Hubris and unethical decision making: the tragedy of the uncommon. (2016)

“…hubris leads managers to invoke an amoral decision process which causes a higher incidence of unethical behavior among these individuals.

Joseph McManus, Monmouth University, New Jersey
Journal of Business Ethics, 1-17

From the abstract:

The research discussed way hubris affects ethical decision making and develops empirical evidence that earnings manipulation is more likely at firms led by CEOs influenced by hubris.

The researcher hypothesizes that hubris impairs moral awareness by causing decision makers to ignore external factors that otherwise drive such awareness. Further, these individuals apply a flawed, subjective assessment of the decision they face, which further impairs moral awareness. The predicted result is that hubris leads managers to invoke an amoral decision process which causes a higher incidence of unethical behavior among these individuals.

The researcher investigates the relationship between CEO hubris and the unethical practice of earnings manipulation with an empirical study. This study finds a significant correlation between CEO hubris and earnings manipulation at the firms they lead, an outcome broadly consistent with the theory developed.

From the paper:

“Ethical decision making is a critically important aspect of managerial decision making. In particular, the development of moral awareness is a critical step in effective decision making. Yet human decision making in general is susceptible to predictable and systematic flaws and biases that can impair moral awareness

“In regard to the specific bias of hubris, (previous researchers) observe that ‘‘[u]nrealistic optimism is a pervasive feature of human life; it characterizes most people in most social categories’’. An inherent difficulty in addressing such biases involves the fact that individual decision makers are unaware that the biases exist and are influencing their judgment.

“In order to combat the specific bias of hubris, managers must cultivate the ability to adopt an outsider’s perspective on decisions they face. In light of this, the development of a diverse executive team, the ability to embrace criticism of both plans and outcomes, and an active board of directors should also help limit the influence of hubris within managerial decision making.”

Access the full paper here: Hubris and unethical decision making