Every organization faces uncertainty, as they do not control all of the factors related to their survival. Uncertainty is when knowledge of the nature, extent and probability of outcomes is limited. Since organizations depend on their external environment to survive, every organization faces some degree of uncertainty. Uncertainty makes it impossible for organizations to always accurately predict outcomes. Even when organizations develop technologies meant to reduce uncertainty, they are never 100% accurate and there can be adverse consequences (Holzer and Millo 2005). Uncertainty always creates risk for capitalist organizations competing for resources because outcomes are uncertain.
Risk is a situation in which their is unknown exposure to danger. According to Holzer and Millo (2005:223), uncertainty is a fundamental aspect of risk: "risk refers to fundamental uncertainty: at the time of risk taking, one cannot know for sure whether the opportunity concerned will be realized; in the worst case, the costs incurred might be greater than any benefit." In short, uncertainty is an inherent part of risk.
Uncertainty is not the only factor related to exposure to risk, so is resource access. One's conception of risk is related to conflict over resources and the balance of power (Dietz, Stern and Rycroft 1989). Due to actions of powerful actors, those with less resources tend to remain uncertain of their risk exposure and pay the consequences of the risky decisions made by those in positions of power (Auyero and Swistun 2008). Since power and conflict are other aspects associated with risk, risk can lead to wrongdoing.
As explained in a previous post, wrongdoing 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). Not all risk leads to wrongdoing, but all wrongdoing is related to risk, as it is not possible to always accurately predict the consequences of wrongful behavior. As such, it is important to understand exactly how organizations will attempt to manage risk and develop structures which promote wrongdoing.
In order to better manage risk, organizations will develop differential social structures which facilitate wrongdoing. Two key factors facilitating wrongdoing include organizational complexity (Beamish 2000) and resource dependence (Prechel and Morris 2010). For example, Beamish (2000) found intra-organizational complexity, hierarchies and subcultures led to Unocal Corporation spilling over 20 million gallons of petroleum into California's Guadalupe Dunes. On the other hand, Prechel and Morris (2010) found in an attempt to manage uncertainties and capital dependence, corporate actors initiated strategies and structures which created incentives and opportunities for corporate malfeasance. In short, to cope with uncertainty and resource dependence, organizations develop structures which provides opportunities and incentives for wrongful behavior.
Although uncertainty, risk, and wrongdoing are all theoretically distinct concepts, they are interrelated. Wrongdoing creates and can be the result of risk. Furthermore, risk creates uncertainty and uncertainty creates risk. It is important to understand the differences between the three concepts to fully understand organizational wrongdoing.
Beamish, Thomas. 2000. “Accumulating Trouble: Complex Organization, a Culture of Silence, and a Secret Spill.” Social Problems 47(4): 473-498.
Dietz, T, PC Stern and RW Rycroft. 1989. “Definitions of Conflict and the Legitimization of Resources: The Case of Environmental Risk.” Sociological Forum 4(1): 47-70.
Holzer, Boris and Yuval Millo. 2005. “From Risks to Second-Order Dangers in Financial Markets: Unintended Consequences of Risk Management Systems.” New Political Economy 10:223–245.
Palmer, Donald. 2012. Normal Organizational Wrongdoing: A Critical Analysis of Theories of Misconduct in and by Organizations. New York, NY: Oxford University Press.
Pfeffer, Jeffrey and Gerald R. Salancik. 1978. The External Control of Organizations: A Resource Dependence Perspective. New York: Harper and Row.
Prechel, Harland and Theresa Morris. 2010. “The Effects of Organizational and Political Embeddedness on Financial Malfeasance in the Largest U.S. Corporations: Dependence, Incentives and Opportunities.” American Sociological Review 75:331–354.