A recurring theme has emerged over the past few years in classroom discussions and management training about cases that involve subprime lending, CDOs, hedge funds, and the exotic instruments that have not always served companies or markets well. This question inevitably comes out: "What happens if everyone is doing something that you don't do that ends up costing you in terms of performance?" After 37 years of teaching ethics, I had a surprising epiphany. All ethical issues are not created equal when it comes to root cause. When studying causation factors for ethical lapses, four levels of ethical issues emerge. Because the root causes for these levels differ, tools for prevention must also be different. The levels of lapses as well as the prevention tools are depicted in Figure 4.1, followed by discussion and examples.

In response to the federal court decision on its overdraft fees, a Wells Fargo spokesperson, in explaining the bank's appeal of the decision, offered, "Many banks process customers' transactions in high-to-low order because it gives priority to larger transactions such as mortgage, rent, or car payments." 66 The spokesperson is absolutely correct; Wells was the defendant in a class action suit, but other banks were following the same accounting processes for overdraft fees. In this situation, the company or organization has simply followed the industry policies and achieves a great deal of ethical comfort from the assurance, "Everybody does this." However, such an approach deprives the company or organization of analysis of the implications and long-term costs of the practice, however pervasive.
Other examples of accepted industry practices that later proved problematic for industries as well as the general state of the economy included the substantial increase in subprime loans in the 2003-2006 period, the development and sale of mortgage-backed securities without verification of the quality of the mortgage pools, and, pre-Enron, the undertaking of both audit and consulting functions by accounting firms. These behaviors were all widely practiced and generally accepted. In fact, those who did not follow these practices were perceived to be at a competitive disadvantage.
No matter how effective the individual or company ethical lapse prevention tools have been, this level of ethical lapse will, once again, trump the efforts at those other levels. Those in the position to make strategic decisions about the companies' products, services, and directions miss the ethical implications of what everyone is doing, because they have accepted the flawed reasoning of this relativistic ethical standard. Prevention here occurs at higher levels in the company and does require deeper analysis and longer term strategies......................

Discussion Questions 1. Using what you have learned from the reading, describe the use of steroids in professional baseball, and determine how the practice progressed through lavers and became so pervasive in the industry.
2. Explain what must be fixed at the company level that is different from the fixes for individual ethical lapses.
3. Provide a list of other examples of peer pressure that result in industry-level choices.
4. Refer back to Unit I to classify the cases there according to their layer type of ethical issue.