Skip to main content Accessibility help

We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.

Close cookie message
×
Hostname: page-component-cd9895bd7-gbm5v Total loading time: 0 Render date: 2024-12-22T22:14:41.788Z Has data issue: false hasContentIssue false

13 - Consequences of organizational misconduct: too much and too little punishment

Published online by Cambridge University Press:  05 July 2016

By
Henrich R. Greve  and
Daphne Teh
Edited by
Donald Palmer ,
Kristin Smith-Crowe  and
Royston Greenwood
Henrich R. Greve
Affiliation:
INSEAD, Singapore
Daphne Teh
Affiliation:
INSEAD, Singapore
Donald Palmer
Affiliation:
University of California, Davis
Kristin Smith-Crowe
Affiliation:
University of Utah
Royston Greenwood
Affiliation:
University of Alberta
Get access

Summary

Misconduct, malfeasance, and corruption are all terms that describe behaviors that are against common norms and in many cases also illegal. Misconduct can be defined as “behavior in or by an organization that a social control agent judges to transgress a line separating right from wrong” (Greve, Palmer, and Pozner 2010: 56). The definition includes a social control agent, an actor with a mandate to label actions as misconduct and punish them. Accordingly, societal reactions against organizations that engage in misconduct are expected from the state and possibly also from other actors such as exchange partners, professional organizations, individual consumers, or workers. This expectation is so strong that one might wonder whether analysis of misconduct punishment is too obvious to even pursue. Are any surprises possible? In fact, research so far has uncovered a few surprises that suggest a strong need to examine the phenomenon further. First, the extent of punishment varies widely and includes cases of non-punishment. Second, the actors who do the punishment vary and include actors who should be indifferent as they are not harmed by the wrongdoing. Third, the range of organizations that get punished is broad and, as a result of stigmatization, includes organizations that did not engage in the original misconduct. Because punishment can be unrelated to misconduct, we often use the term “punished organization” rather than wrongdoer.

These surprises will remain just that – surprises – until we reach a richer understanding of the consequences of misconduct based on theory and evidence. We are some distance away from this goal, and so the aim of this chapter is not to provide answers, but instead to give a map of the task ahead and a description of the early evidence. For convenience, we divide the treatment into discussions of (1) why social control agents punish, (2) how social control agents punish, (3) who are punished by social control agents, and (4) how organizations react to punishments. These issues are interrelated but still best discussed separately. We focus on punishment by actors other than the state to avoid overlap with the criminal justice literature.

To understand the consequences of misconduct, four factors with obvious effects are the nature of the misconduct, the organization responsible for it, the actors observing and reacting to it, and the conditions of the environment of these actors.

Type
Chapter
Information
Organizational Wrongdoing
Key Perspectives and New Directions
 , pp. 370 - 403
Publisher: Cambridge University Press
Print publication year: 2016

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Adut, A. 2005. “A theory of scandal: Victorians, homosexuality, and the fall of Oscar Wilde,” American Journal of Sociology 111(1): 213–248.Google Scholar
Alexander, C. R. 2008. “On the nature of the reputational penalty for corporate crime: Evidence,” Journal of Law & Economics 42(1): 489–526.Google Scholar
Ashforth, B. E. and Anand, V. 2003. “The normalization of corruption in organizations,” Research in Organizational Behavior 25: 1–52.Google Scholar
Barnett, M. L. and King, A. A. 2008. “Good fences make good neighbors: A longitudinal analysis of an industry self-regulatory institution,” Academy of Management Journal 51(6): 1150–1170.Google Scholar
Bartley, T. 2003. “Certifying forests and factories: States, social movements, and the rise of private regulation in the apparel and forest products fields,” Politics & Society 31(3): 433–464.Google Scholar
Bartley, T. and Child, C. 2011. “Movements, markets and fields: The effects of anti-sweatshop campaigns on US firms, 1993–2000,” Social Forces 90(2): 425–451.Google Scholar
Campbell, J. L. 2007. “Why would corporations behave in socially responsible ways? An institutional theory of corporate social responsibility,” Academy of management Review 32(3): 946–967.Google Scholar
Carberry, E. J. and King, B. G. 2012. “Defensive practice adoption in the face of organizational stigma: Impression management and the diffusion of stock option expensing,” Journal of Management Studies 49(7): 1137–1167.Google Scholar
Coleman, J. S. 1988. “Social capital in the creation of human capital,” American Journal of Sociology 94: S95–S120.Google Scholar
Creed, W. D., Hudson, B. A., Okhuysen, G. A., and Smith-Crowe, K. 2014. “Swimming in a sea of shame: incorporating emotion into explanations of institutional reproduction and change,” Academy of Management Review 39(3): 275–301.Google Scholar
Davis, G. F., Morrill, C., Rao, H., and Soule, S. A. 2008. “Introduction: Social movements in organizations and markets,” Administrative Science Quarterly 53(3): 389–394.Google Scholar
Davis, G. F. and Thompson, T. A. 1994. “A social movement perspective on corporate control,” Administrative Science Quarterly 39(1): 141–173.Google Scholar
Deephouse, D. L. and Suchman, M. 2008. “Legitimacy in organizational institutionalism,” in Greenwood, R., Oliver, C., Suddaby, R., and Sahlin-Andersson, K. (eds.), The Sage Handbook of Organizational Institutionalism: 49–77. Thousand Oaks, CA: Sage.
Diestre, L. and Rajagopalan, N. 2014. “Toward an input-based perspective on categorization: Investor reactions to chemical accidents,” Academy of Management Journal 57(4): 1130–1153.Google Scholar
DiMaggio, P. J. and Powell, W. W. 1983. “The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields,” American Sociological Review 48: 147–160.Google Scholar
Earle, J. S., Spicer, A., and Peter, K. S. 2010. “The normalization of deviant organizational practices: Wage arrears in Russia, 1991–98,” Academy of Management Journal 53(2): 218–237.Google Scholar
Elsbach, K. D. 1994. “Managing organizational legitimacy in the California cattle industry: The construction and effectiveness of verbal accounts,” Administrative Science Quarterly 39(March): 57–88.Google Scholar
Elsbach, K. D. and Kramer, R. M. 1996. “Members’ responses to organizational identity threats: Countering the Business Week rankings.” Administrative Science Quarterly 41(September): 442–476.Google Scholar
Elsbach, K. D. and Sutton, R. I. 1992. “Acquiring organizational legitimacy through illegitimate actions: A marriage of institutional and impression management theories,” Academy of Management Journal 35(4): 699–738.Google Scholar
Elsbach, K. D., Sutton, R. I., and Principe, K. E. 1998. “Averting expected challenges through anticipatory impression management: A study of hospital billing,” Organization Science 9(1): 68–86.Google Scholar
Fiss, P. C. and Zajac, E. J. 2006. “The symbolic management of strategic change: Sensegiving via framing and decoupling,” Academy of Management Journal 49(6): 1173–1193.Google Scholar
Godfrey, P. C., Merrill, C. B., and Hansen, J. M. 2009. “The relationship between corporate social responsibility and shareholder value: An empirical test of the risk management hypothesis,” Strategic Management Journal 30(4): 425–445.Google Scholar
Gomulya, D. and Boeker, W. 2014. “How firms respond to financial restatement: CEO successors and external relations,” Academy of Management Journal 57(6): 1759–1785.Google Scholar
Graffin, S. D., Bundy, J., Porac, J. F., Wade, J. B., and Quinn, D. P. 2013. “Falls from grace and the hazards of high status: The 2009 British MP expense scandal and its impact on Parliamentary elites,” Administrative Science Quarterly 58(3): 313–345.Google Scholar
Graffin, S. D., Carpenter, M. A., and Boivie, S. 2011. “What's all that (strategic) noise? anticipatory impression management in CEO succession,” Strategic Management Journal 32(7): 748–770.Google Scholar
Greve, H. R., Kim, J.-Y., and Teh, D. 2016. “Ripples of fear: The diffusion of a bank panic,” American Sociological Review 81(2): 396–420.Google Scholar
Greve, H. R., Palmer, D., and Pozner, J. E. 2010. “Organizations gone wild: The causes, processes, and consequences of organizational misconduct,” Academy of Management Annals 4: 53–107.Google Scholar
Hennes, K. M., Leone, A. J., and Miller, B. P. 2014. “Determinants and market consequences of auditor dismissals after accounting restatements,” Accounting Review 89(3): 1051–1082.Google Scholar
Hiatt, S. and Park, S. 2012. “Lords of the harvest: Third-party influence and regulatory approval of genetically modified organisms,” Academy of Management Journal 56(4): 923–944.Google Scholar
Hirsch, P. and Pozner, J. E. 2005. “To avoid surprises, acknowledge the dark side: Illustrations from securities analysts,” Strategic Organization 3(2): 229–238.Google Scholar
Holmstrom, B. 1979. “Moral hazard and unobservability,” Bell Journal of Economics 10: 74–91.Google Scholar
Jensen, M. 2006. “Should we stay or should we go? Accountability, status anxiety, and client defections,” Administrative Science Quarterly 51(1): 97–128.Google Scholar
Jonsson, S., Greve, H. R., and Fujiwara-Greve, T. 2009. “Undeserved loss: The spread of legitimacy loss to innocent organizations in response to reported deviance,” Administrative Science Quarterly 54(June): 195–228.Google Scholar
Kang, E. 2008. “Director interlocks and spillover effects of reputational penalties from financial reporting fraud,” Academy of Management Journal 51(3): 537–555.Google Scholar
Karpoff, J. M., Lee, D. S., and Vendrzyk, V. P. 1999. “Defense procurement fraud, penalties, and contractor influence,” Journal of Political Economy 107(4): 809–842.Google Scholar
King, B. G. and Pearce, N. A. 2010. “The contentiousness of markets: Politics, social movements, and institutional change in markets,” Annual Review of Sociology 36: 249–267.Google Scholar
King, B. G. and Soule, S. A. 2007. “Social movements as extra-institutional entrepreneurs: The effect of protests on stock price returns,” Administrative Science Quarterly 52(3): 413–442.Google Scholar
Koh, P.-S., Qian, C., and Wang, H. 2013. “Firm litigation risk and the insurance value of corporate social performance,” Strategic Management Journal 35(10): 1464–1482.Google Scholar
Krastev, I. 2000. “The strange (re)discovery of corruption,” in Dahrendorf, R. (ed.), The Paradoxes of Unintended Consequenes: 23–41. Budapest: Central European University Press.
Lambert, R. A. 2001. “Contracting theory and accounting,” Journal of Accounting and Economics 32(1–3): 3–87.Google Scholar
March, J. G. 1978. “Bounded rationality, ambiguity, and the engineering of choice,” Bell Journal of Economics 9: 587–608.Google Scholar
March, J. G. 1994. A Primer On Decision Making: How Decisions Happen. New York: Free Press.
Marcus, A. A. and Goodman, R. S. 1991. “Victims and shareholders: The dilemmas of presenting corporate policy during a crisis,” Academy of Management Journal 34(2): 281–305.Google Scholar
Martin, J. A. and Combs, J. G. 2011. “Does it take a village to raise a whistleblower?” Academy of Management Perspectives 25(2): 83–85.Google Scholar
McAdam, D., McCarthy, J. D., and Zald, M. N. 1996. Comparative Perspectives on Social Movements: Political Opportunities, Mobilizing Structures, and Cultural Framings. Cambridge University Press.
McDonnell, M.-H. and King, B. 2013. “Keeping up appearances: Reputational threat and impression management after social movement boycotts,” Administrative Science Quarterly 58(3): 387–419.Google Scholar
Meyer, J. W. and Rowan, B. 1977. “Institutionalized organizations: Formal structure as myth and ceremony,” American Journal of Sociology 83: 340–363.Google Scholar
Mezias, J. M. 2002. “How to identify liabilities of foreignness and assess their effects on multinational corporations,” Journal of International Management 8(3): 265–282.Google Scholar
Miller, S. R. and Parkhe, A. 2002. “Is there a liability of foreignness in global banking? An empirical test of banks’ X-efficiency,” Strategic Management Journal 23(1): 55–75.Google Scholar
Misangyi, V. F., Weaver, G. R., and Elms, H. 2008. “Ending corruption: The interplay among institutional logics, resources, and institutional entrepreneurs,” Academy of Management Review 33(3): 750–770.Google Scholar
Nagin, D. S. 1998. “Criminal deterrence research at the outset of the twenty-first century,” Crime and Justice 23: 1–42.Google Scholar
Oliver, C. 1991. “Strategic responses to institutional processes,” Academy of Management Review 16(1): 145–179.Google Scholar
Palmer, D. 2008. “Extending the process model of collective corruption,” Research in Organizational Behavior 28: 107–135.Google Scholar
Paruchuri, S. and Misangyi, V. F. 2015. “Investor perceptions of financial misconduct: The heterogeneous contamination of bystander firms,” Academy of Management Journal 58(1): 169–194.Google Scholar
Peak, M. H. 1990. “The Alaskan oil spill: Lessons in crisis management,” Management Review 79(4): 12–21.Google Scholar
Pfeffer, J. and Salancik, G. R. 1978. The External Control of Organizations. New York: Harper and Row.
Pierce, L. and Toffel, M. W. 2013. “The role of organizational scope and governance in strengthening private monitoring,” Organization Science 24(5): 1558–1584.Google Scholar
Podolny, J. M. 1993. “A status-based model of market competition,” American Journal of Sociology 98(4): 829–872.Google Scholar
Potoski, M. and Prakash, A. 2005. “Green clubs and voluntary governance: ISO 14001 and firms’ regulatory compliance,” American Journal of Political Science 49(2): 235–248.Google Scholar
Pozner, J. E. 2008. “Stigma and settling up: An integrated approach to the consequences of organizational misconduct for organizational elites,” Journal of Business Ethics 80(1): 141–150.Google Scholar
Ramirez, F. O., Soysal, Y., and Shanahan, S. 1997. “The changing logic of political citizenship: Cross-national acquisition of women's suffrage rights, 1890 to 1990,” American Sociological Review 62(5): 735–745.Google Scholar
Rao, H. 1998. “Caveat emptor: The construction of nonprofit consumer watchdog organizations 1,” American Journal of Sociology 103(4): 912–961.Google Scholar
Rehg, M. T., Miceli, M. P., Near, J. P., and Van Scotter, J. R. 2008. “Antecedents and outcomes of retaliation against whistleblowers: Gender differences and power relationships,” Organization Science 19(2): 221–240.Google Scholar
Rhee, E. Y. and Fiss, P. C. 2014. “Framing controversial actions: Regulatory focus, source credibility, and stock market reaction to poison pill adoption,” Academy of Management Journal 57(6): 1734–1758.Google Scholar
Rhee, M. and Haunschild, P. R. 2006. “The liability of a good reputation: A study of product recalls in the U.S. automobile industry,” Organization Science 17(1): 101–117.Google Scholar
Rindova, V. P., Pollock, T. G., and Hayward, M. L. A. 2006. “Celebrity firms: The social construction of market popularity,” Academy of Management Review 31(1): 50–71.Google Scholar
Sappington, D. E. M. 1991. “Incentives in principal–agent relationships,” The Journal of Economic Perspectives 5(2): 45–66.Google Scholar
Schlenker, B. R. 1980. Impression Management: The Self-Concept, Social Identity, and Interpersonal Relations. Monterey, CA: Brooks/Cole Publishing Company.
Schurman, R. 2004. “Fighting ‘Frankenfoods’: Industry opportunity structures and the efficacy of the anti-biotech movement in Western Europe,” Social Problems 51(2): 243–268.Google Scholar
Scott, W. R. 2001. Institutions and Organizations. Thousand Oaks, CA: Sage.
Sharkey, A. J. 2014. “Categories and organizational status: The role of industry status in the response to organizational deviance,” American Journal of Sociology 119(5): 1380–1433.Google Scholar
Short, J. L. and Toffel, M. W. 2010. “Making self-regulation more than merely symbolic: The critical role of the legal environment,” Administrative Science Quarterly 55(3): 361–396.Google Scholar
Suddaby, R. and Greenwood, R. 2005. “Rhetorical strategies of legitimacy,” Administrative Science Quarterly 50(1): 35–67.Google Scholar
Sullivan, B. N., Haunschild, P., and Page, K. 2007. “Organizations non gratae? The impact of unethical corporate acts on interorganizational networks,” Organization Science 18(1): 55–70.Google Scholar
Tajfel, H. and Turner, J. C. 1979. “An integrative theory of intergroup conflict,” in Austin, W. G. and Worchel, S. (eds.), The Social Psychology of Intergroup Relations. Monterey, CA: Brooks-Cole.
Tajfel, H. and Turner, J. C. 1986. “The social identity theory of intergroup behavior,” in Austin, W. G. and Worchel, S. (eds.), The Social Psychology of Intergroup Relations (edn). Chicago: Nelson-Hall.
Trevino, L. K. and Weaver, G. R. 2003. Managing Ethics in Business Organizations: Social Scientific Perspective. Stanford: Stanford University Press.
Vergne, J.-P. 2012. “Stigmatized categories and public disapproval of organizations: A mixed-methods study of the global arms industry, 1996–2007,” Academy of Management Journal 55(5): 1027–1052.Google Scholar
Weber, K., Rao, H., and Thomas, L. G. 2009. “From streets to suites: How the anti-biotech movement affected German pharmaceutical firms,” American Sociological Review 74(1): 106–127.Google Scholar
Westphal, J. D. and Bednar, M. K. 2008. “The pacification of institutional investors,” Administrative Science Quarterly 53(1): 29–72.Google Scholar
Westphal, J. D. and Khanna, P. 2003. “Keeping directors in line: Social distancing as a control mechanism in the corporate elite,” Administrative Science Quarterly 48(3): 361–398.Google Scholar
Westphal, J. D., Park, S. H., McDonald, M. L., and Hayward, M. L. A. 2012. “Helping other CEOs avoid bad press,” Administrative Science Quarterly 57(2): 217–268.Google Scholar
Westphal, J. D. and Zajac, E. J. 1995. “Who shall govern? CEO/board power, demographic similarity, and new director selection,” Administrative Science Quarterly 40(1): 60–83.Google Scholar
Yiu, D. W., Xu, Y., and Wan, W. P. 2014. “The deterrence effects of vicarious punishments on corporate financial fraud,” Organization Science 25(5): 1549–1571.Google Scholar
Yu, T., Sengul, M., and Lester, R. 2008. “Misery loves company: The spread of negative impacts resulting from an organizational crisis,” Academy of Management Review 33(2): 452–472.Google Scholar

Save book to Kindle

To save this book to your Kindle, first ensure [email protected] is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×