Introduction
Organizational wrongdoing is a major social problem, both in the United States and around the world. Organizational wrongdoing is wrongful behavior conducted in and by formal organizations. Wrongful behavior is behavior that results in the violation of the law, a written or unwritten code of ethics, or social responsibility doctrines which are monitored and enforced (Palmer 2012). Examples of organizational wrongdoing include financial malfeasance, dumping toxic waste, misappropriation of funds and unfair promotions. Organizational wrongdoing includes a large range of behavior which significantly impacts material access and the everyday lives of so many people. Since it is such a significant social problem, it is critical for the causes of organizational wrongdoing to be understood.
There are two competing perspectives of organizational wrongdoing: wronging as an abnormal phenomenon and wrongdoing as a normal phenomenon (Palmer 2012). One perspective (organizational wrongdoing as an abnormal phenomenon) sees wrongdoing as an act of deviance within the organization. The other perspective (organizational wrongdoing as a normal phenomenon) sees wrongdoing as a typical act within the organization. By building from two different foundations of thought, the two competing perspectives both attempt to explain why organizational wrongdoing occurs.
There are two competing perspectives of organizational wrongdoing: wronging as an abnormal phenomenon and wrongdoing as a normal phenomenon (Palmer 2012). One perspective (organizational wrongdoing as an abnormal phenomenon) sees wrongdoing as an act of deviance within the organization. The other perspective (organizational wrongdoing as a normal phenomenon) sees wrongdoing as a typical act within the organization. By building from two different foundations of thought, the two competing perspectives both attempt to explain why organizational wrongdoing occurs.
Organizational Wrongdoing as an Abnormal Phenomenon
Wrongdoing as an abnormal phenomenon assumes wrongdoing as aberrant and wrongdoers as abhorrent (Palmer 2012). The causes of wrongdoing is perverse structures and processes (Palmer 2012). In short, from this perspective, organizational wrongdoing is seen as a deviant behavior. There are two major accounts stemming from this perspective: the rational choice account and the cultural account (Palmer 2012).
Rational Choice Account of Wrongdoing as an Abnormal Phenomenon
From the rational choice perspective, people in organizations act wrongfully due to a rational cost-benefit analysis. According to this perspective, organizational wrongdoing is the result of problematic organizational incentive structures which motivates wrongful behavior. Two main theories stem from the rational choice account of wrongdoing: agency theory and strain theory.
Agency theory is a perspective rooted in economics. According to this perspective, economic relationships are made up of principals and agents. Principals are individuals who pay others for their labor. An example of a principal would be a stockholder who provides investment funds to a company whose managers are expected to use the investments to make a profit. Agents are individuals who are paid to perform work. An example of an agent would be a corporate manager who receives a salary for managing a company. From this perspective, increased divisions between principals and agents has resulted in organizational wrongdoing. Both principals and agents act opportunistically, even at the expense of the other. According to agency theory, organizational wrongdoing occurs when social structures create incentives for agents to act opportunistically at the expense of principals. For example, Berle and Means (1932) claim the dispersion of stock ownership has misaligned the interests of stock holders (principals) with the interests of corporate managers (agents). As a result, wrongful behavior, like earnings manipulation and personal use of company resources, occurs (Fama and Jensen 1983).
Whereas agency theory focuses on principals and agents, strain theory focuses on legitimacy (i.e., socially accepted use of power). Strain theory is a perspective rooted in sociology. According to this perspective, individuals pursue illegitimate means (i.e., ways that are not socially accepted) to achieve goals when they cannot achieve their goals legitimately (Agnew 1985). For example, an individual in a competitive environment might not be capable of achieving their career aspirations. This could result in individuals seeking illegitimate means, like earnings manipulation, to better achieve their interests.
Agency theory is a perspective rooted in economics. According to this perspective, economic relationships are made up of principals and agents. Principals are individuals who pay others for their labor. An example of a principal would be a stockholder who provides investment funds to a company whose managers are expected to use the investments to make a profit. Agents are individuals who are paid to perform work. An example of an agent would be a corporate manager who receives a salary for managing a company. From this perspective, increased divisions between principals and agents has resulted in organizational wrongdoing. Both principals and agents act opportunistically, even at the expense of the other. According to agency theory, organizational wrongdoing occurs when social structures create incentives for agents to act opportunistically at the expense of principals. For example, Berle and Means (1932) claim the dispersion of stock ownership has misaligned the interests of stock holders (principals) with the interests of corporate managers (agents). As a result, wrongful behavior, like earnings manipulation and personal use of company resources, occurs (Fama and Jensen 1983).
Whereas agency theory focuses on principals and agents, strain theory focuses on legitimacy (i.e., socially accepted use of power). Strain theory is a perspective rooted in sociology. According to this perspective, individuals pursue illegitimate means (i.e., ways that are not socially accepted) to achieve goals when they cannot achieve their goals legitimately (Agnew 1985). For example, an individual in a competitive environment might not be capable of achieving their career aspirations. This could result in individuals seeking illegitimate means, like earnings manipulation, to better achieve their interests.
Cultural Account of Wrongdoing as an Abnormal Phenomenon
Whereas the rational account perspective focuses on the rational/formal aspects affecting individual decision making, the cultural account focuses on the irrational/normative aspects. From the cultural perspective, people in organizations act wrongfully not because of rational cost-benefit calculations but because of cultural norms, values and beliefs within the organization. Organizational cultures affect individual assumptions about empirical reality and can directly or indirectly promote wrongful behavior. Ashforth, Anad and Joshi (2004) identify six ways in which perverse organizational cultures can promote/legitimize wrongdoing: (1) denial of responsiblity, (2) denial of injury, (3) denial of victim, (4) social weighting, (5) appeal to higher loyalties, and (6) balancing the ledger. Through the socialization process, individuals come to embrace perverse organizational cultures that promote/legitimize wrongdoing. For example, the torture of Arabs by U.S. soldiers at Abu Ghraib was facilitated by group cultures to follow the line of command and dehumanize detainees. In short, according to this perspective, organizational wrongdoing is the result of problematic cultures within organizations which motivates wrongful behavior.
Bridging the Gap: Ethical Decisions
Studies of ethical decision bridge the gap between normal/abnormal perspectives of organizational wrongdoing. From the ethical decision perspective, people in organizations act wrongfully due to limitations in the decision making process. According to this perspective, organizations are made up of individuals with different tasks, who when properly coordinated, work to achieve a set goal. Individuals within organizations collect information on how to best achieve their tasks. From this perspective, organizational wrongdoing is the result of individuals failing to process ethical criteria when making a decision. The main issues emerging from the ethical decision account of wrongdoing include bounded rationality, bounded ethicality, multiple ethical decisions and cognitive dissonance.
Bounded rationality is the cognitive limits of humans to acquire, store, process and retrieve information. Since individuals face limits to their knowledge, their behavior cannot be a rational calculation of costs and benefits; it must be constrained by what they know (March and Simon 1958). As such, individual decisions are limited by the factors contributing to what they know.
Bounded ethicality is the cognitive limits of ethical decision makers. Due to bounded rationality, individuals have poor conceptions of the contributing factors and consequences of ethical decisions. For example, individuals tend to underestimate the range of those affected by their ethical decisions and disregard the consequences of their actions (Chugh, Banaji and Bazerman 2005). Individuals in organizations face problems when making ethical decisions because their decisions are limited by their inaccurate decision frames.
Another problem organizational decision makers face when making ethical decisions is that they have to make multiple, linked decisions. As such, ethical decisions develop over time and are affected by temporal processes. For example, Jordan, Mullen and Murnighan (2011) find individuals attempt to maintain their ethical identities by creating a balance of ethical versus unethical decisions: a person who identifies herself as ethical makes an unethical decision may attempt to make up for it by making more ethical decisions in the future and person who identifies herself as unethical that makes a ethical decision may attempt to make up for it by making more unethical decisions in the future. Furthermore, the temporal aspects of decision making create problems of layering. A decision made at one point of time lays the foundation for future decisions. These complexities limit individual decisions and can lead to organizational wrongdoing.
Ethical decision making is further limited by cognitive dissonance. Cognitive dissonance is the way individuals tend to rationalize their behavior (Aronson 1973). Individuals may interpret their behavior as the result of rational or normative decisions, however, their behavior suggests it must be something else. For example, an individual who commits malfeasance may rationalize their behavior as the result of cost/benefit analysis or cultural norms, when their decision is really characterized by uncertainty, complexity and inadequate information. By rationalizing the behavior, the issues of uncertainty, complexity and inadequate information systems are not addressed, thus reifying the process contributing to unethical decisions.
From the ethical decision account, wrongdoing can be conceptualized as either a normal or abnormal phenomenon. Wrongdoers can be seen as perverse. From this perspective, perverse individuals may disregard the consequences of their actions and fail to process ethical criteria when making decisions. On the other hand, wrongdoers can be seen as normal, good people. Also from this perspective, normal individuals facing uncertainty, complexity and inadequate information may fail to process ethical criteria when making decisions resulting in wrongdoing. In this way, the ethical decision account serves as a bridge between normal and abnormal perspectives of organizational wrongdoing.
Bounded rationality is the cognitive limits of humans to acquire, store, process and retrieve information. Since individuals face limits to their knowledge, their behavior cannot be a rational calculation of costs and benefits; it must be constrained by what they know (March and Simon 1958). As such, individual decisions are limited by the factors contributing to what they know.
Bounded ethicality is the cognitive limits of ethical decision makers. Due to bounded rationality, individuals have poor conceptions of the contributing factors and consequences of ethical decisions. For example, individuals tend to underestimate the range of those affected by their ethical decisions and disregard the consequences of their actions (Chugh, Banaji and Bazerman 2005). Individuals in organizations face problems when making ethical decisions because their decisions are limited by their inaccurate decision frames.
Another problem organizational decision makers face when making ethical decisions is that they have to make multiple, linked decisions. As such, ethical decisions develop over time and are affected by temporal processes. For example, Jordan, Mullen and Murnighan (2011) find individuals attempt to maintain their ethical identities by creating a balance of ethical versus unethical decisions: a person who identifies herself as ethical makes an unethical decision may attempt to make up for it by making more ethical decisions in the future and person who identifies herself as unethical that makes a ethical decision may attempt to make up for it by making more unethical decisions in the future. Furthermore, the temporal aspects of decision making create problems of layering. A decision made at one point of time lays the foundation for future decisions. These complexities limit individual decisions and can lead to organizational wrongdoing.
Ethical decision making is further limited by cognitive dissonance. Cognitive dissonance is the way individuals tend to rationalize their behavior (Aronson 1973). Individuals may interpret their behavior as the result of rational or normative decisions, however, their behavior suggests it must be something else. For example, an individual who commits malfeasance may rationalize their behavior as the result of cost/benefit analysis or cultural norms, when their decision is really characterized by uncertainty, complexity and inadequate information. By rationalizing the behavior, the issues of uncertainty, complexity and inadequate information systems are not addressed, thus reifying the process contributing to unethical decisions.
From the ethical decision account, wrongdoing can be conceptualized as either a normal or abnormal phenomenon. Wrongdoers can be seen as perverse. From this perspective, perverse individuals may disregard the consequences of their actions and fail to process ethical criteria when making decisions. On the other hand, wrongdoers can be seen as normal, good people. Also from this perspective, normal individuals facing uncertainty, complexity and inadequate information may fail to process ethical criteria when making decisions resulting in wrongdoing. In this way, the ethical decision account serves as a bridge between normal and abnormal perspectives of organizational wrongdoing.
Organizational Wrongdoing as a Normal Phenomenon
Wrongdoing as a normal phenomenon assumes wrongdoing is unremarkable and wrongdoers are ordinary (Palmer 2012). The causes of wrongdoing include pervasive social structures and processes (Palmer 2012). In short, from this perspective, organizational wrongdoing is seen as a typical behavior. The five major accounts stemming from this perspective include: the administrative system account, the social situational influence account, the power structure account, the accidental behavior account and the social control account (Palmer 2012).
Administrative System Account of Wrongdoing as a Normal Phenomemon
Administrative systems theory draws from the ethical decision account of wrongdoing. Specifically, it draws from March and Simon's (1958) concept of bounded rationality. From the administrative systems theory account, organizations are made up of individuals with different tasks, who when properly coordinated, work to achieve a set goal. However, since individuals face bounded rationality and complex environments, organizations require adequate coordination to be effective. Administration systems help individuals in organizations manage problems of bounded rationality and complex environments.
Administrative structures include obtrusive and unobtrusive controls (Perrow 1972). Unobtrusive controls are implicit guidelines on how to complete a task. An example of an unobtrusive control is norms learned at professional meetings. Obtrusive controls are more explicit guidelines on how to complete a task. An example of an obtrusive control is set standard operating procedures to assist in decision making. Obtrusive and unobtrusive controls are used to coordinate behavior and influence the actions of individuals within the organization.
From the administrative theory perspective organizational wrongdoing is the result of obtrusive and unobtrusive controls which program unethical behavior. For example, a well operator may choose to dispose of fracking fluid in a way that endangers water sources due to standard operating procedures and professional norms. In this way, organizational wrongdoing is conceptualized as a normal event, programmed by design.
Administrative structures include obtrusive and unobtrusive controls (Perrow 1972). Unobtrusive controls are implicit guidelines on how to complete a task. An example of an unobtrusive control is norms learned at professional meetings. Obtrusive controls are more explicit guidelines on how to complete a task. An example of an obtrusive control is set standard operating procedures to assist in decision making. Obtrusive and unobtrusive controls are used to coordinate behavior and influence the actions of individuals within the organization.
From the administrative theory perspective organizational wrongdoing is the result of obtrusive and unobtrusive controls which program unethical behavior. For example, a well operator may choose to dispose of fracking fluid in a way that endangers water sources due to standard operating procedures and professional norms. In this way, organizational wrongdoing is conceptualized as a normal event, programmed by design.
Social Situational Influence Account of Wrongdoing as a Normal Phenomemon
The situational social influence account of wrongdoing draws from human relations theory, which focuses on the informal aspects influencing productivity. From this perspective, social context (group dynamics, informal norms and goals) primarily influences individual behavior (Barnard 1938). Informal norms shape attitudes of how individuals in particular roles should act, how people in general should treat one another and how members of informal groups should be related (Palmer 2012). As such, situational social influence is critical to understand the behavior of individuals within organizations.
Individual acts of wrongdoing can be the thoughtless acts resulting from situational social influence. For example, group norms of efficiency and confidence in the effectiveness of the production process may push individuals to thoughtlessly create a safety compliance report, later resulting in a defective product and recalls. Group norms can promote thoughtless behavior and result in organizational wrongdoing.
Individual acts of wrongdoing can be the thoughtless acts resulting from situational social influence. For example, group norms of efficiency and confidence in the effectiveness of the production process may push individuals to thoughtlessly create a safety compliance report, later resulting in a defective product and recalls. Group norms can promote thoughtless behavior and result in organizational wrongdoing.
Power Structure Account of Wrongdoing as a Normal Phenomemon
From the power structure account, organizations are power structures made up of formal and informal authority relations. Formal authority is the set power relations and hierarchies within organizations. From this perspective, organizational wrongdoing is the result of organizational power structures including formal authority and resource dependence.
The formal authority associated with organizations can contribute to organizational wrongdoing. The Milgram experiment (1963) is a famous study demonstrating how formal authority can result in wrongdoing. The experiment had participants use a button to "shock" a learner who answered a question incorrectly, with the severity of the shock increasing over time (however, there really was no person they were shocking). Milgram found at the order of lab managers, participants would be willing to inflict deathly shocks upon others. In short, formal authority results in subordinates obeying the commands of those in positions of authority, even when the subordinate believes the behavior is wrong.
Furthermore, informal power resulting from resource dependence can result in organizational wrongdoing. Organizations need resources to survive (Pfeffer and Salancik 1978). Members in organizations who control the resources needed to survive and cope with the uncertainty associated with the external environment have informal power. As such, individuals are motivated to accumulate power and are influenced by informal goals associated with being perceived to be in control of managing critical contingencies facing the organization. For example, in order to acquire informal power, individuals in organizations can withhold or manipulate information to shape others perceptions of critical environmental contingencies facing the organization. Informal power resulting from resource dependence is problematic because the strategies used to accumulate informal power resulting from resource dependence typically are associated with norm violations and organizational wrongdoing.
The formal authority associated with organizations can contribute to organizational wrongdoing. The Milgram experiment (1963) is a famous study demonstrating how formal authority can result in wrongdoing. The experiment had participants use a button to "shock" a learner who answered a question incorrectly, with the severity of the shock increasing over time (however, there really was no person they were shocking). Milgram found at the order of lab managers, participants would be willing to inflict deathly shocks upon others. In short, formal authority results in subordinates obeying the commands of those in positions of authority, even when the subordinate believes the behavior is wrong.
Furthermore, informal power resulting from resource dependence can result in organizational wrongdoing. Organizations need resources to survive (Pfeffer and Salancik 1978). Members in organizations who control the resources needed to survive and cope with the uncertainty associated with the external environment have informal power. As such, individuals are motivated to accumulate power and are influenced by informal goals associated with being perceived to be in control of managing critical contingencies facing the organization. For example, in order to acquire informal power, individuals in organizations can withhold or manipulate information to shape others perceptions of critical environmental contingencies facing the organization. Informal power resulting from resource dependence is problematic because the strategies used to accumulate informal power resulting from resource dependence typically are associated with norm violations and organizational wrongdoing.
Accidental Behavior Account of Wrongdoing as a Normal Phenomemon
The accidental behavior account of wrongdoing draws from the administrative systems account. Like the administrative systems account, the accidental behavior account of wrongdoing claims wrongdoing can be the result of accidents occurring due to inadequate organizational design. For example, Vaughan's (1996) study of the Challenger disaster finds inadequate system designs can result in catastrophic accidents. Technologies and structures of production create information deficiencies resulting in accidents and wrongdoing.
From the accidental behavior perspective of wrongdoing, wrongdoing is the result of information processing deficits. Information processing deficits can result in organizational accidents and wrongdoing when individuals do not have or cannot process the information necessary to understand the wrongful character of their actions. Individuals in organizations may attempt to pursue rightful objectives, but accidentally achieve wrongful outcomes.
Wrongdoing and accidents are different, but related concepts. Accidents are unintentional outcomes. On the other hand, wrongdoing is an outcome that violates law, ethics or social responsibility doctrines. Accidents are related to wrongdoing in three ways. According to Palmer (2012:238-240): "First, wrongdoing can facilitate accidents... Second, accidents can facilitate wrongdoing...Third, accidents can lead to the detection of unrelated wrongdoing...Fourth, accidents can lead to broader definitions of wrongdoing, which create the possibility of new forms of wrongdoing in the future." Although wrongdoing and accidents are distinct concepts, they are related.
From this perspective, accidents can not always be remedied by improving defunct administrative systems. Instead, normal accidents are likely to occur in organizational structures that are tightly coupled and complex (Perrow 2007). Tightly coupled systems are organizational structures made up of highly interdependent parts. An example of a tightly coupled system is a rocket engine where the functioning of its parts are interrelated and dependent upon the adequate operation of other parts. An example of a loosely coupled system is the education system which is made up of separate, highly autonomous districts. Complex systems are structures with numerous related parts. An example of a complex system is NASA, which is made up of numerous relationships between of numerous groups and contract groups. An example of a simple system is a self-employed plumber: there is the plumber, the supply store and her clients, so the production process requires few groups to be involved. Organizational structures that are tightly coupled and complex cannot be remedied; under these conditions, normal accidents are inevitable.
From the accidental behavior perspective of wrongdoing, wrongdoing is the result of information processing deficits. Information processing deficits can result in organizational accidents and wrongdoing when individuals do not have or cannot process the information necessary to understand the wrongful character of their actions. Individuals in organizations may attempt to pursue rightful objectives, but accidentally achieve wrongful outcomes.
Wrongdoing and accidents are different, but related concepts. Accidents are unintentional outcomes. On the other hand, wrongdoing is an outcome that violates law, ethics or social responsibility doctrines. Accidents are related to wrongdoing in three ways. According to Palmer (2012:238-240): "First, wrongdoing can facilitate accidents... Second, accidents can facilitate wrongdoing...Third, accidents can lead to the detection of unrelated wrongdoing...Fourth, accidents can lead to broader definitions of wrongdoing, which create the possibility of new forms of wrongdoing in the future." Although wrongdoing and accidents are distinct concepts, they are related.
From this perspective, accidents can not always be remedied by improving defunct administrative systems. Instead, normal accidents are likely to occur in organizational structures that are tightly coupled and complex (Perrow 2007). Tightly coupled systems are organizational structures made up of highly interdependent parts. An example of a tightly coupled system is a rocket engine where the functioning of its parts are interrelated and dependent upon the adequate operation of other parts. An example of a loosely coupled system is the education system which is made up of separate, highly autonomous districts. Complex systems are structures with numerous related parts. An example of a complex system is NASA, which is made up of numerous relationships between of numerous groups and contract groups. An example of a simple system is a self-employed plumber: there is the plumber, the supply store and her clients, so the production process requires few groups to be involved. Organizational structures that are tightly coupled and complex cannot be remedied; under these conditions, normal accidents are inevitable.
Social Control Account of Wrongdoing as a Normal Phenomemon
Like the cultural account, the social control account of wrongdoing examines the influence of organizational culture on wrongdoing. However, from this perspective, wrongdoers are not perverse, instead, wrongdoing is the result of the relationship between social control agents and organizational participants. Social control agents have incentives to punish individuals who act wrongfully, while at the same time, they attempt to avoid punishment. This creates conflict and influences wrongdoing.
The interaction between social control agents and individuals in organizations results in first order and second order wrongdoing. First order wrongdoing is how social control agents have the power to directly develop formal rules for organizational participants which can make it more possible for individuals to act wrongfully. An example of first order wrongdoing is the ability of politicians to write laws that deregulate the banking industry, decreasing oversight of banking transactions and making it easier for traders to commit fraud. Second order wrongdoing is wrongful behavior that would not have been possible without previous interactions between social control agents and organizational participants. An example of second order wrongdoing is Martha Stewart who violated laws of impeding an investigation in the processes of defending herself from allegations of insider trading. the ability of social control agents generate group pressures. She wouldn't have violated laws of impeding an investigation, had it not been her interactions with federal investigators. In short, wrongful behavior depends on the relationship between social control agents and organizational participants.
The interaction between social control agents and individuals in organizations results in first order and second order wrongdoing. First order wrongdoing is how social control agents have the power to directly develop formal rules for organizational participants which can make it more possible for individuals to act wrongfully. An example of first order wrongdoing is the ability of politicians to write laws that deregulate the banking industry, decreasing oversight of banking transactions and making it easier for traders to commit fraud. Second order wrongdoing is wrongful behavior that would not have been possible without previous interactions between social control agents and organizational participants. An example of second order wrongdoing is Martha Stewart who violated laws of impeding an investigation in the processes of defending herself from allegations of insider trading. the ability of social control agents generate group pressures. She wouldn't have violated laws of impeding an investigation, had it not been her interactions with federal investigators. In short, wrongful behavior depends on the relationship between social control agents and organizational participants.
Conclusion
There are numerous perspectives of organizational wrongdoing: the rational choice account, the culture account, the ethical decision account, the administrative system account, the social situational influence account, the power structure account, the accidental behavior account and the social control account (Palmer 2012). There is ample evidence that organizational structures and processes are the key causal factors influencing organizational wrongdoing. As such, the study of the organizational structures and processes contributing to organizational wrongdoing is important because once the characteristics of these structures are identified, we can rearrange society in such a way to reduce the problem.
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Fama E.F. and M.C. Jensen. 1983. "The Separation of Ownership and Control. " Journal of Law and Economics 26:301-325.
Jordan, J.M., E. Mullen and J.K. Murnighan. 2011. "Striving for the Moral Self: The Effects of Recalling Past Moral Actions on Future Moral Behavior." Personality and Social Psychology Bulletin 37: 701-713.
March, J.G. and H. Simon. 1958. Organizations. John Wiley and Sons, New York, NY.
Milgram, S. 1963. "Behavioral Study of Obedience." Journal of Abnormal and Social Psychology. 67: 371-378.
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Perrow, C. B. 1972. Complex Organizations: A Critical Essay. New York, NY: McGraw-Hill.
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Vaughan, D. 1996. The Challenger Launch Decision: Risky Technology, Culture and Deviance at NASA. Chicago, IL: University of Chicago Press.
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