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How could a team of decent, hardworking, normally law-abiding managers find themselves facing fines, jail time, the loss of their jobs, and ultimately the loss of the company they managed? In making executive decisions, these managers were not deliberately trying to evade the intent of the law, defraud anyone, harm the environment, or act in an antisocial manner. Indeed, in the situations that led to the most serious legal problems, they didn’t really do much of anything. Therein lies the tale.
The top managers of a company that we will call the California Ordnance and Technology Corporation (COTC)1 found themselves at the center of a costly regulatory and legal storm because of decisions that were not that different from many of those made in executive offices every day. In some cases, these were not decisions to act, so much as decisions to postpone action due to undesirable alternatives. The consequences, however, were disastrous for the firm and for several of the people involved.
As Messick and Bazerman stated, “Executives today work in a moral minefield. At any moment, a seemingly innocuous decision can explode and harm not only the decision maker but also everyone in the neighborhood.”2 In noting the challenges facing executives, they review psychological research about how people make decisions and process information. Their research findings provide insight into what happened to the executives at COTC — and what could easily happen to many executives today.
Observing that “psychologists have discovered systematic weaknesses in how people make decisions and process information,”3 Messick and Bazerman examine how these weaknesses can lead to unethical decision making. In addition, they point out that the same weaknesses underlie poor decision making generally, whether unethical or not. In considering the case of COTC, we focus on unwise business decisions rather than on ethics per se; at the same time, those unwise decisions resulted in a situation in which the only apparent alternative was a violation of the law.
The story of COTC illustrates how the principles of Messick and Bazerman apply to business decisions. We hope the case will alert business leaders to comparable situations that may need attention in their own organizations. We begin by relating the events that took place at COTC, based on information obtained from key participants and from newspaper accounts.
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1. The name of the company has been changed.
2. D.M. Messick and M.H. Bazerman, “Ethical Leadership and the Psychology of Decision Making,” Sloan Management Review, volume 37, Winter 1996, p. 9.
3. Ibid., p. 9.
4. For a more complete understanding of these concepts, we encourage the reader to refer to the original article by Messick and Bazerman.
5. Ibid., p. 11.
6. Ibid., p. 13.
7. Ibid., p. 17.