Friday, March 07, 2014

The Dewey indictments and cognitive biases (updated).

This morning's NYT brings the story of the criminal indictments of some of the people at Dewey & LeBeouf (here).  If the emails referenced in the story are real, then the downfall of Dewey is even more Enronesque than I'd originally thought.  Here's an example:
In another exchange in June 2009, Mr. Sanders and Mr. Canellas joke about the law firm’s outside auditor, who was fired by his company for reasons unrelated to his auditing assignments. Mr. Sanders remarks to Mr. Canellas, “Can you find another clueless auditor for next year?” Mr. Canellas responded: “That’s the plan. Worked perfect this year.”
Today's WSJ brings more news of the emails (here):  
According to the complaint, Mr. Sanders emailed Dewey's then chief operating officer on Dec. 4, 2008, expressing concern about the firm's cash-flow problems. "I don't want to cook the books anymore," Mr. Sanders allegedly wrote in the message. "We need to stop doing that."
Why lawyers (and, for that matter, law professors) persist in emailing proof of unsavory words or deeds is a matter involving social science as much as it involves issues of character.  Why might partners at a law firm (1) decide to doctor the books or (2) ignore some clear signs of economic distress?  

I don't know the people who were indicted.  But I do know that there are a variety of cognitive biases that can cause very smart people to talk themselves into very dumb decisions.  The partners who may have been involved in a fraud and its cover up could have talked themselves into their actions because of a misguided belief that they were protecting the firm (cognitive dissonance).  The partners who could have put 2 + 2 together to ask some sharp questions of the law firm management ("why are we paying all of this money to get these laterals, and how can we afford this?") could have been waylaid by both social pressure and the diffusion of responsibility phenomenon.*  My point is that we need to watch cases like Dewey to study not the venality of people but the way in which cognitive biases affect their actions.

UPDATE (3/10/14):  Bernie Burk has a great post over at The Faculty Lounge about the indictments (here).
* I discuss Enron and Dewey in a forthcoming article, Nancy B. Rapoport, “Nudging” Better Lawyer Behavior: Using Default Rules and Incentives to Change Behavior in Law Firms, 4 St. Mary’s J. L. Ethics & Malpractice ___ (forthcoming 2014).

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