The day after former Senator George Mitchell released his damning report on performance-enhancing drugs in Major League Baseball last December, President George Bush, a former baseball-team owner himself, seemed to speak for many disgusted fans when he pronounced, “Steroids have sullied the game.”

The Mitchell Report fingered 89 professional ball players, but many of these allegations were nothing new for baseball watchers. Game of Shadows, a 2006 exposé by a pair of investigative journalists, and Juiced, a 2005 tell-all memoir by player José Canseco, described a world of professional baseball rife with performance-enhancing drug abuse. The ongoing scandal, which first surfaced in the late 1990s, has bubbled on for a decade, leading commentators to label it the “steroids era.”

With fans aware of such egregious bad behavior, why has attendance at Major League Baseball games reached record-breaking highs during that same time period? Are baseball’s “consumers” impervious to the ethical lapses of their teams? No, say Wharton professors, but the case demonstrates how bias, competition and a lack of oversight worked together to create an ethically toxic atmosphere.

“Part of the problem is fans aren’t outraged; in many ways they feel legitimately conflicted. Maybe they see steroid use as a personal issue, or an abstract issue…. But the result is that steroid use has not seriously threatened Major League Baseball,” says Maurice Schweitzer, a Wharton professor of operations and information management who studies issues of trust and deception.

Although allegations of steroid use followed the 1998 home-run competition between players Sammy Sosa and Mark McGwire, Major League Baseball didn’t implement testing until 2002, and even then, first-time offenders faced only light punishments. These guidelines were beefed up in 2005, but critics continue to charge that Allan “Bud” Selig, the commissioner of baseball who called for the Mitchell investigation, and others have not done enough to stamp out steroid use.

“You see Major League Baseball stuttering on taking action on steroids, but part of it is that fans haven’t gotten their arms around the issue in a dramatic fashion,” says Kenneth Shropshire, director of the Wharton Sports Business Initiative and a professor of legal studies and business ethics. Although attention from the Mitchell Report may push baseball players and executives to a new sense of urgency, Shropshire says that right now, “There is not a sense of ethical crisis. It hasn’t gotten to the level of teams or leagues having a Chief Ethical Officer. I don’t think they view steroid use as an ethical violation. Many still see it as simply pursuing a competitive advantage.”

Fan Bias and Deception

In a new, yet-to-be published study, June Cotte, a professor of marketing, and Remi Trudel, a PhD student, both at the Richard Ivey School of Business at the University of Western Ontario, demonstrate that consumers do respond to ethical information about the products they buy: Informed customers in their study were willing to pay more for coffee they knew was ethically produced and, to an even greater degree, penalize companies for offering coffee produced by unsustainable farming methods or through unfair trade practices.

Schweitzer argues that consumer responses to ethical lapses depend on whether the wrong-doing strikes at the core of a company’s mission. “Once [accounting firm] Arthur Andersen was revealed as being dishonest, its value was lost,” he says. Homemaking media-icon Martha Stewart, on the other hand, could make a comeback after serving jail-time for improper stock sales “because we look to her for how to fold a napkin or broil a fish. She’s not investing our retirement accounts.”

The Soho, New York-based company Yellow Rat Bastard is another example, says Schweitzer. The trendy clothier faced an employment suit from the state, in which it was accused of violations such as unpaid overtime, below-minimum-wage salaries and improper employee firings. In early January this year, the company settled the suit by agreeing to pay $1.4 million in fines and back wages. But because their clothes still look cool, they probably won’t take a hit from customers, says Schweitzer.

Thomas Dunfee, professor of legal studies and business ethics at Wharton, suggests that “when it comes to unethical behavior, companies often blame it on a few bad apples. But if the cheating becomes pervasive, it looks more like a bad barrel.”

That, notes Shropshire, is the kind of “paranoid world” former San Francisco Giants player Bonds inhabited, according to the investigative reporting in Game of Shadows. “He looked around and saw so many others were taking performance enhancing drugs, including home-run kings like Mark McGwire. Bonds’ innocence is still presumed, but the book indicates he took the drugs thinking, ‘This is what I have to do to compete.'”

The psychological root of this vicious circle is human misperception, says Dunfee. “Research consistently indicates that people think of themselves as more ethical than others. That leads them to overestimate the amount of unethical behavior others engage in. People adjust their own behavior to that misapprehension, and then it gets scary: There’s a downward spiral.”

Economies where kick-backs and bribes are the norm, or considered part of “relationship building,” represent a similar sort of ethical dysfunction. Schweitzer relates how a businessman in Moscow told him recently: “‘I spend as much on bribes as I do on taxes. I have to. Otherwise, I can’t compete.’ Once that behavior is the norm, it’s very hard to break out: It’s a corrosive atmosphere.”

Wharton finance professor Phillip Bond describes what he calls “persistent corruption — which is when an economy or industry gets stuck in a state where everyone behaves badly because everyone else is.” Bond says organizations or economies are particularly vulnerable to these “crime waves” when unethical behavior is relatively hard to detect and the resources for detection are limited. The case of steroids in baseball appears “pretty straightforward,” says Bond. “When there’s not a lot of enforcement effort, and the gains to cheating are big, you’re likely to run into trouble.”

Punishing a Company’s Breach of Trust

Has the steroid scandal caused baseball to lose value? What explains the crowds filling up the stands?

“Psychological research has demonstrated again and again that people are egocentric,” says Deborah Small, a Wharton marketing professor who studies biases in consumer behavior. She points to a 1960s-era study of football fans from Dartmouth and Princeton in which an important game was taped and replayed with no sound. Fans from both sides were offered payment based on the number of accurate referee calls they made. Despite that incentive, the subjects consistently decided calls in favor of their own team. “There is a bias to see things the way you want to see them, even when you are incentivized not to do that,” says Small.

Because of this prior commitment to a team or a player, conflicting information — that the player cheats or is not as skilled as he or she appears, for example — creates cognitive dissonance, says Schweitzer. “If we believe that Barry Bonds is a hero, then we already have a very positive belief about him. We identify with his successes and link him with our own positive self image, our pride in being a San Franciscan. Years later, we hear evidence that he’s used steroids. We can believe that Bonds is a cheater and liar, but this is a difficult switch to make. Easier options include believing the evidence isn’t accurate, or believing that taking steroids is like speeding on the highway — everyone does it, no big deal — or we can choose to ignore the story. We try to see the world in a simple way.”

Some companies may envy this kind of brand loyalty, in which consumers overlook allegations of wrong-doing. So should companies seek to build followings as personal and meaningful as those between sports teams and their fans?

Such consumer relationships may not be possible for corporations, says Small. “For a fan, a team is an extension of self, while a company may be too far removed.” Even if a company could establish a relationship in which a customer identifies on a personal level with a brand, such a relationship may not be desirable. “If you have someone’s trust, and you violate it, that can be very damaging. A consumer may punish a company more severely if he or she initially trusted that brand,” she says.

Indeed, the research from Cotte and Trudel revealed that customers with high ethical expectations of a coffee brand paid nearly $2 less per pound than those with low expectations when both groups learned the brand actually engaged in unethical practices. In other words, raise expectations at your own risk.

So will baseball stars like pitcher Roger Clemens be able to bounce back from claims by his former trainer that he took performance-enhancing drugs? The answer may depend on how Clemens and other accused players handle the allegations. In a study about how card-playing subjects responded to untrustworthy behavior from fellow players, Schweitzer discovered that people overlooked simple bad behavior more easily than bad behavior covered up with deception. In other words, if you lie about your ethical lapses, you may face a steeper climb to regain people’s trust.

This dynamic has played out in the latest chapter of the steroids scandal, in which New York Yankees pitcher Andy Pettitte has won praise for frankly confessing his own use of human-growth hormone, while some of Clemens’s assertions — that he both was and wasn’t aware that his wife was taking human-growth hormone, for example — have been ridiculed even by fans. Such deception can also be the smoking gun that results in legal consequences; Bonds, for example, was indicted last November on perjury and obstruction-of-justice charges for lying under oath about his steroid use.

‘You Only Get Two Outs’

Who is to blame for allowing baseball to sink into this ethical morass? According to a statement by Mitchell at the time his report was released: “Everyone involved in baseball over the past two decades — commissioners, club officials, the players’ association and players — shares to some extent the responsibility for the Steroids Era. There was a collective failure to recognize the problem as it emerged and to deal with it early on.”

Dunfee agrees that Major League Baseball leaders made some crucial mistakes. “One of management’s tasks is to anticipate ethical problems going forward. If the claims in [José] Canseco’s book are true, then steroid use was going on for a number of years while both the union and owners seemed to take only limited steps to deal with it,” he says, adding that pointing the finger of blame may lead to remedies. “If teams are the bad barrels, then the team level is a very good place to look for solutions. Each team is a business unto itself. Major League Baseball could say, ‘If one player tests positive, regardless of why, this may affect your draft picks or affect revenue-sharing — to take it to an extreme, maybe you only get two outs.’ You have to give teams the incentives to clean up.”

The power of incentives for good and for ill is evident in the case — frequently taught in business ethics courses — of Sears Auto Centers, where, in the early 1990s, relates Dunfee, employees were paid commissions on certain auto repairs. “Suddenly every car needed a wheel alignment,” he says. “The lesson is if you use individual incentives like that, you need to complement them with strong control systems. Certainly baseball players are rewarded for home runs in a big way. Taking steroids could earn you millions. Baseball has only reluctantly come to this realization” that strict testing policies are necessary.

While few fan opinion leaders have called for boycotts of baseball, at least one online petition is calling for stricter standards. The online petition, Zero Tolerance for Baseball, recommends a specific schedule of penalties for positive drug tests. Writes one signatory: “Clean up the game! The drug culture has such a long tradition in the game, and we need solid leadership to fix things.”

Restoring trust, says Schweitzer, is all about having “an obvious and clear commitment to principles,” as Johnson & Johnson demonstrated after the Tylenol crisis of 1982, in which several people died after taking cyanide-laced extra-strength Tylenol in five Chicago stores. The company immediately spent $100 million to recall 31 million bottles of Tylenol and then re-launched product two months later in tamper-proof packaging. “Going forward, baseball needs to establish a clear and credible system so that people can trust the process and the game.”

Shropshire agrees, noting that in years past, “It wasn’t always clear what constituted getting a competitive advantage and what was unethical or illegal. Good people got caught up in it, not knowing how far was too far.” And, with so much grey area and so little supervision, ethical decisions are made in isolation. Pettitte, the Yankees pitcher, for example, says he stopped taking human-growth hormone because he “just didn’t feel right about it” — not because he was afraid of being caught. A clearly enforced policy would help establish the ethical “bright lines” players need, says Shropshire.

Given the fan bias toward wanting to think the best of their teams and stars, Dunfee predicts that baseball will survive the current crisis. “When my three-year-old grandson gets out his whiffle ball and bat, he still says, ‘Now batting: Barry Bonds.'”