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Management Organizational Corruption
by
Donald Palmer

Introduction

Corruption, narrowly defined, entails the perversion of political organizations by internal or external agents. By this definition, corruption includes public officials’ use of their office to obtain private benefit, and private-sector organizations’ use of illegal means to influence governmental decisions. Corruption of this latter sort can have many manifestations. Domestic corporations can bribe domestic governments, as when Colonial Heritage used covert payments to the city council president in Woodbridge, New Jersey, in return for expedited building permits. Domestic corporations can bribe foreign governments, as was the case when Lockheed bribed foreign officials to purchase the company’s aircraft (which ultimately led to the passage of the US Foreign Corrupt Practices Act). Foreign subsidiaries of domestic corporations may also bribe local governments, as when Walmart de México used local intermediaries to convey payments to public officials in return for expedited building permits. Defined more broadly, corporate corruption entails organizations’ use of illegal means to enhance their survival and profitability. Corruption of this sort can have many manifestations. Corporations can pollute the natural environment, as was the case when Hooker Chemical dumped toxic chemicals into the abandoned Love Canal. Corporations can infringe on the rights of their employees, as when Sears systematically discriminated against women employees. Corporations can misstate their earnings to bolster their stock price, such as when Enron manufactured bogus transactions with investment banks such as Merrill Lynch. Finally, corporate corruption, as most broadly defined, includes the use of illegal means by multiple members of corporations to advance their interests. Corruption of this sort can also have many manifestations. Individuals can misappropriate stockholder wealth, as was the case when Tyco top management provided itself with outlandish perks. Individuals can siphon off resources, as was the case when Andy Fastow and associates constructed a network of special-purpose entities at Enron to generate personal wealth. This bibliography is constructed with the broadest definition of corruption in mind, a definition that incorporates each type of corruption discussed above. For this reason, the authors of this article characterize the subject as “organizational wrongdoing.” Many scholars of organizational illegality distinguish between crime perpetrated on behalf of the firm (labeled corporate crime) and crime perpetrated on behalf of individuals within the firm, against firm interests (known as white-collar crime). The authors of this article do not embrace this distinction in this review of organizational wrongdoing because the two types of wrongdoing often are difficult to distinguish from one another.

Theoretical Overviews

The works cited in this section provide broad overviews of theory on organizational wrongdoing, some of which have provided a basis for future theorizations. Ermann and Lundman 1982 provides one of the earliest and well-known theoretical overviews on the subject, from a sociological perspective. Baucus 1994 laid the foundation for subsequent research on organizational wrongdoing in the field of management. Shover and Wright 2001 provides a collection of more-recent articles that together cover a wide range of alternative explanations of organizational wrongdoing. Greve, et al. 2010 and Palmer 2012 provide the most-recent overviews of theory and research on organizational wrongdoing.

  • Baucus, Melissa S. “Pressure, Opportunity and Predisposition: A Multivariate Model of Corporate Illegality.” Journal of Management 20.4 (1994): 699–721.

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    This article presents one of the first organization theory analyses of organizational wrongdoing, which lays the foundation of much future management research on organizational wrongdoing. It relies on a three-pronged explanatory framework of wrongdoing to enumerate several hypotheses, many of which have subsequently been tested in empirical research.

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  • Ermann, M. David, and Richard J. Lundman. Corporate Deviance. New York: Holt, Rinehart, and Winston, 1982.

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    This book presents a sociological analysis of different types of organizational wrongdoing, distinguished by the nature of wrongdoing’s victims (owners, employees, customers, the general public). It also includes case studies of individual instances of wrongdoing, which are interwoven with theoretical analysis.

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  • Greve, Henrich R., Donald Palmer, and Jo-Ellen Pozner. “Organizations Gone Wild: The Causes, Processes, and Consequences of Organizational Misconduct.” Academy of Management Annals 4.1 (2010): 53–107.

    DOI: 10.1080/19416521003654186Save Citation »Export Citation »E-mail Citation »

    This chapter presents an up-to-date review of theory and research in economics, sociology, and management on organizational wrongdoing. It devotes most of its attention to the causes of wrongdoing but also considers the impact of wrongdoing on organizations.

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  • Palmer, Donald. Normal Organizational Wrongdoing: A Critical Analysis of Theories of Misconduct in and by Organizations. Oxford: Oxford University Press, 2012.

    DOI: 10.1093/acprof:oso/9780199573592.001.0001Save Citation »Export Citation »E-mail Citation »

    This book presents a critical review of theories of the causes of wrongdoing. It identifies competing and overlapping perspectives and explanations of wrongdoing, using individual-level case examples to illustrate how these theoretical perspectives may be used to understand how wrongdoing develops in practice.

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  • Shover, Neal, and John Paul Wright, eds. Crimes of Privilege: Readings in White-Collar Crime. Readings in Crime and Punishment. New York: Oxford University Press, 2001.

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    There are numerous edited volumes that include chapters written by important contributors to the field of organizational wrongdoing. This volume edited by Shover and Wright is among the most current and comprehensive available.

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Classic Quantitative Studies

There are a number of major quantitative empirical studies of organizational wrongdoing that anyone who conducts research or teaches in the subject area will want to know about. Clinard and Yeager 1980 provides the first large-scale study of corporate crime; because theirs is a pioneering effort, these authors examine correlations rather than aspire to establish causality. Simpson 1986, McKendall and Wagner 1997, and Baucus and Near 1991 employ increasingly sophisticated research designs and statistical methods in an attempt to test causal hypotheses. Prechel and Morris 2010 is the latest in this mode of analysis.

  • Baucus, Melissa S., and Janet P. Near. “Can Illegal Corporate Behavior Be Predicted? An Event History Analysis.” Academy of Management Journal 34.1 (1991): 9–36.

    DOI: 10.2307/256300Save Citation »Export Citation »E-mail Citation »

    The first longitudinal analysis of wrongdoing in a large sample of firms. The authors conduct an event history analysis of wrongdoing, using the Baucus 1994 framework (cited in Theoretical Overviews) to inform their independent variable selection, finding considerable (albeit mixed) support for their hypotheses.

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  • Clinard, Marshall B., and Peter C. Yeager. Corporate Crime. New York: Free Press, 1980.

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    This is the first quantitative empirical analysis of wrongdoing in a large sample of organizations. It uses government archives to document a wide variety of violations for each of the five hundred largest US corporations in the late 1970s. It also examines an eclectic mix of correlates of these violations.

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  • McKendall, Marie A., and John A. Wagner III. “Motive, Opportunity, Choice, and Corporate Illegality.” Organization Science 8.6 (1997): 624–647.

    DOI: 10.1287/orsc.8.6.624Save Citation »Export Citation »E-mail Citation »

    This is the first multitheoretic analysis of wrongdoing in a large sample of organizations. It builds on the ideas in Baucus 1994 (cited under Theoretical Overviews) and finds general support for the hypothesis that firms engage in wrongdoing when they have the incentives and opportunities to do so.

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  • Prechel, Harland, and Theresa Morris. “The Effects of Organizational and Political Embeddedness on Financial Malfeasance in the Largest U.S. Corporations: Dependence, Incentives, and Opportunities.” American Sociological Review 75.3 (2010): 331–354.

    DOI: 10.1177/0003122410372229Save Citation »Export Citation »E-mail Citation »

    The most recent longitudinal analysis of wrongdoing in a large sample of firms. The authors conduct a multitheoretic event history analysis of accounting restatements, which are not legal violations but are believed to be indicative of wrongdoing. They offer a unique political theory of wrongdoing for which they find support.

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  • Simpson, Sally S. “The Decomposition of Antitrust: Testing a Multi-level, Longitudinal Model of Profit-Squeeze.” American Sociological Review 51.6 (1986): 859–875.

    DOI: 10.2307/2095372Save Citation »Export Citation »E-mail Citation »

    Another early, but more focused, analysis of wrongdoing in a large sample of organizations. It zeros in on and differentiates different types of antitrust violations and examines the impact of profit shortfalls on the likelihood that large corporations are found to have engaged in each type of violation.

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Classic Qualitative Studies

There are also a number of major quantitative empirical studies of organizational wrongdoing that anyone who conducts research or teaches in the area will want to know about. All the works referenced in this section are highly cited and appear in the reference sections of even the most-recent articles on organizational wrongdoing. Geis 1967 makes use of congressional testimony of wrongdoers, Cressey 1971 conducts interviews with convicted offenders, and Jackall 1988 engages in participant observation (and conducts interviews) in a large firm.

  • Cressey, Donald Ray. Other People’s Money: A Study in the Social Psychology of Embezzlement. 2d ed. Wadsworth Series in Analytical Ethnography. Belmont, CA: Wadsworth, 1971.

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    Originally published in 1953. Provides a more systematic sociological analysis of the mindsets of organizational wrongdoers. On the basis of in-depth interviews with individuals convicted and serving time for embezzlement, it elaborates a parsimonious model of the factors that typically give rise to embezzlement.

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  • Geis, Gilbert. “The Heavy Electrical Equipment Antitrust Cases of 1961.” In Criminal Behavior Systems: A Typology. Edited by Marshall B. Clinard and Richard Quinney, 139–151. New York: Holt, Rinehart, and Winston, 1967.

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    Provides the first sociological analysis of the mindsets and behavior of individuals known to have perpetrated organizational wrongdoing. In keeping with sociological scholarship on organizations of the time, focuses on the way in which organizational participants’ location in larger cultures and role structures shapes the way they think and behave.

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  • Jackall, Robert. Moral Mazes: The World of Corporate Managers. Oxford: Oxford University Press, 1988.

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    Sociological analysis of managerial life in large corporations. Provides a brief history of the large bureaucratic corporation. Reports on extensive fieldwork conducted in multiple contemporary corporations, revealing that managers in bureaucratic settings give ethical decision making short shrift because of preoccupations with practical concerns related to performing their assigned functions.

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Specific Instances of Organizational Corruption

While there are many journalistic accounts of organizational wrongdoing, most are written shortly after the incidents in question and thus do not provide a detailed and nuanced view of wrongdoing. All the works referenced in this section are comprehensive, in-depth accounts of a major instance of organizational wrongdoing. Stewart 1991 covers the insider trading scandals of the 1980s, while Eichenwald 1995 addresses the fraudulent practices of Prudential Bache that took place in 1970s. Both McLean and Elkind 2003 and Eichenwald 2005 address the Enron scandal in great detail. These works will provide those interested in conducting research on organizational wrongdoing with food for thought, which can stimulate theorizing. They provide, for those interested in teaching about organizational wrongdoing, material to illustrate competing theories of wrongdoing.

  • Eichenwald, Kurt. Serpent on the Rock. New York: Broadway, 1995.

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    This book, reprinted as recently as 2005, provides an in-depth description of the evolution of the questionably marketed and sometimes entirely fraudulent limited partnerships developed at Prudential Bache in the 1970s. It is particularly useful as a source of information about how administrative routines can cause wrongdoing to proliferate in an organization.

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  • Eichenwald, Kurt. Conspiracy of Fools: A True Story. New York: Broadway, 2005.

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    Less well known than McLean and Elkind 2003, it is the most thorough examination of the Enron debacle. Based on hundreds of interviews with individuals at Enron and related enterprises. It covers much the same terrain as McLean and Elkind 2003, but in greater depth. In particular, the development of Andy Fastow’s career is examined in fascinating detail.

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  • McLean, Bethany, and Peter Elkind. The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron. New York: Portfolio Hardcover, 2003.

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    First thorough examination of the Enron debacle, focusing on wrongdoing in the firm’s trading operations and finance unit. A useful introduction to the fiasco, which resulted in the firm’s bankruptcy, numerous civil suits, and the criminal prosecution of several high-profile managers including Andy Fastow, Jeff Skilling, and Kenneth Lay.

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  • Stewart, James B. Den of Thieves. New York: Simon & Schuster, 1991.

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    Chronicles major insider trading scandals of the 1980s, focusing mostly on the schemes orchestrated by Dennis Levine, Michael Milken, and Ivan Boesky. It is based on a large number of in-depth interviews and importantly provides insight into individuals’ thoughts as they became involved in and endured the schemes.

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Compilations of Specific Instances of Organizational Corruption

Concrete cases of wrongdoing provide researchers with raw material on which to exercise their theoretical muscles, as well as providing teachers with examples that illustrate existing theory. Heilbroner 1972, Hills 1987, and Raufflet and Mills 2009 include descriptions of organizational wrongdoing since the early 1970s, which together demonstrate that organizational wrongdoing has not become more benign (i.e., less disturbing) over time. Ermann and Lundman 2002 and Punch 1996 contain both cases and theoretical chapters that can be used to analyze the included cases. These two volumes are particularly useful for pedagogical purposes, when organizational wrongdoing is only one of several topics covered in a course.

  • Ermann, M. David, and Richard J. Lundman, eds. Corporate and Governmental Deviance: Problems of Organizational Behavior in Contemporary Society. 6th ed. Oxford: Oxford University Press, 2002.

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    Contains introductory chapters written by important contributors to the study of organizational wrongdoing. Presents many case studies of specific instances of wrongdoing leading up to the 1980s. The final chapters consider the means by which organizational deviance is controlled. Originally published in 1978.

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  • Heilbroner, Robert L. In the Name of Profit: Profiles in Corporate Greed. Garden City, NY: Doubleday, 1972.

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    This volume contains well-written case studies of specific instances of wrongdoing leading up to the 1970s.

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  • Hills, Stuart L. Corporate Violence: Injury and Death for Profit. Totowa, NJ: Rowman & Littlefield, 1987.

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    Contains case studies of instances of wrongdoing leading up to the end of the 1980s. Case studies are organized according to the victimized parties, including consumers, low-level workers, the community, and midlevel managers.

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  • Punch, Maurice. Dirty Business: Exploring Corporate Misconduct; Analysis and Cases. London: SAGE, 1996.

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    Introduces management theorists’ increasing concern with organizational wrongdoing, presents an overview of theory on wrongdoing, and considers the consequence and conventional methods of controlling wrongdoing. The book then presents a diverse array of case studies of recent instances of organizational wrongdoing. It concludes with a consideration of alternative means for curbing wrongdoing.

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  • Raufflet, Emmanuel B., and Albert J. Mills, eds. The Dark Side: Critical Cases on the Downside of Business. Sheffield, UK: Greenleaf, 2009.

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    This is among the most recent compilations of case studies of wrongdoing available. The cases included in this volume are noteworthy in that they are more mundane than the standard fare and thus are of potentially greater relevance to the everyday lives of prospective and current managers.

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Theory on the Causes of Organizational Wrongdoing

Much theorizing and popular commentary on organizational wrongdoing draws or builds on two general explanations: the rational-choice and the culture views. A large body of theory and research on ethical decision making also speaks to the subject of organizational wrongdoing, although it is much better known to scholars than to popular commentators. Finally, a number of other explanations of wrongdoing are in various stages of development. These include the administrative systems, situational social influence, power structure, accident, and network explanations. Some of the explanations of organizational wrongdoing, such as the ethical-decision explanation, operate primarily at the individual level of analysis. Other explanations, such as the culture explanation, tend to operate at the organizational or societal levels. Finally, other explanations, such as the emerging network explanation, operate at multiple levels of analysis.

The Rational Choice

Rational-choice theory, which views organizational participants as cost/benefit calculators operating in a nexus of contracts, constitutes one of the primary explanations of organizational wrongdoing. Economists have been the principal proponents of rational-choice explanations of organizational wrongdoing; this is because economists tend to view economic actors as rational utility maximizers who are keenly sensitive to the pay-offs of alternative courses of action. But some sociologists have explicitly or implicitly embraced the rational-choice framework as well, applying it to the subject of organizational wrongdoing.

The Economic Literature

Economists have offered abstract, formal models of the rational-choice factors that give rise to wrongdoing. They have also provided more–concrete, specific theories. Agency theory provides the most important rational-choice analysis of organizational wrongdoing, insofar as it has inspired the largest volume of empirical research on wrongdoing within the rational-choice framework. This section includes key economic contributions to the rational-choice explanation of wrongdoing, especially works embracing the agency theory point of view, as well as works that call this explanation of wrongdoing into question. Becker 1968 well represents the logic underpinning economic explanations of wrongdoing. Berle and Means 1932 lays the foundation for one specific economic explanation of wrongdoing: agency theory. Jensen and Meckling 1976 and Fama and Jensen 1983 elaborate the agency explanation, while Harris and Bromiley 2007 and Pozner 2012 infuse agency theory with sociological insights.

  • Becker, Gary S. “Crime and Punishment: An Economic Approach.” Journal of Political Economy 76.2 (1968): 169–217.

    DOI: 10.1086/259394Save Citation »Export Citation »E-mail Citation »

    Classic statement on the rational-choice explanation of wrongdoing. Its best-known implication is that the monitoring and punishment of wrongdoing is costly. Thus, rational organizations will tolerate some level of wrongdoing, as long as this wrongdoing does not produce greater costs than the costs of controlling it.

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  • Berle, Adolph A., Jr., and Gardiner C. Means. The Modern Corporation and Private Property. New York: Macmillan, 1932.

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    Presents the managerialist thesis on which agency theory is predicated. Argues that ownership of large firms had become dispersed in the hands stockholders with little control over the operation of firms by the early 20th century, allowing top managers to pursue their own self-interest in conflict with the interests of stockholders. Reprinted as recently as 2009 (New Brunswick, NJ: Transaction).

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  • Fama, Eugene F., and Michael C. Jensen. “Separation of Ownership and Control.” In Special Issue: Corporations and Private Property: A Conference Sponsored by the Hoover Institution. Journal of Law and Economics 26.2 (1983): 301–325.

    DOI: 10.1086/467037Save Citation »Export Citation »E-mail Citation »

    Builds on Jensen and Meckling 1976, by arguing that boards of directors act as effective mechanisms to monitor and control managers who otherwise might pursue their parochial interests, including misconduct. They maintain that the board is particularly effective in this regard when stocked with individuals who are independent of managers.

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  • Harris, Jared D., and Philip Bromiley. “Incentives to Cheat: The Influence of Executive Compensation and Firm Performance on Financial Misrepresentation.” Organization Science 18.3 (2007): 350–367.

    DOI: 10.1287/orsc.1060.0241Save Citation »Export Citation »E-mail Citation »

    Identifies problems that can arise when attempting to apply agency theory to curb wrongdoing. It was previously thought that paying managers with stock options would align their interests with those of stockholders, but the authors show that this motivates managers to engage in other forms of malfeasance.

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  • Jensen, Michael C., and William H. Meckling. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” Journal of Financial Economics 3.4 (1976): 305–360.

    DOI: 10.1016/0304-405X(76)90026-XSave Citation »Export Citation »E-mail Citation »

    Elaborates on the agency theory of firms and reiterates the fundamental conflict between managers and owners, first identified in Berle and Means 1932. It then discusses how this conflict can be mitigated by aligning the incentives of managers and owners and increasing owners’ ability to monitor and discipline managers.

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  • Pozner, Jo-Ellen. “Departure Status: The Effect of Dissolving Ties with a Misconduct Firm on Director Labor Market Outcomes.” Unpublished manuscript, Haas School of Business, University of California, Berkeley, 2012.

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    This article follows in the same vein as Harris and Bromiley 2007. The author argues that independent directors do not serve a particularly effective monitoring function, partly because they tend to leave the boards of firms engaged in wrongdoing in order to preserve their own good reputations.

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The Sociological Literature

Sociologists for the most part explain human behavior by reference to its social context, either as fully determined by social context (culture) or as partially determined through local interaction (situational social influence). But some sociologists explicitly or implicitly embrace the fundamental rational-choice assumption that human beings pursue their self-interest and are thus attentive to the ways in which alternative courses of action affect their self-interest. This work leads to a focus on how actors vary in their aspirations or how social situations differ in the extent to which they offer actors the opportunity to realize their aspirations. Merton 1938 provides the foundation for this line of inquiry. Staw and Szwajkowski 1975; Simpson 1986; and Mishina, et al. 2010 elaborate this line of inquiry at the organizational level of analysis. Hirschi and Gottfredson 1987 develops the implications of this line of inquiry at the individual level. Simpson and Piquero 2002 calls the Hirschi and Gottfredson formulation into question.

  • Hirschi, Travis, and Michael Gottfredson. “Causes of White-Collar Crime.” Criminology 25.4 (1987): 949–974.

    DOI: 10.1111/j.1745-9125.1987.tb00827.xSave Citation »Export Citation »E-mail Citation »

    Addresses the role of managerial self-control in wrongdoing. Managers with high self-control are found willing to wait to reap the rewards that faithful service can bring. Managers with low self-control are less willing to wait for rewards and thus are more likely to engage in wrongdoing that can deliver rewards quickly.

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  • Merton, Robert K. “Social Structure and Anomie.” American Sociological Review 3.5 (1938): 672–682.

    DOI: 10.2307/2084686Save Citation »Export Citation »E-mail Citation »

    Classic statement of the strain theory of wrongdoing, on which much theory and research on wrongdoing are based. Maintains that groups that possess intense aspirations to succeed but lack legitimate avenues to success pursue illegitimate avenues to achieve their aspirations. Also used to explain other kinds of wrongdoing such as juvenile delinquency.

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  • Mishina, Yuri, Bernadine J. Dykes, Emily S. Block, and Timothy G. Pollock. “Why ‘Good’ Firms Do Bad Things: The Effects of High Aspirations, High Expectations, and Prominence on the Incidence of Corporate Illegality.” Academy of Management Journal 53.4 (2010): 701–722.

    DOI: 10.5465/AMJ.2010.52814578Save Citation »Export Citation »E-mail Citation »

    Despite substantial face validity, studies testing strain theory have produced mixed results. This paper addresses this puzzle by examining how a firm’s performance aspirations influence its response to strain. Firms that outperform expectations experience greater strain to perform well in the next period, increasing their likelihood to engage in wrongdoing.

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  • Simpson, Sally S. “The Decomposition of Antitrust: Testing a Multi-level, Longitudinal Model of Profit-Squeeze.” American Sociological Review 51.6 (1986): 859–875.

    DOI: 10.2307/2095372Save Citation »Export Citation »E-mail Citation »

    Another study that tests strain-theory-inspired hypotheses pertaining to the propensity of large firms to engage in wrongdoing. Distinguishes between different types of antitrust violations and shows that low and/or declining profitability is associated with a firm’s propensity to commit some types of antitrust violations but not others.

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  • Simpson, Sally S., and Nicole Leeper Piquero. “Low Self-Control, Organizational Theory, and Corporate Crime.” Law and Society Review 36.3 (2002): 509–548.

    DOI: 10.2307/1512161Save Citation »Export Citation »E-mail Citation »

    Presents a theoretical critique of the low self-control argument, focusing on its failure to account for the organizational context of managers. Further, it presents the results of a scenario study that supports its theoretical critique.

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  • Staw, Barry M., and Eugene Szwajkowski. “The Scarcity-Munificence Component of Organizational Environments and the Commission of Illegal Acts.” Administrative Science Quarterly 20.3 (1975): 345–354.

    DOI: 10.2307/2391995Save Citation »Export Citation »E-mail Citation »

    First in a long line of studies that test strain-theory-inspired hypotheses pertaining to the propensity of large firms to engage in wrongdoing. Shows that the competitiveness of a firm’s industry location is positively related to its propensity to engage in wrongdoing.

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Culture

Cultural explanations of organizational wrongdoing are a primary theoretical counterpoint to rational-choice explanations. The references in this section focus on the cultural influence of organizational contexts on wrongdoing. The cultural explanation assumes that people will engage in a wrongful course of action when they think that the wrongdoing is consistent with their organization’s culture. But the cultural account allows that people sometimes must take into account multiple cultural contexts (e.g., societal, organizational, and subunit) that vary in salience when assessing the appropriateness of a particular wrongful course of action. Coleman 1987 and Braithwaite 1988 examine how the cultures of advanced societies generally are conducive to wrongdoing. Hochstetler and Copes 2001 examines how the cultures of specific organizations can be conducive to wrongdoing. Sykes and Matza 1957 and Anand, et al. 2004 elaborate on an underappreciated mechanism through which cultures can give rise to wrongdoing. Sims and Brinkmann 2003 analyzes how cultural content that facilitates wrongdoing evolves and is disseminated. Darley 1992 explains how organizational participants come to embrace such cultural content. This work is reviewed here as well.

  • Anand, Vikas, Blake E. Ashforth, and Mahendra Joshi. “Business as Usual: The Acceptance and Perpetuation of Corruption in Organizations.” Academy of Management Executive 18.2 (2004): 39–55.

    DOI: 10.5465/AME.2004.13837437Save Citation »Export Citation »E-mail Citation »

    Elaborates six techniques of neutralization that wrongdoers employ to blunt the guilt that they otherwise might experience as the result of engaging in wrongdoing. These techniques of neutralization derive from earlier research in Sykes and Matza 1957, on street gangs, which clearly saw these techniques as elements of gang culture.

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  • Braithwaite, John. “White-Collar Crime, Competition, and Capitalism: Comment on Coleman.” American Journal of Sociology 94.3 (1988): 627–632.

    DOI: 10.1086/229032Save Citation »Export Citation »E-mail Citation »

    Responds to Coleman 1987 and maintains that it is not the emergence of capitalist social relations but industrialization that gives rise to organizational wrongdoing. Points out that economic actors in noncapitalist, industrialized societies experience the same competitive pressures as actors in capitalist societies, leading to similar levels of white-collar crime.

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  • Coleman, James William. “Toward an Integrated Theory of White-Collar Crime.” American Journal of Sociology 93.2 (1987): 406–439.

    DOI: 10.1086/228750Save Citation »Export Citation »E-mail Citation »

    Presents a theory of white-collar crime at the societal level. It maintains that organizational wrongdoing appears where industrial-capitalist social relations emerge. Such social relations generate intense competitive pressure on economic actors, which leads them to adopt illegitimate means to assure their success.

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  • Darley, John M. “Social Organization for the Production of Evil.” Psychological Inquiry: An International Journal for the Advancement of Psychological Theory 3.2 (1992): 199–218.

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    Provides an excellent analysis of the way in which organizational participants can become socialized into cultures that facilitate wrongdoing, providing both a theoretical model and in-depth case analyses.

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  • Hochstetler, Andy, and Heith Copes. “Organizational Culture and Organizational Crime.” In Crimes of Privilege: Readings in White-Collar Crime. Edited by Neal Shover and John Paul Wright, 210–221. Readings in Crime and Punishment. New York: Oxford University Press, 2001.

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    This often-cited chapter elaborates and extends theory on how organizational cultures can be conducive to the generation of wrongdoing within their boundaries.

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  • Sims, Ronald R., and Johannes Brinkmann. “Enron Ethics (Or: Culture Matters More than Codes).” Journal of Business Ethics 45.3 (2003): 243–256.

    DOI: 10.1023/A:1024194519384Save Citation »Export Citation »E-mail Citation »

    Describes how Enron’s culture, which cast hubris and envelope pushing in a positive light, was conducive to the emergence of wrongdoing. Also delineates how Enron’s leaders promulgated this culture, focusing on five aspects of leader behavior: hiring and firing of employees, rewarding and punishing employees, modeling particular behaviors, attending to specific dimensions of organizational life, and reaction to crises.

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  • Sykes, Gresham M., and David Matza. “Techniques of Neutralization: A Theory of Delinquency.” American Sociological Review 22.6 (1957): 664–670.

    DOI: 10.2307/2089195Save Citation »Export Citation »E-mail Citation »

    Earlier work on which the authors of Anand, et al. 2004 base their analysis. Devoted to the way in which techniques of neutralization facilitate juvenile delinquency rather than white-collar crime, but it elaborates on how these techniques can be considered elements of wrongdoers’ cultures and how they can facilitate wrongdoing.

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Behavioral Decision Making

There is a large literature on the factors that shape ethical decision making in organizations. Most of this work is geared toward understanding the factors that lead to unethical as opposed to ethical decisions. For some time, this work was guided by the assumption that organizational participants are rational. But over time, this work has come to recognize that organizational participants are boundedly rational and even nonrational (making decisions by intuition or on the basis of emotion, or ingrained rules). And researchers have increasingly focused on the ways in which bounded rationality shapes decisions and on the conditions under which bounded rationality is most consequential.

Reviews of the Literature

There are several recent excellent reviews of the literature on ethical decision making. These reviews provide a faithful accounting of the many studies conducted under the assumption that decision makers are capable of rational deliberation. They also provide insightful assessments of the growing number of studies that explore the limits of the rational model and that consider how bounded rationality, intuition, emotion, and ingrained rules influence ethical decision making. Treviño, et al. 2006 and Tenbrunsel and Smith-Crowe 2008 provide excellent accounts of the full range of theory and research on behavioral decision making, with the authors directing their reviews to an academic audience. Bazerman and Tenbrunsel 2011 provides an engaging introduction to the most-recent research in this area, which departs from the rational model; the authors direct their review to a student audience.

  • Bazerman, Max H., and Ann E. Tenbrunsel. Blind Spots: Why We Fail to Do What’s Right and What to Do about It. Princeton, NJ: Princeton University Press, 2011.

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    Very accessible, selective review of recent work on the role of bounded rationality in ethical decision making. The authors’ goal is to convince readers that bounded ethicality can undermine their ability to behave in ways that conform to closely held beliefs, and to offer techniques that reduce bounded ethicality’s impact on ethical decision making.

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  • Tenbrunsel, Ann E., and Kristin Smith-Crowe. “Ethical Decision Making: Where We’ve Been and Where We’re Going.” Academy of Management Annals 2.1 (2008): 545–607.

    DOI: 10.1080/19416520802211677Save Citation »Export Citation »E-mail Citation »

    The authors cover the same terrain as in Treviño, et al. 2006 but are more comprehensive and incorporate more of the recent work on intuition, emotion, and bounded ethicality.

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  • Treviño, Linda K., Gary R. Weaver, and Scott J. Reynolds. “Behavioral Ethics in Organizations: A Review.” Journal of Management 32.6 (2006): 951–990.

    DOI: 10.1177/0149206306294258Save Citation »Export Citation »E-mail Citation »

    Review of research on individual factors and contextual factors that influence ethical decision making. Focuses on work that assumes that people deliberate rationally when confronted with ethical dilemmas, but also considers work that accounts for the roles of intuition, emotion, and bounded rationality.

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Rational Ethicality

The early work on ethical decision making assumed that decision makers proceed rationally through a four-stage process, in which decision makers decide: (1) whether a decision requires the invocation of ethical criteria (ethical awareness), (2) how to employ ethical criteria to adjudicate the decision (ethical judgment), (3) whether to resolve to behave in a way consistent with one’s ethical judgment (ethical intent), and (4) whether to behave consistent with one’s ethical intent (ethical behavior). It also explored how the character of ethical dilemmas, individual attributes, and contextual factors influences how decision makers navigate the four stages of the ethical decision process. The articles and books referenced in Reviews of the Literature do an excellent job of summarizing this work. Still, for the sake of completion, this subsection references several of the more notable works in this tradition. Rest 1986 was the first study to articulate the four-stage ethical decision framework. Jones 1991 examines how one character of an ethical dilemma, its moral intensity, influences the likelihood that people will adjudicate the dilemma ethically. Singhapakdi, et al. 2000 examines how one individual attribute, a person’s religious identity, influences the likelihood that he or she will adjudicate ethical dilemmas ethically. Schminke, et al. 1997 examines how the interaction of issue, individual attributes, and contextual factors influences the likelihood that people will navigate ethical dilemmas ethically.

  • Jones, Thomas M. “Ethical Decision Making by Individuals in Organizations: An Issue-Contingent Model.” Academy of Management Review 16.2 (1991): 366–395.

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    Demonstrates that the moral intensity of an ethical dilemma influences the likelihood that decision makers will employ ethical criteria when resolving the dilemma.

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  • Rest, James R. Moral Development: Advances in Research and Theory. New York: Praeger, 1986.

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    The author presents a four-stage model of ethical decision making that serves as the foundation for most early work on the topic. Model acknowledges that both individual and contextual factors can influence the outcome at each stage in the ethical decision process (recognition, judgment, motivation, and behavior).

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  • Schminke, Marshall, Maureen L. Ambrose, and Terry W. Noel. “The Effect of Ethical Frameworks on Perceptions of Organizational Justice.” Academy of Management Journal 40.5 (1997): 1190–1207.

    DOI: 10.2307/256932Save Citation »Export Citation »E-mail Citation »

    One of several articles that examine how the interaction among decision type, contextual factors, and individual attributes influences ethical decision making. Demonstrates that people who embrace formalist ethical philosophies are better able than those who embrace consequentialist philosophies to accurately apply formalist ethical criteria to moral dilemmas.

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  • Singhapakdi, Anusorn, Janet K. Marta, Kumar C. Rallapalli, and C. P. Rao. “Toward an Understanding of Religiousness and Marketing Ethics: An Empirical Study.” Journal of Business Ethics 27.4 (2000): 305–319.

    DOI: 10.1023/A:1006342224035Save Citation »Export Citation »E-mail Citation »

    Finds that the degree to which decision makers incorporate religiosity into their identity is related to the extent to which they make ethical decisions.

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Bounded Ethicality

The more recent work on ethical decision making builds on developments in organizational theory and decision-making theory more generally. These developments follow from the recognition that organizational contexts are often-complex information environments and that organizational participants are limited in their ability to store and process information. March and Simon 1993 elaborates on the dilemma of complex worlds and bounded rationality. Bazerman 2006 articulates the implications of this dilemma for decision making. Most of the work in the bounded-ethicality domain focuses on how alternative ways of framing decisions and a variety of heuristics used to simplify choices affect ethical decision making. Tenbrunsel and Messick 1999; Kern and Chugh 2009; Wade-Benzoni, et al. 1996; Moore, et al. 2006; and Caruso, et al. 2006 represent crucial contributions to this line of inquiry. More-recent work focuses on how temporal dynamics complicate cognitively limited decision making. Tenbrunsel, et al. 2010 and Zhong, et al. 2010 are exemplary contributions to this extension of the bounded-ethicality framework. The most-recent work, though, goes beyond the notion that decision makers are boundedly rational to propose that they often forgo deliberations entirely before “choosing” a course of action. Haidt 2001 provides the jumping-off point for this substantially new line of inquiry.

  • Bazerman, Max H. Judgment in Managerial Decision Making. 6th ed. Hoboken, NJ: Wiley, 2006.

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    Well-respected book, describes how bounded rationality influences decision making in organizations. Specifically, it elucidates a number of framing effects and cognitive biases that shape decision maker preferences in organizations. The discussion of these framing effects and cognitive biases lays the foundation for the recent theory and research on bounded ethicality. Originally published in 1986 (New York: Wiley).

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  • Caruso, Eugene, Nicholas Epley, and Max H. Bazerman. “The Costs and Benefits of Undoing Egocentric Responsibility Assessments in Groups.” Journal of Personality and Social Psychology 91.5 (2006): 857–871.

    DOI: 10.1037/0022-3514.91.5.857Save Citation »Export Citation »E-mail Citation »

    Examines the tendency of humans to overclaim credit for group performance. Argues that humans are more aware of their own contributions to group performance than they are of their fellow group members’ contributions and thus tend to claim a disproportionate amount of the credit for the group’s performance.

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  • Haidt, Jonathan. “The Emotional Dog and Its Rational Tail: A Social Intuitionist Approach to Moral Judgment.” Psychological Review 108.4 (2001): 814–834.

    DOI: 10.1037/0033-295X.108.4.814Save Citation »Export Citation »E-mail Citation »

    Exemplifies the perspective that humans do not deliberate at all before acting, showing that people develop ethical rationales for their behavior only after the fact and, interestingly, with some detail.

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  • Kern, Mary C., and Dolly Chugh. “Bounded Ethicality: The Perils of Loss Framing.” Psychological Science 20.3 (2009): 378–384.

    DOI: 10.1111/j.1467-9280.2009.02296.xSave Citation »Export Citation »E-mail Citation »

    Examines how the tendency of decision makers to prefer risky options when evaluating decisions—when focused on losses they can stem—plays out in the context of ethical decisions. Demonstrates that decision makers are prone to select unethical options when they evaluate ethical dilemmas using a loss (as opposed to gains) framing.

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  • March, James G., and Herbert A. Simon. Organizations. 2d ed. Cambridge, MA: Blackwell, 1993.

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    Organization theory classic, originally published in 1958 (New York: Wiley). Presents the concept of bounded rationality, on which more-recent work on bounded ethicality is built.

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  • Moore, Don A., Philip E. Tetlock, Lloyd Tanlu, and Max H. Bazerman. “Conflicts of Interest and the Case of Auditor Independence: Moral Seduction and Strategic Issue Cycling.” Academy of Management Review 31.1 (2006): 10–29.

    DOI: 10.5465/AMR.2006.19379621Save Citation »Export Citation »E-mail Citation »

    Examines how bounded ethicality leads to biases in awareness of conflicts of interest in accountants’ auditing of client financial records. Suggests that auditors are prone to underestimate their susceptibility to conflicts of interest, and regulations requiring auditors to reveal potential conflicts of interest make them more susceptible to such conflicts.

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  • Tenbrunsel, Ann E., Kristina A. Diekmann, Kimberly A. Wade-Benzoni, and Max H. Bazerman. “The Ethical Mirage: A Temporal Explanation as to Why We Aren’t as Ethical as We Think We Are.” Research in Organizational Behavior 30 (2010): 153–173.

    DOI: 10.1016/j.riob.2010.08.004Save Citation »Export Citation »E-mail Citation »

    Addresses why otherwise ethical people engage in unethical behavior. Argues that people possess a “should self,” active when people contemplate decisions, and a “want self,” active in moments of decision. The former has the time and inclination to explore ethics; the latter focuses on immediate concrete costs and benefits.

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  • Tenbrunsel, Ann E. and David M. Messick. “Sanctioning Systems, Decision Frames, and Cooperation.” Administrative Science Quarterly 44.4 (1999): 684–707.

    DOI: 10.2307/2667052Save Citation »Export Citation »E-mail Citation »

    Examines the impact of decision-frames actor preferences but focuses on unique framing effect. Shows that decision makers are more likely to choose the unethical course of behavior when ethical dilemmas are framed as business decisions.

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  • Wade-Benzoni, Kimberly A., Ann E. Tenbrunsel, and Max H. Bazerman. “Egocentric Interpretations of Fairness in Asymmetric, Environmental Social Dilemmas: Explaining Harvesting Behavior and the Role of Communication.” Organizational Behavior and Human Decision Processes 67.2 (1996): 111–126.

    DOI: 10.1006/obhd.1996.0068Save Citation »Export Citation »E-mail Citation »

    Examines the tendency of individuals to overclaim entitlement to group resources. Argues that people are more aware of their own rights and needs to group resources than they are of fellow group members’ rights and needs, and thus they tend to see themselves as deserving a disproportionate share of those resources.

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  • Zhong, Chen-Bo, Gillian Ku, Robert B. Lount, and J. Keith Murnighan. “Compensatory Ethics.” Journal of Business Ethics 92.3 (2010): 323–339.

    DOI: 10.1007/s10551-009-0161-6Save Citation »Export Citation »E-mail Citation »

    Examines the tendency of prior ethical decisions to affect subsequent ethical decisions, even when people possess stable ethical preferences. The authors argue that people attempt to sustain ethical identities and thus adjust their behavior in ways that maintain their ethical equilibrium.

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Administrative Systems

Administrative systems are the most basic, indeed defining, feature of formal organizations. All but the smallest organizations have a division of labor and guides of various forms that regulate behavior within differentiated units. Perrow distinguishes between two types of guides. Obtrusive controls explicitly dictate desired behavior—they include rules and standard operating procedures. Unobtrusive controls shape the way organizational participants decide how to behave when obtrusive controls are inadequate—they include professional norms, technologies, and communication channels, as well as schemas and scripts. The analysis of the way in which the division of labor, obtrusive controls, and unobtrusive controls can facilitate wrongdoing has been incorporated in a variety of explanations of organizational wrongdoing, including the “situational social influence” explanation (which addresses the institutionalization of wrongdoing in rules and standard operating procedures) and the accident explanation (which addresses the normalization of deviance). But a few studies that are reviewed here have focused more narrowly on the way in which administrative systems can give rise to or sustain wrongdoing. Vaughan 1985 examines how organizational exigencies and structures generally facilitate wrongdoing. Dowie 1977 provides insights into how obtrusive controls such as rules can facilitate wrongdoing. Gioia 1992 provides insights into how unobtrusive controls such as schemas and scripts can facilitate wrongdoing. Faulkner, et al. 2003 examines how a conspiracy’s organizational structure influences its capacity to successfully engage in illegitimate activities. Certainly, more work on the role that administrative systems play in the initiation, proliferation, and maintenance of wrongdoing is called for.

  • Dowie, Mark. “How Ford Put Two Million Firetraps on Wheels.” Business and Society Review 23.3 (1977): 46–55.

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    Examines the causes of a well-known instance of organizational wrongdoing, the marketing of the Ford Pinto automobile, despite growing evidence that its gas tank was prone to erupt in flames when impacted from the rear at relatively low speeds. Provides insight into how administrative systems can facilitate and maintain wrongdoing.

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  • Faulkner, Robert R., Eric R. Cheney, Gene A. Fisher, and Wayne E. Baker. “Crime by Committee: Conspirators and Company Men in the Illegal Electrical Industry Cartel, 1954–1959.” Criminology 41.2 (2003): 511–554.

    DOI: 10.1111/j.1745-9125.2003.tb00996.xSave Citation »Export Citation »E-mail Citation »

    Examines the causes and consequences of the administrative structures that were created to facilitate three price-fixing conspiracies in the heavy electrical equipment industry in the 1950s. It found that market conditions surrounding the three conspiracies drove differences in the committee structures used to facilitate the three conspiracies.

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  • Gioia, Dennis A. “Pinto Fires and Personal Ethics: A Script Analysis of Missed Opportunities.” Journal of Business Ethics 11.5–6 (1992): 379–389.

    DOI: 10.1007/BF00870550Save Citation »Export Citation »E-mail Citation »

    Provides important first-person account of how schemas and scripts can facilitate wrongdoing. The author, a Ford Motor Company safety coordinator, describes how schemas and scripts developed by the firm’s safety coordinators contributed to keeping the cars on the road despite known evidence of their dangers.

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  • Vaughan, Diane. Controlling Unlawful Organizational Behavior: Social Structure and Corporate Misconduct. Studies in Crime and Justice. Chicago: University of Chicago Press, 1985.

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    Rigorous sociological analysis of a major Medicaid fraud perpetrated by a large chain drugstore, Revco Discount Drug Stores. Its significance, from the standpoint of administrative systems, lies in its focus on the way in which routine organizational exigencies and the structures designed to cope with them facilitate the development of wrongdoing. Originally published in 1983; reprinted as recently as 1994.

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Situational Social Influence

Almost by definition, the social-influence explanation operates entirely at the individual level, but it could extend to higher levels of analysis if social relationships between people are conceptualized as intergroup and even interorganizational relationships. It assumes that a person’s social relationships shape his or her behavior, including a person’s propensity to engage in wrongdoing. There are a very large number of mechanisms through which a person’s social relationships can influence his or her behavior, only a fraction of which have been examined as possible causes of organizational wrongdoing. This section references studies that focus on small-group pressures and escalating commitment (Darley 1996, Janis 1971, Sims 1992, Sutherland 1983). It then references theoretical works that attempt to integrate multiple social psychological mechanisms into a model that explains how wrongdoing proliferates in organizations. The first two of these models were designed to explain how wrongdoing initiated at the top of an organization comes to spread and infect an entire organization (Ashforth and Anand 2003; Brief, et al. 2001). The last of these models broadens the focus to allow that wrongdoing can be initiated at any level of the organization (Palmer 2008). Finally, Tenbrunsel, et al. 2011 considers the relationship between social-influence processes and formal constraints on wrongdoing.

  • Ashforth, Blake E., and Vikas Anand. “The Normalization of Corruption in Organizations.” Research in Organizational Behavior 25 (2003): 1–52.

    DOI: 10.1016/S0191-3085(03)25001-2Save Citation »Export Citation »E-mail Citation »

    Early attempt to systematically analyze the way in which social influence facilitates organizational wrongdoing. Similar to Brief, et al. 2001, but uniquely elaborates six techniques of neutralization that wrongdoers can use to blunt the guilt that they otherwise might feel as they engage in wrongful behavior.

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  • Brief, Arthur P., Robert T. Buttram, and Janet M. Dukerich. “Collective Corruption in the Corporate World: Toward a Process Model.” In Groups at Work: Theory and Research. Edited by Marlene E. Turner, 471–499. Applied Social Research. Mahwah, NJ: Lawrence Erlbaum, 2001.

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    Early attempt to systematically analyze how social influence facilitates organizational wrongdoing. Analysis restricted to the initiation of wrongdoing by top managers. Considers several processes that allow wrongdoing to infiltrate other parts of the organization. Some of the processes that the authors examine are unique to this explanation of wrongdoing.

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  • Darley, John M. “How Organizations Socialize Individuals into Evildoing.” In Codes of Conduct: Behavioral Research into Business Ethics. Edited by David M. Messick and Ann E. Tenbrunsel, 13–43. New York: Russell Sage, 1996.

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    Examines how commitment processes and socialization can give rise to wrongdoing. Backs up its arguments using abundant case material, most notably a first-person account of the B.F. Goodrich A7D fighter aircraft brake fraud.

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  • Janis, Irving L. “Groupthink.” Psychology Today Magazine 5 (November 1971): 43–84.

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    Best-known and succinct examination of the tendency, known as “groupthink,” of small cohesive groups to develop strong sense of technical and moral superiority and intense censorship pressures that can give rise to immoral behavior. Elaborates both the mechanisms of groupthink and a variety of symptoms that indicate its presence.

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  • Palmer, Donald. “Extending the Process Model of Collective Corruption.” Research in Organizational Behavior 28 (2008): 107–135.

    DOI: 10.1016/j.riob.2008.04.005Save Citation »Export Citation »E-mail Citation »

    Extension of the Brief, et al. 2001 and Ashforth and Anand 2003 pieces. Relaxes the assumption that wrongdoing starts at the top of the organization, and investigates additional forms of social influence that can facilitate the initiation and spread of wrongdoing. Importantly, suggests how the spread of wrongdoing might be less automatic and more problematic than others contend.

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  • Sims, Ronald R. “Linking Groupthink to Unethical Behavior in Organizations.” Journal of Business Ethics 11.9 (1992): 651–662.

    DOI: 10.1007/BF01686345Save Citation »Export Citation »E-mail Citation »

    One of few papers explicitly devoted to examining how groupthink can lead to organizational wrongdoing. Shows that many of the groupthink symptoms identified in Janis 1971 were present in these cases: Beech-Nut’s marketing of bogus apple juice, E. F. Hutton’s check-kiting scheme, and Solomon Brothers’ illegal bidding on US Treasury securities.

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  • Sutherland, Edwin H. White Collar Crime: The Uncut Version. New Haven, CT: Yale University Press, 1983.

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    Classic in field of white-collar crime. Presents statistical data on the frequency of types of organizational wrongdoing, and brief case studies. Elaborates theory of organizational wrongdoing that highlights small, informal group relationships where organizational wrongdoers are embedded as sites to transmit attitudes and behaviors conducive to wrongdoing. Originally published in 1949 (New York: Dryden).

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  • Tenbrunsel, Ann E., Kristen Smith-Crowe, Suzanne Chan-Serafin, and Arthur P. Brief. “The Ethics ‘Fix’: When Formal Systems Make a Difference.” Paper presented at the “Hierarchy and Moral Behavior in Organizations” symposium at the Annual Meeting of the Academy of Management, San Antonio, TX, 15 August 2011.

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    Investigates the effect of countervailing forces within organizations: formal systems that direct employees toward ethical acts, and informal systems that direct employees toward fraudulent behavior. Results address why the implementation of formal systems produces mixed results, and identify when formal systems designed to promote ethical behavior will be most efficacious.

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Power

Power is the capacity to get what you want, over the resistance of others. Lord Acton famously asserted that “power tends to corrupt and absolute power corrupts absolutely.” In keeping with this well-known adage, there is a growing volume of research on how the possession of power causes people to engage in unethical and socially irresponsible behavior. But the literature on the relationship between power and wrongdoing began with research on the ways in which the possession of power can allow people to cause others to initiate or participate in wrongdoing.

The Definition of Power

Most theory and research on the relationship between power and organizational wrongdoing focuses on formal power (also known as formal authority or legitimate power) and the capacity of superiors to order their subordinates to engage in wrongdoing. But at least some theory and research on the relationship between power and wrongdoing focus on informal power (also known as resource dependence-based power), which is routed in the control of scarce resources of various kinds, such as information, expertise, and status. French and Raven 1959 presents the most authoritative categorization of the different types of formal and informal power, all of which can facilitate wrongdoing. Raven 2001 explicates how this categorization scheme has evolved over time.

  • French, John R. P., Jr., and Bertram H. Raven. “The Bases of Social Power.” In Studies in Social Power. Edited by Dorwin Cartwright, 150–167. Ann Arbor: Institute for Social Research, University of Michigan, 1959.

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    This chapter presents perhaps the best-known typology of power, distinguishing between six bases of power: rewards, coercion, legitimacy, expertise, referent, and information used to persuade.

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  • Raven, Bertram H. “Power/Interaction and Interpersonal Influence: Experimental Investigations and Case Studies.” In The Use and Abuse of Power: Multiple Perspectives on the Causes of Corruption. Edited by Annette Y. Lee-Chai and John A. Bargh, 217–240. Philadelphia: Psychology Press, 2001.

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    This chapter is useful in providing a sense of how the typology in French and Raven 1959 has been refined over time and has been used to examine the efficacy of different types of influence strategies.

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The Effect of Power on the Powerless

Research on the way in which the possession of power can be used to influence others to engage in wrongdoing focuses almost exclusively on formal power (also known as formal authority or legitimate power). Milgram 1963 laid the cornerstone of this line of inquiry, and then the author built upon it in a subsequent article (Milgram 1965) and book (Milgram 1974). Some have expanded on Milgram’s early insights (Kelman and Hamilton 1989), while others have attempted to replicate his early studies (Brief, et al. 2000; Burger 2009).

  • Brief, Arthur P., Joerg Dietz, Robin Reizenstein Cohen, S. Douglas Pugh, and Joel B. Vaslow. “Just Doing Business: Modern Racism and Obedience to Authority as Explanations for Employment Discrimination.” Organizational Behavior and Human Decision Processes 81.1 (2000): 72–97.

    DOI: 10.1006/obhd.1999.2867Save Citation »Export Citation »E-mail Citation »

    Useful for instructors. Translates the study in Milgram 1965 to a modern business organization in which the wrongdoing is racism rather than physical harm. Confirms that people tend to obey their bosses when they are considered legitimate authorities.

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  • Burger, Jerry M. “Replicating Milgram: Would People Still Obey Today?” American Psychologist 64.1 (2009): 1–11.

    DOI: 10.1037/a0010932Save Citation »Export Citation »E-mail Citation »

    Useful for instructors. Many contemporary students suspect that individuals today are less likely to exhibit unquestioning obedience to authority than people of the past. Replicates Milgram 1965 within the bounds of constraints on human subjects, finding that the impact of authority is as potent today as it was in Milgram’s time.

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  • Kelman, Herbert C., and V. Lee Hamilton. Crimes of Obedience: Toward a Social Psychology of Authority and Responsibility. New Haven, CT: Yale University Press, 1989.

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    A book-length examination of the way in which formal authority can facilitate wrongdoing. This book considers the practical problems of assigning responsibility for crimes of obedience, and of devising ways to reduce their incidence.

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  • Milgram, Stanley. “Behavioral Study of Obedience.” Journal of Abnormal and Social Psychology 67.4 (1963): 371–378.

    DOI: 10.1037/h0040525Save Citation »Export Citation »E-mail Citation »

    Best-known study on how powerful people can influence less powerful people to engage in wrongdoing. Milgram found that individuals perceived as legitimate authorities by test subjects could get the subjects to administer bogus shocks to other individuals, merely by instructing them to comply with his request.

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  • Milgram, Stanley. “Some Conditions of Obedience and Disobedience to Authority.” Human Relations 18.1 (1965): 57–76.

    DOI: 10.1177/001872676501800105Save Citation »Export Citation »E-mail Citation »

    Also well known, this study examines some of the conditions that regulate obedience to authority, again focusing on authority used to compel subjects to comply with instructions to administer what they believed was dangerous electric shocks to other subjects.

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  • Milgram, Stanley. Obedience to Authority: An Experimental View. New York: Harper & Row, 1974.

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    A book-length account of the many experiments Milgram conducted on obedience authority, over more than a decade.

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The Effect of Power on the Powerful

Research on the way in which the possession of power can cause those who possess it to engage in wrongdoing focuses both on formal and informal power (also known as resource dependence-based power). Work in this line of inquiry assumes that the possession of power effects power holders’ practical situation and outlook in multiple ways that increase the likelihood that they will engage in wrongdoing. Power holders enjoy an increased capacity to accomplish goals, which can activate illegitimate goals such as those related to sexual dominance. Power holders also experience alterations in their cognitive orientations (e.g., their proclivity to stereotype others), as well as their views of themselves (e.g., viewing themselves as morally superior to others) and those over whom they possess power (e.g., viewing them as morally inferior to themselves). Kipnis 1972 presents the most significant early experimental study of the relationship between the possession and use of power, and unethical behavior. Haney, et al. 1973 reports the most famous experiment on the effects of the possession and use of power. Zimbardo 2007 looks back on this experiment, in the light of more-recent developments in the field. Lee-Chai and Bargh 2001; Gruenfeld, et al. 2003; and Keltner, et al. 2003 are among the best most-recent contributions to this line of inquiry.

  • Gruenfeld, Deborah H., Dacher J. Keltner, and Cameron Anderson. “The Effects of Power on Those Who Possess It: How Social Structure Can Affect Social Cognition.” In Foundations of Social Cognition: A Festschrift in Honor of Robert S. Wyer, Jr. Edited by Galen V. Bodenhausen and Alan J. Lambert, 231–256. Mahwah, NJ: Lawrence Erlbaum, 2003.

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    Provides brief literature review and then presents a well-known experiment. Subjects are divided into groups, assigned rudimentary managerial/worker roles, and asked to perform a task, after which they are rewarded with cookies. Subjects assigned as managers were more likely to claim surplus cookies and eat them in socially unappealing ways.

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  • Haney, Craig, Curtis W. Banks, and Philip G. Zimbardo. “Interpersonal Dynamics in a Simulated Prison.” International Journal of Criminology and Penology 1 (1973): 69–97.

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    Best-known study on the impact that power has on those who possess it. Describes experiment in which subjects were randomly assigned the roles of prison guard and prisoner. Subjects assigned as guards developed attitudes and exhibited behaviors that were so harsh toward prisoner assignees that the experiment was suspended before completion.

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  • Keltner, Dacher, Deborah H. Gruenfeld, and Cameron Anderson. “Power, Approach, and Inhibition.” Psychological Review 110.2 (2003): 265–284.

    DOI: 10.1037/0033-295X.110.2.265Save Citation »Export Citation »E-mail Citation »

    Provides a comprehensive review of literature on the impact that power has on those who hold and use it, which seems to be increasing at an exponential rate. Also suggests how the work on power can be organized by an attention to the twin concepts of approach and inhibition.

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  • Kipnis, David. “Does Power Corrupt?” Journal of Personality and Social Psychology 24.1 (1972): 33–41.

    DOI: 10.1037/h0033390Save Citation »Export Citation »E-mail Citation »

    Earliest rigorous study of the impact that the possession of power has on a person’s attitudes and behaviors. Shows that subjects placed in a situation of high power came to see themselves as superior and their associated subordinates as inferior.

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  • Lee-Chai, Annette Y., and John A. Bargh, eds. The Use and Abuse of Power: Multiple Perspectives on the Causes of Corruption. Philadelphia: Psychology Press, 2001.

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    This edited collection contains chapters on the impact that power has on those who hold and use it, written by key figures in the field. Most of the chapters review work to date and offer extensions of that work.

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  • Zimbardo, Philip G. The Lucifer Effect: Understanding How Good People Turn Evil. New York: Random House, 2007.

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    Revisits the prison experiment described in Haney, et al. 1973 and provides important insights into the significance of the study.

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Accidents

Until recently, theorists considered organizational wrongdoing and organizational accidents to be mutually exclusive phenomena. Accidents are, by definition, assumed to be the result of unintended acts or the unintentional consequences of intended acts, and wrongdoing was understood to be the product of intended acts. Vaughan 1996, which analyzes the Challenger Shuttle disaster, is the first scholarly work to call this outlook into question. The author argues that when accidents violate organizational rules or norms they by definition constitute deviance. And when accidents violate government regulations or laws, they by definition constitute administrative or legal wrongdoing. Further, Vaughan analyzes the causes of accidents that constitute wrongdoing, most importantly identifying a process that she calls the “normalization of deviance,” in which small changes to organizational practices are tolerated, incorporated into organizational routines and cultures, and then escalated, culminating in catastrophic failure. Vaughan 1999 offers a more general theory of accidents as a cause of wrongdoing. Perrow 1999 and Perrow 2007 push the analysis of accidents in organizational systems forward, developing the concept of “normal accidents.” These works argue that technological systems that are complex and tightly coupled are prone to failure, even when organizational participants faithfully execute their responsibilities. Mezias 1994 extends Perrow’s model to financial systems. Perrow and most of his disciples consider accidents and wrongdoing to be mutually exclusive. But some who embrace his analysis of how complexity and tight coupling make system failure predictable believe that normal accidents can constitute or give rise to wrongdoing. Palmer and Maher 2010 adopts this perspective, offering a normal-accident analysis of the 2008 financial crisis. Perrow 2010 disputes this interpretation of the financial crisis.

  • Mezias, Stephen J. “Financial Meltdown as Normal Accident: The Case of the American Savings and Loan Industry.” Accounting, Organizations and Society 19.2 (1994): 181–192.

    DOI: 10.1016/0361-3682(94)90017-5Save Citation »Export Citation »E-mail Citation »

    Extends normal-accident theory into the domain of financial systems and maintains that normal-accident theory provides a superior analysis of the US savings-and-loan crisis in comparison to alternative theoretical analyses, including those that emphasize the role that wrongdoing played in the savings-and-loan crisis.

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  • Palmer, Donald, and Michael Maher. “A Normal Accident Analysis of the Mortgage Meltdown.” In Markets on Trial: The Economic Sociology of the U.S. Financial Crisis, Part A. Edited by Michael Lounsbury and Paul M. Hirsch, 219–256. Research in the Sociology of Organizations 30A. Bingley, UK: Emerald Group, 2010.

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    Analyzes the 2008 financial crisis that originated in the US mortgage sector as a normal accident. Argues that complexity and tight coupling in the system of financial instruments in the mortgage sector contributed to the crisis. Also considers implications for conceptualizing the financial crisis as an instance of organizational wrongdoing.

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  • Perrow, Charles. Normal Accidents: Living with High-Risk Technologies. 2d ed. Princeton, NJ: Princeton University Press, 1999.

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    Originally published in 1984 (New York: Basic Books). Provides the classic statement of normal-accident theory, which holds that organizational systems are prone to failure, even if organizational participants faithfully perform their functions, when they are complex and tightly coupled. Uses this theory to analyze accidents in a wide range of contexts.

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  • Perrow, Charles B. The Next Catastrophe: Reducing Our Vulnerabilities to Natural, Industrial, and Terrorist Disasters. Princeton, NJ: Princeton University Press, 2007.

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    Extends normal-accident theory and applies it to a wider range of organizational systems. Demonstrates how organizational theory is relevant for pressing social problems. Introduces the concept of executive failure, which firmly establishes the position of normal-accident theory on the difference between accidents and wrongdoing.

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  • Perrow, Charles B. “The Meltdown Was Not an Accident.” In Markets on Trial: The Economic Sociology of the U.S. Financial Crisis, Part A. Edited by Michael Lounsbury and Paul M. Hirsch, 309–330. Research in the Sociology of Organizations 30A. Bingley, UK: Emerald Group, 2010.

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    Refutes the argument that the mortgage meltdown could be considered an accident, normal or otherwise. It provides an excellent opportunity to contrast the two main approaches to accidents: one that considers accidents and wrongdoing as mutually constitutive, and the other as mutually exclusive.

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  • Vaughan, Diane. The Challenger Launch Decision: Risky Technology, Culture, and Deviance at NASA. Chicago: University of Chicago Press, 1996.

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    Provides the classic statement on organizational accidents as instances of organizational deviance, which is defined as the violation of organizational rules or norms. It also provides a detailed elaboration of the process by which organizational deviance can become normalized.

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  • Vaughan, Diane. “The Dark Side of Organizations: Mistake, Misconduct, and Disaster.” Annual Review of Sociology 25 (1999): 271–305.

    DOI: 10.1146/annurev.soc.25.1.271Save Citation »Export Citation »E-mail Citation »

    Offers a conceptual framework within which scholarly work on organizational deviance can be situated. It also provides a comprehensive review of work in this area as of the late 1990s.

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Network Theory

There is a long tradition of network theory and research on organizations, but not much use of network concepts to analyze wrongdoing. With that said, there have been several notable attempts to utilize network ideas to analyze organizational wrongdoing at the individual, organizational, and interorganizational levels. This line of inquiry is expected to grow in the future, as network data relevant to wrongdoing, such as archives of e-mail messages among wrongdoers, become available. Although network concepts have been employed at the individual, organizational, and interorganizational levels, these are built largely on the backbone of social psychological theory. Much network research focuses on the way in which network ties can diffuse information and facilitate coordination among actors. Some of it focuses on the ways in which network ties can constrain actors (giving rise to what network theorists call “cohesion”) and free them from constraint (giving rise to what network theorists call “brokerage opportunities”). Finally, some of it is based on the ways in which exchange relationships give rise to dependence and power differentials. Mirroring network research generally, network explanations of organizational wrongdoing have been offered at the individual level (Baker and Faulkner 2004; Brass, et al. 1998), the organizational level (Aven 2012, Baker and Faulkner 1993, Baker and Faulkner 2003), and the interorganizational level (Westphal and Zajac 2001).

  • Aven, Brandy L. “The Effects of Corruption on Organizational Networks and Individual Behavior.” Unpublished manuscript, Tepper School of Business, Carnegie Mellon University, Pittsburgh, PA, 2012.

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    Examines e-mail communication networks linking members both of legal and illegal projects at Enron Corporation. More-thorough analysis that confirms the basic predictions in Baker and Faulkner 1993, finding that the communication networks of illegal projects tended to reflect the overriding need for secrecy as opposed to efficiency.

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  • Baker, Wayne E., and Robert R. Faulkner. “The Social Organization of Conspiracy: Illegal Networks in the Heavy Electrical Equipment Industry.” American Sociological Review 58.6 (1993): 837–860.

    DOI: 10.2307/2095954Save Citation »Export Citation »E-mail Citation »

    Analyzes the communication networks’ linking members of the three distinct schemes that composed the heavy electrical equipment price-fixing conspiracy of the early 1950s. Finds that generally, the need for concealment overpowers the need for efficiency and that central coconspirators are more likely to be found guilty and receive stiff fines.

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  • Baker, Wayne E., and Robert R. Faulkner. “Diffusion of Fraud: Intermediate Economic Crime and Investor Dynamics.” Criminology 41.4 (2003): 1173–1206.

    DOI: 10.1111/j.1745-9125.2003.tb01017.xSave Citation »Export Citation »E-mail Citation »

    Uses diffusion theory to examine how a fraudulent natural-gas exploration scheme that began as a legitimate investment opportunity evolved into a fraudulent one. Finds that while investors in the scheme tended to know one another, they did not know one another as investors in the scheme.

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  • Baker, Wayne E., and Robert R. Faulkner. “Social Networks and Loss of Capital.” Social Networks 26.2 (2004): 91–111.

    DOI: 10.1016/j.socnet.2004.01.004Save Citation »Export Citation »E-mail Citation »

    Examines the likelihood that investors in a fraudulent natural-gas exploration scheme lost their money, as a function of social-network ties linking investors to organizers of the scheme. Finds that investors linked to fraudsters via social relationships lost less money than investors who were not linked to the fraudsters.

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  • Brass, Daniel J., Kenneth D. Butterfield, and Bruce C. Skaggs. “Relationships and Unethical Behavior: A Social Network Perspective.” Academy of Management Review 23.1 (1998): 14–31.

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    Considers how existing theory and research on networks might inform the study of unethical behavior. Specifically, develops a series of propositions about the relationship between an actor’s social-network position vis-à-vis others and the likelihood that the actor will behave unethically (e.g., lie or cheat) toward these others.

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  • Westphal, James D., and Edward J. Zajac. “Decoupling Policy from Practice: The Case of Stock Repurchase Programs.” Administrative Science Quarterly 46.2 (2001): 202–228.

    DOI: 10.2307/2667086Save Citation »Export Citation »E-mail Citation »

    Examines how social-network connections between corporate managers and directors facilitate the diffusion of unfulfilled stock repurchase plans among large firms. Finds firms are more likely to announce stock repurchase plans if they are linked via overlapping corporate board memberships to firms that have previously engaged in such behavior.

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Theory on the Consequences of Organizational Wrongdoing

Economists have conducted a good number of studies on the consequences of wrongdoing. They focus on the impact that investigations, indictments, convictions, and sanctions for wrongdoing against firms have on the stock price of firms, which they believe is an indication of the extent to which detected wrongdoing has on a firm’s reputation. Sociologists have begun to conduct studies on the consequences of wrongdoing. These studies focus on the noneconomic consequences of being labeled as a wrongdoer. For example, they examine the impact that being labeled as a wrongdoer has on a firm’s status and ability to maintain and establish relationships with other organizations. These studies also focus on the way in which the consequences of wrongdoing ripple through organizational networks. For example, they examine the impact that being labeled as a wrongdoer has on the labeled actors’ associates; in particular, the labeled actors’ associates’ status and ability to maintain and establish relationships with other organizations. We begin by referencing work on the economic consequences of wrongdoing (Alexander 1999; Karpoff, et al. 1999). We then reference several of the growing number of sociological studies in this line of inquiry (Adler and Kwon 2002; Jensen 2006; Jonsson, et al. 2009; Sullivan, et al. 2007).

  • Adler, Paul S., and Seok-Woo Kwon. “Social Capital: Prospects for a New Concept.” Academy of Management Review 27.1 (2002): 17–40.

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    Considers how social capital, which comprises status and affiliations with high-status others, can buffer firms from penalties that might flow from engaging in acts such as wrongdoing that can generate stigma.

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  • Alexander, Cindy R. “On the Nature of the Reputational Penalty for Corporate Crime: Evidence.” Journal of Law & Economics 42.S1 (1999): 489–526.

    DOI: 10.1086/467433Save Citation »Export Citation »E-mail Citation »

    Establishes that sanctions for corporate crime lead to stock price declinations that exceed the magnitude of the sanctions, indicating that being labeled as a wrongdoer negatively affects a firm’s reputation. This study also begins to uncover the factors that determine the magnitude of the reputational penalties that those labeled as wrongdoers experience.

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  • Jensen, Michael. “Should We Stay or Should We Go? Accountability, Status Anxiety, and Client Defections.” Administrative Science Quarterly 51.1 (2006): 97–128.

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    First of several papers that examine the impact that engaging in detected wrongdoing has on a firm’s affiliations. It shows that Arthur Anderson’s involvement in detected wrongdoing associated with the Enron debacle caused it to lose clients.

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  • Jonsson, Stefan, Henrich R. Greve, and Takako Fujiwara-Greve. “Undeserved Loss: The Spread of Legitimacy Loss to Innocent Organizations in Response to Reported Corporate Deviance.” Administrative Science Quarterly 54.2 (2009): 195–228.

    DOI: 10.2189/asqu.2009.54.2.195Save Citation »Export Citation »E-mail Citation »

    Considers how stigma associated with detected wrongdoing can spread in a generalized way. Shows that customers tend to withdraw from transactions with organizations not known to have engaged in wrongdoing, because they are similar to organizations that are known to have engaged in wrongdoing.

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  • Karpoff, Jonathan M., D. Scott Lee, and Valaria P. Vendrzyk. “Defense Procurement Fraud, Penalties, and Contractor Influence.” Journal of Political Economy 107.4 (1999): 809–842.

    DOI: 10.1086/250080Save Citation »Export Citation »E-mail Citation »

    Studies defense contractors and examines the factors that influence the magnitude of the reputational penalty that firms pay for being labeled a procurement fraudster. Finds that firms that enjoy market power pay smaller reputational penalties for engaging in detected wrongdoing.

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  • Sullivan, Bilian N., Pamela Haunschild, and Karen Page. “Organizations Non Gratae? The Impact of Unethical Corporate Acts on Interorganizational Networks.” Organization Science 18.1 (2007): 55–70.

    DOI: 10.1287/orsc.1060.0229Save Citation »Export Citation »E-mail Citation »

    Follows Jensen 2006 and demonstrates that firms that engage in detected wrongdoing lose corporate board directors who are affiliated from high-status organizations and replace them with directors from lower-status organizations. As a result, their prominence in the network of corporate interlocking directorates declines.

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LAST MODIFIED: 01/28/2013

DOI: 10.1093/OBO/9780199846740-0060

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