Judicial Notebook

Both researchers and the courts have been exploring the boundaries of ethical behavior. In one study, Suffolk University management professor C. Gopinath, PhD, (2008) found that business school students had difficulty recognizing unethical activity in a business context. In fact, many of his participants categorized an unethical business practice as necessary for business effectiveness.

A more recent psychological study by Joris Lammers, PhD, and Diederik Stapel, PhD, both of Tilburg University (2009), demonstrated that power, the ability to control resources, influences people's decision-making. Generally, they found high power increased rule-based thinking (i.e., treating everyone the same) and low power increased outcome-based thinking (i.e., sometimes making exceptions). In contrast, when there are personal implications, such as when a decision runs counter to personal interests, high power people tended to toward self-beneficial decision-making that was more outcome-based and were prone to make exceptions to the rules.

The Supreme Court agreed to hear a case involving the fraud conviction of one particular high-powered person, former media executive Conrad Black of Hollinger International (Black v. United States). At issue is the "honest services" clause of 18 U.S.C. section 1346. Black paid himself millions of dollars through a series of transactions mostly guised as noncompete agreements and management fees.

The jury was permitted to find him guilty if it found that he failed to provide "honest services" to the shareholders and misused his position for private gain, even if Black's former company suffered no monetary loss because of Black's actions. The prosecutors at Black's trial argued that the "honest services" term encompasses a duty of loyalty and Black breached that duty.

Black's attorneys contend the jury was instructed incorrectly because the term is vague and its application in the case is too far-reaching. They argue that Black should have only been found guilty if there had been economic harm to the victim shareholders.

The honest services provision, added by Congress in 1988 to the federal fraud statute, includes "a scheme or artifice to deprive another of the intangible right of honest services." The lower courts have grappled with what this means, and the Supreme Court will consider the issue for the first time with Black's case. Some lower courts have held that the "honest services" requirement only applies when a party deprives another of services that results in criminal conduct. Other lower courts have held that to be found guilty, a defendant must act in a way to promote his or her own private gain. Still other courts have held that private gain is not a requisite element.

In fact, the Supreme Court earlier this same year denied certiorari on a similar case (Sorich v. United States). Justice Antonin Scalia dissented from the denial, stating that it seemed as though the "honest services" theory could be construed to include any self-dealing by a corporate officer and even a "salaried employee's phoning in sick to go to a ball game." Scalia further delineated concern that section 1346 could become a way to prosecute any "unethical conduct" without providing fair warning as to precisely what conduct is a crime.

Black's case specifically, and the "honest services" notion generally, raise concerns about the conflict between business ethics and the public's view of corporations and their leaders. Based on the ethics research detailed above, when Black paid himself millions of dollars, he may have viewed his actions as a legitimate business decision.

Of course, the fact that Black viewed his actions as ethical does not make them ethical. In fact, Valerie Hans, PhD, (2000) of Cornell University, has extensively studied jury decision-making in corporate civil cases. Based on her work, we know civil juries are not anti-business, but rather have high expectations and hold corporations and corporate leaders to high standards. If we can assume that jurors in a criminal case such as Black's would hold corporations and their leaders to similarly high standards, then the jurors and CEOs like Black may have very different notions of what constitutes "honest services." These potentially conflicting attitudes concerning ethical behavior and a more precise definition of "honest services" could and should be further researched by psychologists.


"Judicial Notebook" is a project of APA's Div. 9 (Society for the Psychological Study of Social Issues).