I am supremely interested in the manner psychology affects the way that we construe situations and events. In this realm, my primary area of interest is social psychology, a part of psychology that causes more problems in the business-world than solutions. Social psychology focuses on the psychological impacts that a group has on one individual. Within this domain, there are many phenomena that contribute to the material that we cover, but I will focus on a couple core theories that directly relate to our cases thus far. These phenomena are obedience, groupthink, and deindividuation.
A psychological concept that is relevant to Enron’s demise is obedience. Obedience is represented by one’s willingness to disobey his or her personal values when in the presence of an authority figure asking him or her to do so. Such a phenomenon occurs even when there will be no repercussion to the individual if he or she does not comply with the authority’s demands. Stanley Milgram portrayed this concept in action by performing a study in which a subject was asked to shock a confederate of the experiment whenever this confederate answered a question incorrectly. The machine that the subjects used to shock the confederate counted up in 15 volt increments to 450 volts, past where the label above the voltages indicate a “Danger: Severe Shock” sign. As the confederate continuously got answers wrong, the subject was told to punish him incrementally by doling out higher, more dangerous shocks. Despite the labels above the voltage, cries from the confederate, and the subject’s own inhibitions, twenty-six out of forty subjects continued with the experiment until the highest shock was given to the confederate. Such an example shows the extent to which an authority figure controls underlings, regardless of their respective values and beliefs. This experiment is shown below:
Enron was clearly plagued by obedience. There were many individuals who claim to have spoken out many times while Enron’s financial situation worsened, but these people were suppressed by threats from management. It was common for employees to be threatened with a demotion or an unwarranted move if they attempted to speak out about business practices the company utilized. Furthermore, in accordance with Milgram’s study, Enron hired professional accountants and lawyers who acted as “authority figures.” Because these authority figures never spoke out against any of Enron’s operations, its employees most likely became further obedient.
The AIG case seems to be rampant with the social psychological constraint of groupthink. Groupthink explains how individuals in a group tend to experience information-processing errors when making decisions, especially when people find themselves in a homogenous, high-stress group. AIG was the largest insurance agency in the world, operating at a very high level of prestige, but constantly expanding their operations. When they started to get involved in the CDS, no one believed that this security was capable of the disaster that it later generated. Instead, due to the high-stress and homogeneity involved in AIG, investment banks, and the rating agencies, everyone tended to agree that these securities were sustainable, thus they continued to praise their positives. Of course, this groupthink mentality ended up damaging each of these companies, as well as the entire financial structure of the United States, because people were unable to take themselves out of this limited information-processing mindset. Groupthink is further discussed in the video below:
The third social psychological phenomenon prevalent in this class is deindividuation. This is a concept that explains how individuals lose their sense of self when in groups. Studies have shown that deindividuation can occur simply by priming someone with the goals and expectations of the group, so that their personal individual self-awareness starts to fade in lieu of the group’s identity. In situations such as this, it could be expected that Nike factory overseers believe that immoral working conditions are “satisfactory” to accomplish the company’s goal of churning out products, despite their moral objections personally. Such a phenomenon is vastly represented across the business fields, as being part of a company ingrains their corporate beliefs into your individual actions.
The cases that we have covered in class have shown that obedience, groupthink, and deindividuation are extremely relevant in the field of business ethics. As people are constantly challenged to assimilate into a company’s culture, yet retain their own personal beliefs and moral identity, we must remember that this act is easier said than done. There should be checks and balances in every organization aiding employees in maintaining their personal values while also serving in the best interest of the company. In doing so, I believe we will be able to bridge the ethical gap that obedience, groupthink, and deindividuation cause in company operations.
- The Milgram experiment (focusonidiots.wordpress.com)
- Elevator Groupthink: A Psychology Experiment in Conformity, 1962 (brainpickings.org)