Corporate Crime Decision-Making Research Paper

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Corporate crime is often viewed as a specific form of white-collar crime and consists of violations of either criminal, civil, or administrative law committed by an organizational actor (e.g., the corporation) or by a representative of the organization (e.g., an employee acting on behalf of the company) to further the interests and goals of the organization. In other words, the organization and not the individual benefits from the illegal act(s). The rational choice theoretical framework has frequently been used to explain and test the corporate crime decision-making process. Generally, this framework assumes that crime and deviance is a choice or an outcome reached as the result of a costs and benefits calculation and that the decision-making process is influenced by the situation. In other words, decision-makers (e.g., managers, CEOs) choose to break the law when the perceived benefits attached to the act outweigh the perceived costs attached to the act. In the corporate crime context, the individual actor has multiple loyalties, such as to the company, to his or her family, and to religious and moral beliefs, and as such the decision to commit corporate crime will be affected by both individual- and firm-level characteristics and influences. Research examining corporate crime decision-making as a rational choice calculation tends to indicate that individual moral evaluations inhibit criminal behavior, whereas a criminogenic corporate culture and benefits of the act to both the firm and the individual actor promote or encourage violations. More research exploring direct and indirect effects of informal and formal sanctions on individual corporate offending is needed to help further the understanding of the process of decision-making in an organizational context.

Fundamentals

The study of corporate crime can be traced back to the influential work of Edwin Sutherland. He introduced the term “white-collar crime” during his presidential address in 1939 to the American Sociological Society to draw attention to the crimes not commonly regarded as criminal at the time; those would be the crimes committed by individuals in the “upper classes.” Sutherland (1983, p. 7) would go on to define the concept as “a crime committed by a person of respectability and high social status in the course of his occupation.” Even though Sutherland’s offender-based definition of white-collar crime focused on the characteristics of the individual actor, his seminal publication (1983), White Collar Crime, tabulated data from court and administrative commission decisions against the 70 largest manufacturing, mining, and mercantile corporations in the United States to illustrate his point that those from the upper classes also engage in criminal behavior. His examination included offenses that today would be categorized as corporate crimes including antitrust violations, false advertising, infringement of patent, trademarks, and copyrights, as well as unfair labor practices (as defined by the National Labor Relations Board). Ultimately, he found that over the life careers of each of the 70 corporations, each company had at least one adverse decision against it with a mean of 7.8 decisions per corporation (Sutherland 1945). Sutherland used this data to further his argument that sociologists and criminologists needed to turn their attention to the crimes committed by people in high-level corporate positions. Since then, scholars studying white-collar and corporate crime have honored Sutherland’s vision and advanced the understanding of white-collar and corporate crime. Within this line of investigation, one area that has received specific attention has been corporate crime decision-making.

Scholars who study white-collar and corporate crime often contend that these offenders are distinctly different, at least qualitatively, from ordinary street offenders. Two data collection efforts from the 1980s examined federally convicted white-collar offenders that allowed for the first time an analysis of white-collar offender characteristics (Forst and Rhodes n.d.; Weisburd et al. 1991). These studies revealed that white-collar offenders were generally from middle-class backgrounds, had higher education levels than street offenders, and were repeat offenders. White-collar offenders are also typically believed to be rational calculators, and as such they are believed to be more amendable to both risks and rewards, that is, they are believed to be somewhat rational in nature. In contrast, street offenders typically tend to come from disadvantaged backgrounds, they are undereducated, they seek to gain immediate gratification, and they tend to be more impulsive rather than rational in nature. Two empirical studies comparing street offenders to white-collar offenders confirmed that both types of offenders come from different social and demographic backgrounds (Benson and Kerley 2000; Weisburd et al. 1991). Thus, the questions are how do individual differences affect the decision-making process of offenders and do these processes vary across offenses occurring within an organization or on the street.

Contextual factors surrounding the decision-maker are believed to effect the individual’s evaluation of likely benefits and consequences for committing crime. Past research has shown that a much juvenile street crime occurs in groups where drugs and alcohol are typically present, and peers build on the immediate excitement and thrill associated with deviant behavior while downplaying the possible negative outcomes attached to their actions (Cromwell et al. 1991). In contrast, corporate crime occurs within an organizational setting where managers tend to focus on the long-term consequences of actions (Clinard and Meier 1979). According to Braithwaite and Geis (1982, p. 302), this is the case because corporations are future oriented, concerned about their reputations, and make decisions to violate the law based on the perceived future benefits for the organization. Therefore, where young street criminals tend to misjudge potential costs and benefits linked to crime, corporate criminals are believed to be more rational in their calculation of likely outcomes because they have an eye toward advancing both long-term individualand organizational-level interests.

Key Issues

The decision or choice to engage in crime (or not) is at the heart of the rational choice theory of crime. This theory is an extension of the deterrence doctrine which tends to focus only on formal sanction threats. Rational choice theory is based on the expected utility principle and includes not only formal sanction threats as costs of crime but also allows for the inclusion of informal sanction threats including shame and morality, and it takes benefits of crime into consideration during the calculation. Rational choice theory asserts that crime is more likely to occur when the anticipated benefits for the offender outweigh the anticipated costs for the offender. At its core, the theory assumes that an internal “choice” is made based on the decision-maker’s rational calculation of costs and benefits. However, rational choice theorists argue that individual rationality is “limited” and “less than perfect” due to several factors (Simon 1957). These factors include the following: (1) the decision-maker’s capacity to inaccurately perceive natural conditions, (2) the decision-maker’s capacity to imperfectly process information, and (3) the lack of necessary information provided to the decision-maker regarding the costs and benefits of the act. The net of these bounding factors is that the theory purports that individuals are self-motivated and are somewhat rational in their decision-making.

In accordance with this perspective, costs and benefits have both subjective and objective dimensions. For example, a subjective benefit of crime may be the thrill of getting away with it, whereas a subjective cost may be the recognized shame from family or friends. An objective benefit of crime may be monetary gain, whereas an objective cost may be a formal sanction. The evaluation of costs and benefits within subjective and objective dimensions becomes increasingly diverse when dealing with corporate crime decisions. For instance, in deciding whether or not to commit a corporate crime, one has to deliberate between expected costs and benefits for oneself as well as for the corporation in which they are employed. Examples of micro level costs of corporate crime may be formal punishment (civil, criminal, or regulatory) for the individual such as jail time or financial penalties; social criticism from friends, family, and colleagues; and/or a loss of self-respect. In terms of macro level costs, corporations may be subjected to regulatory, civil, and/or criminal prosecution; decrease in revenue; loss of ground to foreign competitors; and diminished firm prestige. Individual benefits of corporate crime may be career advancement or promotion, increase in personal income, and increase in self-image. Benefits to the corporation may include such things as an increase in firm increased profits and a gain of corporate prestige.

Braithwaite (1984, p. 6) defines corporate crime as the “conduct of a corporation, or of employees acting on behalf of a corporation, which is proscribed and punishable by law.” Therefore, according to this definition, corporate crime is committed to further corporate interests rather than individual interests. For example, managers that violate the law may do so as a rational pursuit for achieving organizational-level goals, maintaining the organization’s reputation, and/or stabilizing organization profits (Reed and Yeager 1996). It is presumed that organizational-level costs and benefits are also taken into consideration when the individual actor evaluates the costs and benefits of crime. In some cases, however, individual-level costs and benefits may align with those of the organization, thus forming a symbiotic relationship. Therefore, what is ultimately beneficial or costly to the corporation is beneficial or costly to the individual and vice versa. Corporate crime scholars suggest this to be the case for much of corporate offending.

The rational choice theory of crime also holds that the decision to commit crime is influenced by the context in which the decision is made. This facet of the theory is especially relevant to understanding corporate crime because the social and environmental context become salient factors when looking at criminal decision-making in an organizational setting. More specifically, within a corporate culture, competition, fear, and commitment to compliance may influence managerial decision-making and affect the likelihood of engaging in unethical behavior. For example, a corporate culture that emphasizes maintaining a competitive edge against foreign companies may set unreasonable goals for the firm. As a result, this pressure to attain hard to reach goals may generate a climate of fear among managers to create “innovative” solutions to achieve company objectives (Reed and Yeager 1996). Although these “innovative” solutions may or may not be legal, they may be regarded as acceptable depending on the organization’s commitment to compliance. On the other hand, if an organization has recently been sanctioned or the company does not tolerate misconduct from its employees, criminal behavior may be less common (Paternoster and Simpson 1996). Corporate crime intentions may also be more likely when supervisors express a “fear of falling.” That is, they are motivated by the fear of losing what they have worked so hard to attain (Wheeler 1992; Piquero 2012). This could occur when managers recognize the organization’s financial health is in jeopardy, or if they perceive the organization may be losing ground to foreign competitors or otherwise declining in the marketplace. Quite simply, fear of falling may be a motivation to engage in corporate acts when any adverse situation may affect the organization’s future well-being. Corporate managers choose to act on their own, may receive orders from top executives or supervisors, or may demand subordinates to engage in misconduct to maintain or advance firm-level interests.

In sum, corporate crime decision-making has often been viewed from a rational choice perspective. That is, managers make decisions about whether to engage in a crime based on an assessment of anticipated benefits and anticipated costs attached to a crime. Grounded in this framework are subjective and objective costs and benefits for both the individual and the organization in which they are employed in. Social and environmental factors within an organization become salient factors when looking at corporate crime decisions. The next section discusses empirical research that has linked the rational choice model of crime to corporate offending.

Future Directions

While some research on corporate crime decision-making exists, it pales in comparison to the vast body of literature that examines decision-making for common street offenders. Limited data and lack of funding for empirical research on corporate crime have made it challenging for scholars to understand of this specific decision-making process. Scholars who have examined it tend to rely on extant criminological theories and apply them, adapting them if necessary, to the corporate crime context. As previously noted, a great deal of this research has focused on the rational choice decision-making model of crime because of the characteristics associated with corporate crime. For example, Braithwaite and Geis (1982) have argued that corporate offenders are particularly sensitive to balancing costs and benefits of crime because they have a greater stake in conventionality and consequently have more to lose. While Kadish (1977) proposed that corporate crime is rational, instrumental, and directed at achieving economic gain, thus, corporate offenders are more likely to be deterred by costs linked to violating the law such as formal sanction certainty or severity.

Extant research that has applied a rational choice model to corporate crime has suggested that the specific environmental circumstances in a corporate setting affect decision-maker’s evaluation of costs and benefits. A prime example of this is Paternoster and Simpson’s (1993) subjective utility theory of corporate offending. As with other rational choice explanations, this model focuses on the individual actor as the decision-maker who is affected by both personal and organizational factors. These factors include perceived or subjective certainty and severity of formal and informal sanctions for the individual and the organization, organizational and environmental factors that are present during the decision-making process, internalized morals against the act, and perceived sense of fairness or legitimacy of the act. Research that has tested this model of corporate offending has found support for rational choice theory by suggesting that both individual and organizational factors affect criminal intentions (Paternoster and Simpson 1996; Simpson 2002; Simpson et al. 1998).

Individual moral evaluations have been shown to be an important source of inhibition not only for street offending but also for corporate crime (Elis and Simpson 1995; Simpson and Piquero 2002; Smith et al. 2007; Paternoster and Simpson 1996; Piquero 2012). Research evidence suggests that moral reservations condition how the critical decision-maker evaluates the costs and benefits of offending by prescribing some potential outcomes as morally unacceptable. For example, managers who perceive the illegal act in question conflicts with their moral code will not choose to offend because they believe the act is off limits. This means that, independent of the costs and benefits factored in, moral considerations condition the impact of instrumental concerns (Paternoster and Simpson 1996).

Additional research looking at unethical corporate decision-making has consistently found that fear of losing ground to foreign competitors increased the likelihood of corporate offending (Elis and Simpson 1995; Paternoster and Simpson 1996). A reason for this finding could be the inherent competiveness in the world of business. As corporations aim to be the top competitor in their industry, sometimes in order to achieve this goal laws must be broken, ignored, or altogether disregarded. This could be viewed as a macro level version of the fear of falling hypothesis. That is, from an organizational standpoint, the constant pressure to assure stakeholders of the corporation’s stable financial and marketplace position may cause supervisors to view corporate crime as a necessary means to maintain or advance the organization’s bottom line and public image.

Research evidence also indicates that managers are significantly more likely to offend when they are directly ordered to engage in misconduct by a supervisor (Elis and Simpson 1995; Smith et al. 2007). A possible explanation for this finding could be the manager’s “appeal to a higher loyalty.” As mentioned before, managerial decision-making is different from ordinary street crime decision-making because managers consider organizational interests when choosing whether or not to commit crime. As such, offending is more likely when managers are pressured to act in the best interest of the organization. This may very well be the case if the firm is not doing well financially and supervisors perceive that violating the law will gain substantial profits for the firm. Therefore, managers would be more likely to choose to commit corporate crime because their primary loyalty is to the company and the company’s goals.

Moral climate within an organization has also been examined as to its effects on corporate crime decision-making. In general, these studies tend to find that the organizational culture affects criminal motivations. For instance, corporate crime is more likely to occur when it is regarded as a common occurrence in an organization (Elis and Simpson 1995; Paternoster and Simpson 1996). Managers are more likely to choose to engage in misconduct when they are surrounded by a corporate culture that encourages misconduct or embodies supervisors who turn a blind eye to how objectives are achieved. Therefore, if the company’s ethos regards unethical behavior as an acceptable means to achieve goals, managers will tend to follow suit and approach goals with an “any means necessary” frame of mind. Vaughan (1996) has shown that over time, consistent illegal activity becomes commonplace within the corporate culture and consequently is viewed as acceptable. On the other hand, corporate offending is observed to be less likely when managers have access to a working compliance program or corporate misconduct is highly criticized by the organization in which they are employed in (Simpson and Piquero 2002).

While rational choice theory has commonly been applied to corporate crime decision-making, it is not the only model to have been tested. Other theoretical models that have begun to be examined include social learning, techniques of neutralization, low self-control, and desire for control. For example, Piquero et al. (2005b) examined both differential association theory and techniques of neutralization theory in order to understand corporate crime. According to social learning theory, individual behavior should be guided by peer reinforcement, while techniques of neutralization would suggest that neutralizations (or justifications) will be used during the decision-making process. Using a sample of Masters of Business students, respondents were presented with a vignette describing the sale and promotion of a hypothetical pharmaceutical drug that was about to be recalled off the market. They were asked to report the extent to which they would further or inhibit the distribution of the drug. They found, as expected, that the agreement of coworkers and the board of directors was positively associated with furthering the sale of the drug despite the indication that the drug was about to be recalled. Thus, work peers and bosses encouraged and supported the continuance of corporate profit. The results also showed that negative perceptions attached to corporate crime from close friends and business professors (peers outside the workplace environment) actually increase the likelihood of corporate offending. This is a finding not anticipated. Piquero and colleagues (2005b, p. 181) explain this finding as a result of “the extensive amounts of hours spent at the work and immersed in the corporate climate, as well as the fact that survival instincts are likely to kick in when the actions they take at work decides what type of life they will be providing for themselves and their families.”

In recent years, the individual characteristics have been examined as explanations of criminal behavior. Gottfredson and Hirschi’s (1990) theory of low self-control has received a great deal of attention. The core of the theory contends that individuals who evince low levels of self-control are more likely to engage in criminal and analogous behaviors. Research examining the influence of low self-control on offending propensities has found consistent support for this assumption among street offenders (Pratt and Cullen 2000). However, this line of research has not been as successful at explaining white-collar and corporate crime. Benson and Moore (1992) examined a sample of white-collar and street offenders and found differences across the two groups in terms of rates of offending with the street offenders offending at higher rates. Simpson and Piquero (2002) found that organizational characteristics were better predictors of corporate crime offending intentions than indicators of low self-control within a sample of business students.

Other scholars have adopted concepts from disciplines outside of criminology to help explain corporate criminality. Particularly, the notion of “desire for control,” a concept found in psychological literature, has been recently integrated into the rational choice framework to help explain corporate crime. The desire for control is the wish to be in control of everyday life events. According to this model, individuals who exhibit high levels of desire for control are expected to be assertive in nature, occupy positions of power, and prefer to manipulate events to ensure desired outcomes (Burger and Cooper 1979). On the other hand, individuals who exhibit low desire for control are expected to be nonassertive, occupy subordinate-level positions, and may prefer others to make their daily decisions for them. Arguably then, individuals with high levels of desire for control in a business environment would be likely to be found in high-level positions such as a manager or an executive.

Research examining desire for control has found that individuals who evince high levels of desire for control were more likely to report intentions to commit corporate crime (Piquero et al. 2005a, 2010). This finding suggests that organizational actors who desire more control than others may be more likely to resort to criminal options rather than solve certain issues through legal means. More importantly, consistent with the expectations of desire for control, research evidence shows that high levels of desire for control affect several individual rational choice considerations such as the threat of informal and formal sanctions and individual morality and shame (Piquero et al. 2005a). Although studies applying desire for control to corporate crime decision-making are limited, this line of research offers much promise for further understanding the role of individual differences in corporate offending.

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