BazermanMoore

Bounded Ethicality 131
The results showed that advisors whose conflicts of interest were disclosed provided
more biased guesses (i.e., higher estimates of coin-jar values) than did advisors
whose motives were not disclosed. In addition, disclosure did not cause estimators to
discount their advisors’ advice sufficiently. Thus, disclosure led advisors to make more
money and estimators to make less than they would have without disclosure. This raises
the real possibility that professionals who are forced to disclose conflicts of interest,
such as auditors, might be more self-serving than those who do not make such
disclosures.
Why did Arthur Andersen accept Enron’s blatantly flawed accounting? We believe
that the Andersen auditors were not guilty of intentional manipulations or cover-ups.
Rather, they were much more likely to have been guilty of the motivational bias of
interpreting and searching for data favorable to maintaining the client relationship.
Auditors have long claimed that they can make independent and unbiased judgments
about their clients’ books. At the same time, these auditors typically want to maintain
these clients, to sell consulting services to them, or even to seek jobs from them in the
future. It is quite possible that most auditors are honest enough to avoid the incentives
that could lead to intentionally corrupt audits. But as long as auditors are dependent on
their clients for future contracts, it is not possible for them to be completely unbiased.
Contrary to the focus of the press and the Bush administration on finding and punishing
the few bad apples damaging the U.S. financial system, the research evidence
makes it clear that deeply ingrained institutional conflicts of interests that reward auditors
for pleasing their clients were largely responsible for the crisis.
This section has provided an overview of the evidence that virtually all humans
tend to view data from a self-serving perspective. Accordingly, we argue, when an
auditing firm depends on a client for financial or consulting business, it is not psychologically
possible for the auditor to maintain true independence of judgment (Bazerman,
Loewenstein, & Moore, 2002; Bazerman, Morgan, & Loewenstein, 1997).
Unfortunately, we were unsuccessful in persuading the SEC of this view in 2000, prior
to the Enron disaster. The SEC maintained the status quo system that kept the nation
from having an independent auditing system, and disaster followed. Creating true auditor
independence would require fundamental changes to the relationship between
auditors and their clients, such that auditors do not have a motivation to please their
clients.
Soon after the auditor scandals broke, the lack of analyst independence in investment
banks became a focus of media attention and another vivid example of conflict of
interest in the business world. Former acting SEC Chairperson Laura Unger cited a
2000 survey documenting that, at the same time that the NASDAQ was in a decline
that decreased its value by 60 percent, 99.1 percent of brokerage-house analysts’ recommendations
were still ‘‘Strong Buy,’’ ‘‘Buy,’’ or ‘‘Hold.’’ Brokerage firms often tied
analyst compensation to the amount of brokerage business done by firms being analyzed,
obviously providing analysts an incentive to maintain positive relationships with
these companies.
What can be done about conflicts of interest? First, we can try to eliminate them by
avoiding advice from biased sources. Second, we can recognize that honesty does not
solve the problem of conflicts of interest—even honest people are biased. Finally, we