First Look

January 21, 2009

Do you think sweatshop labor is wrong unless the jeans are cute? Two experiments conducted and described by HBS doctoral student Neeru Paharia and professor Rohit Deshpandé show how easy it may be for consumers to overlook objectionable factors when a product is desirable, even when consumers think it was built by sweatshop labor. Indeed, perceptions of morality are not rigid, suggest the researchers, but can easily change depending on consumer motivation and the context of the situation. "Our work demonstrates how moral disengagement can be used to deal with cognitive dissonance that arises from everyday consumption," write Paharia and Deshpandé in their paper, "Sweatshop Labor is Wrong Unless the Jeans are Cute: Motivated Moral Disengagement" [PDF]. "While on the face of it," they continue, "such actions are less atrocious than the horrors of war, they may perhaps be even more dangerous due to their subtle and insidious nature—by some estimates there are hundreds of thousands of sweatshops still operating today." Their work might shed light on how desires compel ordinary people to justify harmful behavior. Also up this week: A book chapter in Family Business, "On the Goals of Successful Family Companies"; faculty commentary on the economic crisis ("MIT Roundtable on Corporate Risk Management" and "The Credit Crisis of 2008: Causes, Consequences and Implications for India"); and nine new cases.
— Martha Lagace

Working Papers

Letting Misconduct Slide: The Acceptability of Gradual Erosion in Others' Unethical Behavior (revised)


Previously titled "Slippery Slopes and Misconduct: The Effect of Gradual Degradation on the Failure to Notice Others' Unethical Behavior.") Four laboratory studies show that people are more likely to overlook others' unethical behavior when ethical degradation occurs slowly rather than in one abrupt shift. Participants served in the role of watchdogs charged with catching instances of cheating. The watchdogs in our studies were less likely to criticize the actions of others when their behavior eroded gradually, over time, rather than in one abrupt shift. We refer to this phenomenon as the slippery slope effect. Our studies also demonstrate that at least part of this effect can be attributed to implicit biases that result in a failure to notice ethical erosion when it occurs slowly. Broadly, our studies provide evidence as to when and why people overlook cheating by others and examine the conditions under which the slippery slope effect occurs.

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Sweatshop Labor Is Wrong Unless the Jeans Are Cute: Motivated Moral Disengagement


While many consumers say they care about issues such as sweatshop labor, the existence of a very small market for ethically-produced products does not reflect this sentiment. One explanation for this discrepancy is that consumers are motivated to use moral disengagement strategies to reduce cognitive dissonance when their desire for a product conflicts with their moral standards. In two studies we show levels of moral disengagement can vary based on one's desire for a product when sweatshop labor is present. Furthermore, we present evidence for a mediated moderation where beliefs about sweatshop labor use moderates the impact of desirability on purchase intention, and moral disengagement mediates this process. Motivated mechanisms of moral disengagement are relevant in moral psychology and have public policy implications.

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Dishonest Deed, Clear Conscience: Self-Preservation through Moral Disengagement and Motivated Forgetting


People routinely engage in dishonest acts without feeling guilty about their behavior. When and why does this occur? Across three studies, people justified their dishonest deeds through moral disengagement and exhibited motivated forgetting of information that might otherwise limit their dishonesty. Using hypothetical scenarios (Study 1) and real tasks involving the opportunity to cheat (Studies 2 and 3), we find that dishonest behavior increased moral disengagement and motivated forgetting of moral rules. Such changes did not occur in the case of honest behavior or consideration of the behavior of others. In addition, increasing moral saliency by having participants read or sign an honor code significantly reduced or eliminated unethical behavior. While dishonest behavior motivated moral leniency and led to strategic forgetting of moral rules, honest behavior motivated moral stringency and diligent recollection of moral rules.

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The Ethical Mirage: A Temporal Explanation as to Why We Aren't as Ethical as We Think We Are (revised)


Previously titled "Why We Aren't as Ethical as We Think We Are: A Temporal Explanation. This paper explores the biased perceptions that people hold of their own ethicality. We argue that the temporal trichotomy of prediction, action and recollection is central to these misperceptions: People predict that they will behave more ethically than they actually do, and when evaluating past (un)ethical behavior, they believe they behaved more ethically than they actually did. We use the "want/should" theoretical framework to explain the bounded ethicality that arises from these temporal inconsistencies, positing that the "should" self dominates during the prediction and recollection phases but that the "want" self is dominant during the critical action phase. We draw on the research on behavioral forecasting, ethical fading, and cognitive distortions to gain insight into the forces driving these faulty perceptions and, noting how these misperceptions can lead to continued unethical behavior, we provide recommendations for how to reduce them. We also include a call for future research to better understand this phenomenon.

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Cases & Course Materials

Arrow Electronics—The Apollo Acquisition

Harvard Business School Case 607-007

Having already made 10 acquisitions of competitors in the last decade, the CEO of Arrow is evaluating the acquisition of another small competitor to boost sales, become #1 in a niche market segment, and achieve economies of scale. He is struggling with whether the deal makes strategic sense given forecasts that this niche segment is declining, whether the price is too high given the competitor's lack of profitability, and how to integrate the company into Arrow to maximize its value if he does the deal. Provides information to permit valuing the acquisition and developing a post-merger integration strategy and plan.

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CBS and Online Video

Harvard Business School Case 709-447

In late March 2007, CBS faces an important decision about its online video strategy. A just-announced joint online distribution venture between NBC Universal and News Corporation (Fox) is the impetus for this decision. Should CBS join forces with this new venture, come to terms with YouTube, the leading video-sharing site on the Internet, or maintain a nonexclusive strategy?

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Consumer Lending in Japan: Citi CFJ (A)

Harvard Business School Case 709-017

Despite a tradition of high household savings, Japan has supported a dynamic and technically sophisticated consumer-lending sector. The high profitability of the sector has periodically attracted interest from domestic banks as well as international investors. Most recently, in 1998 and 2000 respectively, GE Capital and Citi Financial both acquired Japanese consumer-lending companies. In 2006, when the Japanese Supreme Court rules that one of the big Japanese consumer lenders must repay a borrower for "excess interest payments," the U.S. firms must decide how to respond.

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JetBlue Airways: Managing Growth

Harvard Business School Case 609-046

Considers the situation facing David Barger, President and CEO of JetBlue Airways, in May 2007 as he addresses the airline's need to slow its growth rate in the response to increasing fuel costs and the effects of major operational crisis for the airline in February 2007. In 2005, JetBlue—typically viewed as a low-cost carrier (LCC)—made a move that is often considered antithetical to the LCC model. Specifically, JetBlue moved from a single aircraft type (i.e., the Airbus 320, or A320) to a fleet with two types of aircraft by adding the smaller Embraer 190, or E190. Students are initially asked to consider the impact of this decision on JetBlue's operations strategy and business model. They are then asked to consider how the reductions in aircraft capacity growth should be spread across the two plane types. This discussion hinges not only on issues of aircraft efficiency but also on those of operational focus and the ultimate competitive priorities of the airline as a whole.

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Note: Credit Rating Agencies

Harvard Business School Note 209-056

The note examines the role of credit rating agencies in capital markets, with emphasis on the role of these agencies in the recent credit crisis and recommendations for change.

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Rosetree Mortgage Opportunity Fund

Harvard Business School Case 209-088

In December 2008, in the midst of the worst financial crisis since the Great Depression, Rosetree Capital Management was evaluating the purchase of a pool of U.S. residential mortgages. The firm had formed an investment vehicle to acquire troubled residential mortgages from banks and other motivated sellers. The idea was to purchase mortgage loans at a discount and to work with individual borrowers to restructure their debts. Performing mortgages could then potentially be resold in the secondary market. The case provides cash flow projections in various economic scenarios that are revealing of the economics of troubled mortgages and home foreclosure. Rosetree needed to decide whether and how much to bid for the loans.

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The Suzlon Edge

Harvard Business School Case 708-051

With prices of oil, coal and gas at historically high levels, the wind industry had installed more than 20,000 MW of wind energy, representing a $37 billion investment in 2007. Besides high prices, wind energy represented a solution for consumers seeking an energy source that would not add to the problems associated with global climate change. Suzlon Energy Limited (Suzlon), India's largest manufacturer of wind turbines, had evolved from a small family-run business into a global enterprise spanning four continents in just over a decade. But would the costs associated with the aggressive growth policy be too much for a young company to handle?

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UnME Jeans: Branding in Web 2.0

Harvard Business School Case 509-035

This case introduces emerging Web 2.0 social media in virtual worlds, social networking sites, and video-sharing sites and encourages students to explore the opportunities and risks they present for brands. The case allows students to grapple with the strategic and tactical decisions that accompany marketing communications strategy and to combine information on consumer behavior with an understanding of brand objectives in order to assess and evaluate new social media options. Brand manager Margaret Foley is facing an increasingly complex media environment in which her traditional media plan, focused on television, print, and radio advertising, has become less effective due to declining audiences, increased advertising clutter, and consumers tuning out. She is exploring emerging Web 2.0 social media options to determine if they can better achieve her branding and advertising objectives. Her challenge is to cut through all of the hype surrounding Web 2.0 and to analyze the social media's potential for her brand by delving into the consumer needs and behaviors underpinning Web 2.0 technologies.

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Chinese General Management: Tsinghua-Harvard Text and Cases


This is a text and case book for the Chinese business higher education market. It is a combination of seven chapters (six original ones) covering China's financial markets, governance in the global information economy, control, operations and supply-chain management, marketing management, and governance. These chapters are combined with seventeen field cases written in China by members of the HBS/Tsinghua faculty, which illustrate the complexity of problems facing Chinese general managers. This book is a direct outgrowth of the combined work done by HBS and Tsinghua's School of Economics and Management over the past three years in developing its "Senior Executive Program for China."

On the Goals of Successful Family Companies


Providing clear goals for a company and communicating them are among the most powerful means for guiding the behavior of the people in an organization. In this article, we explore the range of objectives or goals of family-owned and -managed companies and identify those most commonly regarded as important by owner-managers. Further, we describe six major empirical dimensions of goals that we derived by factor-analytic procedures. Finally, we suggest how researchers, managers, and consultants can use our work to help owner-managers clarify and communicate their goals.

Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?


Why are some places more entrepreneurial than others? We use Census Bureau data to study local determinants of manufacturing startups across cities and industries. Demographics have limited explanatory power. Overall levels of local customers and suppliers are only modestly important, but new entrants seem particularly drawn to areas with many smaller suppliers, as suggested by Chinitz (1961). Abundant workers in relevant occupations also strongly predict entry. These forces plus city and industry fixed effects explain between sixty and eighty percent of manufacturing entry. We use spatial distributions of natural cost advantages to address partially endogeneity concerns.

MIT Roundtable on Corporate Risk Management


Against the backdrop of financial crisis, a distinguished group of academics and practitioners discusses the contribution of financial management and innovation to corporate growth and value, along with the pitfalls and unintended consequences of such innovation. The main focus of most panelists is the importance of a capital structure and risk management approach that complement the strategy and operations of the business. Instructive examples are provided by Judy Lewent, former CFO and head of strategic planning at Merck, and Lakshmi Shyam-Sunder, director of finance and risk management at the International Finance Corporation. But if these represent successful applications of finance theory, what about the large number of cases where the use of derivatives and other innovations has led to high leverage and apparent risk management failures? Part of the current trouble, as pointed out by Andrew Lo, can be attributed to the failure of risk managers and their models to account for highly improbable events—the so-called fat tails of the distribution. But, as Robert Merton suggests in closing, there is a more comprehensive explanation for today's problems: the tendency of market participants to respond to potentially risk-reducing financial innovation by increasing their risk-taking in other areas. "What we have here," says Merton, are two partly offsetting effects of innovation—one that is reducing the risk of companies and their investors, and another that is encouraging greater risk-taking. From a social or regulatory standpoint, the goal is to find the right balance between these two effects or forces.

The Credit Crisis of 2008: Causes, Consequences and Implications for India


This article gives a brief overview of the causes and consequences of the current global credit crisis. The article then discusses the benefits and potential drawbacks of real estate loan securitization in India, and what India can do to realize those benefits while avoiding some of the pitfalls.