The Effect of Punishment on Ethical Behavior When Personal Gain Is Involved

ABSTRACT With the recent onslaught of accounting frauds, the nature of unethical decision making in organizations has shifted from the lack of sensitivity for the ethical aspects of decisions to one where executives have used their positional power for personal gain. Congress reacted with stiffer laws and punishments, raising the question of the role of punishment in deterring corporate crime. This study investigates the effect of four variables, valence of the outcome, probability of getting caught, severity of punishment, and moral values, on ethical decision making. A survey with six ethical scenarios was administered in three different classes resulting in 115 completed surveys. Students were asked to select the scenario option they would actually do in the situation and to rate how significant the four variables were in their decision. The responses for the six scenarios were combined and analyzed using linear regression. Three of the four variables were significant in explaining the variance in selection of the ethical option. Moral values explained the most variance with severity of punishment being second and valence of the outcome third. This study contributes to the ethics literature by demonstrating the importance of punishment in supporting a person's choice of the ethical option. INTRODUCTION The corporate problems with unethical decision making have changed in nature over the years from issues related to product safety, environmental impact, and misleading marketing to more obvious uses of corporate power for personal gain. In the last six months we have seen two CEOs prosecuted and sentenced to jail terms for misuse of corporate funds, misleading investors, and misrepresenting financial results. Prior to these prosecutions, examples of unethical decision making at Enron, Tyco, WorldCom, and others have been attributed to a climate where executives have come to believe they are above the law (Bianco, Symonds, & Byrnes, 2002). In response to the continuing corporate scandals, Congress passed the Sarbanes-Oxley Act, which was signed by President Bush in the summer of 1992. This act, along with the US Sentencing Guideline Amendments and the Department of Justice Principles of Federal Prosecution of Business Organizations, was passed to foster greater financial accuracy and curb corporate malfeasance. These actions demonstrate the first attempt to govern corporate conduct by imposing criminal liability directly on executives for investor fraud. These steps by the government are based on the belief that greater apprehension, prosecution, and punishment will deter these acts of unethical behavior (Imperato, 2005). Much of the previous research on ethical behavior has taken the perspective of increasing cognitive moral development, raising sensitivity to ethical issues, and improving moral judgment; but much less attention has been paid to the impact that punishment and prosecution has on moral motivation. LITERATURE REVIEW The majority of the early research on ethics was based on Kohlberg' s (1969) model of Cognitive Moral Development, which described three levels of moral development: pre-conventional, conventional, and principled. These levels correspond to the basis people use to distinguish right from wrong. The Defining Issues Test (DIT) is the instrument most commonly used to measure the level of moral development of research subjects (Abdolmohammadi & Sultan, 2002). Rest (1986, 1994), in his extensive review of the literature on ethical development, realized that researchers were looking at different aspects of the decision-making process. He proposed a four-component model that includes moral sensitivity, moral judgment, moral motivation, and moral character. Moral sensitivity is the awareness of how one' s actions affect other people and the realization that the cause-consequence chain of events that one's actions initiate has moral implications. …