Mapping a territory of ethical impairment

“The world is an evil place,” a character in Sydney Lumet’s Before the Devil Knows You’re Dead memorably says, but some parts are more wicked than others.  The Conflict of Interest Blog tries to stay out of the very worst ethical neighborhoods (e.g., wherever Lance Armstrong is coming from is too scary for me!).  Our beat is not the heart of darkness but several of the grayer precincts – each close by the others, and together forming a territory of ethical impairment. What are these places, and how well mapped are they?

The biggest consists of conflicts of interest and it is also the best explored.  Indeed, concern with COIs goes back a long ways – at least 3500 years by one account,  and this territory has been mapped by various scholars, such as Ingo Walter of NYU’s Stern School of Business, who developed a typology of COIs   (for the financial services industry) and, more recently, by Professor Klaus J. Hopt of  the Max-Planck-Institute for Comparative and International Private Law (for corporate directors). Moreover, COIs are often addressed – and thereby illuminated – by various laws/legal doctrines (as described in this series of prior posts).  Of course, part of the mission of this blog is to continue to fill in various parts of the COI map (as evidenced by all the Categories tabs and sub-tabs on this page!)

A somewhat less sprawling part of this territory – at least insofar as it relates to business (the focus of this blog) – consists of bias.  (Note: while bias can, of course, arise from a COI, as used here it means the purely attitudinal type of bias.)   The recognition of bias also goes back thousands of years (in that various ancient writers claimed to be free of it).  However, legal prohibitions/restrictions concerning bias in the business world are not nearly as extensive as they are for COIs.  This is presumably because the law is generally loathe to regulate pure thought, as opposed to action or status. (There are, however, some notable bias-related laws outside the business world – such as laws requiring judicial recusal in the event of personal prejudice concerning the parties to a case.)

Moreover, while the general concept of bias is indeed of ancient origins, its application has expanded in recent years based on the notion of cognitive bias that helps inform the emerging field of behavioral ethics.  Posts discussing this field can be found here.   However, this part of our map is not as well developed as is that dealing with COIs – partly because this knowledge is fairly new, and also because legal requirements (and the compliance and ethics program expectations that arise from such requirements) have thus far done little to address the implications of  behavioral ethics information and ideas.  With time I imagine that will change – and hopefully do so in ways that will help business organizations up their game in promoting law abiding and ethical conduct by their employees.

Finally, a small and relatively new (only a few hundred years old) but important neighborhood on this “map” is the area of moral hazard – which concerns the harmful effects that can arise from disconnects between the interests/incentives of risk takers on the one hand and those likely to be affected by the risk taking in question on the other.  Notwithstanding its name, moral hazard analysis is largely based in economics, not ethics; it was originally applied to insurance and risk.  Its application to the realm of C&E  is still mostly unexplored, but here are a few posts on this challenge/opportunity.

Does it make sense to include all of the above areas of impairment – i.e., those based on psychology and economics, as well as law and ethics – on one “map”?  My hope is that – given the similarities among them – doing so can provide a basis for asking questions that will enhance mitigation approaches for each.  For instance, is there enough of an economic and psychological dimension to how we deal with COIs?  Should moral hazard  be addressed by risk assessments, the way COIs generally are?  And what can be learned about mitigating COIs and moral hazard from studying the phenomenon of cognitive bias?

Throughout the course of the coming year we hope to address these and related questions.

(Note: the following prior posts are somewhat related to this “map.”

A law map of the C&E  world

Conflict of interest world: what our lives be like if there were no ethical or legal restrictions on COIs )

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