Pressure, Incentives and Short-Term Targets

Pressure is a major influence on behaviour. We saw in Chapter 3 that the most important reason for fraudulent behaviour in the workplace is some form of financial pressure. In a more general sense, one of the most important causes of poor ethical decision-making within organisations is the pressure that senior management and their workforce are under to hit short-term performance targets. Quarterly reporting is ubiquitous now and it has a lot to answer for!

Directors and senior managers are constantly looking to grow their corporations and to maximise shareholder returns, not so much in the long term, as this has little meaning for individuals, but in the short term. Jeff Skilling at Enron provides a good example of this. He was so focused on short-term profit maximisation that he made it a condition of his joining Enron in 1991 that Andersen, the auditors, agreed to sign off on the mark-to-market accounting policy (as opposed to traditional historical cost accounting) that he wanted to use there. According to Mclean and Elkind, this was a “lay-my-body-across-the-tracks issue” for Mr Skilling (Mclean and Elkind, 2003, p. 39).5 His reasoning was simple. The effect of mark-to-market accounting would, generally, be to accelerate the profits taken on long-term projects – rather than spread them out evenly over the length of the project, which might be 20 years or longer, they could be brought forward into earlier years provided the value ...

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