Corporate scandal is once again becoming vogue, whether it is accounting irregularities that topple entire companies, large executive golden-parachutes for sub-standard performance, or backdating of stock options.

Apple said in December that it would take an $84 million charge for misdating more than 6,400 options. It said an internal review found two questionable options awarded to Jobs but no wrongdoing by current management, including the CEO.

Inevitably there are scores of individuals stymied by what is characterized as greed, selfishness (which apparently can be measured now), even an improper entitlement filled childhood. All of this generally followed by criminal probes, class-action lawsuits, and a sense of general malaise by the time the verdict is read. But one must ask, are these characterizations correct, is it a simple case of narcissism, did they watch the movie Wall Street one too many times, or is something deeper at work, and better would we make the same decision in their place?

– Motivational Biases –

People often hold conflicting preferences, and the basis of this conflict is the difference between “want” and “should” (Bazerman, 2002). A party goer, being on a diet, knows they ‘should’ avoid the buffet, but wants some chips and salsa. People know they ‘should’ drive the speed limit, but ‘want’ to get home earlier. Executives know they should report all income received, but want a bigger bank account. It seems to indicate in a variety of situations the should self is always a positive attribute, however, it may be to conservative, risk averse, or timid to do the right thing. It is recommended that individuals develop a compromise between their want and should selves to avoid the potential conflict that could arise. During New Years thousands of people make resolutions to diet and loose weight. Typically after two-weeks they regress to their old patterns and pull into McDonald’s because they did not allow for their want self to have any position in their life.

– Positive Illusion –

Most people see themselves, the world, and the future in an unrealistically sustainable positive manner. These positive illusions can be summed up in the following four descriptions:

  1. Unrealistically positive views of self,
  2. Unrealistic optimism,
  3. The illusion of control,
  4. Self-serving attributes (Bazerman, 2002).

Individuals will see themselves as better than others with brighter futures. These narcissistic tendencies often give the impression of control in uncontrollable situations and cause an overwhelmingly large share of credit to be taken for positive outcomes and distancing from negative ones. Consider the results from a Hudson survey regarding managers opinions of themselves relative to that of their subordinates.

Nearly all managers (92 percent) consider themselves to be an excellent or good boss. However, the latest Hudson survey found that employees do not necessarily agree, as only 67 percent rate their managers favorably. In fact, ten percent of workers say their boss does a poor job.

There is a great discussion as to whether or not positive illusion is a healthy endeavor. In the a laboratory stress-challenge paradigm, is was found that high self-enhancers had lower cardiovascular responses to stress, more rapid cardiovascular recovery, and lower baseline cortisol levels (Taylor, Lerner, Sherman, Sage, and Mcdowell, 2003). Life, however, does not take place in a laboratory. Positive illusion and unrealistic optimism can lead to excessive risk taking and those who underestimate their risk are routinely less likely to show interest in taking preventative action (Schneider, 2001). Individuals with strong self-illusions fall into the trap that “it will never happen to me.” Smokers, for example, are less likely to quit because they believe the probability that they will get cancer or emphysema is small. Perhaps this is the same line of thinking that afflicts many corporate executives when facing the prospect of larger bonuses and severance packages. Although they may face the risk of federal investigators and trial; it definitely explains the smile.

(Left to Right: Steve Jobs – Apple, Bob Nardelli – Home Depot, Ken Lay – Enron)