After everything falls apart, the failures to act become obvious: Why didn't somebodyat Penn State do more to pursue allegations that former assistant football coach Jerry Sandusky was sexually abusing young boys? Didn't anybodyat MF Global Holdings notice that something was wrong before $1.2 billion in customer cash disappeared? Why, decade after decade, didn't anyoneat Olympus protest $1.7 billion in accounting irregularities?
"Why was there almost a conspiracy of silence?" John R. Kimberly, a Wharton management professor, asks of these scandals and others like them. "Why do we behave in ways that are inconsistent with our articulated beliefs?" He wonders why people with integrity behave differently within an organization than they would on their own.
In hindsight, especially to observers, it is clear what should have been done. Yet in case after case, companies overlook internal problems that at best impede performance, and at worst could bring down an entire organization.
Exposing such problems is more complicated than telling right from wrong, say experts at Wharton and elsewhere. Sometimes people within the organization can't see the problem clearly -- or if they do, they are afraid to voice it. Those who do speak up may be ignored or misunderstood. If one group within an organization is more powerful than another, it may escape careful scrutiny. And if leaders themselves cannot face taboo problems, it makes it harder for an organization to change.
People find many ways to distance themselves from the moral implications of their behavior, says Kristin Smith-Crowe, a management professor at the University of Utah's David Eccles School of Business who studies ethics within organizations. Sometimes, people decide not to speak up about a problem by convincing themselves that it is someone else's job to solve. Others rationalize their inaction by believing that the problem will resolve itself or nothing negative will result. "It's not that they see it ... [and] they just don't care," she notes. Instead, "they don't necessarily see it" clearly or completely.
Compounding the problem further, people who do speak up may second-guess themselves if they get a negative reaction from leadership -- a rebuke for disloyalty, questioning authority or causing problems, for example. "You start off trying to do the right thing, but the response you get is that you are doing something wrong," Smith-Crowe notes. "People may get confused."
Problems that surface within an organization are rarely clear-cut, says Cristina Bicchieri, a philosophy professor at the University of Pennsylvania who also teaches in Wharton's legal studies and business ethics department. "It's very rare that you observe something that is really bad and somebody does it in front of you." With limited information, people may question their own understanding of a problem. "You hesitate.... It's normal," she says. "You cannot ask people to be super-moral, superhuman. You have to work with what you have."
Group dynamics also come into play, especially in small groups. "The cozier and the more close-knit the group, the less incentive you have to stir the waters," she points out. "If you are strongly motivated by the sense of not wanting to ruin the group, you might form a false belief about what happened, especially if the situation is ambiguous."
Group loyalty may also lead members to protect each other when things clearly go wrong. In her article, "Failures to Punish," Wharton professor of legal studies and business ethics Amy Sepinwall tells of a U.S. army commander in Iraq who failed to report that troops under his command had thrown several Iraqi civilians off a bridge, killing one of them. When army investigators raised questions, the commander covered up details about the incident, seeming to place a higher priority on protecting his soldiers than making sure they were punished. "Loyalty is really important to us," says Sepinwall. "It's important for productivity, and just as a matter of virtue. And yet it has this very insidious side [that can] lead to overprotection."
Sometimes, people simply don't notice problems forming, says Erwann Michel-Kerjan, managing director of the Wharton Risk Management and Decision Process Center. Signs of trouble can be subtle and may not stand out on their own. For example, a chemical processing plant might receive a citation during an audit for a dirty floor, and another later for a truck driver who fails to wear a seatbelt. Taken alone, neither event raises alarms. Only after an explosion at the plant kills several workers do such "weak signals" become evidence that the company ignored safety standards. "After the fact, it's always easy to go back in history and say, 'You should have seen that.'"
Time, too, can be an issue. Silent witnesses may quit or retire, taking knowledge of a problem with them. Replacements may not understand the company well enough at first to realize that something is amiss. Scandals "don't happen overnight," Michel-Kerjan points out. "These risks are built over a long time."
'Is It Worth It?'
Even when the problem is clear, knowing how to bring it up may not be.
Secrets of some sort exist in nearly every organization, and it takes "incredible courage" to expose them, says Sue Thompson, a management consultant and executive coach in San Francisco who worked for 21 years as director of human resource development for Levi Strauss & Company. It's especially difficult if the person causing problems holds power. "I may be willing to rat on someone who is my peer, but if it's my boss or the peer of my boss, I'm probably going to weigh -- is it worth it?"
Most people do not want to jeopardize their own position in the company, and are more likely to remain quiet if there is no safe place to air concerns. "In organizations where the HR [Human Resources] department or the legal department is effective, you can go to those places. But in many organizations, HR is not held in high esteem," Thompson notes. "It's a challenge, even if you want to surface something, to know where, who and how."
Don Rossmore, a consultant in Los Angeles who has worked with companies such as MasterCard, Hewlett-Packard, Taco Bell, Apple and AIG to root out problems and improve performance, says it comes down to leadership. "When leaders do not want an issue discussed, it is not discussed," he says. "When an issue is undiscussable, it cannot be managed rationally." Rossmore has found that people who try to raise an "undiscussable" issue usually make one of two mistakes. Either they express blame or judgment, which increases stress and conflict, or they use ambiguous language, which enables people to avoid the problem.
In the Penn State scandal, assistant coach Mike McQueary testified that he never used the explicit terms "sodomy or anal sex" when reporting to then-football coach Joe Paterno an assault he allegedly witnessed in 2002. McQueary said he failed to be more explicit "out of respect" for Paterno. Paterno testified that he "didn't push Mike to describe it because he was already upset," and waited several days to tell his superiors. Former athletic director Tim Curley, now on trial for perjury along with former vice president of finance Gary Schultz, testified that he didn't call police about the incident because he did not think it was a crime.
Penn State's trustees fired Paterno and university president Graham Spanier in November after the university came under fire for how it handled the sex abuse allegations. Former defensive coordinator Sandusky has since been charged with more than 50 counts of child sexual abuse.
Speaking out about a difficult problem can be especially uncomfortable if it involves a group or individual held in high esteem. Penn State "deified" coach Paterno, says Scott Rosner, associate director of the Wharton Sports Business Initiative. Over the coach's 45-year career, the football team's success helped transform Penn State from an agricultural backwater to a nationally known university. Intercollegiate athletic departments usually generate between 4% to 5% of university revenues, Rosner notes. At Penn State, however, the athletic department took on an importance beyond the money it brought in. It came to operate in a "cocoon" with different standards and controls than the rest of the university, according to Rosner. "Theoretically, they were checked, but practically they were not.... They weren't really answering to anybody."
Fear of Taboos
The Penn State scandal seems to involve two conflicting taboos: damaging the Penn State football program and condoning child abuse, says Paul J.H. Schoemaker, research director of Wharton's Mack Center for Technological Innovation. "It should be self-evident that protecting a boy from a sexual predator far outweighs protecting the school, and the more leaders seem confused about this, the more they would be deemed to have failed morally."
Yet leaders often ignore signals they should heed because of unwillingness "to confront 'repugnant' ideas," writes Schoemaker and co-author Philip E. Tetlock, a professor of management and psychology at Wharton and the University of Pennsylvania, in a forthcoming article in California Management Review titled, "Taboo Scenarios: How to Think About the Unthinkable." "Fear can blind us," they write. "It is often impossible for an organization to acknowledge the biggest risks it faces, including extinction or criminal indictments against multiple leaders."
The key is for leaders is to be very clear about which values rank highest and how conflicting taboos should be handled, Schoemaker says. "Without such moral guidance, those lower in the organization may be unsure what to do, even if it seems clear from the outside. The process of denial can be very subtle and afflict entire organizations or communities, and indeed even entire nations -- for example, genocides in the former Yugoslavia or the internment of U.S. citizens of Japanese descent during World War II."
Most experts agree that leaders must set the tone for the entire organization, work to elicit discussion about taboo topics and maintain transparency about how they respond to any concerns.
Companies should also establish metrics, routines, audits and incentives to help identify problems and suggest areas of change, says Wharton management professor Lawrence G. Hrebiniak, who has acted as a consultant to dozens of companies such as General Electric, AT&T, Microsoft and DuPont. When top management diligently works to measure performance, elicit feedback and respond openly to problems when raised, it can usually make progress, Hrebiniak has found. "Control systems are important to implementing strategy and identifying problems," he says.
The caveat, of course, is that leaders need to pay attention to the facts. "In two cases, I've reported data to top management and they disinvited me from a strategic session," Hrebiniak recalls. "Some of the problems that were identified seemed to suggest poor leadership from the top.... They didn't want it to come out on their watch."
When companies have a culture in which managers are "more interested in hiding things than solving problems," there is little anyone can do to help, Hrebiniak says. "You need top management to react strongly. If they bury the stuff, they're dead."
Thanks to Knowledge@Wharton / Wharton School of the University of Pennsylvania