Liars and Outliers (23 page)

This kind of thing doesn't have to be as extreme as fraud. Think of a CEO whose salary depends on the company's stock price on a particular date. That CEO can either cooperate with the group interest by doing what's best for the company, or defect in favor of his self-interest and do whatever is necessary to drive the stock price as high as possible on that date—even if it hurts the company in the long run.
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Sambo's restaurants
had an odd incentive scheme called “fraction of the action” that let managers buy a 10% interest in individual restaurants: not only the ones they worked at, but others as well. This enabled rapid early expansion for the chain, since it both helped finance new openings and gave managers a huge incentive to make restaurants prosper. But as the chain grew, people all over the hierarchy had individual financial interests that conflicted with their loyalty to the chain as a whole. People responsible for getting food to a whole region were able to favor specific restaurants, for instance.

On the other hand, executives have a lot of societal pressures focused on them that's supposed to limit this sort of behavior. In the U.S., Sarbanes-Oxley was passed precisely for this purpose. And the inherent restraints of their roles prevent most of them from being brazen about it. But there are exceptions, and some of those are what we read about in the newspapers.

We've mentioned organizations as individual actors in societal dilemmas, and we've talked about individuals in societal dilemmas inside organizations. Now let's put them together.

Think back to the overfishing societal dilemma from Chapter 5, but instead of Fisherman Bob deciding whether to cooperate and limit his catch or defect and overfish, it's the Robert Fish Corporation. Fisherman Bob and the Robert Fish Corporation face the same societal dilemma, but a corporation isn't actually a person; it's an organization of people in a hierarchy. Let's go through it step by step.

The Robert Fish Corporation has to decide whether or not to overfish. The scale is certainly different than the simpler example—the Robert Fish Corporation might have dozens of large fishing boats all over the world—but the idea is the same. The corporation will collect whatever information it needs via its employees, and some person or group within that corporation will decide whether to cooperate or defect. That trade-off will be made based on the corporation's competing interests and whatever societal pressures are in place.

For the moment, let's assume that the corporation decides to defect. For whatever reason, it is official policy of the Robert Fish Corporation to follow its short-term self-interest at the expense of the group interest of society as a whole. In this case, that means catching as much fish as possible, whenever possible, regardless of whether that depletes the stock.

Alice is the Vice President of Operations of the Robert Fish Corporation. Her job is to implement that corporate policy. Alice is in charge of overfishing. As an employee, Alice has a societal dilemma to address. She can either cooperate and implement corporate policy to overfish, or defect and undermine her employer's goals. But in addition to her role as a Robert Fish Corporation employee, Alice is a member of society as a whole. And as a member of society, she has a second societal dilemma: she can either cooperate and ensure that her company fishes responsibly, or defect and allow it to overfish.

Those two societal dilemmas conflict, just like O'Callaghan's two societal dilemmas. Cooperating in one means defecting in the other. So when Alice decides whether or not her company is going to overfish, she is caught between two societal dilemmas. A whole gamut of corporate rules will pressure her to implement corporate policy, and laws against overfishing will pressure in the opposite direction.

There is also the normal gamut of competing interests that Alice might have. Alice might be morally predisposed to respect the authority of her bosses and go along with her group. She might believe that overfishing is morally wrong. She probably has some specialized knowledge of the life cycle of fish and the effects of overfishing. Concerns about her reputation as a good employee or a team player will make her more likely to cooperate with her employer. Her self-regard and her reputation as a moral individual might make her more likely to cooperate with society. Her self-preservation interest—she might be fired if she disobeys the corporate policy—comes into play as well. And remember that emotional distance is important: if Alice has stronger ties to her employer than to society, she's more likely to cooperate with her employer and defect from society. Organizations try to keep their employees loyal for this reason.
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Clearly Alice has a tough choice to make. Here are some examples of how that choice has played out in the real world. There is a lot of research in decision making within groups, especially corporations. We've already seen in Chapter 9 how financial considerations dampen moral considerations. There is considerable evidence, both observational and experimental, that the group dynamics of a hierarchical organizational structure, especially a corporate one, dampen
moral considerations
as well. There are
many reasons for this
, and it seems to increase as organizations grow in size.

From 1978 to 1982, the
Beech-Nut Corporation
sold millions of bottles labeled as apple juice, intended for babies, that contained no actual apple products. If you read the story of how this happened, and how it kept on happening for so long, you can watch as the senior executives wrestled with their two societal dilemmas. They could cooperate with society and not sell phony apple juice, but that would mean defecting from their corporation. Or they could cooperate with their corporation, first by not questioning how this “juice” supplier could be 25% cheaper than anyone else, and then by continuing to sell the product even after they knew it was phony; but that would mean defecting from society. In the end, the economic and social ties they had with their company won out over any ties with greater society, and it wasn't until an independent laboratory discovered their deception that they stopped the practice. In 1987, they were tried in federal court, and eventually agreed to pay a $2 million fine—at the time, the largest ever paid to the U.S. Food and Drug Administration. This is also one of the rare occasions that individuals within a corporation were jailed.

Since the mid-1980s, a growing docket of complaints, criminal prosecutions, and civil suits in the United States, Europe, and elsewhere has revealed that, since at least 1950, Roman Catholic bishops knowingly transferred thousands of priests accused of child molestation into unsuspecting parishes and dioceses, rather than diminish the ranks and reputation of the priesthood and expose the church to scandal. By 2011, allegations had been made against nearly 5,000 U.S. priests, and over 15,000 U.S. residents had testified to
being victimized
. (Estimates of the
actual number of victims
range as high as 280,000.) In a 2002 tally, approximately two-thirds of sitting U.S. bishops were alleged to have either
retained accused priests
in their then-current positions or moved them to new assignments. This was in keeping with the
Vatican's exhortations
to investigate cases of sexual abuse in secret, so they would remain bound only by canon law.

What happened inside the church can be explained as a pair of societal dilemmas. The larger one was within society as a whole: we are definitely all better off if people don't sexually molest minors, and we have implemented a variety of societal pressures—moral, reputational, and legal—to keep that particular defection down to a minimum. We even have a variety of security mechanisms to detect child porn on the Internet and determine who is taking and trading those pictures.

Meanwhile, a smaller societal dilemma unfolded within the Roman Catholic Church. Of course pedophilia and ephebophilia aren't the societal norm within the church; pedophile priests are just as much defectors from the church as they are from society as whole. But the church hierarchy (the bishops and the Vatican) decided that its ability to function as a trustworthy religious institution depended on reputation. This is known as the “doctrine of scandal,” and means that its reputation was more important than justice—or preventing further transgressions. So the church systematically worked to keep secret the problem and the identities of the perpetrators.
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The church has some pretty strong societal pressures at its disposal—primarily moral and reputational—which is why this scandal took decades to become public. In some cases, it even
forced the victims
to sign non-disclosure agreements (an institutional pressure).

In the end, this backfired massively. Unfortunately, cover-ups are not uncommon, as organizations try to protect their own reputation—and their profits from cheaper products. It happens within corporations. It happens within governments. It can happen within any type of organization.

On the other hand, there's a new trend that cuts in the opposite direction. One theory of corporate damage control advocates full disclosure, acknowledgement, and public displays of contrition, in hopes of a quick reputational resurrection. Lots of politicians have been taking this tactic with their tearful public confessions, resignations, treatment center visits, and then quick return to public life, problem supposedly solved.