A controlled experiment reveals that managers ‘adjust’ their ethics based on the behaviour they witness from peers. If a peer is honest, the observing manager becomes a little more honest, on average. If a peer is dishonest, the observing manager can become significantly more dishonest.
New research, focusing on accounting ethics and using a carefully controlled experiment, reveals the power of social influence on the ethical standards of managers. After seeing honest budget reporting from another manager — a peer — a manager is more likely to be honest: despite an incentive to inflate costs to secure a bigger budget, a manager will submit the actual costs to headquarters. After seeing dishonest budget reporting from a peer, a manager is more likely to be dishonest — inflating the actual costs.
The response to more- or less-honest peers is symmetrical when still dealing with the peer: the increase in dishonesty after observing a dishonest peer is no greater than the increase in honesty after seeing an honest peer. But once the manager starts working with a third manager, the reaction to the dishonest past peer is significantly stronger than the reaction to an honest past peer.
This response when dealing with a new manager is significant. When still dealing with a past peer, there are other factors that could temper a manager’s willingness to ‘update’ his ethical standards based on what he observed. The introduction of a new colleague frees the manager to change his ethics at will — and the results are clear: The increase in dishonesty after observation of a dishonest peer is much greater than the increase in honesty after observation of an honest peer.
Not all managers are alike, however. The research differentiated managers based on a theory of moral reasoning framework developed in the late 1990s that assigned individuals three scores related to their sensitivity to social norms. In the framework’s terminology, each score measures the importance of a “schema” — either personal interest, maintaining norms, and post-conventional — to the decision maker in arriving at a decision. The “personal interest” score measures the extent to which individuals don’t care about the expectations of society and only do what’s in their self-interest. The “maintaining norms” scores measures the extent to which individuals want to conform to social norms and rules. Individuals who attach high importance to the maintaining norms schema believe that the rules are the rules and you don’t question the rules. Finally, the “post-conventional” score measures the extent to which individuals act according to their own principles, although still wanting to stay within social norms. The difference between the last two schemas is that the maintaining norms schemas norms and rules are inviolate: You don’t change the norms. The post-conventional schema views social norms as alterable.
The research showed that managers who scored high on the “maintaining norms” schema (i.e., those who were the most sensitive to social norms) were the most honest with their first reports, that is, before observing another manager’s honest or dishonest behaviour. These same managers, however, were the ones who changed their behaviour the most based on their observations of a peer’s behaviour.
This research can help leaders gauge the danger of unethical behaviour in their organizations, not only in terms of likelihood of occurrence but also and specifically in terms of the threat of contagion.
The core finding of the research is that individuals not only have different ethical standards, but also different sensitivity to social influences.
One question for managers and leaders is to ask themselves what is the predominant moral schema in their organization. If convinced that the organization is filled with individuals who would score high on maintaining norms, leaders must take steps to promote “sterling examples” since honesty increases when they are informed of others’ honesty — and dishonest increases in response to dishonest peers!
On the other hand, if the organization is filled with pre-conventional types who are driven by self-interest above all, there is a great danger that unethical behaviour will be emulated. Formal control mechanisms, such as audits and monitoring, are even more vital.
Rotten Apples and Sterling Examples: Moral Reasoning and Peer Influences on Honesty in Managerial Reporting. Steven Huddart & Hong Qu. AAA 2013 Management Accounting Section (MAS) Meeting Paper (August 2012).
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