Enron: A Brief Behavioral Autopsy

Explaining governance failure: accountability spaces in-between and bias

“…In the course of typical boardroom discourse, important concerns may fail to be expressed and inadequacies of the formal form of accountability may remain unchallenged until critical issues of organizational performance enter the public domain (Parker, 2008;APB, 2012). While corporate scandals are frequently associated with issues of corruption, fraud, incompetence, and ethical failure of key governance agents, including that of members of the board (Clarke et al, 2003;Marnet, 2007;Gwilliam and Marnet, 2010), the bigger issue may be one of flawed judgment by these agents due to cognitive bias as an inescapable element of individual and group decision-making (Janis, 1972;Kahneman et al, 1982;Bazerman and Watkins, 2004;Bazerman and Malhotra, 2006;Prentice, 2000Prentice, , 2003Coffee, 2006).…”

“…Factors known to distort judgment include conflicts of interest, deference to authority, peer pressure, emotional attachments, and inappropriate reliance on prior experience, beliefs and decisions (Kahneman and Tversky, 1973;Kahneman et al 1982;Jolls et al, 1998;Thaler, 2000;Rabin, 2002). Bazerman et al (2002) note a particular vulnerability of judgment to subconscious motivation, making, inter alia, reference to a tendency to excessively discount facts that contradict desirable conclusions, whilst uncritically embracing evidence that supports prior positions (Babcock and Loewenstein, 1997;Prentice, 2003;Coffee, 2006). …”

“…The present research inquires into sociopsychological causes for the reluctance of boards to investigate these spaces. The paper suggests that cognitive bias in judgment frequently inhibits an adequate articulation and exploration of issues critical to the governance of organizations, thereby undermining the value of the narrative form of accountability (Langevoort, 2001a,b;Prentice, 2003;Bazerman and Malhotra, 2006;Forbes and Watson, 2010;FRC, 2011; APB, 2012).…”

“…The present research inquires into sociopsychological causes for the reluctance of boards to investigate these spaces. The paper suggests that cognitive bias in judgment frequently inhibits an adequate articulation and exploration of issues critical to the governance of organizations, thereby undermining the value of the narrative form of accountability (Langevoort, 2001a,b;Prentice, 2003;Bazerman and Malhotra, 2006;Forbes and Watson, 2010;FRC, 2011; APB, 2012).With the rise of New Public Management (NPM) and the subsequent increase in the use of performance measurement in the quasi-public sector (Collier, 2005;Bogt and Scapens, 2012), a discussion on bias in the boardroom provides useful insights on potential problems and dysfunctional consequences of the adoption of this model in the public sector (see, e.g., Hood, 2007;McLean et al, 2007;Broadbent and Guthrie, 2008;Lapsley, 2008). New Public Management, although changing over time and from country to country, stresses the use of explicit quantitative performance 3 measures and external audits, output controls, and private sector management methods to advance public sector performance and accountability (Hood, 1995(Hood, , 2007Pollitt, 2006;de Bruijn, 2007;Woods, 2010;Bogt and Scapens, 2012).…”

Ethical Decision Making: More Needed Than Good Intentions

“…Even those officers who were acting in good faith must have been affected by the self-serving bias. In the case of Enron, moreover, employees were often not choosing between two legitimate options because the prices of both options were pulled out of the air (Prentice 2003).…”