Academic journal article Journal of Legal, Ethical and Regulatory Issues

The Tale of Two Cfos: The Banality of Wrongdoing at Healthsouth Corporation

Academic journal article Journal of Legal, Ethical and Regulatory Issues

The Tale of Two Cfos: The Banality of Wrongdoing at Healthsouth Corporation

Article excerpt


Grasping why poorly performing businesses might resort to unethical practices to prop up a failing enterprise is easier than understanding why a high performance business would risk ruin in order to mask the inevitable flattening of performance that accompanies significant growth. Why would successful people who have no need to cheat in order to be successful, resort to cheating? This conundrum was addressed by Balch and Armstrong (2010), who argued that high performance involves challenging the status quo and pushing the boundariesof what is allowed to seek competitive advantage. Behavior at the margins of what is allowed may be critical to success, but carries with it the risk of crossing the line into unethical behavior. Success often involves defying conventional wisdom (breaking assumed rules of operation) in order to invent new methods to take advantage of evolving circumstances. It can become difficult for a high performance organization to distinguish between rule breaking that is legitimate (transcending obsolete models) andthat which is illegitimate.

Drawing on the literature of normalized wrongdoing (Coleman, 1987; Ashforth & Anand, 2003; Anand, Ashforth & Joshi, 2005; Palmer and Maher, 2006), self-referential corporate cultures (Reidenbach & Robin, 1991), reputational risk (Fritzsche & Becker, 1994), reinforcement of predisposition toward wrongdoing (Baucus, 1994), and expectations of competitor behavior (Tenbrunsel, 1998), Balch and Armstrong devised the Banality of Wrongdoing model (2010) to study why high performance organizations are vulnerable to unethical behavior, and later applied this model in an empirical study of an Australian energy company (Armstrong & Balch, 2011).

The findings of several recent published and working papers strongly resonate with elements of theBanality of Wrongdoing model. The critical role of leadership in setting ethical tone has been examined in a variety of contexts:private universities in Bosnia and Herzegovina (Dine & Zydemir, 2014), U.S. corporate environments (Deloitte & Touche, 2007), U.S. and European corporate environments (Soltani, 2014),and auditing firms (Tervo, Smith & Pitman, 2014).Linkages between ethical behavior and performance have been exploredat corporate level by Blazovich and Smith (2011) and at national level by Smith, Gruben, Johnson and Smith (2013).Factors affecting ethical predisposition have been studied in education (Giacalone & Promislo, 2013), in county-level religious culture (Grullon, Kanatas & Weston, 2010), and in the U.S. accounting profession (Keller, Smith & Smith, 2007).A survey of ethics codes and CSR policies has been done by Linhoff, Martin, Smith and Smith (2014), and the potential for manipulation of CSR reporting for image management purposes has been examined by Mobus (2012).Lo (2011) has employed cognitive neuroscience to explore links between emotion and rational decision-making to illuminate the role of greed,fear and risk seeking/avoidance in producing and resolving financial crises.

Two other classic studies provide additional context. Milgram's (1963) classic paper on obedience to authority despite awareness of ethical wrongdoing provides useful background for understanding the influence of a dominant and manipulative ends-biased leader. Hunt and Vitell (1986) point out the importance of the perception of ethical content and the interplay of deontological (righteousness of actions) and teleological (righteousness of consequences) theories of ethics; as our explication will show, obsessive focus on a specific set of consequences (financial) led to distorted teleological reasoning.

This paper performs a qualitative assessment of corporate wrongdoing at HealthSouth Corporation, employing the variables of normalized wrongdoing which were previously quantitatively tested in the Armstrong and Balch (2011) study.

The Banality of Wrongdoing model explores the implications of managers engaging in goal-seeking behaviors to gain an advantage. …

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