critical review process (a second meeting or final checklist) to weigh possible consequences; and give the group time to reflect on its own decision-making process.

Competition

Competition is an essential, inevitable part of business, but without a strong ethical climate, cutting corners becomes a way to stay competitive (R. W. Jackson et al., 2013). Palazzo et al. (2012) argue aggressive competition fosters an "us vs. them" worldview that can produce hostility and unethical behavior toward outside groups or firms; at Theranos, Holmes's competitiveness created a culture of secrecy, blocking information-sharing and requiring nondisclosure agreements to guard trade secrets (M. Williams, 2022). Managers focused on winning at any cost pressure employees into unethical behavior (Malik et al., 2023); J. Cohen et al. (2010) found firms facing high competition are at greater risk of corporate fraud, and when managers treat unethical practices as "the way things are done," they become a norm of competition.

When rivalry intensifies, irrational decisions can generate unexpected, negative consequences. Malhotra et al. (2008) coined competitive arousal for the emotional "win at all costs" state: managers shift from creating organizational value to beating an opponent at almost any cost, blinding them to other considerations, including ethics. The chapter's example: Holmes signed supply agreements with Pfizer and Walgreens before the technology was reliable, endangering patients — and Walgreens executives ignored safety concerns for fear that competitor CVS would offer Theranos products first (Bazerman, 2022).

Malhotra et al. (2008) offer two strategies against competitive arousal. First, avoid competitive interactions likely to escalate into personal animosity — company leaders can restrict managers from participating in bidding wars known to trigger arousal, or structure contracts with noncompete clauses that keep suppliers from working with competitors. Second, defuse rivalry directly: adopt a competitor's perspective, sideline managers who feel the rivalry most intensely, and quantify in advance the cost the company is willing to incur to win — deciding the cost limit before the decision, not during it.

Time Pressures

Managers juggle requests from supervisors, subordinates, customers, partners, and suppliers, and deadlines can push companies to ignore warnings of product failure. Boeing's pressure to deliver aircraft on time and at low cost in a competitive market is the chapter's example: poor quality contributed to the fatal Boeing 737 crashes in Indonesia and Ethiopia (Pasztore et al., 2019; Whitley et al., 2018), and after COVID-19 disrupted air travel, Boeing and its suppliers again bypassed quality inspections as travel restarted (Chappell, 2024) — engine fires, rudder issues, and a mid-flight door-plug failure led the FAA to find noncompliance with safety and quality protocols (Bushard, 2024; Pequeño, 2024; Kao, 2024).

Hoyk and Hersey (2008) sum up the trap simply: "Good ethics takes time" (p. 48). Time pressure impairs decision making and minimizes ethical awareness, forcing decision makers to accept "risks that are morally marginal and sometimes illegal" (Scott & McManus, 2010, p. 35). Under time pressure, people rely on moral heuristics — decision rules based on prior experience, intuition, or simple moral reasoning, such as "lying is wrong," "do not tamper with nature," or "what would <ethical role model> do?" (Lapsley & Hill, 2008). The heuristic to preserve one's own possessions drives loss-avoidance (not losing the client, company, or asset) and discourages considering alternatives (Kern & Chugh, 2009). Pierce and Sweeney (2010) found auditors under time pressure more likely to sign off on incomplete work or ignore discrepancies — and the chapter notes that the fraudulent Groves Funding mortgages passed multiple audits, letting the fraud escalate from $250,000 toward $5 million; catching the original transaction would have limited the damage to Toby, his employees, and the company.

Akrivou et al. (2011) recommend leaders seek reflection time away from social pressures. Moberg (2000) gives three organizational steps to relieve time pressure:

1. Identify jobs in which moral decisions must be made under time pressure (e.g., airline pilots in flight; halting production on learning of defective equipment).
2. Select individuals equipped to make ethical decisions under time pressure — strong moral character and demonstrated ability to decide under pressure (the military tests recruits for moral maturity and trains officers in combat ethics).
3. Train individuals to make ethical decisions under time pressure by developing heuristics or principles that guide quick, correct choices.

Beyond pressure from others, everyone runs internal cognitive processes that may or may not lead to good decisions. Lamar Pierce, professor and economist at Washington University in St. Louis, puts it directly: "We may really want to get it right, and be ethical and be moral, but the problem is that we just have all these cognitive biases and cognitive limitations that just don't let us get it right" (Joffe-Walt & Spiegel, 2012, para. 19).

Toby Groves wanted to be an ethical businessperson — as did Wendel Torres from Chapter 1, the co-founder and CEO of a small construction company who considered himself honest and ethical. Without realizing it, people develop shortcuts and simplifications that create a false sense of ethicality. Eventually people rely on cognitive biases — errors in thinking and reasoning that distort perception — in most decisions, which can generate flawed conclusions and increase the risk of unethical action. Prentice (2007) warns that "even well-intentioned people can stumble into ethical minefields if they do not keep their ethical antennae up and guard against errors in judgment that are commonly made—errors that, indeed, people are often predisposed to make" (p. 17).

Overconfidence

Most people want to see themselves as ethical and describe themselves that way. To rationalize unethical actions, people lean on strongly held beliefs and heuristics that, unless closely scrutinized, carry biases that merely seem credible (Russell & Gregory, 2011). Prentice (2007) describes the acceptability heuristic, where employees seek the action acceptable to their superiors rather than the ethical alternative. People filter self-information to maintain a positive moral self-image, which leaves most people overconfident about their own ethicality and prone to deciding without deep ethical reflection (Tenbrunsel et al., 2010).

Confidence itself is good for business — without it, managers would hesitate to innovate or implement new strategies (Roxburgh, 2003). But overconfidence distorts the ability to predict one's own capabilities, inflating the estimate beyond what's warranted: "Most of us appear to believe that we are more athletic, intelligent, organized, ethical, logical, interesting, open-minded, and healthy—not to mention more attractive—than the average person" (Gilbert, 2006, p. 229). Messick and Bazerman (1996) call this the illusion of favorability — people take personal credit for success and blame others for failure. Tenbrunsel et al. (2010) tie overconfidence in one's own ethicality to ethical fading (defined in Chapter 1): a process where a person fails to realize a decision has ethical implications, so ethical criteria never enter into it. Ethical fading creates the misperception that one is still acting in line with personal ethical principles.

Related to overconfidence, overoptimism is the misperception that one has a high probability of success and is immune from having wrongdoing detected (Cohan, 2002; Roxburgh, 2003). People tend to believe their own future will be better than others'; the chapter's everyday example is the common belief that one's own marriage will last longer than average despite rising divorce statistics (Messick & Bazerman, 1996). Similar overoptimism shows up in beliefs about being unlikely to succumb to alcoholism, peer pressure, or greed. In business, managers who believe themselves relatively immune from failure are more likely to expose themselves and their organizations to risk while discounting the chance the public will find out (Messick & Bazerman, 1996).

Leaders who exhibit overoptimism give others false hope of success, and when a group keeps believing in an overoptimistic leader, groupthink's illusion of invulnerability follows. Behavioral economist Hersh Shefrin (2018) argues Theranos board members and investors ignored red flags out of a desire for Holmes to succeed, holding an "unrealistic optimism" that a college dropout could really develop such promising technology.

Prentice (2007) offers two responses to overoptimism-driven rationalizations: research the facts to surface information missing from the decision, and frame ethical decision making as helping the firm succeed, appealing to the same optimistic instinct rather than fighting it.

Roxburgh's Three Safeguards Against Overconfidence and Overoptimism

1. Test strategies under a much wider range of scenarios — forces consideration of alternatives beyond the initial solution. Roxburgh recommends offering an even number of alternatives, since people tend to gravitate to the middle option when one exists (Royal Dutch Shell requires two or four options, never three or five).
2. Imagine a scenario 20% to 25% worse than the worst-case scenario — corrects inaccurate estimates of success; asking what the worst outcome could really be might prompt automotive executives to reconsider a launch involving a known-flawed component.
3. Build more flexibility and options into strategic decision making — lets the company adjust as more information becomes available.

Self-Serving Bias

Self-serving bias is the tendency to seek only information supporting predetermined views (Prentice, 2007), leading a person to conclude an action is more acceptable than it really is. Someone caught in this trap quickly accepts evidence supporting their behavior, rejects contradictory evidence, and criticizes others who question the unethical conduct. Drumwright and Murphy (2004) call this the ostrich syndrome — sticking one's head in the sand and avoiding questions that might surface ethical considerations. At Theranos, the board chose to ignore information that didn't support their commitment to Holmes and the company (R. A. Weber & Jones, 2019) — even George Shultz did not believe his own grandson's account of company practices.

Messick and Bazerman (1996) identify two self-serving behaviors. The first is ignoring low-probability events: overoptimism makes people expect positive results and discount negative-outcome probability, so they rely on certain data and deny anything unvalidated, never exploring pessimistic scenarios regardless of who might be harmed — a pattern that produces the faceless victim trap (Hoyk & Hersey, 2008), where people more readily allow harm to people they don't personally know. The second is limiting the search for stakeholders: General Motors viewed the fatality risk from a flawed ignition switch in the Cobalt as minimal and chose not to fix it, failing to weigh the impact on both drivers and the dealers who depended on quality products for their livelihoods — a short-term view that obscured the long-term consequences.

P. Zhang (2010) offers three board-level practices to counter self-serving bias by encouraging diverse information use: open discussion (sharing data without sanitizing it, surfacing insights that reveal errors in a predetermined solution), effective leadership (leaders who encourage accepting outside information, while also setting boundaries so information doesn't become overwhelming), and active search (actively seeking relevant information, including multiple stakeholders' views, and taking responsibility for finding what's needed to make the right choice).

Sidestepping Responsibility

People with a weak sense of responsibility tend to blame others for their own ethical lapses — "passing the buck" to avoid accountability. Drumwright and Murphy (2004) found advertisers rationalize irresponsible ads by blaming parents, media, regulators, colleagues, and society. Some Milgram study participants blamed the "learner" for their own shocks: "He was so stupid and stubborn he deserved to get shocked," and "[I became] angry at the learner for being so slow and forcing me to shock him harder" (Russell & Gregory, 2011, p. 510). A related trap, lost in the group (Hoyk & Hersey, 2008), occurs when someone blames the group rather than themselves — acting as part of a team lets an individual transfer responsibility onto it.

Behaviorist scholars call this displacement of responsibility a form of moral disengagement: "a social-cognitive mechanism that allows individuals to engage in unethical acts by disconnecting the moral ramifications of an action from their own involvement in that action" (Carsten & Uhl-Bien, 2013, p. 51). Bandura et al. (1996) developed a displacement of responsibility scale using statements like these (participants mark true/false):

• Employees are not at fault for wrongdoing if their boss puts too much pressure on them to perform at work.
• Employees cannot be blamed for wrongdoing if they feel that their boss pressured them to do it.
• If an employee perceives that his/her company wants them to do something unethical, it is unfair to blame the employee for doing it.
• Employees cannot be blamed for exaggerating the truth when all other employees do it.
• It is unfair to blame an employee who had only a small part in the harm caused by a company's actions.

Employees who score high on displacement of responsibility are more likely to obey unethical orders and less likely to question them (Barsky, 2011; Carsten & Uhl-Bien, 2013), which underscores the importance of "an ethical organizational culture that emphasizes each individual's accountability and responsibility for his or her own actions" (Treviño et al., 1999, p. 143). A company's code of conduct should stress individual responsibility — Procter & Gamble's worldwide code opens its ethics section with, "We all have a responsibility to uphold our Purpose, Values, and Principles in our work and in the business decisions we make" (Procter & Gamble Company, 2023, p. 10).

The chapter opens this section with two scenarios. Anna, a bank customer service representative, has discretion to waive insufficient-funds penalties for affluent, preferred-status customers. She cares about the well-being of the less fortunate and has doubts about the policy, but as a bank employee she considers it her role to follow procedure — so when a less-affluent customer asks about the same fee, she reads from a script saying she cannot alter bank policy (Gibson, 2003). Separately, a defense attorney whose client has privately confessed to a violent crime knows his client may be dangerous if released, yet ardently defends him and wins his release (Radtke, 2008).

Both scenarios illustrate role morality — adopting different ethical stances depending on the role one occupies, like having two moral hats, one for work and one for outside of work (Gibson, 2003). Wearing the work hat, employees permit themselves actions they'd consider wrong wearing the other hat. Anna follows bank policy at work but likely would not discriminate against the less fortunate in a social setting — role morality is why preferential treatment can feel justified in one role and not in another.

Certain organizations and professions make role morality especially visible — lawyers, accountants, auditors, and scientists routinely face situations demanding a moral stance (Radtke, 2008). The defense-attorney scenario pits a lawyer's professional obligation to win at all costs against personal ethics. Lobbyists face a similar structural pressure to bend rules in service of a client.

Reputation Risk: Jack Abramoff

Jack Abramoff was one of Washington, DC's most influential lobbyists during the Bush administration, shaping legislation favorable to paying clients. To persuade legislators to attach provisions to bills, he offered travel junkets involving gambling and other vices, referring to the sponsoring senator or representative as a "congressional quarterback": "If you're good at this game, you've provided your congressional quarterback with everything under the sun—including fundraisers, golf outings, travel, meals, and premium event tickets" (Abramoff & Green, 2013, p. 93). He charged clients high fees to fund the gifts — the President of Gabon reportedly paid $9 million for Abramoff to arrange a meeting with President Bush (Citizens for Responsibility and Ethics in Washington, 2006).

According to the U.S. Department of Justice (2006), Abramoff went too far in buying favors from members of Congress, sparking a political scandal over congressional ethics-code violations. In 2005 he pleaded guilty to conspiracy, tax evasion, and fraud, and from prison cooperated with federal prosecutors, exposing up to 60 recipients of excessive gifts for favorable legislative votes. People connected to him either cooperated or were indicted; Ohio congressional representative Bob Ney went to prison, and others left Washington in disgrace.

Abramoff described himself as a family man, a religious man, and a moral person who viewed his job as doing whatever it took to meet client demands: "I was so far into it that I couldn't figure out where right and wrong was. I believed that I was among the top moral people in the business. I was totally blinded by what was going on" (CBS News, 2011, 1:07). Practicing Jewish faith throughout his lobbying career, he opened kosher restaurants and donated heavily to charity — prompting the chapter's question: "How could Abramoff, an ostensibly pious man who opened kosher restaurants and donated vast sums to charities, justify bilking naïve clients and trampling lobbying laws?" (Foer, 2005, p. 32).

Gibson's Four Characteristics of Role Morality

Gibson (2003) identifies four characteristics that help employees recognize and avoid role morality's pull toward defective ethical decisions. First, choosing between the responsibilities of a professional role and one's personal ethics is not easy — employees rarely get to simply declare "I'm relying on my personal ethical code" or "this is just a business decision," and often don't even register the ethical dimension of an action while performing routine tasks; people are willing to compromise when work conflicts with personal principles. Second, employees may concede that some actions are unethical in their role, but treat them as a normal part of the job — a displacement of responsibility onto the employer, so taking individual responsibility is the first step to preventing role morality from taking hold. Third, individuals still choose whether to act within the role: as with obedience to authority, employees may feel they have no choice but to comply, out of fear of job loss or losing a professional certification — Gentile (2010b) frames the choice between acting within a role and acting on personal values as a regular part of business, requiring persuasive detail, audience-targeted messages, and the right delivery context when pushing back. Fourth, using one's role as an excuse for unethical behavior is itself a symptom of how ethical the profession or organization is — Abramoff's belief that his job was to do anything for clients reflects on the lobbying profession's own ethicality, and an organization's reputation suffers when its leaders pressure employees into unethical role behavior.

Shahram Ahari, a former Eli Lilly sales representative, testified before a 2008 U.S. Senate committee about pressure to sell drugs to physicians by withholding risk information and cultivating sales through extravagant gifts: "Any doubts I held regarding the effectiveness of such methods were dispelled by the results of my persuasiveness and the financial rewards I received for my efforts. The latter also helped me rationalize the many ethically dubious situations I routinely encountered in my work" (The United States Senate Special Committee on Aging, 2008, p. 6).

Pressures from others, combined with personal cognitive biases, often convince businesspeople that every decision has a solid ethical justification. This chapter offers only a sampling of the ethical traps present in organizations, but the point holds broadly: every individual has the potential to engage in unethical conduct, and those who recognize the traps are more likely to make ethical decisions. Leaders should avoid building environments where subordinates feel they have no choice but to obey orders and withhold accurate information — instead structuring compensation, performance evaluation, and communication channels to encourage ethical behavior and reduce the risk of misconduct.

Business ethics scandals often involve good people acting contrary to their own ethical standards. Behavioral ethics psychologists study why. Defective ethical reasoning stems from limiting the ethical alternatives considered, never reexamining the chosen unethical alternative, never reexamining rejected ethical alternatives, rejecting dissenting opinions, selectively biasing new information, and letting company goals override ethical alternatives. Bounded ethicality — an unconscious favoring of self-serving biases — impedes following ethical standards, and the fundamental attribution error is the tendency to blame others' bad choices on their character while excusing our own as products of a difficult situation.

External pressures and cognitive biases both interfere with ethical reasoning and lead to misconduct. External stimuli create traps that push people toward blind obedience to authority, conformity to group norms, groupthink, reacting to time constraints, and competing to win at all costs — both informal and formal groups strongly shape ethical decision making, and loyalty shapes susceptibility to conformity pressure. Shortcuts and simplifications create a fallacy of morality — the sense that one is still acting on personal ethical principles even when one is not. Cognitive biases include overconfidence in one's own abilities, overoptimism about achieving success without detection, seeking only confirming information, sidestepping responsibility, and role morality.

Every individual in business has the potential to engage in unethical conduct. Employees who recognize and appreciate the dangers of ethical traps are more likely to make ethical decisions, and developing the capacity to recognize rationalizations that restrict ethical reasoning is a genuine, learnable skill.

1. Have you seen someone act unethically and justify it by saying "I'm just doing my job"? What did you say or do? What should you have said or done? What traps might this person be encountering?

"I'm just doing my job" is the language of role morality — the person is using their professional role to displace responsibility for a decision they may privately doubt (Gibson, 2003). A strong answer identifies the specific trap (role morality, obedience to authority, or sidestepping responsibility via displacement) and evaluates whether a response at the time appealed to the organization's code of conduct or escalated to another authority, versus what a more deliberate response — naming the specific policy or principle in conflict — might have accomplished.

2. Can you think of an example from your own life where you or someone else fell victim to ethical traps? How might you anticipate and/or mitigate the effect of ethical traps in making decisions?

A strong answer names a specific trap from the chapter (small steps, conformity, time pressure, overconfidence, and so on) rather than describing the incident only in general terms, then applies Prentice's (2007) four-step method — know the bias, be motivated to correct it, recognize its magnitude and direction, and adjust the response — as the mitigation plan going forward.

3. How do ethical traps relate to the six characteristics of defective ethical reasoning identified in the chapter? For example, which ethical traps lead to rejection of dissenting opinions?

Groupthink's pressure on dissenters, self-censorship, and self-appointed mindguards map most directly onto rejection of dissenting opinions and stakeholder input. Obedience to authority and conformity pressure explain why the unethical alternative is chosen and not reexamined — questioning it risks being labeled disloyal or naïve. Self-serving bias and overoptimism explain the selective bias of new information, since decision makers seek only confirming evidence. Competition and time pressure both feed the "win at all costs" characteristic directly.

4. Look up an ethical scandal covered extensively in the news. Consider which characteristics of defective ethical reasoning are present. Which ethical traps led to the ethical lapse?

Using the chapter's own Theranos or Wells Fargo examples as a model: identify which of the six defective-reasoning characteristics appear (e.g., Wells Fargo shows rejection of dissenting opinions and win-at-all-costs sales goals), then name the specific traps operating underneath them (groupthink, obedience to authority, competition, tyranny of goals) rather than describing the scandal only at the surface level.

5. Engage a representative of a specific profession, company, or industry in a discussion on the typical ethical issues encountered in their professional sphere. Try to jointly identify the ethical traps that may impede ethical behavior and develop strategies to overcome succumbing to each trap.

This question calls for a real conversation, not a hypothetical one — the chapter suggests it will go more smoothly with someone you already know. A strong write-up names the specific traps that surfaced (role morality is especially common in licensed professions like law, accounting, and medicine) and pairs each with a chapter-grounded countermeasure — e.g., Gibson's (2003) four characteristics of role morality, or Ben-Hur et al.'s (2012) three behavioral levels for groups.

Every bolded or explicitly defined term in Chapter 6, plus the chapter's own end-of-chapter key terms list, in one line each.

A single table capturing why good people do bad things, the six external traps from Section 6.2, the five cognitive fallacies from Section 6.3, and the chapter's core case studies.