How Opportunity to Rationalize Misreporting Affects Business Unit Controllers’ Feelings of Guilt

• In Event: Career Concerns: Evaluations, Promotions, and Guilt

Abstract

This paper investigates how business unit (BU) controllers cognitively and emotionally deal with trade-offs between their local and fiduciary duty. I propose that the amount of guilt BU controllers experience depends on how well they can rationalize a decision to violate their fiduciary duty. To test my prediction, I designed a randomized, scenario-based experiment with professional controllers where I provide both opportunity and motivation to misreport. Subsequently, I either restrict (treatment) or not restrict (control) opportunities to rationalize misreporting ex-post. My findings suggest that opportunities to rationalize do play a role in reducing guilt in BU controllers, although differently to what I expected. The findings suggest that BU controllers experience increased guilt from misreporting despite having opportunities to rationalize, suggesting that violations of fiduciary duty are not easily rationalized away. However, when BU controllers were made aware of the moral implications of their decision, their ease of rationalization increased and guilt levels decreased. It seems that attempts to restrict rationalizations have increased the level of threat to BU controllers’ professional integrity, triggering them to more actively reduce guilt. The findings have implications for control mechanisms aiming to increase BU controllers’ awareness of the moral ambiguity of misreporting in the interest of the BU.

Author

• Janina Hornbach, Uppsala University