Marianne M. Jennings

Emeritus Professor

W.P. Carey School of Business

Arizona State University

What do you mean,

“Management?”

Theories

Fads

People

And the effects are good and bad!

2

Management Theory:

Incentives Work! Of course they work, but they may not

be set up correctly

They impact ethical culture and

compliance

3

Incentives and Bonuses

“I come not to deny that they

work; I come only to warn that

they can wreak havoc in an

organization when they are

wrong or misaligned.”

M. M. Jennings

4

What incentives do

“Federal Jury Convicts Former Shaw Group

Safety Manager Of Major Fraud Against The

United States: Injuries Hidden at TVA Nuclear

Sites to Obtain Over $2.5 Million in Safety

Bonuses”

○ Shaw Group for contractor work at Brown’s Ferry,

Sequoyah, and Watts Bar

○ February 21, 2013

“Engineering Safety Manager Sentenced to

78 Months.”

○ April 13, 2013

5

Goals Met, Incentive Earned . . . But

80 injuries, including broken bones, torn

ligaments, hernias, lacerations, and

shoulder, back, and knee injuries were not

properly recorded by safety engineer

Walter Cardin

Result was a $2.5 million bonus paid by

TVA to Shaw

Safety bonuses were tied to injury rate

Shaw paid a $6.2 million fine to settle a

civil fraud case

6

When the Goal for Incentives Is Not

Defined Carefully

The Lessons of the Atlanta Public

School System (APS)

Board and Superintendent:

Test scores had to go up each year

“No exceptions. No excuses.”

178 teachers changed answer sheets

38 principals supervised weekend “changing

parties” on answer sheets

35 indicted

7

Irrational Choices Fueled by

Incentives

“Atlanta school administrators

emphasized test results to the

exclusion of integrity and ethics.”○ Georgia Governor Nathan Deal

8

Losing the Goal in Incentives

“APS became such a ‘data-driven’

system, with unreasonable and

excessive pressure to meet targets, that

Beverly Hall and her senior cabinet lost

sight of conducting tests with integrity.”

○ Governor’s Task Force on APS Testing

9

Defining the goal carefully and staying

focused

10

EDUCATED YOUNG PEOPLE

vs.

TEST SCORES

FINDING WHAT WORKS/HOW THEY

LEARN

vs.

TEACHING TO THE TESTS

TEACHING

MEASURE KNOWLEDGE AND SKILLS

vs.

GIVING ANSWERS/ALTERING ANSWER

SHEETS

TESTING

The VA, Queues, and Bonuses

Waiting

Time

Number

Treated

Number

In Queue

Waiting

List

Other

List

Hospital

Clinic

Tests

Specialist

Equipment

The Effects of Two Sets of Books

VA management reorganized

Whistle-blowers reinstated

Study links delays to deaths of Veterans

Loss of trust

12

What should we learn from this?

The trap of the sandbox

The sandbox of the organization

The sandbox of the industry

The sandbox of society

13

14

Our Sandbox; Our Rules

Addiction to the rules of the group

Minimum becomes the maximum

Rationalization, redefinition, relaxation

“We have to manage the optics on this.”

World through the profession’s eyes

Hesitancy to challenge

15

Key Factors in the Sandbox

Pressure to conform

Code of silence

Livelihood tied to the sandbox rules

Those who challenge the sandbox are

breaking the rules and are “bad”

Reassurance comes from compliance

with sandbox rules

Pressure:

Probability from the Financial Analysts

Institute

P = f(x)x = amount of money involved

P = probability of an ethical outcome

What impact does pressure that results from compensation formulas have on behaviors?

The Influence of Pressure

Other Pressures from

Management Time at Work: Physical

Schedules: Personal demands

The Numbers: Financial performance

18

What Pressure Does

The New York Marathon

Irrational Choices, Self-Destructive Behaviors

2000 2005 2007 2008 20112013

55%

45%41%

76% 74% 74%

ERC Survey

KPMG Survey

Survey respondents

who have observed

unethical conduct at

work:

Ethics at Work

ERC: 60% of ethical lapses observed were

committed by managers

Destructive Behavior

“The cost is costing us huge $$$$.”

“. . . desperately at least need to turn the

Raw Peanuts on our floor into money . .

. We have other peanuts on the floor

that we would like to do the same with.” Stewart Parnell, CEO of Peanut Corporation of

America, e-mail sent January 19, 2009 on findings of

salmonella in the company’s product. The company

has declared Chapter 7 bankruptcy.

21

P = f(X)“We could ship peanut meal from Plainview…, [b]ut

they need to air hose the top off though because they

are covered in dust and rat crap.”Employee e-mail to Stewart Parnell

“Clean ‘em all up and ship them…”Parnell’s response

“PLEASE, PLEASE make sure someone air hoses off the

totes before they are loaded on the truck. They are filthy on

top.”Plainview manager’s e-mail in following Parnell’s instructions

And the message to ethics and

compliance officers following

events such as these?

Training

Tell them they can’t do it

Investigate

Discipline

23

Behavioral Layers

24

Individual

Ethical

Lapses

Company/

Organization

Ethical Lasses

Industry

Norms Ethical

Lapses

Cultural/

Societal

Ethical Lapses

Individuals make decisions without

externalities.

Inflated travel expenses, computer use issues,

embezzlement, blaming others for mistakes,

appropriation of trade secrets, insider trading

Individuals make decisions but company

forces (OB) contribute to the psychology.

Falsification of records and shortcuts due to

incentive systems and rewards; culture of fear

and silence rewards those who go along

Individual/company/organization makes

decision but feels justified because societal

norms have shifted.

Cheating on exams, speeding, infidelity, worker

documentation, conflicts of interest, grease

payments, bribes?, not paying taxes? “Everybody

does it!”

Company/organization policy/strategy makes

the decision for individuals due to industry

practices.

Dabbling in the gray areas as industry moves in

that direction, analysts’ behaviors, subprime

mortgages, CDOs, expert networks, steroid use in

sports, stock options, etc. “If we don’t do it . . . “

Ishmael on following a leader

(Captain Ahab) on a doomed ship

“But when a man suspects any wrong, it

sometimes happens that if he be already

involved in the matter, he insensibly strives

to cover up his suspicions even from

himself. And much this way it was with me.

I said nothing, and tried to think nothing.”

○ Herman Melville’s Moby Dick

Management Theory 2:

The Mantras The motivational sayings

Posted on wall with mountains, climbing,

conquering

26

27

The Motivational Mantras “Sharpen your pencil!”

“Get to yes.”

“Find a way.”

“Do whatever it takes.”

“Go the extra mile.”

“100% results, all the time.”

“Extra effort, extraordinary results.”

“Staying at #1.”

“The power of yes.”

“On time, every time.”

P = f(X)

Management Theory 3: The People

and that “Tone at the Top”

As long as the “tone at the top” is good . . .

Good leaders . . .

It’s not a static thing

29

The Bathsheba Syndrome

Leader with a humble past

Dramatic and rapid rise to power

Strong skills

Charismatic personality

Strategic vision

Strong ethics

Called upon to lead

30

Recognizing Risk in LeadersPositive/Benefit Negative/Disadvantage

Personal Level Privileged Access

•Position

•Influence

•Status

•Rewards/Perks

•Recognition

•Latitude

•Associations

•Access

Inflated Belief in

Personal Ability•Emotionally expansive

•Unbalanced personal life

•Inflated ego

•Isolation

•Stress

•Transference

•Emptiness

•Fear of failure

Organizational Level Control of Resources

•No direct

supervision

•Ability to influence

•Control over

decision-making

Loss of Strategic

Focus

•Org on autopilot

•Delegation w/o

supervision

•Strategic

complacency

•Neglect of

strategy

31

Victims of the Bathsheba Factor

Mark Hurd – HP

Raj Rajaratnam – Galleon

Hedge Fund

Phil Condit – Boeing

Michael Sears -- Boeing

Harry Stonecipher – Boeing

Richard Scrushy –

HealthSouth

Steven J. Heyer – Starwood

Hotels

Al Dunlap – Scott Paper and

Sunbeam

Enron – most of the senior

team

Thomas Coughlin -- Walmart

David Petraeus – CIA

Dennis Kozlowski – Tyco

Bernie Ebbers – WorldCom

John Thain – Merrill Lynch

Mike Lynch – Autonomy

Bernie Madoff –Madoff

Securities

Brian Dunn – Best Buy

John Browne – BP

Chris Albrecht – HBO

Mark Everson – American

Red Cross

32

So, how does this happen?

The lack of a flat organization

The lack of feedback

The failure to turn to the front-line

employees

The lack of audits: “How to Pad Your

Expense Account and Get Away With It”

The failure to listen, check, and re-check

33

Chase:

The “London Whale Trader”

“Why has he been at work for three days

in the same clothes?”

○ Employee in operations at the London office who

wondered if something was going on that was

untoward

34

Does the fraud triangle explain the cases?

The Fraud Triangle

Opportunity

Rationalization Motivation

The Web of Complicity:

Who Knows? Who Knew?

Head of Europe Rates

The London Office Head

The Whale's Supervisor

The Whale

Financial

Press in

EuropeOffice

staff at

all

levels

Hallmark/Westland Meat Co.

“The video just astounded us. Our jaws

dropped . . . We thought this place was

sparkling perfect.”Anthony Magidow, General Manager

David Kesmodel and Jane Zhang, “Meatpacker in

Cow-Abuse Scandal May Shut as Congress Turns

Up Heat,” Wall Street Journal, Feb 25, 2008, pp. A1

and A10.

Flattening the organization

MBWA

○Unplanned and unscheduled

interaction

“Is there anything that I don’t

know that I should know?”

“I need to know all the bad

news.”

Ford and Mulally

Management Fads

Employee engagement surveys

Employee ethics surveys

Employee satisfaction surveys

The reality of fear

39

Organizational Fear and

Silence

There is never a problem with employees

missing the ethical issues

On speaking up

How to raise issues

How to respond to issues

Professionals and their responsibility to

speak up

41

Fixing That Fear of Speaking Up

Challenge Question/Challenge Meeting

Alan Mulally strategies at Ford

Ethics discussions: Time disparity

How do we respond to employees who raise

issues?

How do we respond to employees who miss

targets?

Management Fads

The clever language

“Managing optics”

43

The “warm” labelsThe “way harsh” language The “warm” language

“Cooking the books” “Financial engineering”; “Getting

results”; “Smoothing earnings”;

“Managing earnings”

“Copyright infringement” “Peer-to-peer file sharing”

“Manipulated the appraisal” “Got a second opinion”

“Backdating options” “Periodic look-backs”

“You lied” “I misremembered”

“I failed to live up to my duty of

candor.”

“I gave the least untruthful answer I

could.”

“You lied” “I misspoke”

“I told you versions of the truth”

“You lied” “I just managed expectations”

“I used incremental escalations of

half-truths.”

The “way harsh” language The “warm” language

“That’s cheating!” “That was creative thinking!”

“Suspended from school” “Just restricted”

“Conflict of interest” “It wasn’t so much a conflict of

interest as it was a confluence of

conflicting motives.”

“We don’t really know.” “It’s just engineering judgment.”

“Bribes” “Useful expenditures”

“Teachers changed test answers.” “We had test clean-up parties.”

More warm language

“Warm” Labels vs. “Way Harsh” Labels

The “way harsh” language The “warm” language

“Hit man” “Vigilante”

“You backdated documents.” “I got the job done.”

“I helped the client.”

“Changed the numbers” “Pro forma adjustment”;

“Deseasonalized the data”;

“Followed what everyone in the

industry is using.”

“Those rates weren’t approved

yet.”

“I know they will be approved.”

“That’s a formality.”

“Stole from inventory” “Made allocation adjustments”

“We were just reallocating

resources.”

Management Fads:

Complex Tests for Ethics

Stakeholder Theory

Drift from definitive standards

Lack of enforcement

Complexity

47

If you were on the other side . . .

How would you want to be treated?

How would you react to the conduct you

are engaged in?

The stories of the axe and the car door

48

Some simple tests

“The Power of Ethical Management”Ken Blanchard and Dr. Norman Vincent Peale

1. Is it legal?

2. Is it balanced?

3. How does it make me feel?

The looped tape phenomenon

49

Jamie Dimon, CEO of

Chase His post- federal regulatory issues

advice to employees:

“Make every decision as if the head of

the SEC and the Pope are in the room

with you.”

50

51

The Impact of Enforcement

“Enforcement is to organizations what

integrity is to individuals.”MM Jennings

“For many people, it’s good to see senior

officers are disciplined like others. There

is a perception that senior folks have a

way around the regulations.”

The Management Fad on

Generational Differences We are all so different

Maybe not . . .

52

Your Future Work Force

30%

20%

38%

76%

74%

55%

52%

81%

93%

0% 20% 40% 60% 80% 100%

Believe ethics and character better than most

Satisfied with their character and ethics

Lied on this survey

Stole from a store in past year

Lied to save money

Lied to parents in past year

Copied homework

Lied to teacher in past year

Cheated on a test

High School Students Surveyed

Josephson Institute 2012

“No. 176: Do not steal more

than $3 worth of office

supplies per quarter.”—Kelly Williams Brown, from her book Adulting:

How to Become a Grown-up in 468 Easy (ish)

Steps

“Or, you could not steal at all.”

—M. Jennings

Self-Definers:

Honesty in Social NetworkingHow honest are you in your Twitter, Facebook, etc.?

Totally honest

Fib a little

Total fabrication

Flat-out lie

31%22%

21%26%

Cheating in College

11% reported cheating in 1963

49% reported cheating in 1993

75% reported cheating in

2003/2005/2006

85% 2013 (Eric Alder – Ohio State)

50% graduate students

reported cheating (2006)

Some anecdotal examples . . .

57

What I Did . . .

My friend was unprepared for a class

assignment and asked to paraphrase my work.

I felt uncomfortable and a little cheated (if I had

let her) because the assignment was rather

difficult.

Someone asked to copy my homework.

I was assigned a project that could be

completed as either a group or individual.

When it came to time to submit the project

online, a classmate asked me to write his

name on my project as he had not completed

it.

What I Did . . .

My friend was unprepared for a class

assignment and asked to paraphrase my work.

I felt uncomfortable and a little cheated (if I had

let her) because the assignment was rather

difficult.

Someone asked to copy my homework.

I was assigned a project that could be

completed as either a group or individual.

When it came to time to submit the project

online, a classmate asked me to write his

name on my project as he had not completed

it.

What I Did . . .

I let a member of a group project take credit

for some of my work to prevent the member

from not passing the class.

Taking the WPC 307 online final as a group.

Two of my friends and I had the same class in

undergrad, but at different times. I had the

earlier class. For exams, they always asked

me for my cheat-sheet and they always

wanted me to add stuff or highlight what I

knew was on the test. Cheat-sheets were

permitted.

What I Did . . .

A friend got caught cheating off of me on a

test, I did not even realize she was. She

asked me to vouch for her to the professor.

To put the name of a friend on a project he

didn’t help, at all, to get points. For a school

project.

Classmates in a group project not performing

their own work but still receiving the same

grade as those who did their work.

I was asked to sit in a certain spot so

someone could look off my test and cheat.

What I did . . . I was told to sign the attendance sheet for a friend

who attended the same class with me. I did it

because she is my friend. But I felt bad because I

felt unfair she earned point without effort.

I was told by a friend to copy one problem off of

her for an exam. I did it because she kept insisting.

When someone asks you for help during the exam.

You may be considered not easy going if you

refuse to help them.

Share my notes and past quizzes with a younger

student taking a class I had passed.

What I Did . . . When a group asked to rate everyone the

same because everyone deserved the same

points.

I was asked to help my friends take a test

online for a class I was not currently in but had

taken before. In exchange I was offered a free

dinner. I did not want to do it because I had to

commit 3 hours of my time but I did it because

they were my friends.

Team member asked me to cover his/her

assignment

What I Did . . . Once at work my manager gave a test to several

colleagues including me. The manager wanted us to

finish it individually. I thought up a really good answer

but other colleagues wanted to copy my answer. I was

not happy about that. I yielded to them at last.

In undergraduate a lot of my friends who did not excel in

their early accounting classes would want me to help

them with their online quizzes.

One time I worked around six to eight hours on one of

my accounting projects, and a friend came to me an

hour before it was due and asked to have the answers.

This was a project supposed to be done alone, but I

didn’t want to disappoint my friend. I ended up not

sharing my answers but I lost a friend because of it.

What I Did . . .

Being asked to share answers on an

assignment.

A friend asked to work on a homework

assignment together when the teacher said it

had to be done individually.

I was pressured to let someone cheat on my test.

I was asked by a group member in a group

project if we could reuse one of his past projects

that was similar to our assignment and just tailor

it for the class rather than come up with a new

project idea.

What I Did . . . The owner of the company worked for was stealing money

from property owners trust accounts. I did not realize it

was happening until an audit by the real estate

corporation.

I had to buy a birthday cake for a partner.

When I was in charge of my own university’s English

debate team as captain, there was once a tournament

opportunity that attracted a lot of team members. I have a

huge influence in deciding who got selected to the

tournament board. There were two teams, among which

one was composed by my friends, competing for the

opportunity. I asked them to advocate them though they

were not as strong as the other team was more fit for it.

What I Did . . .

I was asked to create fake job responsibilities

for myself to justify a raise in my salary.

At work I was asked to process checks and

hold them for a few days to a week before

mailing.

What I Did . . .

I was asked, per firm policy, to round

billable time to the 30 minute nearest. I

was uncomfortable when this was not in

the clients favor.

A friend once asked me to try marijuana.

I was asked to hide some important

documents before the company being

audited. (I did not do it).

What I Did . . . Booked a flight under a different consultant’s

frequent flyer number so that he could hit US

Airways platinum.

A senior manager asked me to eat my time for a

client engagement.

I was told to stop paying someone commission for

a referral even though no other conditions had

changed. I was responsible for calculating

commission.

Put my name on a document that I did not prepare

or participate in the work.

Manager asked me to have dinner and drinking

excessively with the client I worked with.

What I Did . . . When I was leaving my intern at a bank, my supervisors

took me out on a Friday night and expensed the cost on

corporate account. I didn’t think it was appropriate, but I

couldn’t criticize them as well.

As a team captain for the soccer team at my undergrad

school I was asked to lie to coach about a drinking rule

being broken.

I have padded the hours on my self-reported time entry

for work because I knew my supervisor would approve

almost anything I reported.

I bought a fishing license from New Mexico and my

friend asked me to mark myself as a resident, when I

was a resident of AZ. New Mexico residency was $150

dollars cheaper.

What I Did . . .

On an audit, I was asked by a senior to tell a manger

that we had done a substantive test, even though we

hadn’t.

When working for a small one person CPA firm we had

clients that didn’t provide detailed documentation for

meals and mileage. It was explained auditors will ask for

further details if audited, but client wouldn’t provide

further receipts. We went with client’s amount for meals

and entertainment and mileage but knew they would get

audited. They signed a document at end of services

explaining we aren’t liable for audits.

Some 2014 data (23-30)

72

Knowingly exceeded speed:

Freeway

Yes74%

No26%

73

Knowingly Exceeded Speed:

Surface street

Yes64%

No36%

74

Ran a red light

Yes31%

No69%

75

Overstated Deductions

Yes14%

No86%

76

Bumped Car Door: No Note

36%

64%

No

Yes

77

Completed Essay for Child

Yes15%

No85%

78

Told Relatives We Would Not Be Home To

Avoid a Visit

Yes36%

No64%

79

Said I Had to Work To Get

Out of a Friend’s Party

Yes56%

No44%

80

Copied Someone Else’s

Homework

Yes50%

No50%

81

Told a Supervisor Project Was Coming

Along When It Was Not

Yes25%

No75%

82

Said I Was Stuck in Traffic When I Slept In

Yes50%

No50%

83

Texted While Driving

Yes65%

No35%

84

Didn’t Speak Up About

Mistake in a Restaurant Bill

Yes39%

No61%

85

Said You Would Attend and Didn’t

Show

Yes66%

No34%

86

Backdated Documents

Yes25%

No75%

87

Kept the Change

Yes26%

No74%

88

Said I Did Something When I Did

Not

Yes35%

No65%

89

Moved Golf Ball

Yes25%

No75%

90

Everybody Rounds Corners

Yes38%

No62%

91

Being Thought of as

Ethical Is Important to Me

Yes89%

No11%

92

Fooled Around With

Numbers to Meet a Goal

Yes11%

No89%

Sales

93

Said I Was Sick to Get Out of Work

Yes52%

No48%

94

Kept Extra Vending Machine Change

Yes57%

No43%

95

Had My Name Placed on a Team

Project Without Doing the Work

Yes25%

No75%

Sales

96

Witnessed Someone Putting His/Her Name on a

Team Project Without Doing the Work

Yes75%

No25%

97

Signed in For Someone

Else at a Meeting or Class

Yes46%

No54%

98

Told Someone That They Looked

Okay When They Did Not

Yes83%

No17%

99

The Ethical Truth About

Those Generations The 1/3 break-out

How the other 2/3 learn

Inherent goodness

100

One more fad . . .

Those risk charts and numbers . . .

It’s not the big risks that will get you – it

is all the little risks we take every day

that add up

101

It’s the missing hand rail in the shower that

will result in the greatest number of injuries

and your highest costs.

The 98/1/1 %:

The Dan Ariely MatrixA

bso

lute

ly d

ish

on

est

1%Ju

st

a l

ittl

e d

ish

on

est

98%

Ab

so

lute

ly h

on

est

1%

103