The Curious Link Between Truth-Telling and Autonomy

Note: Have you ever felt pressured to participate in a highly unethical activity (such as fraud ) with others in your job and refused? If so, Smith School of Business researchers, in collaboration with a University of Illinois researcher, invite you to complete a 30-minute online survey about your experience. Your answers will be kept confidential, and they could help prevent future group fraud. You may also win a draw for a $100 donation to the charity of your choice.

Pamela Murphy (retired) has spent a lot of time thinking about dishonesty. It was a professional necessity during her time as a controller and auditor, and is now a driving curiosity in her career as an academic researcher.

Murphy has trained her sights on the “fraud triangle” — the opportunities, incentives, and attitudes that lead workers to act dishonestly. From her research with white-collar criminals, she shed light on the social nature of fraud. She helped demonstrate that fraud cues can be unwittingly transmitted by writers of annual reports. She’s looked at how financial misreporting is rationalized and how an organizational climate can allow fraud to take root.

Recently, Murphy decided to flip the script. If researchers and financial controllers are really interested in preventing fraud, she thought, wouldn’t it make sense to understand not only why people are dishonest but why they’re honest?

“It's often easier and cheaper to try to keep people honest than try to catch dishonesty,” says Murphy, associate professor and E. Marie Shantz Fellow of Accounting at Smith School of Business, Queen’s University. “We care about motivations to misreport — it’s one of the sides of the fraud triangle. Given that we spend so much time looking at the motivations to misreport, what are the motivations to not misreport?”

Internal Versus External Motivation

Murphy argues that wanting to be honest is different from wanting to appear honest, and that the difference is likely due to individual traits. These traits rest somewhere on a continuum. Some people are more internally motivated: they will perform an act for the inherent satisfaction. They really want to be honest. Others respond more to rewards or punishments; they may feel the need to manage their reputation or satisfy a job requirement. They only want to appear to be honest.

Understanding where people stand on that continuum is useful in a management setting, says Murphy. “It implies that individuals higher in internal motivations to report honestly will actually report more honestly than those who are lower in internal motivations.”

If true, what would this mean for workplace supervision? Management thinking tends to assume that people will react the same way to controls designed to prevent dishonesty as to controls that promote honesty. That may not be the case if the motivation to be honest is factored in, she says.

To explore the issue further, Murphy teamed up with Michael Wynes of Wilfred Laurier University (and former Smith grad student), Till-Arne Hahn, a Smith PhD candidate, and Patricia Devine of University of Wisconsin-Madison. They were gifted a prime dataset: two of Murphy’s own studies from her early days as an academic. Her dissertation in 2012 looked at how people rationalize misreporting. The study, based on a computer-based survey, collected information on when respondents answered dishonestly or honestly, as well as their motivations for answering either way. A follow-up study in 2014 examined the impact of an authority figure telling people to misreport. The resulting academic papers focused on dishonest reporting; the data on honesty were available but never analysed.

“From those two studies, data had just been sitting there,” says Murphy. “So we looked at the answers for why the respondents reported honestly and coded them. We saw pretty quickly that there are internal reasons and there are external reasons” for why people are honest.

Some reasons, such as wishing to avoid the negative emotions that come with misreporting, were clearly internal. Other reasons, such as the fear of being caught or punished, were clearly external.

Predicting Honest Reporting

“But the biggest reason by far for reporting honestly (51 percent) was a category coded as ethics,” she says. “This category included people who cited their reasons explicitly as ethics, morals, principles, and general feelings of right and wrong — all internal motivations.”

Using these insights, the researchers created an instrument — essentially a set of 13 statements — that captures internal and external motivations to report honestly. Statements include:

• I report honestly if it pleases others.
• I report honestly if I think I will receive acknowledgement for doing so.
• Reporting honestly feels like the right thing to do.
• I believe in reporting honestly even if no one will know.

To test the instrument’s predictive validity, they designed two experiments, one based on actual behaviour and a second based on a hypothetical business case. The study participants first completed the instrument to determine whether they were internally or externally motivated and then were placed in ethically challenging situations and in the presence of different management controls.

Examples of management controls include reward systems such as bonuses and promotions or punishments such as firing, demotions, or poor performance reviews. Management controls are designed to control people’s behaviour.

As expected, Murphy and her colleagues found that participants higher in internal motivation to report honestly were, indeed, more likely to report honestly than others.

Those who scored higher in internal motivation actually reported less honestly when told that top management would promote people who demonstrated honesty

But, in a counterintuitive twist, management controls nudged those internally motivated people into the dark side. In the study, those who scored higher in internal motivation actually reported less honestly when told that top management would promote people who demonstrated honesty. By contrast, people higher in external motivation reported more honestly when the same management controls were introduced.

Murphy admits that the finding seems “kind of weird” but adds that it’s actually consistent with motivation theory. People who have a high degree of internal motivation also have a high need for autonomy.

“In essence, perceived threats to one’s own competence or autonomy can cause an individual’s internal motivations to decrease, which can in turn cause them to  act contrary to what they would otherwise do,” says Murphy. “Any controls over misreporting could be perceived as threatening one’s autonomy and chip away at the internal motivation to act honestly. People want to know that they can do their job the way they see it.”

People who have a high degree of external motivation have a similar need for autonomy, but perceived threats to their autonomy don’t lessen internal motivations, if they were never there.

Tailoring Controls to Individuals

This research offers food for thought for managers. If they know that certain employees are more internally motivated, Murphy says, they should go as light as possible on controls so as to not undermine the employees’ sense of autonomy. When management controls are necessary, educating employees on their purpose may help avoid the backlash.

“It's not so much what management thinks, it's what the employee thinks,” she says. “Even just asking employees, ‘Do you feel like you're being micromanaged?’ could be useful because otherwise you could have unintended consequences by people rebelling against what they perceive to be too much oversight.”

If you’re managing staff who are higher in external motivation, consider putting in controls that make them feel as though you will have tight oversight. “Take the example of a sales force, if they’re mostly high in external motivations,” says Murphy. “Let's say you want each salesperson to report their activity every quarter. If you tell them you’ll compare what they report to you to actual accounting records, then they will report more honestly.”

Similarly, if those charged with governance knew that the company CEO and CFO were higher in external motivations, they should put in place tight controls and monitoring over top management.

While she aims to further refine and test the instrument that captures internal and external motivations to report honestly, Murphy can see firms eventually using it as a diagnostic and management tool.

The instrument can be incorporated into an annual employee survey, for example, or used as a pre-employment questionnaire or personality test. Says Murphy, “Not only is it refreshing to focus on the pleasant side of motivation – on honesty rather than dishonesty – but our instrument can help management see where employees are on the spectrum and design controls that best fit them.”

—Alan Morantz

Interested in testing the instrument in your own organization? Contact Pamela Murphy at pamela.murphy@queensu.ca.