Six categories of rationalization that enable ethical people to commit fraud
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Narrator: Pam Murphy, Professor of Accounting at Queen’s School of Business in Kingston, Ontario says that in addition to opportunity and motivation, the ability to rationalize their behaviour can case otherwise ethical people to commit unethical acts, including fraud.
Pam told ILSTV that there are six categories of rationalization that enable people to justify their actions. Pleading ignorance and shifting the blame are the first two. Pam explains how by pleading ignorance, fraudsters can misconstrue the consequences of the act, often claiming that they’re not hurting anyone.
Pam Murphy: In my research I’ve found a lot of people arguing that. They’ll say that either “I’m not hurting anyone at all” or they’ll say “I’m not hurting anyone very much.” It’s an easy way to start fraud because generally a lot of frauds start small. You can tell yourself “I’m not really hurting anyone much” and that can be sort of a catch on the slippery slope that allows you to get started.
Shifting the blame is another tough one. I’ve seen this actually in a number of frauds that I’ve investigated, especially big accounting frauds. There have been several cases where a CEO will tell their subordinates, for example, to perpetrate fraudulent financial reporting. The reason that they’ll go for it is that they’ll say “Well, everyone does it. You have to do that to be in the game.” There’s clear evidence that that rationalization has been used.
Narrator: The category of advantageous comparison happens when the wrongdoer compares the wrongful act against a much more flagrant act, in which case the original act looks better. Pam offers an example of advantageous comparison, and of another category – moral justification.
Pam Murphy: If someone is given an opportunity to, let’s say, steal something, they might just steal a little and not take full advantage of the situation. They will rationalize or justify that by saying “Oh, but I only took something small. I could have done something much worse but I didn’t.” That is something that I don’t know if I’ve seen a lot of evidence of that from the frauds I’ve investigated, but I have certainly seen that in experiments that I run in which individuals are given the opportunity and the motive to lie. For example, they perform a task that results in an earned income and then they report an income to me and I pay them what they report. This gives them the opportunity and the motive to lie and make more money. Some people will lie a little bit and make a little bit more money and when asked what they did and why, they say “I didn’t want to lie to the fullest extent possible. I wouldn’t feel right doing that, but I felt okay lying a little bit.”
The category of moral justification is perhaps the scariest, where you can twist something around to make it sound like you really are a savior – you’re just such a great person. An example could be someone like Andy Fastow when he testified in the Enron trial. He said that he truly thought he was a hero for the company because he set up a system that basically kept the company out of bankruptcy. He said he was viewing himself as a hero who was saving all of these employees’ jobs, saving the company – that’s quite a worthy purpose, right? That one is really sort of twisted.
Narrator: Often, a potential fraudster can twist language to suit his or her needs. In the category of euphemistic labeling, convoluted language can make a wrongful act sound better. Pam gives an example.
Pam Murphy: That one is complex. A possible example of that one with regard to a fraud that a lot of us are familiar with was the WorldCom fraud. I heard Cynthia Cooper deliver a speech about that fraud and she said that Scott Sullivan, the CFO, had written a lengthy white paper trying to argue the reasoning for capitalizing a number of things that should have been expensed. I would surmise that that could be euphemistic labeling. He’s really trying to make it sound like that’s the right thing to do.
Narrator: Sometimes otherwise ethical people will blame the victim, finding faults with those impacted by the event or circumstance. A denial of guilt, such as “They had it coming” or “They have so much money already”, is often part of this rationalization.
Pam Murphy: You do hear a lot of people say that. “Oh, insurance companies, they have so much money” or “the banking industry, they have so much money.” People wouldn’t necessarily feel badly about perpetrating a fraud against a company like that because they can rationalize it, saying they had it coming. Whether they believe that or not, it doesn’t excuse committing fraud.
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