CORRUPT ORGANIZATIONS OR ORGANIZATIONS OF …fritspil/pinto leana pil.pdf · corrupt organizations...

CORRUPT ORGANIZATIONS ORORGANIZATIONS OF CORRUPT INDIVIDUALS?

TWO TYPES OF ORGANIZATION-LEVELCORRUPTION

JONATHAN PINTOCARRIE R. LEANA

FRITS K. PILUniversity of Pittsburgh

We focus on two fundamental dimensions of corruption in organizations: (1) whetherthe individual or the organization is the beneficiary of the corrupt activity and (2)whether the corrupt behavior is undertaken by an individual actor or by two or moreactors. We use these dimensions to define a new conceptualization of corruption at theorganization level: the organization of corrupt individuals. We contrast this concep-tualization with the prevailing concept of organizational corruption and developpropositions that highlight their differences.

Corruption is a persistent feature of humansocieties, with the earliest references datingback to the fourth century B.C. (Aidt, 2003;Bardhan, 1997). More recently, corruption and itsvariants have been studied across a number ofdisciplines, including psychology, sociology,economics, law, and political science. Typically,each discipline tends to examine corruptionfrom a particular level of analysis, be it theindividual (e.g., psychology, economics), the or-ganization (e.g., sociology), or the economy (e.g.,political science). While management scholarshave examined corruption at both the individual(e.g., Brass, Butterfield, & Skaggs, 1998; Jones &Ryan, 1997; Trevino, 1986) and organization (e.g.,Baucus & Near, 1991; Brief, Buttram, & Dukerich,2001; Hill, Kelley, Agle, Hitt, & Hoskisson, 1992;Sonnenfeld & Lawrence, 1978) levels, we arguehere that the latter is underexplored.

Adopting a multilevel approach and drawingon a number of disciplinary perspectives, wedevelop an integrative conceptualization of or-ganization-level corruption. We conceptualizeand define a phenomenon we term an organiza-tion of corrupt individuals, which is essentiallya scaling up of personally beneficial corruptbehaviors to the organization level. We thencompare and contrast this new conceptualiza-tion with the prevailing conceptualization of or-ganization-level corruption, which we label acorrupt organization, in which a group of em-ployees carries out corrupt behaviors on behalf

of the organization. This approach answers thecall of Ashforth and Anand (2003), who haveurged investigation into the differences be-tween corruption on behalf of the organizationand corruption against the organization. Wethen parse the wealth of literature on anteced-ents of corruption to propose that these two phe-nomena share some common antecedents,which, at the same time, may operate differentlyin affecting the incidence and extent of eachform of corruption. Finally, we develop a four-cell typology based on whether an organizationmanifests either, both, or neither of these twocorruption phenomena.

The corruption literature, taken as a whole,is rife with inconsistencies and inconclusiveempirical results (Albanese, 1988; Daboub,Rasheed, Priem, & Gray, 1995). We offer ourtypology of corruption as a way of clarifyingtheory and research at the organization level.We also aim to address why different types oforganizations may manifest different corruptionphenomena, or why attempting to control oneform of corruption may unwittingly lead to thecreation of the other. Our multilevel approachencompasses bottom-up and top-down corrup-tion, both composition and compilation emer-gent processes, and both selection and social-ization in organizations. Finally, we address therelatively small but important literature oncriminogenic mechanisms—that is, mecha-nisms that produce or tend to produce crime or

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criminal behavior. While this literature focusesalmost exclusively on “crime-coercive” mecha-nisms, we focus more on “crime-facilitative”ones (Needleman & Needleman, 1979).

TWO DIMENSIONS OF CORRUPTION INORGANIZATIONS

The literature on organizational corruptionis informed by such disciplines as economics,political science, criminology, sociology, andmanagement, using a variety of theoretical per-spectives. These perspectives include principal-agent models (e.g., Banfield, 1975; Klitgaard,1988; Rose-Ackerman, 1975; Tirole, 1996), socialnetworks (e.g., Brass et al., 1998; Nielsen, 2003),ethical decision-making frameworks (Ferrell &Gresham, 1985; Jones, 1991; Jones & Ryan, 1997;Trevino, 1986; Trevino & Youngblood, 1990), mod-els of corporate crime (Albanese, 1988; Braith-waite, 1984; Clinard & Yeager, 1980; Pearce &Snider, 1995), and normalization of corruption(Ashforth & Anand, 2003; Brief et al., 2001; Gioia,1992).

This variety in perspectives has resulted in aproliferation of distinct corruption conceptual-izations that overlap on various dimensions.1

While these various approaches have provideda rich body of literature on corruption, such di-versity has also made it difficult to generatetestable hypotheses regarding the nature, ante-cedents, and consequences of corruption (Simp-son, 1986). Heeding Philp’s (1987) admonitionthat no one has ever devised a universally sat-isfying “one-line” definition of corruption, we donot attempt to do so here. Instead, we bound ourdiscussion by focusing on certain clear dimen-sions of corruption.

We develop our theory around the two mostcommon and fundamental dimensions in the lit-erature: (1) whether the individual or the orga-nization is the beneficiary of the corrupt activityand (2) whether the corrupt behavior is under-taken by an individual actor or by two or moreactors. According to Finney and Lesieur (1982),one of the basic dimensions around whichscholars have sought to distinguish differentforms of corruption is whether the violator actsstrictly for private benefit or whether the bene-ficiary includes the organization itself. The man-agement literature places less emphasis on thisdimension (e.g., Ashforth & Anand, 2003), but webelieve it is a critical concern, especially at theorganization level of analysis. An organizationmay impose processes and structures to inhibitcorruption against it, but the same organizationmay not discourage corruption on its behalf(Ashforth & Anand, 2003). Another important dif-ferentiation in the corruption literature centerson the level of analysis. Corruption is studied ateither the individual level (e.g., as principal-agent dynamics in economics) or as a groupacting in concert (e.g., sociology). We argue thatexploring the relationship between these levelsis useful because individuals engaging in per-sonally corrupt behaviors, without necessarilycolluding, also constitute an organization-levelcorruption phenomenon.

Dimension 1: Primary Beneficiary

We define the beneficiary of corruption as theactor deriving direct and primary benefit fromthe action. For example, even if individuals canbenefit financially from corruption on behalf ofthe organization (e.g., through bonuses or highprices for their stock options), the organization isstill the primary and direct financial beneficiary(Wheeler & Rothman, 1982). We focus our discus-sion on pecuniary benefits because they aremore tangible, facilitating the exposition of thetheory—especially with respect to explainingcorrupt behaviors that benefit the organization.However, there are other benefits, such as theability to gain power over others or to gain lei-sure time, which may have indirect monetaryvalue or personal utility that can be used tounderstand how individuals benefit at the ex-pense of the organization.

Two of the main streams of corruption re-search that describe individuals benefiting at

1 Some corruption conceptualizations include governmentcorruption (Shleifer & Vishny, 1993); corruption with andwithout theft (Shleifer & Vishny, 1993); cost-reducing corrup-tion (Bliss & Di Tella, 1997); grand, bureaucratic, and legis-lative corruption (Jain, 2001); efficient and self-reinforcingcorruption (Aidt, 2003); political corruption (Nice, 1986; Xin &Rudel, 2004); organizational corruption (Luo, 2004); and col-lective corruption (Brief et al., 2001). Common distinctionsinclude differentiating between corporate and governmen-tal crime (Clinard & Quinney, 1973; Douglas & Johnson, 1977;Finney & Lesieur, 1982; Johnson & Douglas, 1978), types ofvictims (e.g., Schrager & Short, 1978), types of beneficiaries(e.g., Banfield, 1975), types of violations (e.g., Clinard & Yea-ger, 1980), types of actors (e.g., Coleman, 1998), and intention-ality of behavior (e.g., Baucus, 1994).

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the cost of the organization are (1) the principal-agent literature in economics and (2) the devi-ance or unethical behavior literature in organi-zational behavior and business ethics. In theprincipal-agent model the agent, in exchangefor compensation or gain of some sort, has anincentive to favor a third party at the expense ofthe principal (Banfield, 1975; Becker & Stigler,1974; Klitgaard, 1988; Rose-Ackerman, 1975; Ti-role, 1996). The beneficiary is the agent—that is,the individual. While corrupt behavior by indi-viduals has not been studied as explicitly andextensively in the management literature, it isimplicit in a substantial body of work examin-ing a host of allied concepts. These include eth-ical decision making (Ferrell & Gresham, 1985;Jones, 1991; Jones & Ryan, 1997; Trevino, 1986;Trevino & Youngblood, 1990), unethical behavior(Brass et al., 1998), deviant workplace behavior(Bennett & Robinson, 2000; Robinson & Bennett,1995), and antisocial behavior (Robinson &O’Leary-Kelly, 1998). This literature is similar tothe principal-agent literature in that its focalunit is the individual acting for personal benefit.From the myriad deviant behaviors that are con-sidered in the preceding literature, the onesmost relevant to our discussion are those thatinvolve clear financial benefit: stealing, embez-zling, accepting bribes, and overreporting hoursor expenses.

Corruption for the benefit of the organizationhas been conceptualized as illegal corporate be-havior (Clinard, Yeager, Brisette, Petrashek, &Harries, 1979), unlawful organizational behavior(Vaughan, 1983), corporate crime (Albanese,1988; Braithwaite, 1984; Clinard & Yeager, 1980;Pearce & Snider, 1995), business crime (Clarke,1990), corporate fraud (Comer, 1998), and corpo-rate and governmental deviance (Ermann &Lundman, 2002). As with the literature on indi-vidual workplace deviance, this literature en-compasses a wide variety of corrupt behaviors,including polluting the environment, manufac-turing and marketing unsafe products, corporatebribery, and corporate violence (Clinard, 1990).One common thread running through all thesebehaviors is that they are carried out by organi-zation members, but the actions directly re-dound to the benefit of the organization and itsowners/shareholders (e.g., Baucus, 1994; Daboubet al., 1995; Schrager & Short, 1978).

Dimension 2: Collusion Among OrganizationalMembers

Much of the literature on corruption benefitingthe individual does not focus on collusionamong members of the organization (Brass etal., 1998; Ferrell & Gresham, 1985; Jones, 1991;Jones & Ryan, 1997; Robinson & Bennett, 1995).There are some notable exceptions: Chang andLai (2002) develop an econometric model of or-ganizational members colluding for individualbenefit at the cost of the organization, and Mars(1974) provides empirical evidence of employeesengaging in group theft (Ashforth & Anand,2003).

In contrast, much of what is labeled corpo-rate crime and organizational crime is enactedby groups acting collectively, be it top man-agement (Daboub et al., 1995; Kesner, Victor, &Lamont, 1986) or a subset of organizational mem-bers (Braithwaite, 1982; Clinard, 1983). Baker andFaulkner define organizational crime as a “typeof white-collar crime, that is enacted by collec-tivities or aggregates of discrete individuals inthe context of complex relationships and expec-tations among boards of directors, executives,and managers, and among parent corporations,corporate divisions, and subsidiaries” (1993: 842;see also Clinard & Yeager, 1980, and Shapiro,1976).

The notable exception here is Schrager andShort’s definition of organizational crime as actscommitted by “an individual or a group of indi-viduals in a legitimate formal organization inaccordance with the operative goals of the orga-nization” (1978: 411). While Schrager and Shortinclude individual action in their definition,there are difficulties in adopting this perspec-tive. Sherman (1980) argues that it is difficult orimpossible to assess an individual’s intent, butit is possible to observe the communicationsfrom the dominant coalition to organizationalmembers and to observe whether a member’sbehavior is consistent with those messages.Martin cites a Supreme Court precedent datingback to 1909—that “in order to control the poten-tial criminal conduct of a corporate employee, itis necessary to impute his act to his employer”(1998: 407). Indeed, Ermann and Lundman (2002)divide their discussion of corporate devianceinto that which is directly traceable to organiza-tional elites and that which is indirectly trace-able to organizational elites. However, in both

2008 687Pinto, Leana, and Pil

cases organizational elites are involved. Thus,we conclude that collusion among organization-al members is an essential component of corpo-rate corruption but not essential to corruption forindividual gain.

TWO TYPES OF CORRUPTION AT THEORGANIZATION LEVEL

Using the two dimensions of beneficiary andcollusion, we suggest that corruption at the or-ganization level can manifest itself through twovery distinct phenomena: an organization of cor-rupt individuals (OCI), in which a significantproportion of an organization’s members act in acorrupt manner primarily for their personal ben-efit (similar to the economics perspective), and acorrupt organization (CO), in which a group col-lectively acts in a corrupt manner for the benefitof the organization (similar to the sociology per-spective). In both forms of corruption, the orga-nization is the focal unit—that is, the level towhich generalizations are made—and both thelevels of measurement and the levels of analysiscan be at the individual, group, organization,and environmental levels.

OCI

We define an OCI as an emergent, bottom-upphenomenon (Kozlowski & Klein, 2000) in whichone or more mesolevel processes (House, Rous-seau, & Thomas-Hunt, 1995) facilitate the conta-gion (and sometimes the initiation as well) ofpersonally corrupt behaviors that cross a criticalthreshold (Andersson & Pearson, 1999) such thatthe organization can be characterized as cor-rupt. For example, in police departments thecorruption undertaken by individual officers canbecome so endemic that the department itselfcan be considered corrupt (Shover & Hochstetler,2002).

The term personally corrupt behavior impliesthat individuals are the primary beneficiary,typically at the cost of the organization (Ban-field, 1975). Thus, while one may expect to findthe odd “bad apple” (Darley, 2005; Trevino &Youngblood, 1990) in even the most well-runcompanies, if bad apples appear by the bushelin an organization, it becomes appropriate toexamine the organization-level phenomena thatfacilitate, encourage, and sustain such behav-ior. Such phenomena can take the form of hiring

an abnormal proportion of bad apples (a selec-tion argument), failing to prevent (if not facili-tating) the “rot” from spreading from the few badapples to the rest of the bushel (a socializationargument), or triggering unethical behavior inmany of its otherwise moral members (an ante-cedents argument). Thus, OCI is an organiza-tion-level phenomenon even though individualsare the primary, and often sole, beneficiaries.This is because (1) the behaviors are sufficientlywidespread to characterize the organization asa whole, and (2) internal mesolevel processesare responsible if not for facilitating then atleast for failing to inhibit the contagion of thesebehaviors.

OCI is a behavioral phenomenon that never-theless can be described using multilevel termi-nology. It is an emergent phenomenon since itoriginates at the individual level, but it is am-plified by individuals’ interactions and mani-fests itself as an organization-level behavioralphenomenon (Kozlowski & Klein, 2000). Sincethis phenomenon is an aggregation of lower-level unit behaviors, it is a bottom-up type oforganization-level phenomenon (Brief, Butcher,George, & Link, 1993; Kozlowski & Klein, 2000). Asan emergent phenomenon, OCI could be of ei-ther composition or compilation type (Kozlowski& Klein, 2000). If the personally corrupt behav-iors within an organization are similar (e.g.,theft; Greenberg, 1990), then the OCI phenome-non is a convergence of similar lower-levelcharacteristics yielding a higher-level propertythat is essentially the same as its constituentelements, which is a composition type of emer-gence. In other organizations personally corruptbehaviors may vary (e.g., theft, accepting bribes,overreporting expenses), but the configurationof these behaviors may nevertheless emerge,bottom up, to characterize the organization asone of corrupt individuals, which is a compila-tion type of emergence (Kozlowski & Klein, 2000).

Andersson and Pearson (1999) have argued thatan organization may become “uncivil” once thenumber of incivility spirals reaches a criticalthreshold. Similarly, we use the term corruptionthreshold to describe the point at which corrup-tion has become so widespread that it character-izes the organization as a whole—it is no longeran organization in which individuals engage incorrupt behaviors but, rather, an OCI. While it isnot possible to define this critical threshold interms of an across-the-board fixed point, there


are three criteria that can be used to determinewhether it has been crossed. First, it is difficultto localize the corrupt portions of the organiza-tion because these behaviors are usually covertand widespread. Second, even if the corrupt por-tions are identified, the number of individualsinvolved is so large as to make firing them enmasse difficult. Third, even if the individualsinvolved are fired, the organization will proba-bly manifest an OCI phenomenon again unlessthe internal processes or mechanisms responsi-ble for making these behaviors reach the criticalthreshold are identified and corrected.

The OCI phenomenon is behavioral and canbe considered a form of unethical conduct(Trevino, Butterfield, & McCabe, 1998). It is per-tinent to distinguish the OCI phenomenon fromethical climate or culture. Since the OCI phe-nomenon is behavioral, it is different from anorganizational climate for ethics, which is de-fined as organizational members’ shared per-ceptions of what is ethically correct behaviorand how ethical issues should be handled (Dick-son, Smith, Grojean, & Ehrhart, 2001; Victor &Cullen, 1988).

Ethical culture and the OCI phenomenonoverlap to the extent that both have behavioralaspects. However, ethical culture is muchbroader in scope than the OCI phenomenon inthree key aspects. First, unlike OCI, the termethical culture per se does not indicate whetheran organization is corrupt or not—that is, itcould promote either ethical or unethical behav-ior (Trevino, 1990). Second, the OCI phenomenonconcerns only those corrupt behaviors that ben-efit the individual primarily, whereas ethicalculture also includes corrupt behaviors thatbenefit the organization. Third, ethical cultureincludes not only behaviors but also variousformal and informal systems of behavioral con-trol (Trevino, 1990) that are not part of the OCIphenomenon. Ethical culture includes such ele-ments as “leadership, reward systems, per-ceived fairness, ethics as a topic of conversationin the organization, employee authority struc-tures, and an organizational focus that commu-nicates care for employees and the community”(Trevino, Weaver, Gibson, & Toffler, 1999: 141).

We discuss some of these elements, such asperceived fairness, as antecedents to the OCIphenomenon in a later section. To summarize,while ethical climate and ethical culture aredistinct from OCI, they are predictors of unethi-

cal conduct (Trevino et al., 1998) and could there-fore be antecedents of the OCI phenomenon.

Our definition of the OCI phenomenon hassimilarities to Chang and Lai’s (2002) economet-ric modeling of organizational corruption as aphenomenon of social interaction that could bepandemic through the organization. The differ-ence is that in our conceptualization of OCI,neither social interaction nor collusion is neces-sary for the phenomenon to occur, for example,in contagion mechanisms, such as role equiva-lence and pluralistic ignorance.

CO

A CO is usually a top-down phenomenon inwhich a group of organization members—typically, the dominant coalition, organizationalelites, or top management team—undertake, di-rectly or through their subordinates, collectiveand coordinated corrupt actions that primarilybenefit the organization. This is an organiza-tion-level phenomenon since the organization isnot only the primary beneficiary but also theprimary entity culpable, even if the officers re-sponsible are individually culpable as well.

The sociology literature considers the COphenomenon, under such labels as corporatecrime or illegal corrupt behavior, as involving agroup rather than an individual actor (seeSchrager & Short, 1978, for an exception). Al-though some of the early work in this domaindoes not specify the involvement of the domi-nant coalition of the top management team inCO-type behavior (e.g., Braithwaite, 1982; Cli-nard, 1983), in more recent work scholars con-sider it integral (e.g., Baker & Faulkner, 1993;Daboub et al., 1995; Kesner et al., 1986; Sherman,1980). This approach appears to be driven atleast partly by practical considerations. Whenorganizations are being investigated for corrup-tion, the first defense of senior management isoften to deny knowledge of, let alone responsi-bility for, the behavior in question. Senior man-agement often attempts to scapegoat the indi-vidual members who have been found to bedirectly involved in the corrupt behavior (Er-mann & Lundman, 2002). Indeed, according toAshforth and Anand (2003), organizational struc-tures and processes are often contrived to insu-late senior managers from blame.

For the OCI phenomenon, the critical thresh-old is organization specific, whereas for the CO


phenomenon, it is not. When the organizationcrosses the line that separates the legal from theillegal, it becomes a CO. Thus, the CO phenom-enon is a discrete function, whereas the OCI hasa more continuous form. Having said that, theCO phenomenon could permeate a large part ofthe organization—as in the infamous cases ofEnron or Drexel Burnham Lambert—but this isnot a necessary condition for CO (unlike forOCI). Even one well-bounded group acting cor-ruptly on behalf of the organization is sufficientfor the CO phenomenon to occur. In either case, itis a top-down phenomenon since it is the higher-level context—the organization—that is influ-encing the lower-level unit—the group—to actin a particular manner (Kozlowski & Klein, 2000).Further, there is also extensive literature thatindicates that lower-level units, like individualsand groups, are recruited into organization-benefiting corrupt practices by senior manage-ment, either directly (cf. crimes of obedience;Kelman & Hamilton, 1989) or indirectly, throughnormalization and institutionalization pro-cesses (e.g., Ashforth & Anand, 2003; Brief et al.,2001; Gioia, 1992).

Manifestation Processes

We provide a brief overview of the cross-levellinkages through which the two organization-level corruption phenomena manifest them-selves. In keeping with the literature (e.g., Chat-man, 1991; Latif, 2000; Ponemon, 1992), wecategorize the processes that facilitate and in-stitutionalize these phenomena into (1) selectionand (2) socialization. Although in the interests ofclarity we discuss these effects separately, webelieve, as do others (e.g., Kidder, 2005; Ryan etal., 1997), that it is the combination of personsand situations that is most likely to result inorganization-level corruption.

Selection. Recent work in industrial-organiza-tional psychology has described job perfor-mance as comprising three domains (Dalal,2005; Rotundo & Sackett, 2002): task performance,counterproductive work behavior (CWB), and or-ganizational citizenship behavior (OCB). OCBsare essentially extrarole behaviors undertakenby individual employees for the benefit of col-leagues or the organization as a whole. Simi-larly, CWBs, sometimes called “counterproduc-tive behaviors” (Ones, Viswesvaran, & Schmidt,1993), “workplace deviance” (Bennett & Robin-

son, 2000), or “workplace delinquency” (Lee, Ash-ton, & de Vries, 2005), are intentional employeebehaviors that are harmful to the interests ofcolleagues or to the organization as a whole.

Researchers have found that CWBs can bepredicted both from specific integrity or honestytests (Bernardin & Cooke, 1993; Ones et al., 1993)via such constructs as employee theft proneness(Ash, 1991) and honesty attitude (Lasson & Bass,1997) and from general personality instruments(Lee et al., 2005). Thus, organizations could un-wittingly engender an OCI phenomenon if theytended to select individuals low in integrity orlow in conscientiousness and/or other personal-ity traits that are predictive of CWBs (Lee et al.,2005).

The CO phenomenon has been examinedlargely by sociologists and others who focus onvariables at the group, firm, industry, and envi-ronmental levels. The closest that researchers inthis domain have come to theorizing about therole of individual differences with regard to cor-porate corruption has been to examine demo-graphic and other characteristics of the topmanagement team (Daboub et al., 1995; Zahra,Priem, & Rasheed, 2005) or the board of directors(Kesner et al., 1986). However, since the CO phe-nomenon is corrupt behavior on behalf of theorganization, it is plausible that it is OCB “gonebad.” From the outset, the citizenship constructhas been described using the analogy of the“good soldier” (Bateman & Organ, 1983; Organ,1988). Individuals caught in CO-type corruptiontypically defend their actions by stating thatthey were doing what was best for others (i.e.,shareholders, employees) or carrying out the or-ders of superiors. Both of these fit into a goodsoldier self-conception. Organ and colleagues(Organ, 1994; Organ & Ryan, 1995) have foundthat personality traits like conscientiousness(Organ & Ryan, 1995) or a constellation of BigFive personality facets (Organ, 1994) have some,albeit limited, ability to predict OCB. If an orga-nization tends to select individuals with thesepersonality traits, it is plausible that it couldmanifest a CO-type phenomenon. But we knowlittle about such individual differences and theirrelationship to CO-type phenomena, both directand as moderated by situations, and, thus, thismay be a fruitful avenue of future research.

Selection could also facilitate the CO phe-nomenon if organizations and industries fo-cused their recruitment on applicant pools that


tend to manifest lower integrity than others.Frank and Schulze (2000) found that economicsstudents are significantly more corrupt than oth-ers, whereas Gioia (2002) cited research by theAspen Institute concluding that studying at thetop U.S. business schools not only fails to im-prove the moral character of students but actu-ally weakens it. Since there is some systematicbias with regard to where these job seekers findemployment, it is plausible that there would begreater CO-type corruption in those organiza-tions/industries. According to BusinessWeek.com (2006), three industries accounted for 87.5percent of the top forty recruiters at leadingbusiness schools: (1) banking and financial ser-vices (45 percent), (2) management consulting(27.5 percent), and (3) information technology (15percent).

Finally, and anticipating our next section, or-ganizations could engender either or both phe-nomena by selecting individuals high in self-monitoring. High self-monitors have morevariability in attitudes and behavior, pay moreattention to others’ expectations, and have lowercommitment (Day, Schleicher, Unckless, &Hiller, 2002). Hence, they are less likely to adoptfirm strategic positions or communicate a con-sistent vision on key issues (Day et al., 2002), andthey are more likely to engage in unethical be-havior (Ross & Robertson, 2000).

Socialization. The mechanisms that lead tothe contagion of corrupt behavior are a subset ofgeneral social influence mechanisms that havebeen studied from a variety of perspectives—social network, cognitive, social psychological,and emotional. Here we distinguish betweencontagion, which may or may not involve directinteraction, and collusion, which always in-volves direct interaction. Even though we dis-cuss these mechanisms separately, we believethey would be more likely to occur in equifinalcombinations (e.g., affective and cognitive;Bargh, 1988; DeGoey, 2000; Tesser & Martin,1996). Similarly, although contagion is an essen-tial component of the OCI phenomenon, but notof the CO phenomenon, in keeping with recentliterature considering the normalization of CO-type practices across the organization (Ashforth& Anand, 2003; Brief et al., 2001), we discuss howeach of these mechanisms could operate in bothOCIs and COs.

Social network mechanisms. Social networkscholars typically distinguish among three

types of contagion mechanisms: relational,structural equivalence, and role or positionalequivalence. In the relational mechanism thecontagion is through direct ties between the ac-tors. In the structural equivalence mechanism itis indirect interaction—that is, the actors do nothave ties to one another but are tied to the sameothers who would be the conduits of contagion.In the role equivalence mechanism the actorsare neither tied to one another nor to the sameothers, but the pattern of their relationships issimilar—for example, managers at a certain hi-erarchical level.

Relational or interactional contagion could re-sult in diffusion either through proximity orthrough interdependence, and it could be verti-cal and/or lateral. Thus, certain regional officesor colocated departments could manifest theOCI phenomenon, or the corrupt behaviorscould spread through the internal customer-supplier relationships within the organization.Although diffusion is not an essential feature ofCO, if corrupt behavior does spread through theorganization, it is more likely to permeate verti-cally through superior-subordinate relation-ships, termed crimes of obedience and routini-zation (Hamilton & Sanders, 1999; Kelman &Hamilton, 1989).

Both structural equivalence and role equiva-lence models could result in the lateral diffusionof OCI across a hierarchical level. Structuralequivalence could be the contagion mechanismin matrix organizations where the individualswith dual reporting relationships could be theconduits of personally corrupt practices be-tween their two managers. Role equivalencecould be the contagion mechanism in tradi-tional bureaucratic organizations where corrup-tion permeates through ranks of peer-level man-agers. For example, if a certain level in thehierarchy is granted a perquisite that can beused in an abusive way (e.g., expense accountswith lax control mechanisms), then many incum-bents at that hierarchical level may seize theopportunity to abuse the perk in a similar man-ner, even if there is no direct or indirect commu-nication among them. Since collusion is an essen-tial condition of the CO phenomenon, it is unlikelythat either structural equivalence (communicat-ing through subordinates) or role equivalence(no communication) would be the contagionmechanism.


Another distinction between the two phenom-ena concerns the network composition. The ma-jority of CO behaviors, such as price fixing, ty-ing arrangements,2 and bribe giving, involvethird parties; thus, the networks would compriseboth individuals who are internal to the organi-zation and those who are external (Baker &Faulkner, 1993; Geis, 2002). Some exceptions arefiling misleading tax reports or encouraging aclimate of sexual harassment, which may onlyinvolve internal actors. Conversely, commonOCI phenomena like theft do not involve thirdparties; thus, the contagion networks would con-sist mostly of organization members (the excep-tion here being corrupt behaviors like acceptingbribes that involve third parties).

Cognitive mechanisms. We consider twobroad types of cognitive mechanisms: (1) thosein response to surprises (Louis, 1980) or cues(Wrzesniewski, Dutton, & Debebe, 2003)—that is,sensemaking (Daft & Weick, 1984), and (2) thoseunder routinized conditions—that is, normaliza-tion (Ashforth & Anand, 2003). Sensemaking isa process of social construction (Berger &Luckmann, 1967) in which individuals attemptto interpret and explain sets of cues from theirenvironment (Wrzesniewski et al., 2003). Sense-making occurs in organizations when membersconfront events, issues, and actions that aresomehow surprising or confusing (Gioia &Thomas, 1996; Weick, 1995). In such cases, story-telling—by providing an interpretative accountof an event’s sequences and conveying complexinformation in a highly concentrated and con-cise manner— can be a powerful contagionmechanism (cf. “preferred sensemaking cur-rency”; Boje, 1991), especially with regard to in-justices (DeGoey, 2000; Martin, 1982).

An OCI phenomenon typically would involveindividual-level sensemaking around organiza-tion-level cues. Examples of sensemaking lead-ing to OCI behaviors include an increase inemployee theft rates in response to a pay cut(Greenberg 1990) and higher levels of unethicalbehavior in response to surveillance mecha-nisms (Tenbrunsel & Messick, 1999). Sensemak-ing leading to the CO phenomenon would be atthe organization or industry level. Organiza-

tional myths (Hedberg & Jonsson, 1977) or orga-nization belief systems (Bartunek, 1984) may re-sult in a particular organization’s undertakingcorrupt practices. Industry mindsets, sometimestermed industry culture (Baucus & Near, 1991;Christensen & Gordon, 1999) or industry recipes(Spender, 1989), may result in many organiza-tions’ (within a particular industry) adoptingsimilar CO-type corrupt practices. Sonnenfeldand Lawrence quote a convicted executive assaying, “Our ethics were not out of line withwhat was being done in this company and, infact, in this industry for a long time” (1978: 149).

Organizations have exploited cognitive mech-anisms like scripts (Gioia, 1992; Gioia & Poole,1984), language euphemisms (Ashforth & Anand,2003; Tenbrunsel & Messick, 2004), and implicitsanctioning (Brief et al., 2001) not only to recruitmembers into engaging in corrupt behaviors forthe organization’s benefit but also to “normal-ize” and perpetuate the corruption in the orga-nization (Anand, Ashforth, & Joshi, 2004; Ashforth& Anand, 2003). Scripts are a type of schema thatprovide a basis for the anticipation or initiationof sequential action in social situations (Gioia &Poole, 1984; Labianca, Gray, & Brass, 2000). Lan-guage euphemisms are the “disguised” storieswe tell ourselves about our unethical actions(Tenbrunsel & Messick, 1999). Brief et al. (2001),following Yeager (1986), have described implicitsanctioning as the unstated message receivedfrom the top that much more weight is attachedto job completion than to legal or ethical meansof accomplishment. Normalization mechanismssuch as scripts and language euphemisms aremore overt and detectable than sensemakingmechanisms; hence, they are less suitable forthe OCI phenomenon, which the organizationwould guard itself against (Ashforth & Anand,2003).

Social psychological mechanisms. Allport(1924) coined the term pluralistic ignorance todescribe a situation in which virtually all mem-bers of a group privately reject group norms yetbelieve that virtually all other group membersaccept them (Miller & McFarland, 1987: 298). Plu-ralistic ignorance has been found in such con-texts as racial relations (Shelton & Richeson,2005), bystander reactions to people in distress(Latane & Darley, 1970), and students’ alcoholabuse (Prentice & Miller, 1993). Prentice andMiller (1993) demonstrated that subjects not onlymisperceive the social norm but also act in ac-

2 A tying arrangement refers to a situation in which thepurchase of one product—tying product—is conditioned onthe purchase of another—tied product (Baucus & Near, 1991).


cordance with it. Further, observers tend to in-terpret others’ actions as motivated by approachtendencies, even when they recognize that theirown identical choices were motivated by avoid-ance (Miller & Nelson, 2002). Similarly, OCI be-haviors, such as overreporting of hours worked,could be widespread because each individualbelieves that his or her colleagues are morecomfortable with, and are engaging in, thesepractices.

Since CO entails collusion, we do not expectan individual-level theory like pluralistic igno-rance to be a contagion mechanism, but a sim-ilar group-level syndrome, called the “AbileneParadox,” could be. The Abilene Paradox (Har-vey, 1988) refers to a decision-making situationin which members privately disagree with acourse of action but publicly agree to it. Theresult of this could be that organizations takeactions that contradict what they really want todo and therefore defeat the very purposes theyare trying to achieve (Harvey, 1988). For exam-ple, “instead of seeing the top people explicitlyand officially acknowledge the difficult industryconditions, many of the lower officials see onlystrong pressures and inducements to ‘get thenumbers no matter what’” (Sonnenfeld & Law-rence, 1978: 149), and the resulting price-fixingbehaviors, when uncovered, exacerbate the or-ganization’s predicament.

In the context of corrosive political climates,Williams and Dutton (1999) have identified so-cial identification as one of the processesthrough which negative behavior between twoindividuals affects larger numbers of employ-ees. Social identification refers to “the percep-tion of oneness with or belongingness to somehuman aggregate” (Ashforth & Mael, 1989: 22).Organization members could strongly identifywith groups based on demographic categories,professional categories, teams, or even the or-ganization as a whole (Williams & Dutton, 1999).A triggering mechanism could set off an OCIphenomenon in cases where organizationalmembers have strong social identification withentities other than the organization (since it isthe victim). For instance, procedural injusticeagainst one member of a workgroup may beinterpreted as an injustice against the entiregroup (Tyler & Lind, 1992), and all members mayretaliate by engaging in corrupt behaviorsagainst the organization. Conversely, whenmembers put themselves at legal and reputa-

tional jeopardy to engage in corrupt practicesthat primarily benefit the organization (CO phe-nomenon), it is likely that they identify with theorganization strongly to begin with, and thatidentification is further strengthened by the cor-ruption.

Emotional mechanisms. According to Wil-liams and Dutton (1999), emotions can permeatea social environment and become an ambientproperty of the workplace, rather than feelingsabout or between specific individuals. Further,these scholars maintain that different emotionsmay have significantly different effects whenthey permeate an organization. For example,contextualized anger may lead to organization-ally motivated aggression (Andersson & Pear-son, 1997; Williams & Dutton, 1999), which maytake the form of unethical behavior. There isalso evidence that emotions (and their attendantdecision-making effects) can diffuse through theorganization. DeGoey (2000) has proposed thatbeing confronted with a potentially unfair eventmay arouse distressing emotions; organizationmembers cope with these stressors by seekingsocial support, and, in the process, they arrive ata shared interpretation about the fairness oftheir situation. If the shared interpretation isthat the organization has been unfair, the indi-viduals might resort to OCI behaviors in retali-ation, such as petty theft (Greenberg, 1990; Las-son & Bass, 1997; Skarlicki & Folger, 1997).

Bies, Tripp, and Kramer (1996) have definedsocial rumination as a process in which thetarget and observers try to make sense of anevent by discussing it with coworkers andfriends. Social rumination often reinforces theinitial suspicion, decreased trust, and outragetriggered by an episode considered to be un-just (Bies & Tripp, 1996). It may cause distrustto spread beyond targets to observers and oth-ers who indirectly hear about episodes of neg-ative behavior. Social rumination could be asignificant transmission mechanism for the in-terpretation of events like retrenchments, re-organizations, relocations, or a change inmanagement, particularly if certain catego-ries of employees are more affected by theevent than others. If the socially shared inter-pretation is that the organization has beenunfair to one group, members are more likelyto behave in a similar, retaliatory manner,which could take the form of OCI.


Since the CO phenomenon is less personal(and more business or organizational) and, byvirtue of being a collective activity, more delib-erate, we do not expect emotional processes toplay a significant role in facilitating it.

OCI and CO: Comparison of Key Attributes

The key distinctions between the OCI and COphenomena are summarized in Table 1. Whilemost of the distinctions have been discussed, weelaborate some of them below.

The distinctions between the two organiza-tion-level corruption phenomena also relate tothe discussion on criminogenic mechanisms—that is, mechanisms that allow or encouragecriminal activity (Farberman, 1975). The man-agement literature has examined a variety ofcriminogenic mechanisms, such as transactionsystems (Vaughan, 1982), organizations (Waters,1978), market structures (Farberman, 1975), in-dustries (Denzin, 1977; Tillman & Pontell, 1995),and governments (Glasberg & Skidmore, 1998).Unlike Waters (1978), who focused exclusively

TABLE 1Distinction Between OCI and CO Phenomena

Attribute OCI Phenomenon CO Phenomenon

Perpetrator Individuals usually; sometimes groups Group(s) always

Beneficiary Individuals Organization primarily

Victim Organization One or more entities outside theorganization

Norms violated Organizational usually; sometimes legal aswell

Legal usually; societal always

Consequences of detection Individual level Organization level; sometimes individuallevel as well

Interaction/collusionamong perpetrators

Not necessary Essential

Organizationalintentionality

Usually unintentional Typically deliberate

Organization’scriminogenic role

Would typically be crime facilitative Could be either crime coercive or crimefacilitative

Rationale for being atorganization level

Descriptive of organization; caused byorganization-level factors

Organization is the beneficiary and isculpable in case of detection

Key metric Numbers of employees Corporate illegality

Nature of phenomenon Continuous (high/low) Discrete (yes/no)

Time taken to manifest Typically gradual; relatively slow Relatively fast

Where manifested Typically manifested at the “periphery” ofthe organization

Almost always involves the “core” of theorganization

Selection effects Low integrity and/or low conscientiousness High conscientiousness and/orconstellation of personality facets

Socialization effects Relatively more covert than CO Relatively more overt than OCI

Social networkmechanisms

Yes, but mostly through networks internal tothe organization

Yes, but through network memberstypically internal and external to theorganization

Cognitive mechanisms Yes, but mostly through individual-levelsensemaking

Yes, some organization-levelsensemaking, but more “scripting,”“routinization,” and“institutionalization‘

Social psychologicalmechanisms

Yes, through pluralistic ignorance andsocial identity other than organizationalidentity

Pluralistic ignorance unlikely but AbileneParadox possible; organizationalidentity could be a factor

Emotional mechanisms Yes, through ambient emotion and socialrumination

Unlikely


on the CO phenomenon, we argue that OCIs canalso be criminogenic.

Needleman and Needleman (1979) distin-guished between organizations that can becrime coercive by, for instance, pressuring theirmembers to commit corrupt acts that directlyfurther their goals, or crime facilitative by indi-rectly encouraging corrupt behavior. While theCO phenomenon could be the result of eithertype of criminogenesis, the OCI phenomenonwould typically manifest only in crime-facilita-tive organizations, since it is unlikely that orga-nizations would coerce employees into beingcorrupt against it. As Needleman and Needle-man note, “Scholars have focused disproportion-ately on tightly integrated systems capable ofcompelling illegal behavior from system mem-bers [i.e., crime coercive], neglecting the moreloosely organized systems whose structures pro-mote individual crime in subtler ways [i.e.,crime facilitative]” (1979: 518). This comportswith our distinction between CO and OCI phe-nomena.

In the case of OCI, the phenomenon mayarise without the organization’s intending tocreate it, and often against the interests andintentions of the organization (Tenbrunsel &Messick, 1999). But in the case of the CO phe-nomenon, members of the organization inten-tionally undertake the behavior. Also, follow-ing Kozlowski and Klein, who posit that “time-scale differences allow top-down effects onlower levels to manifest quickly, while bot-tom-up emergent effects manifest over longerperiods” (2000: 23), we would expect CO phe-nomena to develop more rapidly than OCIphenomena. Having said that, there have beenrecent arguments by social psychologists(Darley, 2005; Tenbrunsel & Messick, 2004) sug-gesting that CO could develop gradually aswell. Tenbrunsel and Messick (2004) haveidentified two separate psychological mecha-nisms that make up the “slippery slope” ofdecision making: psychological numbing,which comes from repetition, and the processof induction, which is similar to Kelman andHamilton’s (1989) process of routinization. Dar-ley’s (2005) basic thesis is similar, in that cor-rupt practices could be stumbled into, withoutexactly being intentional, through processeslike automatic self-interested intuitive judg-ments and group loyalty and commitment.

ANTECEDENTS OF ORGANIZATION-LEVELCORRUPTION PHENOMENA

In keeping with our primary objective of de-fining and delineating two organization-levelcorruption phenomena, our focus here is onidentifying their different dynamics with com-mon antecedents. For a broader examination ofthe antecedents of the CO phenomenon, wepoint readers to the sociology and managementliterature (Baucus, 1994; Coleman, 1998; Finney& Lesieur, 1982; Gioia, 2002; Shover & Bryant,1993; Szwajkowski, 1985; Yeager, 1986) and, withregard to individual-level corruption, to the or-ganizational behavior and business ethics liter-ature (Brass et al., 1998; Jones, 1991; Jones &Ryan, 1997; Robinson & Bennett, 1995; Zey-Ferrell& Ferrell, 1982; Zey-Ferrell, Weaver, & Ferrell,1979).

In discussing key common antecedents of OCIand CO, we follow Sethi and Sama (1998) indistinguishing between internal and externalantecedent variables. Further, following tradi-tion in the corruption literature, we classify vari-ables into motivation based and opportunitybased (cf. Ashforth & Anand, 2003; Coleman,1998). Figure 1 provides a schematic overview ofthe antecedents and their different relationshipswith the two forms of organizational corruption.

Internal Antecedents

Organization structure, which is opportunityrelated, and result orientation, which is motiva-tion related, are the two organization-level an-tecedents we discuss in this section.

Organization structure. Organization theoristshave consistently identified opportunities forthe commission of corruption and related actsbased on organization structure (Finney & Le-sieur, 1982; Hill et al., 1992; Szwajkowski, 1985;Vaughan, 1983; Waters, 1978). Aspects of the or-ganization structure that could facilitate corrup-tion include processes and tasks (Vaughan,1999), positional relationships (Szwajkowski,1985), and hierarchical levels and departmentalboundaries (Beamish, 2000). However, corruptionscholars have not distinguished between group-level and individual-level structural opportuni-ties (see Hill et al., 1992, for an exception). Webelieve this is a critical gap, because each typeof structural opportunity could give rise to adifferent type of organization-level corruption.


At the individual level, either occupationscould have a “built-in opportunity” (Vardi &Wiener, 1996) for corruption—for example, ac-countants, bookkeepers, and clerks may have

many opportunities for embezzlement (Coleman,1998)—or an individual offender’s position in astructure may explicate the social organizationof misconduct (e.g., Daly, 1989; Shapiro, 1990;

FIGURE 1Common Antecedents, Differential Impacts

Key: Shaded boxes indicate common antecedents, italicized text indicates motivation-related antecedents, underlined textindicates opportunity-related antecedents, and italicized underlined text indicates both motivation- and opportunity-relatedantecedents.


Vaughan, 1999). For instance, the insider tradingscandals of the 1980s occurred partly becauseinvestment bankers operated in loosely coupledsets of complex, “information-oriented” relation-ships that made it difficult to supervise themthrough traditional hierarchical control struc-tures (Reichman, 1993). In such cases structuralequivalence or role equivalence may be the dif-fusion mechanism. Research indicates that em-ployees use structural equivalents to resolverole ambiguities (Hartman & Johnson, 1989);hence, job-related corrupt practices that benefitthe job holder (e.g., purchasing agents acceptingbribes; cf. Coleman, 1998) could result in an OCIphenomenon through structural equivalence.

The relationship between group-level struc-tural opportunities and corruption has beentested by researchers considering such vari-ables as diversification and decentralization(Hill et al., 1992), geographic dispersion(Vaughan, 1983), or all of the above (Sonnenfeld& Lawrence, 1978). Group-level structure pro-vides potent opportunities for the CO phenome-non for three reasons. First, isolating subunitsallows senior managers to be “willfully blind”(Braithwaite, 1989). Second, decentralization or“compartmental insulation” (Goffman, 1970: 78)limits exposure (Yeager, 1986), making it diffi-cult to uncover the entire network of corrupt in-dividuals, particularly its leaders (Baker &Faulkner, 1993). Third, the more decentralized anorganization, the more likely it is that divisionalmanagers will engage in behaviors that willmake them “look good” before the corporate of-fice (Daboub et al., 1995; Gioia, 2002). These ar-guments suggest that loose coupling betweensubunits and the corporate office could lead tothe CO phenomenon.

Proposition 1a: Organizations havinga relatively large number of jobs thatare autonomous and difficult to super-vise/monitor will be more likely tomanifest the OCI phenomenon.

Proposition 1b: Organizations havingsubunits that are loosely coupled willbe more likely to manifest the CO phe-nomenon.

Result orientation. The linkage between resultorientation and the CO form of organizationalcorruption has been studied in the literature un-der such labels as performance emphasis

(Finney & Lesieur, 1982), incentive systems (Hillet al., 1992), pressure for performance/output(Baucus, 1994), structure and control systems(Daboub et al., 1995), and “the call of the shareprice and share-holder return” (Gioia, 2002: 143).To the extent that such incentive systems aretied to organization-level performance indica-tors (e.g., revenue targets or firm profitability),low-performing units will be likely to engage inCO-type corruption.

If compensation is not strongly linked to busi-ness results, it is the high performers who mayexperience higher distributive injustice and bemore likely to adopt corrupt practices in order tobalance the input-outcome scales. Justice theo-rists suggest that people respond to unfair rela-tionships by not only displaying negative emo-tions but also acting so as to redress theexperienced inequality (Greenberg, 1987;Homans, 1961; Walster, Berscheid, & Walster,1973), and such acts may include theft, amongother corrupt acts (Greenberg, 1990; Hollinger &Clark, 1983; Mars, 1973, 1974; Vardi & Wiener,1996). Further, thoughts and feelings about jus-tice are particularly susceptible to contagionand, ultimately, are more likely to spread and bemaintained across entire networks or groups(DeGoey, 2000).

Drawing on the social networks literature, wesee that it is more likely that high performers’perceptions of injustice will infect the organiza-tion more rapidly and extensively since theyhave higher centrality in advice networks (cf.“law of the few”; Gladwell, 2000; Sparrowe, Li-den, Wayne, & Kraimer, 2001). Also, if the ad-versely affected individuals engage in socialrumination (Bies et al., 1996), it is likely thatattributions of responsibility will emerge duringthe social interaction (Bies & Tripp, 1996), resultin the formation or strengthening of collectivejudgments of injustice (DeGoey, 2000), and man-ifest in an OCI phenomenon. While the preced-ing discussion implies a gradual corrupting oforganizational members, unexpected eventssuch as pay cuts or layoffs could trigger a morerapid spread of corruption (DeGoey, 2000; Green-berg, 1990).

Proposition 2a: Organizations inwhich there is a strong linkage be-tween achieving business results andcompensation will be more likely tomanifest the CO phenomenon.


Proposition 2b: Organizations inwhich there is a weak linkage be-tween individual performance andcompensation will be more likely tomanifest the OCI phenomenon.

External Antecedents

Following Daboub et al. (1995), we focus ontwo important external antecedents that affectcorruption: (1) environmental scarcity and (2) in-dustry structure and norms. While environmen-tal scarcity and industry norms could providethe motivation for corruption, we expect industrystructural features like critical dependencies onparticular entities to be both an opportunity anda motivation for corruption.

Environmental scarcity. Environmental scar-city and competitive pressures (including strongand sometimes oligopolistic competition, rela-tively undifferentiated products, and frequentprice negotiations) are among the most impor-tant external pressures for organizational crime(Finney & Lesieur, 1982; Staw & Szwajkowski,1975). Competition could provide the motivationfor the CO phenomenon by restricting legiti-mate means of acquiring resources or attainingdesired levels of performance (Sethi & Sama,1998; Vaughan, 1983; Waters, 1978). Sonnenfeldand Lawrence (1978) found that although thefolding carton industry’s very diffuse structurewas the antithesis of the tight-knit oligopolyeconomists typically associate with collusivebehaviors, the crowded and mature market wasone of the primary drivers of price-fixing behav-iors.

Environmental scarcity generally has notbeen examined in relation to the OCI phenom-enon, but we believe it would have a negativeassociation. In scarcity situations there is agreater chance that the corrupt behaviors asso-ciated with OCI would be detected because oftighter controls and monitoring. Conversely, inhigh-profitability or monopoly industries, firmsmight be less vigilant about monitoring andcontrolling expenses (thereby providing the op-portunity), and employees could adopt a “denialof injury” technique of neutralization (Sykes &Matza, 1957) and “figure . . . [the organization]has got plenty of money and a few cents don’tmean nothing to them” (Horning, 1970: 55), lead-ing to greater likelihood of the OCI phenome-non. These differences in the relationship be-

tween environmental scarcity and the twoorganizational corruption phenomena are artic-ulated in Proposition 3.

Proposition 3a: Organizations facingenvironmental scarcity will be morelikely to manifest the CO phenomenon.

Proposition 3b: Organizations facingenvironmental scarcity will be lesslikely to manifest the OCI phenomenon.

Industry structure and norms. Daboub et al.(1995: 141) have posited that firms in certain indus-tries are more likely to commit corrupt acts (Bau-cus & Near, 1991; Simpson, 1986) and that firms incertain industries have similar rates of corruptionactivity (Cressey, 1976). There are significant dif-ferences across industries in legal structure, reg-ulation, government monitoring, and opportunityfor wrongdoing (Daboub et al., 1995; Szwajkowski,1985), and the incidence of corruption can be ex-plained by these variations (Svensson, 2003). Inmore highly regulated industries, regulators maybe bribed to “look the other way,” or an agencymight drift into protecting the industries and orga-nizations it was mandated to oversee (cf. “cap-tured” regulator; Szwajkowski, 1985). Extractive re-source (O’Higgins, 2006) and building construction(Black, 2004) are examples of industries that arestructurally vulnerable to CO-type corruption.

Industry norms, variously labeled industrymindsets, industry culture, and industry recipes(Christensen & Gordon, 1999; Phillips, 1994;Spender, 1989), are described as “taken-for-granted assumptions which most describe a co-hesive industry’s character” (Huff, 1982: 125) or“the business-specific world-view of a definable’tribe’ of industry experts” (Spender, 1989: 7).Baucus and Near (1991) have posited that if anindustry culture (the behavioral norms thatfirms in an industry share) allows for illegalacts, firms in the industry are more likely toengage in wrongdoing (Clinard & Yeager, 1980;Cressey, 1976; Simpson, 1986). Further, as Waters(1978) has pointed out, it is extremely costly foran individual firm to avoid such practices insuch an environment. Thus, the more stronglyheld these norms are—the more cohesive the in-dustry—the greater the likelihood organizationswithin it will manifest the CO phenomenon.

The OCI phenomenon builds from the accu-mulation of individual-level corrupt behavior,and in the substantial literature on individual-


level ethical decision making,3 we found no ev-idence that industry structure and norms play adirect role in distinguishing among firms (e.g.,Robertson & Crittenden, 2003). One explanationfor this is that it is at least two levels removedfrom that at which the behaviors take place. Wefollow this pattern in the literature and do notpredict a role for industry structure and normson the OCI form of corruption.

Proposition 4a: Organizations operat-ing in industries with structures thathave critical dependencies on otherentities will be more likely to manifestthe CO phenomenon.

Proposition 4b: Organizations operat-ing in industries having relativelystrongly held industry recipes will bemore likely to manifest the CO phe-nomenon.

OCCURRENCE OF ORGANIZATION-LEVELCORRUPTION PHENOMENA

One of our motivations for distinguishing be-tween the two organization-level phenomenawas to clarify the term corrupt organization,which was being used to refer to both types ofphenomena indiscriminately. Having done that,if the two phenomena were mutually exclusive,we could simply trifurcate organizations intoethical organizations, corrupt organizations,and organizations of corrupt individuals. How-ever, since both phenomena can coexist in thesame organization, we develop a four-cell typol-ogy to cover all possibilities—that is, a particu-lar organization may manifest either, both, orneither of these two corruption phenomena. This

approach intensifies the focus on the organiza-tion level by relating the phenomena to organi-zations themselves. It also provides a more nu-anced nomenclature to classify organizationsand guide more fine-grained empirical researchin terms of the prevalence of each type of orga-nization and the concomitant causes and conse-quences.

In order to clearly distinguish between theoccurrence of one phenomenon and the occur-rence of another within an organization, weadopt a stylized approach similar to “idealtypes” (Doty & Glick, 1994; Duncan, 1971; Weber,1949), which simplifies complex situationsthrough abstraction of specific characteristics.The process of completely defining the set ofideal types, which is a characteristic of typolo-gies (Doty & Glick, 1994), has resulted in a morecrystallized description of the phenomena asthey are likely to occur.

As noted earlier, while the CO form typicallyinvolves the top management team or the dom-inant coalition, and perhaps other organizationmembers as well, here we consider the ideal-typescenario in which only the top management ordominant coalition (i.e., the “core” of the organi-zation) is engaged in corruption and the rest ofthe organization is not. Conversely, we considerthe stylized OCI scenario in which the person-ally corrupt behaviors are only being under-taken by those outside the core of the organiza-tion—that is, those in the “periphery.” In usingthe terms core and periphery, we follow Borgattiand Everett (1999), who defined core/peripherystructures as having two classes of actors: acohesive core group with dense ties amongmembers (e.g., dominant coalition) and a periph-eral group whose members are loosely tied tothe core, which, in our case, would include theother members of the organization. Our ap-proach has similarities to Wirl’s (1998) modelingof the spatial and dynamic aspects of corrup-tion, in which he showed that a blend of socialpressure and economic incentives is capable ofexplaining complex behavior.

Although we refer to these scenarios as styl-ized, we do not imply that their occurrence ishighly unlikely. Both our discussion of OCI andthe literature on occupational or white collarcrime (Glasberg & Skidmore, 1998) suggest thatOCI would diffuse across certain professions,workgroups, or hierarchical levels. This sug-gests that OCI would typically occur outside the

3 In Loe, Ferrell, and Mansfield’s (2000) review, 101 out of 118empirical studies of ethical decision making concerned indi-vidual and organizational factors while the rest were issuerelated. Brass et al. (1998) classified antecedents to unethicalbehavior into individual, organizational, and issue-related fac-tors. Trevino (1986) considered the impact of individual andsituational moderators on cognitive moral development. Vardiand Wiener (1996) considered only individual and organization-al determinants of organizational misbehavior. Jones andRyan (1997) considered individual and issue-related factors.Ferrell and Gresham (1985) considered issue-related factors,individual factors, significant others, and opportunity. AndRobertson and Crittenden (2003) hypothesized antecedents atthe levels of the organization, the economy, and society, but notat the industry level.


core—that is, in the periphery. There have beensome notable cases of personally corrupt behav-iors at the core of the organization—the CEOand directors, benefiting themselves at the costof the organization (e.g., Dennis Kozlowski, CEOof Tyco, and John Rigas, CEO of Adelphia)—butthis would not be an example of OCI, since onlyone or a few organizational members were in-volved. Similarly, in a CO phenomenon, in orderto minimize detection by regulators or whistle-blowing by employees, senior managementcould be expected to restrict involvement to onlythose core members who are absolutely neces-sary to carry out the corrupt practice. Thus, sincean organization could manifest either a high orlow level of each of these scenarios, juxtaposingthem results in the four-cell matrix depicted inFigure 2.

We term organizations characterized by lowlevels of both the CO and the OCI phenomenathoroughly ethical organizations. These are or-ganizations that have successfully inhibited ordeterred employees from engaging in corruptpractices, either for their personal benefit or forthe benefit of the organization. In these organi-zations one would expect the ethical infrastruc-ture to be well developed (Tenbrunsel, Smith-Crowe, & Umphress, 2005). It is possible thatfirms that are consistently ranked among themost ethical organizations or the best corporatecitizens may also have systems and processes

that inhibit the OCI phenomenon and, thus,could be examples of thoroughly ehtical organi-zations.

We term those organizations in which the topmanagement is not engaging in corrupt behav-iors for the benefit of the organization but inwhich the members are acting corruptly in theirown self-interest peripherally corrupt organiza-tions. For the OCI phenomenon to occur, theremust be an opportunity and a motivation to en-gage in corruption. With regard to the former,individuals’ jobs could provide structural oppor-tunities, while the motivation could come from aweak performance-reward linkage or low wagesand accompanying feelings of injustice. Theseconditions are typical in such industries as foodservice and retail and in government organiza-tions. Further, government organizations tend tobe financially munificent and tend not to moni-tor employees very closely, providing greateropportunity for OCI. Newspapers are anotherexample, where journalists typically have jobsthat are autonomous and difficult to supervise,and the organization’s performance-based re-wards would pale in comparison with the celeb-rity derived from “scooping” one’s rivals.

The term hypocritically corrupt organizationsdescribes organizations that are in the high-CO,low-OCI cell. These organizations may hold em-ployees to high standards of integrity and hon-esty but at their core are engaging in CO-type

FIGURE 2A Typology of Organizations Based on Occurrence of OCI and CO Phenomena


corrupt behaviors. Our labeling is consistentwith a new and promising stream of researchthat has focused on various forms of organiza-tional hypocrisy (Brunsson, 1989; Fernandez-Revuelta Perez & Robson, 1999; Huzzard & Oster-gen, 2002; Simons, 2002; Spiegel, 1999). Hypocrisysuggests a lack of alignment. This could be be-tween words and deeds (Simons, 2002; Trevino &Brown, 2004); between talk, actions, and organi-zational goals (Fernandez-Reveulta Perez &Robson, 1999); or between beliefs and words, onthe one hand, and beliefs and actions, on theother (Spiegel, 1999). In a sense, this situation isanalogous to the interdependence between or-ganizational identity and organizational image(Dutton & Dukerich, 1991; Gioia, Schultz, & Cor-ley, 2000). We expect to find such organizationsin extremely competitive consumer markets, forexample, where, because the margins are soslim, there is the motivation not only to engagein CO-type behaviors but also to have effectivecontrol systems that inhibit the OCI phenome-non.

Thoroughly corrupt organizations are those inwhich both CO and OCI phenomenon are prev-alent. These organizations, too, have the exter-nal pressures to engage in CO-type behavior,but unlike hypocritically corrupt organizations,they are more likely to be found in industriesserving institutional clientele (e.g., governmentdefense contractors) with whom they have criti-cal interdependencies. Marketing to institu-tional clients typically results in jobs that aremore autonomous and difficult to monitor,thereby creating the opportunity for personallycorrupt behaviors. This situation is exemplifiedby Glasberg and Skidmore’s (1998) analysis ofthe savings and loan industry’s crisis of the1980s and early 1990s. These authors found evi-dence of both white collar or occupational crime(OCI) and corporate crime (CO). More recently,Enron was a prime example of the coexistenceof both organization-level corruption phenom-ena.

One explanation for such scenarios—an ex-planation more top down in nature—is that em-ployees who are aware that their organizationwillfully indulges in corrupt practices may feeljustified in being corrupt themselves (Cialdini,1996). At the same time, a corrupt practice thatbegins at a lower level could percolate upward,in a bottom-up manner. This could happen in ascenario where employees who are engaging in

OCI-type behavior for personal gain (e.g., pad-ding expense accounts) in a low-performance-reward-linkage environment, could, if the link-age were strengthened, switch to CO-typecorrupt behaviors (e.g., offering bribes for pre-ferred contracts) in order to earn the high rewardsmore “legitimately” through promoting organiza-tional interests.

CONCLUSIONS AND IMPLICATIONS

We have introduced a new conceptualizationof an organization-level corruption phenomenon(OCI) and delineated it from an existing one(CO). We have discussed antecedents of eachphenomenon and considered stylized scenariosin which a particular organization may manifesteither, both, or neither of these phenomena. Weorganize our discussion and conclusions aroundtwo key points: (1) the phenomena themselvesand (2) the occurrence and prevalence of each.

Phenomena

Our conceptualization of OCI falls within thefamily of other organization-level deviant phe-nomena that are scaled up from the individuallevel, such as the behaviors that result in an“uncivil organization” (Andersson & Pearson,1999), or “organizational silence,” in which or-ganizational forces cause widespread withhold-ing of information about potential problems orissues by employees (Morrison & Milliken, 2000).Thus, the OCI perspective developed in this pa-per uses as its model an established approachto understanding multilevel phenomena. How-ever, considering the relative complexity of cor-rupt behaviors as compared to incivility or si-lence, we harness a host of linking mechanismsin our model. While selection appears to play arelatively more important role for OCI, whetherthe converse of that (i.e., socialization plays amore important role for CO) holds is an openempirical question. Within the socializationmechanisms, future research is needed to iden-tify whether there are configurations of cogni-tive, psychological, affective, and networkmechanisms that act together to create the twoorganizational corruption phenomena.

We conceptualize OCI as predominantly indi-viduals acting alone, but there is both empiricalevidence (Mars, 1974) and econometric modeling(Chang & Lai, 2002) of OCI phenomena in which


organizational members collude for their per-sonal benefit at the cost of the organization.While further research is needed to identifywhich of these two situations is more common,and therefore more representative of OCI, weargue for the former—individuals acting alone.Further, the latter (i.e., individuals colluding)could be viewed as a special or more extremecase of OCI where the antecedent variables andprocesses exist in such forms and levels thatopportunities and motivations for personal cor-ruption escalate to the group level.

This leads to another avenue for future re-search: the functional form of OCI. What is theshape of the OCI diffusion curve? At what rangeof values does it cross the critical threshold ortipping point to become an organizational phe-nomenon? Under what conditions does itchange from being an aggregation of individu-als acting alone to an aggregation of individu-als whose behavior defines the organization it-self? Under what circumstances would OCIresult from composition processes rather thanfrom compilation processes, and vice versa?

Since OCI is a continuous variable, it is moreamenable to being measured as an index thatwould indicate the extent to which an organiza-tion suffered from the OCI phenomenon. Thisapproach has parallels at both the individuallevel (e.g., index of CWB; Dalal, 2005) and thecountry level (e.g., level of corruption; Transpar-ency International, 2001; World Bank, 2000). Mea-suring OCI through an index is an empiricalchallenge, since the majority of these behaviors,by definition, go unnoticed and therefore un-measured. However, it is possible to use surro-gate measures of behaviors (e.g., “shrinkage” tomeasure employee theft) or even survey meth-ods of both behaviors and attitudes to obtainsome indication of OCI manifestation. Althoughsurvey methods could suffer from social desir-ability bias, the experience of industrial-orga-nizational psychologists with integrity tests ap-pears to indicate that even when the stakes arehigh (e.g., employment), people admit to wrong-doing, probably because they believe that it iswithin societal norms (American PsychologicalAssociation, 1991; Bernardin & Cooke, 1993; Mur-phy, 1993).

While our definition of the CO phenomenon islargely based on existing literature, our discus-sion of antecedent processes identifies an un-derexplored area. To what extent is it the result

of individual differences and selection pro-cesses? Industrial-organizational psychologistshave extensively studied personality factorsthat could lead to OCI-type behaviors, but arethere facets ranging from “intensity of loyalty”to simple arrogance that could predict CO-typebehaviors? What are the personality facets of“good soldiers” that could transform them into“bad apples” (e.g., the Abu Ghraib scandal)?While the literature overwhelmingly describesCO-type phenomena as group activity, therecould be the exceptional situation of an individ-ual who undertakes a corrupt behavior that ben-efits the organization (cf. “official corruption”;Banfield, 1975). The prevalence of these situa-tions needs to be documented empirically.

The theoretical distinction between OCI andCO suggests a possible explanation for some ofthe mixed empirical results obtained by orga-nizational corruption researchers. For example,one of the earliest sociological theories ad-vanced to explain white collar crime was the“differential association” theory (Sutherland,1949). The hypothesis of differential associationis that criminal behavior is learned in associa-tion with those who define such behavior favor-ably and in isolation from those who define itunfavorably (Albanese, 1988). Albanese (1988)cited four studies that tested the differential as-sociation hypothesis (Albanese, 1982; Clinard,1946; Geis, 2002; Lane, 1953) and noted that nonefound conclusive support for it. One possiblereason for this lack of empirical support is thatdifferential association is essentially an indi-vidual-level contagion theory (Albanese, 1988).As such, it may be an appropriate framework forempirically studying an OCI phenomenon suchas widespread theft, but using it to explain CO-type phenomena such as price-fixing behaviorsmay not be appropriate.

Similarly, Daboub et al. (1995) have noted thesurprising lack of relationship between organi-zational slack and performance and illegal be-havior. In their discussion of illegal behaviors,they mention examples such as OSHA and EPAregulation violations, as well as anticompetitiveactions. In the case of OSHA and EPA violations,it is possible that individual managers who areresponsible for ensuring that the organizationadheres to these regulations are personally cor-rupt in neglecting their responsibilities, whichmay not be related to organizational slack,while anticompetitive action is a more active,


deliberate CO-type phenomenon, which couldbe motivated by organizational slack. However,empirical investigation is needed to establishthe explanatory power of these distinctions.

Occurrence

The prevalence of corrupt behaviors in orga-nizations appears to be quite high in the UnitedStates. A recent survey found more than half ofU.S. employees observed at least one exampleof workplace ethical misconduct in the previousyear, and 36 percent observed two or more (Eth-ics Resource Center, 2005). In another survey of725 executives and managers, 65 percent of therespondents had personally observed or ob-tained direct evidence of one or more types offraud, waste, and overstatement of cost or mis-management within their organizations(Keenan, 2000). This raises such questions as“What sense do employees make of these obser-vations?” and “How does this impact organiza-tion-level corruption?”

Further, studies are needed to estimate thebase-rate prevalence of the four types of orga-nizations and the contingencies that could influ-ence their categorization. Organization size maybe one such contingency. It is plausible thatamong very large and very small firms, the prev-alence of hypocritically corrupt organizations ishigh, whereas peripherally corrupt organiza-tions are more likely to be medium in size. Thiscould be because both large and small organi-zations might be motivated to engage in CO-type corruption—the former for growth impera-tives and the latter for survival—and would beable to nip OCI-type corruption in the bud, theformer through sophisticated systemic internalcontrols and the latter through informal norms.However, medium-size organizations whosecontrol systems may not be as sophisticated asthose of large organizations and whose sizewould afford relatively more opportunities forpersonal corruption might be more likely tomanifest OCI-type behaviors. Further, theymight engage in fewer CO-type behaviors be-cause they would be relatively more stable thansmall organizations and relatively less pres-sured by the “call of the share price and share-holder return” (Gioia, 2002: 143), compared tolarge organizations.

Although corruption against the organizationand corruption for the organization may appear

to be antithetical, they are related in manyways. A similar line of inquiry is being pursuedat the individual level in terms of the relation-ship between CWB and OCB (Dalal, 2005; Spec-tor & Fox, 2002). At the individual level we havealready suggested that self-monitoring propen-sity may create the potential for either corrup-tion phenomenon to occur. Thus, while conven-tional wisdom suggests that individuals high inself-monitoring may be more amenable to beingmolded into an organization’s culture, our papersuggests that this might be dangerous from theperspective of corruption. Furthermore, the dif-ferent dynamics between the antecedents at theorganization and environmental levels and thetwo corruption phenomena suggest that if man-agement attempts to control one form withoutbeing cognizant of the other, it might merelymove the corrupt behaviors from one form to theother.

The dynamics between government and cor-porate organizations have been a subject of re-cent interest, as evidenced by the Special TopicForum on Do Governments Matter? in AMR (seeRing, Bigley, D’Aunno, & Khanna, 2005). We be-lieve our theorizing contributes to this discus-sion. As noted earlier, we expect governmentregulatory agencies like EPA or OSHA to bemore likely to be peripherally corrupt. This begsthe question of whether corrupt companies cre-ate OCI government agencies or whether thecriminogenesis is the other way around. Anotheropen empirical question with regard to crimino-genesis is between crime-facilitative OCI andcrime-coercive CO. Which is more costly for so-ciety? The former case may corrupt more indi-viduals and could adversely impact society’smoral fabric in the long term; however, the lattermay have more serious immediate economicconsequences.

While OCI-type behaviors will typically bemore covert and CO-type behaviors more overt,if senior management detects either situationbut does not act against the perpetrators, the“broken window” theory (Kelling & Coles, 1996)suggests that the contagion could be even morerapid and long-lasting. According to this theory,if a window is broken and left unrepaired, peo-ple walking by will conclude that no one caresand no one is in charge. Soon more windowswill be broken, and the sense of anarchy willspread from the building to the street on which itstands. Similarly, whichever type of corruption


behavior is noticed but not checked by manage-ment could result in its spread through the or-ganization.

Finally, while it may seem that the organiza-tion benefits in one form of corruption (CO) andloses in the other (OCI), in both cases the orga-nization runs the risk of eventual extinction ifmanagement is either unaware of the situationor is aware of the situation and does not takeaction. In the CO form, some senior manage-ment may be unaware that groups are actingcorruptly because of group-level structuralholes, and if the violation is sufficiently serious,the organization could die an immediate death(e.g., Arthur Andersen & Associates). In the OCIphenomenon, the organization could graduallybe “nickel and dimed” to death by the recurringcorrupt behaviors of its members. Decidingwhich case is most harmful is an open question.

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Jonathan Pinto ([email protected]) is a doctoral candidate at the Katz GraduateSchool of Business, University of Pittsburgh. His dissertation research focuses onbiases and heuristics in team member selection decisions. He will be joining theTanaka Business School at Imperial College, London, effective September 1, 2008.

Carrie R. Leana ([email protected]) is the George H. Love Professor of Organizations andManagement at the University of Pittsburgh. Her current research focuses on socialcapital, job customization, and organizational behavior and the working poor.

Frits K. Pil ([email protected]) is associate professor and research scientist at theUniversity of Pittsburgh Katz Graduate School of Business and the Learning ResearchDevelopment Center. He received his Ph.D. from the Wharton School. His work ex-plores intra- and interorganizational innovation, learning, and change; he has aparticular interest in multilevel theory development and testing.


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