Why Good People Do Bad Things

Steps can be taken to pinpoint and foil premeditated corporate and white-collar crime committed by workers trying to beat the system for their own self-interest. But what about wrongdoing committed by workers who unwittingly engage in illegal activities that become woven into the fabric of the company?

Professor Michael Maher, an authority on financial fraud and auditing, and Professor Donald Palmer, an expert on organizational behavior and corporate governance, recently joined forces to explore why ethical people may engage in criminal acts—and what corporations can do to prevent it.

Their study, “Developing the Process Model of Collective Corruption,” was published in the December issue of the Journal of Management Inquiry. Palmer gives the topic longer treatment as “Extending the Process Model of Collective Corruption,” a chapter in the forthcoming annual Research in Organizational Behavior (JAI Press, September 2007).

Much corporate wrongdoing is the result of mindless behavior, the product of mundane organizational structures such as rules, hierarchy, standard operating procedures and the division of labor.–Professor Donald Palmer

Their research probes such scandals as the Ford Motor Company’s Pinto, American Home Products’ Fen-Phen, B.F. Goodrich’s brake fraud case and the fixing of two television game shows. Their joint article also discusses several insidertrading scandals on Wall Street in the 1980s.

“Most of the cases we look at involve ordinary people doing ordinary things,” said Maher, who once quit a job because he was asked to “push the envelope” on valuing a piece of property.

Their findings: contrary to popular perception, much corporate and white-collar crime is not the result of deliberately illegal  actions consciously undertaken for personal or organizational gain.

Instead, said Palmer, “Much wrongdoing is the result of mindless behavior, the product of mundane organizational structures such as rules, hierarchy, standard operating procedures and the division of labor. Informal power relationships, incomplete information, professional norms, even technology can all play a role in creating an environment that fosters a collective corruption.”

Problems occur when a line is crossed—and crossed again and again—in the routine of getting the job done. Actions reach a tipping point when the everyday turns criminal.

“If you keep pushing the speed limit, each increment isn’t much, but it adds up,” noted Maher.

“Every small indiscretion brings a rationalization, which in turn lays the foundation for the next slightly more significant indiscretion,” explained Palmer, who teaches a course on the causes of corporate and white-collar crime.

Palmer said many factors can start someone down such a path. “The simplest is formal authority, when a manager instructs an employee to follow a questionable course of action, and the employee obeys, because that’s what subordinates are supposed to do in organizations—obey their managers.”

If organizations want to ensure they operate within the law, Maher and Palmer conclude, managers’ efforts must extend beyond awareness and prevention of deliberately unethical activities.

They also need to keep a keen eye out for the less obvious organizational structures that could potentially result in criminal activity.

Popular measures aimed at reducing corporate and white-collar crime, such as ethics training and legal reforms, are important but of limited value. According to Maher, “These approaches assume that people are predisposed to do wrong or that they make decisions based on cost-benefit calculations or a deliberate assessment of what’s considered the norm in their environment.”