Executive Summary

In the beginning, Adam and Eve were cast out from the Garden of Eden for partaking of the fruit of tree of life Original Sin. In so doing, they destined mankind to be eternally band from the Garden.

The question: Was Adam just a bad person for eating the fruit or was he coerced by Eve, who had already partaken, the serpent, which was surely vile, and the surrounding circumstances of the beautiful garden, to do the vile deed, from which mankind would be eternally damned? Was this a circumstance of Adam being a bad apple or were Adam s actions resulting from the surrounding circumstances of Eve and the serpent, the bad barrel? In modern business there are both bad people (bad apples) and bad environment and circumstances (bad barrels). We continue to search for cause and effect relationships. Was Ivan Boesky evil or was it just the times that allowed him to commit insider trading? Was Ken Lay evil as he placed Enron in harm s way or was it the times when a large number of CEO s and companies were reaping the huge financial rewards of questionable ethics? In this paper we discuss the moral parameters of the bad apple / bad barrel debate. The reader is provided situations both inside of and outside of business where this dilemma exists. We then ask the reader to decide for themselves: Are there people who are just bad or can basically good, moral, upstanding people be coerced into doing evil? Although we focus our attention on the business circumstances of the early 2000 s, when corporate failures became normal place , we believe the situations surrounding such modern day events as the failure in mortgaged backed securities are conflicted by the same moral issues. Who and what caused the world-wide economic collapse? Who and what are responsible? What are the moral and ethical issues? Finally, we provide the reader with a glimpse into how they can tell if they are, in fact, moral by testing and comparing themselves with others. We also provide insight into what you need to look for in a company or organization to assure you do not get coerced by the bad apples. Morals and ethics are a man-made phenomenon. Therefore, they, like people, are as diverse and confusing as the number of people they represent. Some will always look to the person as being actually evil, while others will always attempt to explain away the person and replace it with the circumstances. This, like debates over religion and politics, can ever be won.

|WHY LET ONE BAD APPLE SPOIL THE WHOLE DAMN BUNCH BOY!!I}
Guns and Roses 1991

RESEARCH
Evil consists in intentionally behaving in ways that harm, abuse, demean, dehumanize, or destroy innocent others or using one s authority and systemic power to encourage or permit others (Zimbardo, 2007, Page 5)

Often an entire city has suffered because of an evil man. (Hesiod, 800 BC). The concept of the reciprocal relationship between the one and the group has long been entertained by man. Is it the individual that is evil or is the good man that is corrupted by the evil group or circumstances also referred to as the Bad Apple vs. Bad Barrel Dichotomy? Are good people

converted to the dark side through situations bolstered by the antecedent of the group empirical? (T)he value of the Stanford Prison Experiment (SPE) resides in demonstrating the evil that good people can be readily induced into doing to other good people within the context of socially approved roles, rules, and norms, a legitimizing ideology, and institutional support that transcends individual agency. (Zimbardo, 1999, Page 1). In this study, Zimbardo stages a mock prison situation and enlists college students to play the parts of prisoners and guards. The experiment lasts for six days, but the experiences demonstrated during that period have established guidelines for social beliefs and organizational behavior. Essentially, the experiment, considered highly unethical, laid the foundation for Zimbardo to postulate that good apples can be converted to bad apples through situation and group inducement - the bad barrel .
2

Zimbardo expands on those theories derived from the SPE as his life evolves to assisting in the trial of defendant Sgt. Chip Frederick in the Abu Ghraib incident. Zimbardo was deemed an expert witness based on his research and which included the SPE. The Abu Ghraib incident came to light in 2004 when photographic evidence was brought to light showing significant abuses of Iraqi prisoners being perpetrated by American soldiers and contractors. An investigation into the charges of abuse was launch in January 2004. The incident involved reservists from the 320th military police battalion. The charges included human rights violations in the form of physical, psychological, and sexual abuse, including torture, rape, sodomy, and homicide. (Abu Ghraib torture) Eventually, seven soldiers were convicted in the courts martial. Zimbardo s interest was increased by the fact the perpetrators appeared to be well adjusted, American soldiers placed in a seemingly bland job of overseeing a group of prisoners. This turns out to be a live version of the SPE, allowing Zimbardo to perform additional research in the bad apple vs. bad barrel concept. Zimbardo expands on his findings in his book the Lucifer Effect . The Lucifer Effect is

my attempt to understand the processes of transformation at work when good or ordinary people do bad or evil things. We will deal with the fundamental question What makes people go wrong? But instead of resorting to a traditional religious dualism of good versus evil, of wholesome nature versus corrupting nurture, we will look at real people engaged in life s daily tasks, enmeshed in doing their jobs, surviving within an often turbulent crucible of human

nature. We will seek to understand the nature of their character transformations when they are faced with powerful situational forces. (Zimbardo, 2007, Page 5) In the SPE and the The Lucifer Effect , Zimbardo reinforces his assertion that good people can and are corrupted by situations and those corrupt intents are bolstered by group support. One might therefore assert that good people remain good until they are corrupted by the group, hence eliminating the need to be personally responsible for ones actions as they are not actually the actions of the individual but, instead are the will of the group carried out by the individual I am because of them and it s not my fault, we all did it .

Zimbardo speaks to the qualifiers events and determines the questions to be asked are not so much who but what. What conditions could be contributing to certain reactions?

What circumstances might be involved in generating behavior? What was the situation like from the perspective of the actors? Social psychologists ask: To what extent can an individual s actions be traced to factors outside the actor, to situational variables and environmental processes unique to a given setting? (Zimbardo, 2007, Page 8) The bad apple vs. bad barrel concept has been the subject on numerous studies and writings. In a study of police corruption, Ross E Swope, Deputy Director of the United States Mint Police writes, It is the unethical breeding environment of the barrel that generates the major difficulties. It is the barrel, the culture of the police organization that can cause the root shaking scandals that periodically face some police organizations. (Swope, 2001, Page 2) Swope, supporting the bad barrel concept states Police officers do not enter the profession as an opportunity to steal, extort or accept bribes. They do not take on the profession as an opportunity to beat people, violate individual constitutional rights or use excessive force. They

do not take on the profession as an opportunity to plant evidence, lie and frame innocent individuals. Unethical, brutal and corrupt behavior is nurtured in the barrel - the culture of a few police agencies. The dangers of corruption, brutality, racism, deviance and malfeasance can be inherent in the very nature of some police organizations, not in the character flaws of individuals. (Swope, 2001, Page 2) Is the question really as simple as bad apple vs. bad barrel ? Or is the dilemma actually much more complex. Can the situation be so simple as how ethical is the person and can they act independent of the group? Or is it that every ethical case can be measured separately? In a study conducted at the Pennsylvania State University by Jennifer J. Kish-Gephart, David A. Harrison, and Linda Klebe Trevino, it stated, At the highest level of [cognitive mental development] CMD ( principled, or Stage 5), individuals cognitively process ethical dilemmas by using sophisticated reasoning. In making ethical judgments, they rely upon ethical principles of justice and rights and consider societal good. However, most adults operate at the conventional level of CMD, meaning that their judgments about what is right are influenced by the expectations of peers and significant others (Stage 3) or by policies and rules including the law (Stage 4; for a review, see Trevino & Weaver, 2003). When thinking about what is right and wrong, individuals with the lowest level of CMD invoke considerations such as obedience and avoiding punishment. (Kish-Gephart, 2010, Page 3) One might therefore surmise the ethical behavior of a person is then dependent on what level of CMD they have evolved. If they are highly principled (highly evolved)

their decisions will be based primarily on their ethical code and not influenced by outside factors or people. Conversely, would have to believe if they are average, they are highly susceptible to the ethical or unethical actuals of others and by group thought. Today s business climate places individuals under constant moral and ethical pressures. The list of performance requirements is long:  Meeting the Streets and analysts expectations  Expectations to achieve timely submittals with increase publication requirements.  Meeting budgeted goals  Compliance with ever increasing governmental and regulatory agency requirements.  Lack of fundamental direction on expectations.  Meeting social demands. This and a long list of additional requirements add to the ongoing pressure cooker environment in business today. Managers and staff are required to do more with less and yet, are expected to do so at a higher level of ethical and moral performance.

Perhaps this best summarized by the following:

So is it a few bad apples that spoil a barrel? That's what we want to believe-that we could never be a bad apple," Zimbardo said. "We're the good ones in the barrel." But people can be influenced, regardless of their intention to resist, he said.

As such, the Abu Ghraib soldiers' mental state--such as stress, fear, boredom and heat exhaustion, coupled with no supervision, no training and no accountability-may have further contributed to their "evil" actions, he noted. (Dittman, 2004, Page 68)

Application
Respect, Integrity, Communication and Excellence

---Enron Mission Statement The era of the 2000 s witnessed some of the largest financial frauds ever perpetrated on man. The losses were, to say the least, staggering and totaled in the $100 s of billions. The year 2002 witnessed twenty-two scandals including Enron, Adelphia, WorldCom and Tyco. Once the sweethearts for American business, these companies now were being guided through bankruptcy courts and the prior CEO s and CFO s were being prosecuted for a variety of violations including conspiracy, falsifying documents, grand larceny, bank fraud, wire fraud, securities fraud, insider trading, money laundering, securities violations and, last but not least, defrauding investors. The darlings of industry, the CEO s, Presidents, CFO s and Strategic Planners had guided these corporations through the mazes of business. Fortune [named Enron] "America's Most

Innovative Company" six years running. (McLean, 2004, Page 255) Ken Lay was a known acquaintance of President Bush and Enron was a contributor to the Bush Presidential Campaign. Fortune Magazine publishes its list of the 500 top companies every year - In 2002, WorldCom was # 103, in 2003 Tyco was #103, in 2002 Adelphia was 460. Amazingly, in 2002 Fortune recognized Enron, even after its bankruptcy, as the # 5 company. So what caused the calamities that brought down the countries elite? What could have been transpiring behind those closed doors that would result in the bankruptcies of four of the country s major corporations and bring convictions to ten of their C-level players? Was it the
8

players themselves or was it the times? Was it the bad apple or the bad barrel that would bring these monoliths down? American business is often permeated with very smart and capable individuals. This is exemplified by the academic background of those ten C-level players noted. They had Ph.D. s, Juris Doctors, MBA s, and CPA s; hence it does not appear a lack of intelligence was a factor in these financial disasters. Might the issue have been arrogance? And, if it was, the question becomes was it individual arrogance or group arrogance? For a moment, let us explore professional arrogance that was directly impacting the psychiatric and pharmaceutical industries. First, let us think about how we might apply the bad apple concept: In a program broadcast on Sept. 20, 2005, Dr. Goodwin warned that children with bipolar disorder who are left untreated could suffer brain damage, a controversial view. But as we ll be hearing today, Dr. Goodwin reassured his audience, modern treatments mood stabilizers in particular have been proven both safe and

effective in bipolar children. That very day, GlaxoSmithKline paid Dr. Goodwin $2,500 to give a promotional lecture for its mood stabilizer drug, Lamictal, at the Ritz Carlton Golf Resort in Naples, Fla. Indeed, Glaxo paid Dr. Goodwin more than $329,000 that year for promoting Lamictal, records given Congressional investigators show. (Levine, 2008, web)

Surely, Dr. Goodwin cannot represent the entire profession of psychiatrist. Surely, he was not promoting medicine for children just to pad his own pockets; was he? Dr. Goodwin is a psychiatrist and was fired from NPR where he had been broadcasting for over ten years on the program The Infinite Mind . Goodwin s The Infinite Mind

aired weekly in more than 300 radio markets. The program received major financial support from the National Institutes of Health and the National Science Foundation. The Infinite Mind billed itself as public radio s most honored and listened to health and science program (Levine, 2008, web)

In 2008, the following was written: Recent studies reveal some of how drug company money has compromised the objectivity of drug research [emphasis added]. Psychological Medicine in November 2006 reported that drug studies funded by pharmaceutical companies show positive results for psychiatric drugs 78 percent of the time, while drug studies without pharmaceutical company funding show favorable results only 48 percent of the time. This was discovered after examining 301 articles that were published between 1992 and 2002 in the American Journal of Psychiatry, Archives of General Psychiatry, Journal of Clinical Psychiatry, and Journal of Clinical Psychopharmacology.(Levine, 2008, web) Of course, the psychiatric profession was appalled by the accusation money could possibly be motivating their support for drug research.

10

Here we have multiple situations involving first an individual, surely fits the portrait of a bad apple , but also an industry that appears to be influencing the psychiatric profession into prescribing drugs would pharma and the psychiatric profession be colluding the truest

definition of the bad barrel. In response to Gallup poll showing an increasing awareness in challenging its honesty and ethics, the American Psychiatric Association concluded that the problem of Americans lack of confidence in the honesty and ethics of psychiatrists is not with psychiatrists but with an ignorant American public [Imaging the thought process - It can t be us, we re honest and ethical. It s them! Added by author]. Commenting on the Gallup poll, a spokesperson for the APA in the Psychiatric News (an APA publication) concluded that psychiatrists need to educate the public about who we are and what it is that we do. (Levine, 2008, web) So, is Dr. Goodwin a bad apple or is he merely the product of a bad barrel. Both

exhibited true arrogance, while mis-leading an unsuspecting public that believed the honesty, integrity and high moral ethics of the medical profession and the pharmaceutical industry. The world of business, whether manufacturing, stock trading, shipping, servicing or any of the vast business endeavors, is fraught with bad whether it comes in the form of bad people (apples) or bad situation and/or groups (barrels). Enron, Adelphia, WorldCom and Tyco were all publically traded companies whose management was charged with assuring the best return possible for its investors. Unfortunately, the C-level managers of these companies either forgot or merely dismissed this forthright goal and set about to feather they own nests with cash, stock options and benefits.
11

And what benefits there were. Lou Lung Pai, former CEO of Enron Energy Services, felt the need to entertain strippers in his otherwise very seldom used office. Lou s primary benefit came when, in the midst of a divorce, he cashed out his Enron stock for $250 million. He remains untouched today as this transaction stayed him from potential prosecution for insider trading. The additional benefit; the post-divorce settlement funds allowed Lou to purchase a section of land in Colorado, 77,500 acres, making him the second largest land owner in the State. (Lou Pai, Wikipedia) Does this make Lou a bad apple ? Lou was the basically the brain behind the

deregulation of natural gas. He is the man who developed the market model for deregulation of natural gas. Look at what an enormous success that was. Look at what it did for Enron. It built Enron. (Brand, 2006) Or was he the product of the Enron psyche? Lou Pai, though, was an

unlikely symbol of Enron's excesses. He was shy. He was not a corporate glad-hander. And he never seemed to be around. Maybe that's because he was out at strip clubs. (Brand, 2006) Or was it the accounting profession and business in general that forced all of these people to do bad things; fraud, conspiracy, money laundering, wire fraud? Was the accounting profession the catalyst that propelled Enron and others? In 1993, the Financial Accounting Standards Board (FASB) released Financial Accounting Standard (FAS) 115. The second premise of FAS 115 became the accounting professions blessing for the Mark to Market rule. The premise reads Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as "trading" securities and reported at fair value, with unrealized gains and losses included in
12

earnings. (Statement of Accounting Standards, FAS 115) This publication in combination with the drive of Jeffery Skilling and the brain of Lou Pai created the basis for the once 7th largest company in the United States. Was this the barrel ? Of the 20 major companies having material stock related losses in 2002, with cumulative losses of $256 billion; Enron, Adelphia, Tyco and WorldCom posted stock losses totaling $138 billion. What s more, it represented the investments of many who would now be left with nothing, nothing at all. Was Cliff Baxter a bad apple or the result of a bad barrel? At the age of 43, Cliff, a

bright, young, respected, retired executive tragically committed suicide when he was one of twenty-nine Enron executives named in a shareholders law suit.

13

Managerial implications
Rumley, R. 2012, Don t Be A Bad Apple in a Bad Barrel, New York Times: January 6. Imagine if you will; sitting in your car, its late and foggy, you have a drink in one hand and a gun in the other, you re 43, successful and a retired millionaire, and you ve just be name in a major law suit, and you think you could be guilty. What do you do now? This was Cliff Baxter s decision on the night of January 25, 2002. Cliff had been a star with Enron, but at 43 he decided to retire, with millions of dollars in the bank from cashing out his Enron stock. His retirement would allow him to spend more time with his wife and

daughters. It was a short 19 months from retirement, that he made the decision that ended his life the decision - to pull trigger. During the era of the 90 s and early 2000 s, businesses were hot and so were the people running them. It was the era of the internet and on-demand access to information, the USSR was falling and the U.S. stock market was moving from 3,500 to 12,000. Opportunities

abounded. Colleges and universities were pushing out the newest of the crowned the kings and queens of industry the newly minted MBA. Life was good. This era saw the rise of companies with no earnings filing for IPO s. change; it was a time of greed. By the late 90 s the cracks in the economic porcelain were starting show. By 2002, there were twenty major corporate bankruptcies that were followed by indictments for many of the Clevel players, most of whom received prison sentences - 8 to 24 years for Tyco s Kozlowski and It was a time of

14

Swartz to 25 years for Enron s Jeffrey Skilling. Ken Lay faced 45 years but elected to die instead before sentencing could take place. So you say: I m not a bad apple I have morals and ethics; I was raised in a God fearing

family. Ken Lay might have said the exact same words. Lay was from a very humble beginning; his father was a Baptist preacher in Tyrone, Missouri you can t get more basic than Kenny

Boy as George W. Bush used to call him. Dennis Kozlowski grew up in New Jersey, the son of a public service investigator; was an accountant and started employment with Tyco as an auditor. Maybe they could have been a little bad. Could it have been the companies there weren t that may bad companies then?

Maybe it was the times and the companies - a case of the bad barrels : Federal securitiesfraud lawsuits, the longtime bane of CEOs and the salvation for shareholders, rose 31% to 224 filings in 2002 from 2001, according to a report out today. It was the second-highest number of federal securities class actions filed since a record 238 cases in 1998. (Iwata, 2003) The total value stock of losses triggered in 2002 for the top 20 companies was $286 billion BILLION! If you are concerned, and aren t we all (well maybe not all) jail about potentially going to that s B for

you need to know the answer to the following; First, Am I a bad apple and/or second

can I be influenced by others to do bad things? Both are likely candidates for jail. If you have doubts you need to visit Walt Pavlo on YouTube, as he discusses how a once promising career wound up in prison.

15

To answer Am I a Bad Apple? you might want to visit a site like MyMorals.Org. This site provides a variety of short question and answer sessions on various moral topics. There are 111 different questionnaires covering 11 major categories, including General Moral Constructs, Political/Societal Judgments & Opinions, Attitudes Toward Groups, Cognition & Beliefs, Specific Moral Judgments, Emotional Reactions, Justice & Fairness, General Personality Measures, Experimental Studies, Everyday Behavior and Happiness and Well Being. If you concerned about your moral compass, it would serve you well to visit a site like this and compare yourself to others. You will be able to tell very quickly if your body is pointed north and your moral compass is pointed south. To answer Am I Going to be Influenced by Bad People? If you are getting burned a lot

(remember: once burned, twice shy) you might consider yourself gullible. You might think that all 29 people listed in the Enron stockholder s law suit were bad, but the likely truth is many of them were coerced . "Cliff Baxter complained mightily to [then-Enron President and CEO Jeff] Skilling and all who would listen about the inappropriateness of our transactions with LJM," Watkins wrote, referring to one of the partnerships linked to Enron's collapse last fall. (Former Enron, 2002, web) If you want to determine if your organization is a bad barrel, look for the following traits:  Legitimizes bad behavior  Has an unethical or corrupt culture  Pays lip service to ethics and compliance  Has unfair treatment of employees  Has an unfair reward system
16

If you find yourself in a bad barrel you should refresh your resume and plan on getting out as soon as you can. Most of all do not underestimate the value of a high moral character. My measure if my Mom saw my story in the newspaper would she be proud? Find a moral

compass and follow it as the other option is either Walt Pavlo or Cliff Baxter.
Works Cited
Abu Ghraib torture and prisoner abuse http://en.wikipedia.org/wiki/Abu_Ghraib_torture_and_prisoner_abuse Accounting Scandals, http://en.wikipedia.org/wiki/Accounting_scandals, Web December 31, 2011 Brand, Madeleine Lou Pai, Enron's Elusive Mystery Man , May 17, 2006 http://www.npr.org/templates/story/story.php?storyId=5411422 Web December 31, 2011 Dittman, Melissa, What makes good people do bad thing? American Psychological Association, October 2001, Vol 35, No. 9 Print Version: Former Enron exec dies in apparent suicide, CNN U.S., January 25, 2002, http://articles.cnn.com/2002-0125/us/enron.suicide_1_cliff-baxter-philip-hilder-enron-north-america?_s=PM:US, Web January 2, 2012. Guns N Roses, One Bad Apple, Album "Use Your Illusion I", A&M Studios, Record Plant Studios, Studio 56, Image Recording, Conway Studios, Metalworks Recording Studios, Skip Saylor Recording (album mixing) 1990 1991 Harris, Gardiner, Radio Host Has Drug Company Ties , The New York Times, November 21, 2008, Web http://www.nytimes.com/2008/11/22/health/22radio.html Hesiod, Greek didactic poet (~800 BC) The Quotations Page, http://www.quotationspage.com/forum/profile.php, Web. January 20, 2012. Iwata, Edward, Securities-fraud lawsuits rise 31%, USA Today, 3/13/2003, http://www.usatoday.com/money/industries/brokerage/2003-03-13-class-action_x.htm, Web January 2, 2012 Kish-Gephart, Jennifer and Harrison, DA. and Klebe-Trevino, L Bad Apples, Bad Cases, and Bad Barrels: MetaAnalytic Evidence About Sources of Unethical Decisions at Work , Pennsylvania State University, University Park Campus, Journal of Applied Psychology, 2010, Vol. 95, No. 1, 1 31 Lange, Don, ASU EMBA, class presentation on Bad Apples Bad Barrels, November 12. Class session. Levine, Bruce. NPR Embarrassed by Psychiatrist Host: Bad Apple or Bad Barrel? November 25, 2008 www.brucelevine.net, Web January 1, 2012 Lou Pai, Http://en.wikipedia.org/wiki/Lou_Pai, Web January 1, 2012 McLean, Bethany and Elkind, Peter. The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron . New York: Portfolio (Penguin Group), 2004. http://www.freedocumentaries.org/film.php?id=203

17

Pavlo, Walter, White Collar Crime, https://myasucourses.asu.edu/webapps/portal/frameset.jsp?tab_tab_group_id=_2_1&url=%2Fwebapps%2Fblackb oard%2Fexecute%2Flauncher%3Ftype%3DCourse%26id%3D_210325_1 Restate Earning, http://chesler.us/resources/links/restate_earnings_.pdf, Web January 1, 2012 Statement of Financial Accounting Standards No. 115. Financial Accounting Standards Board of the Financial Accounting Foundation 401 MERRITT 7, P.O. BOX 5116, NORWALK, CONNECTICUT 06856-5116 Swartz, Mimi and Watkins, Sherron, Power failure: the inside story of the collapse of Enron , Double Day, March 2003 Swope, R., Deputy Director of the United State Mint Police, Bad apples or bad barrel? Law & Order , January 1, , 2001 Copyright Hendon Publishing Company Jan 2009 http://www.highbeam.com/doc/1P3-67332772.html, Web January 2, 2012.

Zimbardo Philip, THE LUCIFER EFFECT: UNDERSTANDING HOW GOOD PEOPLE TURN EVIL , Random House. 2007. Zimbado, Philip, Chapter 11: Reflections on the Stanford prison experiment: Genesis, transformations, consequences. from Obedience to Authority: Current Perspectives on the Milgram Paradigm Blass, 1999 http://www.prisonexp.org/pdf/blass.pdf, Web January 2, 2012

18