Business Horizons (2012) 55, 535—541

Available online at www.sciencedirect.com

www.elsevier.com/locate/bushor

BUSINESS LAW & ETHICS CORNER

Good directors and bad behavior

McCombs School of Business, University of Texas at Austin, Austin, TX 78712-1750, U.S.A.

KEYWORDS Abstract Because financial frauds are not uncommon, and CEOs and/or CFOs are
Ethics; most often directly involved in them, directors of public corporations should be
Morals; constantly concerned with monitoring their officers’ legal and ethical behavior. This is
Decision making; the case for three primary reasons. First, due to a variety of organizational pressures
Officers; and decision making missteps, even people who wish to be ‘good’–—as most corporate
Directors officers presumably do–—often make serious ethical mistakes. Second, top corporate
officers are particularly susceptible to making several of these errors. And third, for
various psychological reasons, corporate directors often find it difficult to adequately
police those officers. This installment of Business Law & Ethics Corner explores the
issue of good directors and bad behavior.
# 2012 Kelley School of Business, Indiana University. Published by Elsevier Inc. All
rights reserved.

1. The gathering ethical storm Because financial frauds are not uncommon, and
CEOs and CFOs are most often directly involved in
Having cleaned house 3 years ago by replacing a them (Deloitte Forensic Center, 2009), Turon’s
sleepy, unambitious management team with a board does indeed have grounds for concern. This
dynamic new CEO (Tom Chan) and a creative new is the case for three primary reasons. First, due to a
CFO (Sally Marsh), Turon Industries’ board of variety of organizational pressures and decision
directors was feeling pretty good about things. making missteps, even people who wish to be
Tom and Sally had wowed the board during the ‘good’–—as Tom and Sally presumably do–—often
interview process. They were experienced, ar- make serious ethical missteps. Second, top corpo-
ticulate, likable, and seemingly quite trustwor- rate officers like Tom and Sally are particularly
thy. But now the directors have received a susceptible to making several of these errors. And
communication from Turon’s outside auditor third, for various psychological reasons, corporate
that an emergency board meeting is needed directors often will find it difficult to adequately
and that it would be best if Tom and Sally did police those officers. Among many examples would
not attend. Over the past 2 years, several of the be the Enron board (Veasey, 2003) and, more re-
directors have heard vague scuttlebutt about cently, that of the News Corporation (Carr, 2012).
aggressive accounting, but their positive impres-
sions of Tom and Sally have allayed all fears.
Surely the board has nothing serious to worry
2. Why do good people do bad things?
about. Or does it? A persistent question among business ethicists is
why good people do bad things. Although the occa-
E-mail address: [email protected] sional psychopath will climb into the ranks of elite

0007-6813/$ — see front matter # 2012 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
http://dx.doi.org/10.1016/j.bushor.2012.06.002
536 BUSINESS LAW & ETHICS CORNER

corporate officers (Babiak & Hard, 2006), most CEOs Most adults do not carry an adequate internal moral
and CFOs–—like the majority of people, in general–— compass, and therefore look to others in their organi-
wish to act ethically and properly. But inside a zational environment for guidance regarding how to
corporate organization, doing so is often difficult act ethically. It is not surprising, then, that unethical
for a variety of reasons. behavior by seemingly ethical people in strong ethical
Behavioral Ethics is a comparatively recent field environments can have a profound effect upon others
of study concerned with why moral transgressions in an organization, leading them to often view
occur and how they can be prevented (Cropanzano & unethical behavior as acceptable (Cropanzano &
Walumbwa, 2010). Ethical missteps can easily result Walumbwa, 2010). Unfortunately, negative behaviors
in ruined careers or even prison sentences, yet they and unethical actions are more likely to be modeled or
occur with unsettling frequency. The organizational reciprocated by others than are positive behaviors
and psychological causes are quite numerous and ethical actions (De Cremer, 2010).
(Bazerman & Tenbrunsel, 2011). While an article
of this size cannot possibly catalogue them all, 2.3. Loss aversion
please consider the following examples.
People suffer from losses roughly twice as much as
2.1. Obedience to authority they enjoy gains. Therefore, they are willing to
take risks to avoid losses that they would not take
Most people derive psychological satisfaction from to achieve gains (Tversky & Kahneman, 1992).
pleasing authority figures. Humans are hard-wired Moreover, individuals judge actions such as cutting
to desire to please their parents, their teachers, employees’ pay as fairer if it is done to avoid
and–—as they grow up–—their bosses, even when corporate losses rather than augment corporate
doing so violates their conscience (Stout, 2006). profits (Margolis & Molinsky, 2006).
Indeed, individuals are often so focused on pleasing Importantly, people will take unethical actions to
persons in a position of authority that they may avoid losses that they would not take to garner gains.
follow orders without recognizing any related eth- Consider Dave Bliss, former basketball coach at Bay-
ically questionable conduct. lor University. As a scandal unfolded in his basketball
In his famous obedience studies, Stanley Milgram program, Bliss was willing to falsely label as a drug
found that people would administer to others what dealer one of his players who had been murdered by a
they believed were painful electric shocks, just teammate (Bishop, 2012). Bliss was trying to cover up
because a stranger in a grey lab coat–—who ap- illegal payments he had made to the player. It seems
peared to be in charge of an experiment–—told them unimaginable that Bliss would have told such a cruel
to do so. They were uneasy and clearly did not wish lie to obtain his job in the first place, but he was
to administer the currents, yet they did when urged willing to do so to keep his job once he had it. Studies
by a person with no real authority over them show that most earnings management is not done to
(Milgram, 1963). In a workplace where the person achieve record profits, but instead to avoid announc-
in authority is a respected friend and someone who ing losses (Pinello & Dusenbury, 2006).
really does have the subordinate’s professional fu- Although these three phenomena–—obedience
ture in his or her hands, it is easy to imagine how to authority, conformity bias, and loss aversion–—
difficult it must be to muster the courage to act represent just a small sampling of the ways in which
ethically, when to do so contradicts the superior’s organizational pressures and other contextual fea-
directives. tures can adversely impact individuals’ ethical
decision making, they hint at a well-established
2.2. Conformity bias truth: ‘‘Human cognitive faculties, social pressures,
institutional norms, and structural features all con-
Just as people generally desire to please those in spire to lead well-intentioned people to do harm.
authority, they also wish to fit in with their group. We human beings are products of forces that often
Individuals tend to adopt the views and to copy the elude our control–—and even our notice’’ (Margolis &
conduct of their peers. It is not only high school Molinsky, 2006, pp. 77—78).
students who would jump off a cliff if their friends
did; the vast majority of people in business feel this
same pressure. Indeed, organizations often exhibit 3. The peculiar susceptibility of
moral contagion, as patterns of behavior–—both eth- corporate titans
ical and unethical–—can spread throughout a com-
pany as employees emulate other employees, People are not equally susceptible to these psycho-
especially their superiors (‘‘CEOs,’’ 2002). logical influences. Human nature is too variable for
BUSINESS LAW & ETHICS CORNER 537

that. However, there is evidence that the types of their deeply-held views are at issue. Their psycho-
people who become top corporate officers and the logical need to look out for themselves and to
settings in which they find themselves can combine maintain consistency in their views strongly affects
to create unusual susceptibility to committing ethi- how they gather information, process information,
cal errors. and even remember information. Conservatives will
tend to watch Fox News and liberals will tend
3.1. Overconfidence to watch MSNBC because each group, along with
most everyone else, wants to hear information that
Surveys demonstrate that, in mathematically im- confirms–—rather than contradicts–—its beliefs.
possible percentages, most people are overconfi- Shown identical information, groups holding dis-
dent in their abilities. They believe they are better similar views will likely perceive it differently. In
drivers, better teachers, better auditors, and better one study, the same document was interpreted as
pretty-much-everything-else than their peers. supporting capital punishment (by individuals who
David Brooks (2011, p. 218) calls the human mind already endorsed the practice) and undermining the
‘‘an overconfidence machine.’’ This tendency toward case for capital punishment (by those who already
overconfidence extends to the ethical realm, where opposed the practice). The same facts were proc-
92% of Americans are comfortable with their charac- essed in diametrically opposite ways. Asked months
ter, and most believe that they are more ethical than later what they remembered about the document,
their peers and even are more likely to go to heaven study participants tended to recall facts that sup-
than Mother Theresa (Jennings, 2005). ported their particular point of view rather than
Unfortunately, if people are too comfortable with details that undermined it (Lord, Ross, & Lepper,
their own character and too confident in their moral 1979).
judgments, they become vulnerable to making ethi- The self-serving bias is ubiquitous and particular-
cal decisions without adequate reflection. Any read- ly potent. It can cause people to sincerely believe
er of the various tell-all books written about the that whatever course of action is best for them,
Enron disaster can see how the overweening confi- personally, is ethically permissible. Leaders are
dence of these ‘smartest guys in the room’ led them particularly vulnerable to this effect. Studies even
to just assume the decisions they made were wise show an instant entitlement bias; that is, given
and ethical (Cruver, 2002; McLean & Elkin, 2006). resources to distribute among a group of strangers,
Enron executives were not given to self-doubt. most people will dole them out evenly–—unless they
Indeed, there is substantial evidence that the are casually told that they have been appointed
types of people who rise to the top of corporate leader of the group, in which case they tend to give
organizations are often particularly confident in themselves a much larger share, though they’ve
their abilities and their character (Langevoort, done nothing to merit the status of leader (De
2010). They have experienced much success in their Cremer, van Dijk, & Reinders Folmer, 2009). In their
lives, or else they wouldn’t be where they are. They minds, simply being labeled as such is enough to
tend to think that they are ethical, and this belief is legitimize unfair allocation behavior.
reinforced by people around them constantly telling When considering Tyco CEO Dennis Kozlowski’s
these leaders that they are right, and smart, and $6,000 shower curtain, $15,000 umbrella stand, and
good. $2 million birthday party for his wife–—all paid for by
Consider Enron’s Kenneth (Ken) Lay. As a minis- Tyco shareholders–—it is difficult not to detect a
ter’s son, a captain of industry, and a recognized sense of entitlement that affected Kozlowski’s sense
philanthropist, Lay had every reason to be–—and, of fairness (Norris, 2005). Recent behavior of CEOs in
apparently was–—supremely confident in his ability a series of acquisitions similarly points to narcissism
to make ethical decisions. Yet his errors were large that adversely affects corporate behavior (Davidoff,
and legion, and his denial was nearly absolute. He 2012).
was certain that the press was at fault for the
bad financial and ethical news that finally surfaced 3.3. Moral license
(Messick, 2010). This is a common pattern for people
like Tom and Sally who have risen to the top ranks of Most people think of themselves as good folks and
corporate organizations like Turon Industries. want to be so regarded by others. To that end,
individuals tend to keep a running scoreboard in
3.2. Self-serving bias their head that matches their actions to their self-
perceptions. If they do something they realize was a
Evidence indicates that people have great difficulty little sketchy, they typically look for ways to ‘make
being objective when their well-being is at stake or it up’ in a process known as moral compensation. If
538 BUSINESS LAW & ETHICS CORNER

people are reminded of some incident where they conclude the act is immoral, but be unable to
did not live up to their own moral standards and are rationally explain why (Haidt, 2012). Frequently,
soon thereafter given an opportunity to donate to when people believe that they are reasoning
charity or to volunteer for a good cause, they will through to an ethical conclusion, it turns out all
tend to participate in these endeavors more fully they are doing is rationalizing a decision their brain
than people who have not been so reminded, and made nearly automatically, based primarily upon
who therefore do not feel the need to compensate emotions such as anger and disgust.
for their moral lapse (Khan & Dhar, 2006). Psychological studies show that the people who
The flip side of moral compensation is moral become top executives of large corporations tend to
licensing: the tendency of people who have done be extroverts who behave more impulsively than the
something good, and who have therefore added average person (Keltner, Langner, & Allison, 2010).
‘points’ to their moral scoreboard, to allow them- Therefore, leaders are even more likely to decide
selves a little leeway to depart from their own ethically-tinged issues quickly and decisively, and
ethical standards. If people are reminded of times then resort to post-decision rationalizing in order to
they have acted morally and then are given the justify their choices to themselves and others.
opportunity to donate or volunteer, they will tend Again, this is a largely subconscious process that
to participate less fully than individuals who have people are unaware they are engaging in.
not been prompted to remember what good people
they are (Sachdeva, Iliev, & Medin, 2009). 3.5. Bathsheba Syndrome
Numerous studies document moral compensa-
tion and moral licensing, which collectively com- Corporate leaders and other successful individuals
prise moral equilibrium. Obviously, of the two often act in a sexually forward manner (e.g., William
components, moral licensing seems particularly Aramony, Mark Hurd, Tiger Woods, Bill Clinton, David
dangerous–—and it is, especially for corporate lead- Letterman, John Edwards, Herman Cain, Elliott
ers. Again, consider Ken Lay, who received Philan- Spitzer, Bobby Petrino), act profligately (e.g., Dennis
thropist of the Year awards. It would have been easy Kozlowski, Bernie Ebbers), and are utterly tone deaf
for Lay to have given himself moral license to fail to regarding ethical issues (e.g., Jeff Skilling, Chainsaw
meet his own standards. Importantly, this is a sub- Al Dunlap, Donald Trump).
conscious process; people usually do not realize It is quite surprising how elite corporate officers
how their earlier actions are affecting their current (e.g., Bernie Ebbers), top government officials (e.g.,
decisions. Eliot Spitzer), and other successful figures (e.g.,
For years, Johnson & Johnson was lauded as one Tiger Woods) come to believe that the rules which
of America’s most ethical companies for its handling apply to everyone else do not apply to them. Habitu-
of the 1982 Tylenol recall (Sisodia, Sheth, & Wolfe, ally, they do outrageous things, with little or no effort
2007). Could that have caused the firm to grant to hide their wrongdoings because they become con-
itself moral license, leading to its recent highly vinced of their importance to the firm’s mission; this,
publicized ethical troubles? British Petroleum re- in their minds, justifies exempting themselves from
branded itself as a progressive energy company legal and ethical standards that apply to others
and its CEO, Lord John Browne, became the world’s (Price, 2005).
most recognized spokesman for corporate social Ludwig and Longenecker (1993) made the point
responsibility (Jackson, 2004). Could that have almost two decades ago that much wrongdoing is
caused BP to grant itself moral license leading to perpetrated not by top officers lacking a moral code
its numerous refinery accidents and the Deepwater or subject to fierce competitive pressures, but in-
Horizon debacle? The evidence suggests that the stead by men and women of strong integrity and
answer could easily be yes. intelligence who are unable to handle success. The
scholars coined the term the Bathsheba Syndrome
3.4. Moral rationalization after concluding that like Biblical King David of
Israel–—who, after many admirable successes, suf-
Recent research indicates that a surprising propor- fered a stunning moral lapse–—some successful peo-
tion of human decision making is relatively auto- ple seem to throw ‘‘it all away by engaging in an
matic, with little cognitive input. Often times, activity which is wrong, which they know is wrong,
decisions are driven by emotion. It is easy to set which they know [will] lead to their downfall if
up hypothetical scenarios of, for example, a brother discovered, and which they mistakenly believe they
and sister deciding to have sex with one another–—in have the power to conceal’’ (Ludwig & Longenecker,
a situation where pregnancy could not possibly 1993, p. 267). Success, they posit, often leads suc-
result–—that will cause most people to immediately cessful people to lose focus; gain privileged access
BUSINESS LAW & ETHICS CORNER 539

to information, people, or objects which can be very exhibit less than admirable behaviors. The situa-
tempting; obtain largely unconstrained control over tional can overwhelm the dispositional.
organizational resources; and gain an almost magi-
cal belief in their own ability to manipulate out- 4.2. Overconfidence and the personal
comes and therefore to conceal their wrongdoing. positivity bias
All this may be exacerbated by simple greed. A
recent study indicates that people of higher social Directors who have chosen top officers will usually
class, which would certainly include CEOs and CFOs, trust the quality of character of those officers. Part
tend to act more unethically than people of lower of the reason for this is natural overconfidence in
social class. The key factor is their more favorable their own ability to size up others. Furthermore, the
attitude toward greed, which is a strong determi- judgments people make about individuals tend to be
nant of unethical behavior (Piff, Stancato, Côté, favorable rather than unfavorable, in part because
Mendoza-Denton, & Keltner, 2012). of the personal positivity bias (Plous, 1993).
Although people think increasingly ill of politicians
in general, their view toward their own represen-
4. Boards: It’s hard to be a watchdog tatives tends to be much more favorable.

If organizational pressures and psychological factors 4.3. Confirmation bias and cognitive
often cause ‘good’ people to act unethically, and if dissonance
captains of industry are uniquely susceptible to
many of these situational factors, then corporate Having selected people they believe to be honest,
boards of directors should be extraordinarily atten- directors will then tend to look for evidence which
tive when monitoring the actions of company exec- supports that conclusion and ignore contradictory
utives. Careful monitoring by boards is critical to information. In a process known as confirmation
avoiding the impact of the Bathsheba Syndrome and bias, directors will seek out and remember evidence
other problems of top corporate officers (Ludwig & consistent with their assumptions (‘‘Our CEO is a
Longenecker, 1993). And yet, boards often fall good person who would not do bad things’’) while
short. Why? glossing over inconsistencies until they become
There are rational economic reasons, of course, nearly overwhelming (Groopman, 2007). Further-
why boards of directors often fail to adequately more, the concept of cognitive dissonance means
monitor CEOs and CFOs. They are not sued particu- that once directors have placed their confidence in
larly often, and when they are, they are usually the honesty of a CEO, they will be extremely reluc-
protected by D&O insurance. Directors, especially tant to reach the conclusion that they made a
outside directors, are also given various protections mistake, even when contrary evidence begins to
under federal securities law. Ultimately, directors come to light (Festinger, 1957).
virtually never pay judgments out of their own
pockets (Black, Cheffins, & Klausner, 2006). 4.4. False consensus effect and
However, there are also not-so-rational psycho- vulnerability to deception
logical factors that can cause directors to fail to
monitor as closely as they should. Directors must be Directors will often ignore information indicating
aware of these and guard against them. dishonesty by top officers when fed even implausi-
ble explanations by the same. The false consensus
4.1. False attribution error effect, which causes people to generally believe
others see the world as they do (Ross, Greene, &
The first psychological factor is the false attribu- House, 1977), prompts honest directors to expect
tion error. When directors–—indeed, when most that the officers they deal with will also act honest-
humans–—read in the newspaper that an individual ly. Individuals who are not particularly trustworthy
has done a bad thing, they tend to assume the actor themselves trust others less, while individuals who
was a bad person; likewise, when they read that are trustworthy tend to trust others more, leaving
an individual has done a good thing, they assume the latter especially vulnerable to deception
he/she was a good person (Feigenson, 2000). And (Langevoort, 1993).
because they will typically have selected the CEO, Directors are further hindered by the fact that it
directors will usually believe that he or she is a good is difficult for them to tell when they are being lied
person who would not do a bad thing. As noted to. While it is common for humans to believe they
earlier, though, organizational pressures and psy- are adept at detecting deception, overconfidence
chological shortcomings can cause decent folks to again rears its ugly head, as the evidence shows few
540 BUSINESS LAW & ETHICS CORNER

people truly are good lie detectors (Ekman, 2001). fail to effectively monitor officer abuses. That said,
We all bear a vulnerability to deception. Shell these explanations are not excuses.
(1991, p. 238) noted that ‘‘human perception over-
all is not a reliable defense to opportunistic behav- References
ior.’’ And Baier (1992, p. 109) observed that because
the feelings, beliefs, and intentions upon which we Babiak, P., & Hard, R. D. (2006). Snakes in suits: When psycho-
often base our trust ‘‘sometimes can be faked, paths go to work. New York: Harper.
[trust] is a notoriously vulnerable good.’’ Baier, A. C. (1992). Trust and its vulnerabilities. In G. B. Peterson
(Ed.), Tanner lectures on human values. Salt Lake City, UT:
University of Utah Press.
4.5. Cult of the CEO Bazerman, M. H., & Tenbrunsel, A. E. (2011). Blind spots. Prin-
ceton, NJ: Princeton University Press.
Finally, director gullibility is exacerbated by the fact Bishop, G. (2012, February 28). After rising from lowest
that, like everyone else, directors can be star- depths, Baylor crafts a powerhouse. International Herald
Tribune, 14.
struck. People tend to worship celebrities, and Black, B., Cheffins, B., & Klausner, M. (2006). Outside director
the cult of the CEO heightens this phenomenon liability. Stanford Law Review, 58(4), 1055—1159.
(Haigh, 2005). Humans are often so enamored of Brooks, D. (2011). The social animal. New York: Random House.
corporate titans that they let them get by with Carr, D. (2012, May 7). News Corp. board’s cozy compliance. The
decisions and actions they would condemn in other New York Times, B1.
CEOs: Back to ethical basics. (2002, July 2). Christian Science
people. And when leaders are continually given a Monitor. Retrieved from http://www.csmonitor.com/2002/
pass in this way by those around them, it only 0702/p08s01-comv.html
reinforces any dishonest tendencies they may have. Cropanzano, R., & Walumbwa, F. O. (2010). Moral leadership: A
As articulated by Luban (2010, p. 63): ‘‘Our culture short primer on competing perspectives. In M. Schminke (Ed.),
is more willing to tolerate stylish scoundrels who Managerial ethics (pp. 21—52). New York: Routledge.
Cruver, B. (2002). Anatomy of greed. New York: Carroll & Graf.
come out on top than honorable, rule-following Davidoff, S. M. (2012, March 7). For some CEOs, a mirror can
losers.’’ become a dangerous tool. The New York Times, B9.
De Cremer, D. (2010). On the psychology of preventing and
dealing with ethical failures: A behavioral ethics approach.
In M. Schminke (Ed.), Managerial ethics (pp. 111—125). New
5. The bottom line York: Routledge.
De Cremer, D., van Dijk, E., & Reinders Folmer, C. P. (2009).
Directors owe a fiduciary duty to shareholders to Why leaders feel entitled to take more. In D. De Cremer
adequately monitor their company’s officers, es- (Ed.), Psychological perspectives on ethical behavior and
pecially as regards unethical and/or illegal con- decision making (pp. 107—119). Charlotte, NC: Information
duct. The lessons of this brief article are that good Age Publishing.
Deloitte Forensic Center. (2009). Ten things about financial state-
people sometimes do bad things; that corporate ment fraud–—third edition. Retrieved May 9, 2012, from
officers are often examples of this; and that for a http://www.deloitte.com/assets/Dcom-UnitedStates/Local%
variety of reasons, many psychological in nature, 20Assets/Documents/FAS_ForensicCenter_us_fas-us_dfc/us_
directors often have a difficult time acting as dfc_ten_things_about_financial_statement_fraud_241109.pdf
effective monitors to stop officers’ illegal and Ekman, P. (2001). Telling lies. New York: WW Norton.
Feigenson, N. R. (2000). Merciful damages: Some remarks on
unethical behavior. forgiveness, mercy, and tort law. Fordham Urban Law Journal,
There is no easy answer to this challenge, but 27(4), 1633—1650.
directors need to be aware of officers’ psychological Festinger, L. (1957). A theory of cognitive dissonance. Stanford,
tendencies, as well as their own. They must recog- CA: Stanford University Press.
Groopman, J. (2007). How doctors think. New York: Houghton
nize their unique vulnerability, given that officers
Mifflin.
typically set the agenda for board meetings and Haidt, J. (2012). The righteous mind. New York: Pantheon.
provide most of the information upon which direc- Haigh, G. (2005). Fat cats: The strange cult of the CEO. New York:
tors rely (Sharpe, 2011). Thunder’s Mouth Press.
Directors are not auditors, who owe shareholders Jackson, K. T. (2004). Building reputational capital. Oxford, UK:
an obligation to be skeptical. They are, in fact, legally Oxford University Press.
Jennings, M. (2005). Ethics and investment management: True
entitled to presume the honesty and accuracy of the reform. Financial Analysts Journal, 61(3), 45—58.
information given them by officers–—at least, absent Keltner, D., Langner, C. A., & Allison, M. L. (2010). Power and
some sort of red flag. Nonetheless, directors must moral leadership. In D. Rhode (Ed.), Moral leadershi (pp. 177—
keep their ethical antennae up and be ready to act 194). San Francisco: Jossey-Bass.
upon reliable information that would disconfirm a Khan, U., & Dhar, R. (2006). Licensing effect in consumer choice.
Journal of Marketing Research, 43(2), 259—266.
previously-held opinion regarding officer integrity. Langevoort, D. C. (1993). Where were the lawyers? A behavioral
Organizational pressures and psychological vul- inquiry into lawyers’ responsibility for clients’ fraud. Vander-
nerabilities are explanations for why directors often bilt Law Review, 46(1), 75—119.
BUSINESS LAW & ETHICS CORNER 541

Langevoort, D.C. (2010). The behavioral economics of mergers Pinello, A.S., & Dusenbury, R. (2006). The role of cognition and
and acquisitions. Retrieved April 19, 2012, from http:// ethical conviction in earnings management behavior. Retrieved
ssrn.com/abstract=1692777 April 19, 2012, from http://ssrn.com/abstract=711422
Lord, C. G., Ross, L., & Lepper, M. R. (1979). Biased assimilation Plous, S. (1993). The psychology of judgment and decision mak-
and attitude polarization: The effects of prior theories on ing. New York: McGraw-Hill.
subsequently considered evidence. Journal of Personality and Price, T. L. (2005). Understanding ethical failures in leadership.
Social Psychology, 37(11), 2098—2109. Cambridge, UK: Cambridge University Press.
Luban, D. (2010). Making sense of moral meltdowns. In D. Rhode Ross, L., Greene, D., & House, P. (1977). The ‘‘false consensus
.(Ed.), Moral leadershi (pp. 57—75). San Francisco: Jossey Bass effect’’: An egocentric bias in social perception and attribu-
Ludwig, D. C., & Longenecker, C. O. (1993). The Bathsheba tion processes. Journal of Experimental Social Psychology,
Syndrome: The ethical failure of successful leaders. Journal 13(3), 279—301.
of Business Ethics, 12(4), 265—273. Sachdeva, S., Iliev, R., & Medin, D. L. (2009). Sinning saints and
Margolis, J., & Molinsky, A. (2006). Three practical challenges of saintly sinners: The paradox of moral self-regulation. Psycho-
moral leadership. In D. Rhode (Ed.), Moral leadershi (pp. 77— logical Science, 20(4), 523—528.
93). San Francisco: Jossey-Bass. Sharpe, N. F. (2011). The cosmetic independence of corporate
McLean, B., & Elkin, P. (2006). The smartest guys in the room. boards. Seattle University Law Review, 34(4), 1435—1456.
New York: Penguin Group. Shell, G. R. (1991). Opportunism and trust in the negotiation of
Messick, D. (2010). Ethical judgment and moral leadership. In D. commercial contracts: Toward a new cause of action. Vander-
Rhode (Ed.), Moral leadershi (pp. 95—110). San Francisco: bilt Law Review, 44(2), 221—282.
Jossey-Bass. Sisodia, R., Sheth, J., & Wolfe, D. B. (2007). Firms of endear-
Milgram, S. (1963). Behavioral study of obedience. Journal of ment. Upper Saddle River, NJ: Wharton School Publishing.
Abnormal and Social Psychology, 67(4), 371—378. Stout, M. (2006). The sociopath next door. New York: Broadway
Norris, F. (2005, September 23). Why his peers say Kozlowski got Books.
off easy. The New York Times, C1. Tversky, A., & Kahneman, K. (1992). Advances in prospect theory:
Piff, P. K., Stancato, D. M., Côté, S., Mendoza-Denton, R., & Cumulative representations of uncertainty. Journal of Risk
Keltner, D. (2012). Higher social class predicts increased and Uncertainty, 5(4), 297—323.
unethical behavior. Proceedings of the National Academy of Veasey, E. N. (2003). Policy and legal overview of best corporate
Sciences, 109(11), 1086—4091. governance practices. SMU Law Review, 56(4), 2135—2147.