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Innovator Article

“Normal” Organizational Wrongdoing

By Professor Donald Palmer

When people such as Bernard Madoff or firms such as Enron are found to have engaged in shady dealings, news commenta- tors, social critics and even scholars loudly condemn the offenders. For the most part, they have framed wrongdoing as an abnormal phenomenon.

Recently, though, theorists and researchers have begun to view wrong-doing as a normal phenomenon with a range of explanations. This turn has important implications for those interested in finding ways to curb wrongdoing.

Wrongdoing is normal in at least four respects. First, it is prevalent. As I began this article in April, three major instances of misconduct made the news over two days: Wal-Mart de México’s bribery case; fraud perpetrated by top managers of the U.S. Immigration and Customs Enforcement agency; and Rupert Murdoch’s testimony regarding his newspaper’s illegal phone hacking.

Second, wrongdoing is often not much different than right doing. This is particularly true of bribery, where lines are blurred between legal and illegal exchange, or at least officially tolerated gifts.

Third, even though wrongdoers are often cast as malevolent, for the most part they are ordinary and even morally upstanding people and firms.

Fourth, and most important, wrong-doing is generated by organizational structures and processes that are pervasive in organizations and that are also responsible for right doing.

The Plethora of Normal Causes of Organizational Wrongdoing

Rational choice and culture – When analyzing the causes of the recent financial crisis, proponents of a “rational choice” explanation pointed to investment bankers’ “greed” and regulators’ failure to keep it in check. Proponents of a “culture” explanation blamed the industry culture in which investment bankers viewed clients as stupid and fair game for manipulation.

Administrative systems – These explicit guidelines tell managers and employees what they should do when they confront specific work situations, but the rules can give rise to wrongdoing.

Power structures – Pecking orders and chains of command resolve problems quickly and facilitate coordination, but can cause subordinates to engage in wrongdoing. In the Wal-Mart de México bribery case, the company quickly squashed an internal investigation, presumably because it implicated an executive who had engineered the firm’s most dramatic international expansion.

Situational social influence – Social relationships support attitudes and behaviors that help the company achieve goals, but also can foster wrongdoing by quashing dissent. Commitment processes are among the most powerful forces behind financial fraud. For example, faced with performance shortfalls, managers sometimes tweak accounting numbers to look better and are praised for their efforts, adding more pressure to keep the ruse going.

Implications for Managers and Employees

The view of wrongdoing as a normal phenomenon suggests managers and employees are often confronted with choices that place them in a gray area separating right from wrong, with pervasive forces that push them into the wrong.

Managers and employees need to become sensitized to the decidedly grey area in which they operate, and they must become familiar with the forces shaping their navigation of this terrain. If they can do this, they have a fighting chance of staying on the right side of the line.

Editor’s Note: Why do employees, managers and senior officials engage in illegal, unethical and socially irresponsible behavior? In his new book, Normal Organizational Wrongdoing (Oxford University Press, 2012), Professor Donald Palmer examines wrongdoing as a normal occurrence in which pervasive structures and processes help explain why itis so prevalent and why ordinary people are susceptible to perpetrating it.

The full version of this article is published in The European Financial Review (June/July, 2012).