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Wednesday, July 20, 2011

Book examines ethical decisions

Scott Flegal

Are we as ethical as we think we are?

An important new book by Tufts University professor and Harvard Program on Negotiation mainstay Max H. Bazerman and Notre Dame professor Ann E. Tenbrunsel says probably not. In “Blind Spots – Why We Fail to Do What’s Right and What to Do About It,” Bazerman and Tenbrunsel make a convincing case that a significant gap exists between how ethical we think we are and how ethical we actually are. They label these gaps “ethical blind spots,” and for better or worse, we all have a bunch of them.

The authors’ mission is to help us make more ethical decisions by making us aware of our ethical blind spots so we can better manage them. The authors’ aim is high. Ultimately, they hope the book will “narrow the gap between the society we want to live in and the one in which we find ourselves.” The book is loaded with real life examples of ethical dilemmas familiar to most of us, some of which may ring bells with us personally, and others we read about in the newspaper every day.

One ethical area near and dear to the hearts of lawyers is conflict of interest, and conflict issues crop up repeatedly in the book. Lawyers, of course, are charged with fairly strict ethical duties when it comes to identifying and either disclosing or avoiding entirely conflicts of interest. Trust me, some lawyers are better at it than others.

As evidence of ethical blind spots at the highest levels, the authors tell an interesting story about U.S. Supreme Court Justice Antonin Scalia. In 2004, the Sierra Club filed a motion asking Scalia to recuse himself from a case known as Cheney v. US District Court. The issue in the case was whether former Vice President Dick Cheney should be compelled by court order to provide information about the energy task force he led while the Bush administration was formulating its environmental policy. In its motion, the Sierra Club argued Scalia should recuse himself because he was friends with Cheney. It cited in support of its motion the fact that Scalia had gone duck hunting with Cheney a couple of months before the case was to be heard. The Sierra Club argued that the friendship between Scalia and Cheney could impact Scalia’s objectivity.

Scalia rejected the argument and refused to recuse himself, insisting his judgment would not be impaired. Interestingly, remaining on the bench did not violate the court’s rules on conflict of interest. Scalia forcefully closed the issue by stating that “if it is reasonable to think that a Supreme Court justice can be bought so cheap, the nation is in deeper trouble than I imagined.”

Scalia’s reaction to the issue, according to the authors, evidences a typical ethical blind spot. They were tough on Scalia, and perhaps, rightfully so. His statement, for them, demonstrated he either “rejects or is unaware of the unambiguous evidence on the psychological aspects of conflicts of interest.” No doubt Scalia analyzed and took comfort in the rules on conflict of interest, which supported his position. But did those rules serve to reinforce an ethical blind spot?

The Scalia example illustrates what the authors identify as a significant problem with most of our ethical rules and anti-corruption laws. They tend to govern only intentional acts of corruption. The authors argue that in reality most unethical behavior is unintentional. Usually, it stems from a failure to recognize the behavior as unethical because of ethical blind spots. Their conclusion is direct and frightening: Most of our existing anti-corruption laws are of little use in protecting society. This is a bold statement, but in light of what happens in the world every day, how can one debate it?

One thing we know is that our existing laws are of little use in protecting us from Wall Street. Is it not amazing that no individuals at Goldman Sachs have been indicted as a result of their behavior before, during and after the recent economic collapse? How could it possibly be legal for Goldman Sachs management to have created investment vehicles they knew were likely to fail, and then recommend to clients that they invest in those vehicles? Then, it used its own assets to hedge against those investments. It made a huge profit when they collapsed. The company was literally lining its pockets by steering its clients toward financial disaster. How could a firm of Goldman’s caliber be so systematically unethical?

Well, it turns out there is a mountain of research that shows when people have a vested interest in seeing a problem in a certain manner, they are no longer capable of objectivity. They succumb to ethical blind spots. Goldman Sachs had a vested interest in not only making money for itself but saving itself from the coming mortgage market collapse. That interest rendered them incapable of objectively identifying the obvious ethical dimension associated with their behavior.

This notion also helps to explain why the Enron auditors failed to identify financial house of cards being constructed by management, why major league baseball for years failed to crack down on steroid use and why the ratings agencies continued to rate AIG highly even though it was on the verge of collapse. Clearly, especially when we have a vested interest in the outcome, we humans tend not to notice bad data we would prefer not to see.

The field of behavioral ethics is exploding, and this book will no doubt be the first of many that will advocate changing our approach to ethics-based rules and laws. Just as behavioral psychology is changing the face of economics, it may soon significantly impact American jurisprudence. One thing is clear: as a society we need help identifying our ethical obligations and dealing with those who violate them at the expense of society.

Scott Flegal is a business lawyer and mediator. Visit him online at www.flegal.com or www.negotiationworks.org. Follow him on Twitter at hscottflegal@twitter.com and read his blog at www.scottflegal.com.