Financial Decision Making
A Study of Board Room Decision-Making Dynamics
Keywords:
Business Education, Business ethics, Business schools, Corporate governance, corporate decision making, Defining Issues Test, ethical judgement, group dynamics, moral development, teachingAbstract
Objective: The research involved a board room role-playing exercise in financial decision making that challenged students to take ethically corrective action to overturn a bank CEO’s ethically questionable decisions. Prior to the role-play, some students received
training about the dangers of heuristics and others received training in ethical decision making. Background: In group decision making, the obedience to authority heuristic can play a major role in the economic and ethical correctness of financial decisions.
During the recent financial crisis many chief executive officers’ financial decisions that proved ethically wrong were supported by their boards of directors. Method: A pretest – posttest quasi-experimental design utilizing the Defining Issues Test of moral reasoning and role-playing was employed in a university business class. Outcomes of group decisions were further analyzed for ethical correctness and legal compliance. Results: While the student “board members” in all sample groups properly identified the unethical nature of the CEO’s actions, each group was significantly influenced to diverge from taking appropriate corrective action by the rationalizations presented by the CEO. Specific training received before the role-play had little apparent effect on student behavior to take corrective action. Conclusion: The results seem to indicate that obedience to authority can have a profound influence on decision makers to support unethical behavior in group settings. Application: Along with teaching students how to use an ethical decision-making framework, students and employees need to be trained in the dangers of organizational pressures, such as the obedience to authority heuristic, in order to become somewhat inoculated against their insidious influences.
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