Is Wrongdoing in and by Organizations

“Normal”?

Donald PalmerGraduate School of ManagementUniversity of California, DavisSeptember 11, 2015

• Until recently, the dominant approach implicitly viewed wrongdoing in and by organizations as an abnormal phenomenon.– In this view, wrongdoing is relatively rare.

• It is perpetrated by a small deviant cross-section of the population (“bad apples”) and fostered by a narrow range of aberrant organizational structures & processes (“bad barrels”).

– It can be suppressed by employing a few simple tactics.

• An emerging approach views wrongdoing in and by organizations as a normal phenomenon.– In this view wrongdoing is relatively common.

• It is perpetrated by a wide swath of the population and fostered by a broad range of structures & processes essential to organizations.

– It will persist despite our best efforts to suppress it.

» We should devote attention to helping managers and employees avoid being caught up in it.

• An emerging approach views wrongdoing in and by organizations as a normal phenomenon.– In this view wrongdoing is relatively common.

• It is perpetrated by a wide swath of the population, fostered by a broad range of structures & processes essential to organizations.

– It will persist despite our best efforts to suppress it.

» We should devote attention to helping managers and employees avoid being caught up in it.

This alternative approach is the focus of my talk.

What Is Organizational Wrongdoing?

• Unethical Behavior• Socially Irresponsible Behavior• Illegal Behavior

–Civil Law–Criminal Law My primary focus is on

wrongdoing that involves multiple interacting individuals.

What Is Common?

• Statistical evidence.• Between 2000 and 2004, 40% of the largest 100 US

firms engaged in wrongdoing reported in the national media (Clement 2006).

• Anecdotal evidence.• Fall of 2013 JP Morgan agreed to pay $13B for its role

in the mortgage meltdown.– At the same time, JPM was fighting claims related to:

» The London Whale trades, bribery in China, numerous other actions under investigation by 8 federal agencies, 1 state regulator, and 2 foreign nations.

Why is Organizational Wrongdoing Pervasive?

Most Organizations Are Competitive

Systems

• People situated in a competitive systems are forced to operate close to the line separating right from wrong.– To do otherwise sacrifices competitive

advantage to one’s adversaries.

• Thus, people in competitive systems do not have to depart much from accepted behavior to find themselves on the wrong side of the line separating right from wrong.

Most Organizations Are “Strong Situations”

• Social psychologists use the phrase “strong situations” to refer to situations in which people are exposed to multiple potent social forces.

• Organizations are strong situations in that their members are exposed to multiple structures and processes that shape the way they act, think, and even feel.– Each of these structures and processes can cause

people to engage in wrongdoing.

I will illustrate my review with anecdotal evidence from few high profile instances of organizational wrongdoing and, time permitting, more systematic evidence from a recent study that I conducted on the use of PEDs in professional cycling.

I will elaborate the most important structures and processes over the next several slides, distinguishing between often recognized and less recognized structures/processes.

Often Recognized Organizational

Structures

• Incentive Systems– The matrix of costs and benefits

associated with alternative behaviors in the organizational environment.• Provide motivations for engaging in misconduct.

– Performance strain

• Provide opportunities to engage in misconduct.– Weak governance.

• Cultures– The assumptions, values and beliefs,

and norms current in the organizational environment.• Directly endorse misconduct by framing

misconduct as appropriate.• Indirectly endorse misconduct by specifying

extenuating circumstances under which misconduct can be considered acceptable.

– Rationalizations also know as “techniques of neutralization.”

Together These Factors Constitute the Fraud

Triangle

Less Often Recognized Organizational

Structures

Power Structures

• The Chain of Command- The norm of obedience to authority.

- Reinforced by the allocation of rewards and punishments.

• Resource Dependence Relations- The distribution of resources that are

perceived to by others to be important and scarce.

Jordan Mintz and Enron

Administrative Systems

• The Division of Labor- Differentiation and sometimes incomplete

integration of roles.

• Administrative Controls- Obtrusive Devices

• Rules & standard operating procedures.

- Unobtrusive Devices• Scripts & schemas.

Pinto and the Ford Motor Company

Situational Social Influence Processes

• Social information processing• Organizational participants learn from others in

their immediate environment about the costs and benefits associated with alternative behaviors.

Robert Wilkis and David Levine

• Social Comparison Processes– People look to others in their environment to

obtain guidance on how to act, think, and even feel.

Betty Vinson and WorldCom

• Small group pressures.• Organizational participants feel compelled to meet

the expectations of the others in their immediate environment.

Illan Reich and David Levine

• Commitment pressures.• Organizational participants who engage in

incremental behaviors that are of their own volition, visible, and difficult to reverse get locked into their behavior ... when they can develop post-hoc rationalizations for the behavior.

– This is the case, even when that behavior might be counter to cost/benefit and normative rationality.

John Mulheren and Ivan Boesky

All Organizational Participants Are

Susceptible

• If people are operating close to the line separating right from wrong and thus do not have to go far to cross the line...

• And people are subject to multiple strong social forces that influence their emotions, attitudes, and behaviors...

• Then people do not have to be extraordinary (in a malevolent way) in order to cross the line separating right from wrong.

Practical Implications

Ethics courses and training programs are not enough

– Ethics courses and training programs for the most part instruct students on where the line separating right from wrong is located. • We also need to sensitize students and managers

to the reasons why otherwise ethical, socially responsible, law-abiding people cross the line between right and wrong, even when they know where it is located.

Ethics courses and training programs are not enough

– Ethics courses and training programs for the most part instruct students on where the line separating right from wrong is located. • We also need to sensitize students and managers

to the reasons why otherwise ethical, socially responsible, law-abiding people cross the line between right and wrong, even when they know where it is located.

In fact, I suspect that ethics courses and training programs have the opposite of their intended effect!

Appendix

Protected Role Protector Role0.00%

100.00%

200.00%

300.00%

400.00%

500.00%

600.00%

700.00%

Percent change in the odds of a rider having a higher suspicion score

Significant at the .05 level

Significant at the .10 level

-100.00%

-80.00%

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

Increasing number of teammates known to have doped and been severely sanctioned.

Current teammates' prior involvement in doping Current teammates' past teammates' prior involvement in doping

Increasing number of teammates known to have doped and NOT been severely sanctioned.

Percent change in the odds of a rider using PEDs

Significant at the .05 level