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Do Goals Corrupt?

Dell Inc. announced yesterday that it will restate more than four years of financial results after a yearlong internal investigation discovered "errors and irregularities" in its accounting and reporting practices. During that period, Dell's finance department manipulated its earnings in order to meet Wall Street's quarterly expectations. What, you might wonder, would compel the computer maker's accounting team to fudge the company's numbers?

"People cheat," says Wharton School of Business professor Maurice Schweitzer in an article for Knowledge@Wharton. And, he adds, people with goals that they fail to meet are more likely to cheat than those people simply instructed to try their best.

Schweitzer and colleagues Lisa Ordonez and Bambi Douma conducted an experiment to study the relationship between goals and cheating. The researchers gave three groups of college students sixty seconds to form as many words as possible out of seven jumbled letters. They told one group to "do your best to create as many words as possible." They gave another group a goal of creating at least nine words in each round and offered participants $2 for each time they met the goal. They gave a third group the same nine-word target, but without the financial incentive. Participants kept and reported their own scores, which made it easy for subjects to cheat.

Schweitzer and his partners analyzed the behavior of participants who falsely claimed to have met the goal of forming nine words. They found that participants who had a goal and failed to meet it were more likely to cheat than those without a specific target were. Schweitzer and company also noticed that people who missed their goal by one or two words were more likely to cheat than people who came up several words short. And contrary to the researchers' expectations, participants with unmet goals were just as likely to cheat whether or not there was a financial incentive at stake.

Are Dell's accountants bad people, or did the pressure to meet goals encourage their unethical behavior? I think Erica Ogg of CNET News.com answers that question best in her article "Goals led Dell to cook the books." Writes Ogg: "Dell felt so pressured to meet Wall Street expectations that its finance department bent accounting rules to make up for shortfalls in certain quarters and underreported earnings results in others, each time ensuring that Dell seemed to hit earnings targets that financial analysts were expecting."

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