While corporate crime is unfortunately not a new phenomenon, high-profile abuses in the last decade have led to a renewed urgency in understanding the precursors of wrongdoing in organizations. In this vein, academic research has recently begun to adopt an identity perspective, especially from social identity theory, to explore the antecedents of ethical misconduct in organizations. Apart from looking at one's moral identity (see Ashforth and Lange, this volume), recent research suggests that organizational identification (i.e., viewing one's role in the organization as self-defining) will influence a person's propensity to engage in workplace crimes (May, Chang, and Shao 2015; Umphress, Bingham, and Mitchell 2010; Vadera and Pratt 2013). Common to these social identity-based perspectives on wrongdoing is a focus on a single identity or identification (e.g., moral identity or organizational identification). However, scholars have long understood that in addition to social identities, any given individual may have a multitude of role identities – tied to various internalized roles he or she plays in society (e.g., parent, accountant, soccer player) – which may be brought to bear in a given social situation (Burke 2003; Stryker and Serpe 1994). In organizational studies, research further suggests that individuals do bring to and express these different identities (e.g., religious, kinship) at work (Ashforth and Pratt 2003; Creed, DeJordy, and Lok 2010; Fitzsimmons 2013; Kreiner, Hollensbe, and Sheep 2006; Pratt and Rafaeli 1997; Ramarajan and Reid 2013). There have even been recent and urgent calls in the popular press for organizations to allow people to bring more of their “whole self” (the self is comprised of multiple identities) to work (e.g., backwest.com/life-back-west-may-2012-bring-your-whole-self/). But how might these multiple identities and identifications influence decisions about whether or not to engage in workplace crimes?

In this chapter, we build off research that ties organizational attachments to workplace crime by articulating how the activation of nonorganizational role identities may function in conjunction with organizational identification to influence a person's propensity to commit workplace crimes. We argue that the activation of multiple identities (or identification with multiple social groups and roles) and identity content (i.e., the type of social group or role activated) play a role in either mitigating or strengthening the relationship between someone's identification with the organization and his/her propensity to engage in illegal or unethical behaviors at work.

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.

Introduction

A social constructivist view of wrongdoing conceives organizational transgressions as the result of a two-way interaction between organizations and observers (Becker 1963; Greve, Palmer, and Pozner 2010). This view suggests that judgment determines whether organizational actors have crossed a fuzzy line separating right from wrong. This requires collecting, interpreting, and evaluating information that is sometimes ambiguous and conflicting, from many sources with varying credibility. Observers include governmental bodies, the state, professional associations, and organizational managers acting as authoritative social control agents that have formal authority to monitor individual and organizational behavior, evaluate transgressions, and impose sanctions when appropriate. Observers may also be stakeholders and members of the public who have little formal authority, yet have a direct or indirect interest in an organization's activities. These include interest groups, rival organizations, customers, suppliers, and informed private citizens. These groups form an expansive audience that consumes information about transgressions, and formally and informally influences opinions, decisions, and even the rules of social control agents who depend on the public for legitimacy. A constructivist view of wrongdoing thus recognizes that major organizational transgressions involve complex webs of public and private orderings.

Media organizations help coalesce these groups by serving as information intermediaries, collecting, interpreting, and distributing information among transgressors, social control agents, and other publics (Deephouse and Heugens 2008). Investigative media unearth concealed and oblique activities, reframe activities that challenge benign interpretations, and publicly broadcast these framings across temporal and spatial boundaries. Bureaucratic routines can filter organizational deviance and shield transgressions from public view and even use bureaucratic definitions to frame behaviors as legitimate (Becker 1963; Greve et al. 2010; Wheeler, Weisburd, and Bode 1982). Even when transgressions become public, fear of retribution and contamination serve as strong incentives to avoid correcting them (Adut 2005). An important role for investigative media organizations is to penetrate these filters and framings and to find and publicize controversial behaviors. In this way, private and public orderings become commingled, contested, and reformulated if necessary.

Nowhere is the role of the media more apparent than when organizational transgressions become full-blown public scandals. Scandals are triggered when suspect behaviors are exposed, framed, and broadcast in a way that causes general moral outrage (Adut 2005).

It is widely accepted that the spread of high-risk financial instruments and financial wrongdoing contributed to failures in the US home mortgage market, the 2008 financial crisis, and upheaval in the global economy. Initially, corporate leaders, government officials, and some researchers attributed the crisis to individuals and suggested that individual characteristics such as greed and self-interest explain these events. Clearly, the perpetrators of financial wrongdoing are individuals with self-interests. However, the focus on individual characteristics does not answer an important question: Why was financial wrongdoing so widespread in financial markets at this point in history?

Current research shows that corporate wrongdoing occurs in response to cognitive assumptions (Gabbioneta, Prakash, and Greenwood 2014), risk-taking norms (Abolafia 2010), and is normal and undetectable in complex structures where bounded rationality impedes social actors from grasping the implications of their decisions (Palmer 2013; Palmer and Maher 2010). Others maintain that Congress and the Executive Branch facilitated the emergence of financial markets and risky financial instruments (Campbell 2010; Krippner 2011; Lavelle 2013), and the federal government “pulled the banks into the … secondary mortgage market” and trusted that banks understood what they were doing (Fligstein and Goldstein 2010: 31, 63–64). Still others show that whereas the multilayer-subsidiary form created opportunities, pressure to increase shareholder value created incentives for managers to engage in financial wrongdoing (Prechel and Morris 2010).

Although these studies advance our understanding of corporate wrongdoing, little research exists on how interrelated parts of the social structure were changed in ways that created opportunities for social actors to engage in wrongdoing in the first place. We suggest that this lacuna in the literature exists because of the increased specialization and division within the social and organizational sciences and the narrow focus on a single dimension of the social structure. To fill this gap in the literature, we elaborate Sutherland's (1949) conception of differential social structure and focus on the following questions. How were the organizational and political-legal arrangements transformed in ways that created opportunities for social actors to engage in financial wrongdoing? How did the emergent organizational and political-legal arrangements interact to create opportunities for financial wrongdoing?

This chapter critically reviews extant social network theory and research on misconduct in and by organizations, focusing primarily on the individual level of analysis and considering the role that social networks play in the initiation, diffusion, effectiveness, and demise of wrongdoing. We conclude that a more comprehensive understanding of the role of social networks in wrongdoing in and by organizations hinges on four contextual factors: (1) the predispositions of the actors involved, (2) the nature of the wrongdoing in question, (3) the institutional environment in which the wrongdoing is perpetrated, and (4) the temporal dynamics through which the wrongdoing unfolds. We also conclude that a more nuanced understanding of the role of social networks in organizational wrongdoing requires greater attention to the quality and type of relationship that a given social tie represents, more extensive utilization of qualitative research methods, learning from emerging social network theory and research in other disciplines, particularly criminology, and further incorporation of the organizational level of analysis.

Introduction

Theory and research on social networks has a long tradition in sociology, social psychology, and anthropology and an increasing presence in organizational studies. In this chapter, we critically review the embryonic but growing body of social network theory and research on misconduct in and by organizations. We structure our review around the three main areas of prior research: the role of social networks in the initiation, evolution, and consequences of wrongdoing. We use Brass, Butterfield, and Skaggs’ (1998) seminal theoretical analysis of the role that social networks play in unethical behavior as the starting point for our review, which reaffirms, extends, and in some cases suggests modifications to their arguments. We tap a range of empirical studies on social networks and organizational misconduct, most importantly a series of investigations by Baker, Faulkner, and associates (Baker and Faulkner 1993, 2003, 2004; Faulkner and Cheney 2014; Faulkner et al. 2003) to flesh out our discussion. We conclude that a comprehensive understanding of the role of social networks in wrongdoing in and by organizations hinges on several contextual factors that social network analyses sometimes overlook in the drive to use the patterns of relationships among wrongdoers and their victims as the dominant explanatory device. We end by suggesting several lines of inquiry that social network analysts might explore in connection with organizational wrongdoing in the future.

Unbounded ethicality and unbounded rationality are the unicorns of social science: persistent in our imaginations and representative of the beauty we crave in the world, but lacking empirical support. Like the unicorn, such behavioral elegance feels like it “ought to exist.” The concepts of bounded rationality (Simon 1957) and bounded ethicality (Chugh, Bazerman, and Banaji 2005; Chugh and Kern, working paper) offer more empirically valid representations of reality, reminding us not only that we and others are prone to departures from rationality and ethicality in our behavior but that these departures are the outcome of systematic and ordinary psychological processes.

Still, despite the reveal of the illusion of the moral unicorn, we cling to what it offers, an alternate reality in which good people are ethically infallible, and in which we (all of us) are among the good. Many people care about being ethical (Aquino and Reed 2002; Higgins 1987; Mazar, Amir, and Ariely 2008; Nisan 1991). And, not only do people care about being ethical, they also believe that they are ethical (Tenbrunsel 1998). Despite caring about ethicality and believing in their own ethicality, ample evidence suggests that there is a significant gap between how people view their own ethicality and how ethically people actually behave (Bazerman and Tenbrunsel 2011). But, our “bounded ethicality” is often outside of awareness (Chugh et al. 2005; Tenbrunsel and Smith-Crowe 2008), allowing for the illusion of the unicorn to persist despite evidence contradicting its existence.

The evidence for this gap is significant. Most of us believe that we are more ethical than the majority of our peers, which is a statistically untenable belief for at least some of us (Tenbrunsel 1998). We tend to mispredict our future behavior, overestimating the likelihood that we would behave in socially desirable ways (Epley and Dunning 2000). We overclaim credit for group work (Caruso, Epley, and Bazerman 2006).

Celebrity firms are firms that attract a high level of public attention and generate positive affective responses from stakeholder audiences (Rindova, Pollock, and Hayward 2006). Recent research has explored how and why firms become celebrities (Rindova et al. 2006; Zavyalova and Pfarrer 2015) and how celebrity creates value for firms (Pfarrer, Pollock, and Rindova 2010). Celebrity firms are more likely to have unexpectedly high performance – and gain additional benefits when they do so – while suffering fewer penalties when their performance is lower than expected (Pfarrer et al. 2010).

Rindova and colleagues have also argued that firms can engender “infamy,” which results from generating a high level of public attention and negative affective responses from stakeholder audiences. Central to both celebrity and infamy is that firms must engage in “deviant” or non-conforming behaviors. When viewed positively, these behaviors create a “rebel” celebrity persona attractive to at least some stakeholders; however, if the non-conforming behaviors are viewed negatively they can lead to an “outlaw” persona that at a minimum results in a loss of celebrity and possibly increases infamy.

Although researchers have begun to explore the causes and consequences of firm celebrity, little research (for a recent exception, see Zavyalova and Pfarrer [2015]) has considered how firms become infamous. Building on Rindova and colleagues (2006), Zavyalova and Pfarrer (2015) argued that celebrity occurs through audience members’ identification with a firm's values and beliefs as presented in media-created narratives, and that infamy results from dis-identification with the organization's values and beliefs. Because firms face a plethora of stakeholder audiences with differing priorities and values, they further argued that the same firm can possess both celebrity and infamy simultaneously, as the same set of organizational values and beliefs can be the cause for identification with the firm by one stakeholder audience and dis-identification by another. Consequently, firms can lose celebrity in their quest to maintain it by eventually engaging in behaviors or revealing information that is inconsistent with audience members’ bases for identification.

Fundamental to the process of becoming infamous is the belief by a stakeholder group or groups that the firm is engaging in deviant behaviors that they consider wrongdoing.