The organizational aspects of corporate and organizational crime

van Erp, Judith Gabriël (Ed.) Book — Published Version The organizational aspects of corporate and organizational crime Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: van Erp, Judith Gabriël (Ed.) (2018) : The organizational aspects of corporate and organizational crime, ISBN 978-3-03897-259-4, MDPI, Basel, https://doi.org/10.3390/books978-3-03897-259-4 This Version is available at: https://hdl.handle.net/10419/193986 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/4.0/ The Organizational Aspects of Corporate and Organizational Crime Judith van Erp www.mdpi.com/journal/adminsci Edited by Printed Edition of the Special Issue Published in Administrative Sciences administrative sciences The Organizational Aspects of Corporate and Organizational Crime The Organizational Aspects of Corporate and Organizational Crime Special Issue Editor Judith van Erp MDPI •Basel •Beijing •Wuhan •Barcelona •Belgrade Special Issue Editor Judith van Erp University Utrecht Netherlands Editorial Office MDPI St. Alban-Anlage 66 Basel, Switzerland This is a reprint of articles from the Special Issue published online in the open access journal Administrative Sciences (ISSN 2076-3387) in 2018 (available at: http://www.mdpi.com/journal/ admsci/special issues/Organizational Crime) For citation purposes, cite each article independently as indicated on the article page online and as indicated below: LastName, A.A.; LastName, B.B.; LastName, C.C. Article Title. Journal Name Year,Article Number, Page Range. ISBN 978-3-03897-258-7 (Pbk) ISBN 978-3-03897-259-4 (PDF) Articles in this volume are Open Access and distributed under the Creative Commons Attribution (CC BY) license, which allows users to download, copy and build upon published articles even for commercial purposes, as long as the author and publisher are properly credited, which ensures maximum dissemination and a wider impact of our publications. The book taken as a whole is c 2018 MDPI, Basel, Switzerland, distributed under the terms and conditions of the Creative Commons license CC BY-NC-ND (http://creativecommons.org/licenses/by-nc-nd/4.0/). Contents About the Special Issue Editor ...................................... vii Judith van Erp The Organization of Corporate Crime: Introduction to Special Issue of Administrative Sciences Reprinted from: Adm. Sci. 2018,8, 36, doi: 10.3390/admsci8030036 ................. 1 Benjamin van Rooij and Adam Fine Toxic Corporate Culture: Assessing Organizational Processes of Deviancy Reprinted from: Adm. Sci. 2018,8, 23, doi: 10.3390/admsci8030023 ................. 13 Madelijne Gorsira, Linda Steg, Adriaan Denkers and Wim Huisman Corruption in Organizations: Ethical Climate and Individual Motives Reprinted from: Adm. Sci. 2018,8, 4, doi: 10.3390/admsci8010004 .................. 51 Kanti Pertiwi Contextualizing Corruption: A Cross-Disciplinary Approach to Studying Corruption in Organizations Reprinted from: Adm. Sci. 2018,8, 12, doi: 10.3390/admsci8020012 ................. 70 Nicholas Lord, Karin van Wingerde and Liz Campbell Organising the Monies of Corporate Financial Crimes via Organisational Structures: Ostensible Legitimacy, Effective Anonymity, and Third-Party Facilitation Reprinted from: Adm. Sci. 2018,8, 17, doi: 10.3390/admsci8020017 ................. 89 Clarissa Annemarie Meerts The Organisation as the Cure for Its Own Ailments: Corporate Investigators in The Netherlands Reprinted from: Adm. Sci. 2018,8, 25, doi: 10.3390/admsci8030025 .................106 A Comparative Analysis of Kim Loyens and Wim Vandekerckhove Whistleblowing from an International Perspective: Institutional Arrangements Reprinted from: Adm. Sci. 2018,8, 30, doi: 10.3390/admsci8030030 .................121 Sandra Schruijer The Role of Collusive Dynamics in the Occurrence of Organizational Crime: A Psychoanalytically Informed Social Psychological Perspective Reprinted from: Adm. Sci. 2018,8, 24, doi: 10.3390/admsci8030024 .................137 v About the Special Issue Editor Judith van Erp is professor of Public Institutions at the Utrecht School of Governance, Utrecht University, the Netherlands. She studies corporate crimes and offenses, and legal and extralegal reactions to it. vii Adm. Sci. 2018,8,36 and thus may help to understand corruption better than the more normative approaches that see corruption as inherently dysfunctional, she argues. The empirical research presented by Gorsira et al. (2018) in this special issue, relates individual corruption to the ethical climate of organizations. Their findings suggest that organizational culture influences individual personal norms and social norms with regard to corruption; employees who perceive their organization’s culture as less ethical, experience weaker personal and social norms to refrain from corruption. This research is at the core of administrative and organization science connecting individual motives to organizational culture. Lastly, Sandra Schruijer’s (Schruijer 2018) essay on collusion in organizations offers a psychodynamic perspective by describing the subtle and often nonconscious group decision-making processes in which organizational members’ mutually supportive relations satisfy needs for approval and security and avoid rejection. Although collusion in itself is no crime, it may be part of a toxic culture that entails neglect, irresponsible, corrupt, or other criminal behavior, or may result in people collectively choosing the wrong course of action. 2. The Organization as Cure A range of formal and informal systems of social and administrative control operate within organizations. Thus, organizations not only constitute causes of corporate crime, but also offer important opportunities for its prevention. Organizational crime can stem from an absence or poor quality of formal procedures for business conduct, as is likely in firms that put goals over means, such as firms in highly competitive markets, or newly started entrepreneurial firms that are more busy with developing and expanding the business than with risk management ( Aguilera and Vadera 2008 ). Organization and administrative sciences as well as business ethics have extensively studied compliance, ethics, and integrity programmes and policies, identifying ingredients for successful policies and identifying compliance failures. It is not uncommon to find these failures in organizations with elaborate compliance programmes and codes of conduct—an indication that compliance systems can also be introduced as symbolic responses to external pressure, and resort to check-the-box bureaucratic ritualism and cosmetic compliance (Merton 1968;Krawiec 2003). Volkswagen and Enron are just two examples of firms that had extensive compliance programmes, yet conducted massive fraud, as these programmes did not actually curb misconduct. Methodologically, there is a knowledge gap with regard to the causality relation between formal and informal control; do formal control systems make for ethical organizations, or do ethical organizations create elaborate control systems (Apel and Paternoster 2009)? Corporations often attribute fraud to rogue departments or individuals ( Scholten and Ellemers 2016 ). This reaction may stem from a truly limited view on what causes misconduct as well as unawareness of the influence of organizational culture, but may also be part of the compliance ‘ritual’, as Parker remarks in her research on the social meaning of deterrence of cartel laws, “the corporate elite see it as their job to define anti-cartel law into risk management strategies and internal compliance programs that their senior officers can implement—boxes that they can tick off, in order to demonstrate their positive commitment to the law, and ‘manage’ any breaches that do occur. They might hope that their compliance systems do work to avoid non-compliance, but they are also well aware that the existence of these systems can be used to displace any responsibility for cartel conduct that does occur to ‘rogue’ individuals or units within the firm” (Parker 2013, p. 188). Likewise, Haugh (2017b) observes a ‘criminalization’ of compliance, in the sense that corporate compliance is increasingly adopting a criminal law approach, making use of surveillance, audits, criminal background checks, and internal sanctions. Haugh questions the effectiveness of such programmes, as ethical behavior should come from intrinsic motivation, not from monetary incentives. Indeed, formal internal control systems should be backed up by informal control within organizations to create a shared culture of integrity. Rather than strengthening deterrence, corporations should adopt compliance programmes that combat the psychological mechanisms behind corporate crime, reverse 6 Adm. Sci. 2018,8,36 rationalizations of violations, and allow employees to discuss compliance and ethics dilemma’s in their daily work environment. The contribution of Clarissa Meerts (2018) to this special issue adds to the debate about the nature of corporate compliance and control systems by addressing the role of corporate security investigators, such as: private investigation firms, forensic accountancy services, or in-house security departments tasked with the identification and settlement of internal norm violations within organizations. As the equivalent of external law enforcement, Meerts finds these investigators to have a significant role in deciding upon the detection, disclosure, and settlement of organizational offenses, without having a clear legal basis or a justice focus. Moreover, they contribute to a lack of transparency of corporate crime, limit general deterrence by handling offenses within corporations behind closed doors, and tend to protect the firm, which may hinder societal retribution and redress and also disproportionally blame the individual offender. Meerts’s argumentation thus adds to the scholarship debating the effectiveness of ‘criminal justice’-oriented compliance not by criticizing its effectiveness, but its justice component; its lack of procedural legitimacy and contribution to societal unawareness about corporate misconduct. Yet, the latter is only one of the factors limiting the prosecution of corporate crimes. Perhaps more importantly, the reporting of corporate offenses to authorities is often disincentivized, as employees or other witnesses face serious negative consequences of reporting. Whereas many organization and administrative science scholars have addressed whistleblowing protection and whistleblower motives (Miceli and Near 2002;Lewis et al. 2014;Roberts 2014), the institutional arrangements for whistleblowing have received much less attention. The contribution of Loyens and Vandekerckhove (2018) in this special issue fills this gap with a comparative case study of whistleblowing agencies in 11 countries. Their research indicates that countries are more frequently installing dedicated whistleblowing protection agencies, and describes the tasks, means, and organization of these agencies. The degree and nature of support to whistleblowers varies. In particular, their research raises the question whether investigative tasks and whistleblower support can effectively be combined in one organization—a question with clear practical relevance. 3. The Organization of the Crime The question how corporate crimes are organized is classic to criminology, but is also one that fits very well in organization sciences, as organizations provide opportunities for mobilizing the specialist knowledge necessary to commit crime; for guarding secrets; disguising illegality, and generating, hiding, and spending illegal profit—all opportunities that individuals lack. Organizations can also use their resources to delay or obstruct enforcement; through litigation against enforcement authorities; the destruction of evidence about who was responsible (including shredding of documents) or delaying detection by raid procedures, or use political contacts to prevent the force of the law applying to them (Coleman 1985). Organizations can thus be perceived not only as the cause or cure, but also as the weapon for corporate crime (Wheeler and Rothman 1982;Punch 2000,2003); not as the environment for misconduct, but its purposive instrument. Organizational scholars know relatively little about the implementation of organizational crime within firms and its coordination (Aven 2015), and have called for more empirical research in this area (Brass et al. 1998,Greve et al. 2010;Palmer and Maher 2006). The contribution of Lord et al. (2018) to this special issue on organizing the monies for corporate crime is a fine example of how such empirical research may uncover the misuse of legitimate organizational structures for concealing illicit proceeds of corporate crimes. Through case studies of corporate bribery in international businesses and corporate tax fraud, Lord et al. reveal how the legitimacy and anonimity of corporations provides cover for illicit practices, and how third-party professionals facilitate these. Whereas Lord et al.’s paper focuses on the misuses of organizational structures, an organization perspective can also provide understandings of the social organization of corporate crimes; the interaction and communication between participants, for example, and strategies to conceal illegal acts (Baker and Faulkner 1993;Van De Bunt 2010). The involvement in criminal acts add a specific challenge to the communication between organizational members; not only must 7 Adm. Sci. 2018,8,36 they share information to coordinate activities, as in all areas of organizational life, they must also keep the activity secret to avoid detection. This provides a classic dilemma between security and efficiency (Morselli et al. 2007). The Madoff fraud case is particularly illustrative, as Madoff’s social and professional status and reputation functioned as a cover for his criminal enterprise, and the management and physical structure of his firm—with a ‘secret’ department on a different floor, and a stand-alone computer to serve the Ponzi scheme—made it possible to execute his deceit ( Van De Bunt 2010 ). Aven’s study of organizational communication in accounting fraud uses archival email data of the Enron Corporation (2015) to show that participants in Enron’s corrupt projects initially communicate less than participants in non-corrupt practices. Their secretive behavior diminishes over time, which can be attributed to increased trust between participants. Thus, an interest in corporate crime draws the attention of organization scientists from the large, public, and formal organizations, often studied in organization sciences to the less visible, covert, secret, and underground aspects of organizational life (Scott 2013). As corporate crimes are often embedded within the firm’s social and professional environment, organizations often collaborate to commit and conceal crime (Bertrand et al. 2014;Lord and Levi 2017; Jaspers 2017). The corporate crime literature has primarily focused on the relations between individual motives and actions, and organizational characteristics and behaviors—the vertical relationships between organizations and their members, often with a focus on hierarchy and decision making processes. Less attention has been paid to how businesses collaborate to commit crimes, and how they commit crimes collectively rather than individually (Bertrand et al. 2014). Organizational theory adds the perspective of (social) networks (Greve et al. 2010); a perspective that can be highly valid for the explanation of interorganizational illegal activities, such as cartels (Baker and Faulkner 1993) and the crimes committed in value chains involving various related actors, such as food fraud. The role of social and organizational networks and business associations in facilitating connections between elite members and deviant organizations, as well as in disseminating deviant norms and illegal practices, is a relevant point of overlap between corporate crime and organization studies ( Baker and Faulkner 1993 ; Reeves-Latour and Morselli 2017). This includes the interpersonal relationships between the deviant (and law-abiding) members of the corporate elites, as they interact in informal social circles that may become fertile ground for criminal activities. The social network study by Bichler et al. (2015), of the interlocks between the CEO’s of firms found in violation of Securities and Exchange Commission regulation and compliant firms is an excellent example of the value of such research; although they find violating CEO’s to be less well-connected than compliant CEO’s, their study also points to particular industries with significant interlock (pharmaceutical and financial industry); and specific business associations that connect violators and compliant firms. As social networks can provide environments for the diffusion of deviant norms and practices, such studies have specific societal relevance. This is not only the case for the networks of the corporate elites, but also networks in everyday business, where line managers and sales persons are tasked with the realization of corporate performance targets in difficult markets, and extensive social pressure is sometimes exercised (Parker 2013). Conflicts of Interest: The author declares no conflict of interest. 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This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (http://creativecommons.org/licenses/by/4.0/). 12 administrative sciences Article Toxic Corporate Culture: Assessing Organizational Processes of Deviancy Benjamin van Rooij 1,* and Adam Fine 2 1School of Law, University of California, Irvine, 401 East Peltason Drive CA 92697 and School of Law, University of Amsterdam, Nieuwe Achtergracht 166, 1018 WV Amsterdam, The Netherlands 2 School of Criminology and Criminal Justice, Arizona State University, 411 N. Central Ave, Suite 633 Phoenix, Tempe, AZ 85004, USA; adfi[email protected] *Correspondence: [email protected] Received: 17 April 2018; Accepted: 16 June 2018; Published: 22 June 2018 Abstract: There is widespread recognition that organizational culture matters in corporations involved in systemic crime and wrongdoing. However, we know far less about how to assess and alter toxic elements within a corporate culture. The present paper draws on management science, anthropology, sociology of law, criminology, and social psychology to explain what organizational culture is and how it can sustain illegal and harmful corporate behavior. Through analyzing the corporate cultures at BP, Volkswagen, and Wells Fargo, this paper demonstrates that organizational toxicity does not just exist when corporate norms are directly opposed to legal norms, but also when: (a) it condones, neutralizes, or enables rule breaking; (b) it disables and obstructs compliance; and (c) actual practices contrast expressed compliant values. The paper concludes that detoxing corporate culture requires more than changing leadership or incentive structures. In particular, it requires addressing the structures, values, and practices that enable violations and obstruct compliance within an organization, as well as moving away from a singular focus on liability management (i.e., assigning blame and punishment) to an approach that prioritizes promoting transparency, honesty, and a responsibility to initiate and sustain actual cultural change. Keywords: compliance; organizational culture; organizational crime; ethical climate; business ethics; social norms 1. Introduction Following major corporate scandals, most of the attention focuses on assigning individual liability to the highest possible executive. Certainly, this practice is important as impunity should not be permitted to continue. However, to reduce corporate crime and misconduct, we must look beyond the role of high-level executives or a few rogue employees to focus on the organizational traits that stimulate rule-breaking and harmful behavior. This paper outlines how we can assess and address such toxic elements in corporate cultures. It does so by analyzing three major cases of corporate wrongdoing: BP, Volkswagen, and Wells Fargo. These recent scandals demonstrate that addressing organizational traits is vital. On 20 April 2010, an explosion and fire at the Deepwater Horizon drilling rig resulted in a massive crude oil leak in the Gulf of Mexico. On that day, BP, the British petroleum company that operated the rig, became responsible for the largest oil spill in U.S. history (PBS 2010). In addition to causing tremendous economic, ecological, and health effects around the Gulf’s coast, eleven employees died. This was not the first time BP operations had caused a major disaster in the U.S. On 23 March 2005, an explosion at a BP refinery in Texas City killed 15 people and injured 170 more. And in March 2006, BP caused the largest spill on Alaska’s North Slope, leaking 267,000 gallons of crude oil on the freezing tundra. That particular spill went undetected for five days (Barringer 2006). Adm. Sci. 2018,8, 23; doi:10.3390/admsci8030023 www.mdpi.com/journal/admsci 13 Adm. Sci. 2018,8,23 In all three disasters, the accidents occurred because BP had failed to perform sufficient maintenance, had constantly cut costs, had reduced its engineering capacity, and had not responded to employee complaints about safety hazards (Steffy 2010). These incidents demonstrate that well before the massive Deepwater Horizon spill in 2010, BP had continuously suffered from safety issues and had repeatedly received information about hazards. Yet incident after incident, complaint after complaint, report after report, and promise after promise, it continued to seek ways to cut costs instead of prioritizing safety and compliance. The issues at BP were not just the product of individual decisions, but rather of broader patterns within the company. As such, these problems were endemic to the culture at BP. Indeed, William Reilly, the co-chair of the presidential investigation commission on the Gulf of Mexico oil disaster concluded that BP had been operating under a “culture of complacency” (Goldenberg 2010). BP is not unique. In 2014, American researchers started to suspect that German carmaker Volkswagen (VW) was using a device that would lower its vehicles’ emissions specifically during laboratory testing, while the nitrogen oxides (NOx) emissions under actual driving conditions would be about 40 times higher (Ewing 2017). Investigations uncovered that VW had actually installed this cheat device in over 11 million vehicles. After a West Virginia University research report first discovered the discrepancy between laboratory and real driving emissions, and California regulators later confirmed this, VW stalled the investigations, questioned the investigative methods, and even modified the cheat device to make it even more effective. Under pressure from the California Air Resource Board (CARB), which threatened to block VW from selling cars in California in 2016, the company admitted its cheating (Ewing 2017). Just like at BP, the corporate wrongdoing in the VW case was not just the work of a single—or even a few—“bad apples.” Rather, it appears to have been embedded within the company for quite some time. As Eric Schneiderman, the Attorney General of New York at the time, concluded, “Hundreds of very high-level executives and engineers knew about this. We did not find one email saying that maybe we should not be doing this, or this is against the law or put the breaks on this system. So this was a corporate culture permeated by fraud.” 1 VW had first been caught using a cheating device in 1973, when it settled a case for $1,200,000 with the U.S. Environmental Protection Agency (EPA) (Ewing 2017). Moreover, diesel emission violations have been widespread in the industry, with 97% of cars failing emissions tests according to a 2016 report (Carrington et al. 2016). And there had been major fines against car companies for using such defeat devices earlier as well. In 1998, major diesel truck manufacturers including Caterpillar Renault and Volvo came to a $1 billion settlement with the DOJ and EPA for similar violations (Department of Justice 1998). These types of corporate misconduct are not even limited to the automotive and oil industries. Between 2009 and 2016, Wells Fargo, the California-based U.S. bank, had fraudulently opened 3.5 million accounts without authorization from their customers (Cowley 2017). Moreover, the bank had enrolled 528,000 customers for online bill payment services without their authorization. Recent evaluations suggest that the fraudulent practices had actually been occurring for about 15 years (Independent Directors of the Board of Wells Fargo 2017). However, the offenses had for a long time been treated as individual offenses of local bank employees, who if found to have created unauthorized or fake accounts would simply be fired (Colvin 2017). Yet, these sales practices had become endemic in the bank, occurring across its local branches and even in its San Francisco headquarters. When the scandal broke in 2016, Wells Fargo blamed and fired 5300 local employees found to be involved in the practices. However, soon it became clear that these were not simply the actions of bad individuals in a particular locale, but rather the result of corporate incentives within the firm, pushing employees to continually increase their sales, and sell customers as many products as possible. In a 1As stated in the Netflix Documentary Dirty Money, season 1 episode 1, minute 27:26. 14 Adm. Sci. 2018,8,23 2017 report of the Independent Directors of the Board of Wells Fargo, the bank itself came to admit that what happened was an organizational, not just an individual problem: “The root cause of sales practice failures was the distortion of the Community Bank’s sales culture and performance management system, which when combined with aggressive sales management, created pressure on employees to sell unwanted or unneeded products to customers and, in some cases, to open unauthorized accounts” (Independent Directors of the Board of Wells Fargo 2017). These three cases are intended to illustrate major, recent corporate wrongdoing. In all three cases, the conduct was not merely attributable to particular executives or particular employees. In fact, broader organizational traits initiated, stimulated, and sustained the wrongdoing and offending behaviors. White collar criminologists have long known that corporate crime is not just the product of a few bad individual corporate criminals, but is also embedded in so-called “criminogenic” traits of the corporate organization (Sutherland 1940;Needleman and Needleman 1979;Apel and Paternoster 2009; Clinard 1983;Clinard and Yeager 1980). Recently, company boards have expressed that they must address toxic elements in their cultures. As the Wall Street Journal reported in October 2017, companies, including Whirlpool, Citigroup, and CACI International, recently formed board culture committees (Lubin 2017). The U.S. National Association of Corporate Directors Blue Ribbon Commission on Culture as a Corporate Asset concluded that boards should create formal oversight of company culture (National Association of Corporate Directors 2017). Companies are also hiring culture experts who have provided them with survey tools to evaluate negative elements in their corporate culture (Lubin 2017). Wells Fargo, for instance, now regularly assesses the so-called “happy to grumpy ratio” of its employees, based on the idea that when more people are happy, unethical behavior is less likely to occur (Kellaway 2015). Consequently, there appears to be a cultural moment in addressing corporate crime and wrongdoing (Glazer and Rexrode 2017). With all the recent scandals, major corporations and banks now at least have started to discuss culture. It seems that they can no longer get away with just deflecting blame. It is no longer sufficient to just focus on bad apples,butbad barrels need to be addressed (cf. Scholten and Ellemers 2016;Pertiwi 2018). Of course, it is not entirely clear whether there is a true commitment to address the culture, or whether firms just discuss this to move beyond yet another crisis and reduce their future liability. However, for the sake of reducing wrongdoing, it is clear that culture matters, and it is clear that it must be addressed. What is less well understood is exactly what organizational culture is or what makes a culture toxic or come to support wrongdoing and rule breaking. Corporations do not clearly know how to measure or assess their own culture and toxic elements within it, let alone how to change and detox it (Glazer and Rexrode 2017). Presently, it is widely agreed that changing corporate wrongdoing through external enforcement is challenging. Indeed, a recent systemic review of all available studies on corporate deterrence found that: “The evidence fails to show a consistent deterrent effect of punitive sanctions on individual offending, company level of fending, geographic-level offending, or offending among studies” ( Simpson et al. 2014 ). It must be acknowledged that this is not just another study in the literature. This study is the most comprehensive, rigorous, and up-to-date review of all available scientific evidence about deterrence for corporate crime and misconduct across a range of corporate crimes, and it failed to find a deterrent effect. There are several explanations for why corporate deterrence is difficult. A first reason is that just like for individual crime (Nagin 2013), certainty of punishment likely matters more for a company than the purported severity of the punishment. Further, stronger sanctions only have an effect if a tipping point of certainty is achieved (Brown 1978;Chamlin 1991). However, because of the complexity of corporate organizations and processes, detecting corporate violations in the first place is quite challenging (Gray and Silbey 2014;Pontell et al. 1994;Gray and Mendeloff 2005;Gray and Scholz 1991; Plambeck and Taylor 2015;Henriques 2011). In fact, stronger punishment threats can actually lead to more investment to prevent getting caught, resulting in a cat and mouse game (cf. Plambeck and Taylor 2015). For instance, when VW discovered that California and US regulators knew about their 15 Adm. Sci. 2018,8,23 Table 2. Toxic Organizational Norms and Processes. Type of Toxic Norms Processes Directly Opposed Resist and Compete with Legal Norms Normalize Deviancy Enabling Rule Breaking Create Opportunity to Violate Neutralize Offending Obstructing Compliance Lack of Support to Follow the Law and Learn from Errors Strain Employees away from Compliance Practice runs against Values Delegitimize Positive Social and Legal Norms 3. Assessing Toxic Culture at BP, VW, and Wells Fargo The goal of this paper is not to test the theories discussed above, nor to offer new empirical insights about which of these theories best predicts toxic corporate behavior. Rather, this paper illustrates how these ideas can be used to assess what aspects in organizations constitute a negative culture and how they sustain misbehavior. The remainder of this paper will analyze how the cultures in BP, VW, and Wells Fargo have come to support the deviant practices that culminated in the massive scandals introduced above. It will draw on extensive investigative journalism, court records, published internal reports, and academic literature available on all three cases to outline the core elements of deviancy in the organizational cultures that were at play. It will discuss key cultural elements these reports have found stimulate wrongdoing and offending behavior, and will analyze them in light of the social and behavioral science about toxic corporate culture. All three cases have been extensively reported, providing a wealth of information to draw from to analyze the toxic elements in their corporate cultures. For VW this paper relies heavily on the excellent reporting by New York Times journalist Jack Ewing published in his 2017 monograph, as it provides the most comprehensive discussion of all sources as well as balanced and critical reporting. Where necessary we have added other sources as updates or to provide a different perspective.3 The remainder of this section will assess the toxicity in the three corporate cultures. To structure the analysis of toxic elements in the cultures of these three organizations, the paper will focus on different relevant aspects of the business operations that are directly relevant for the illegal and harmful behavior these companies were engaging in. In each of these different aspects, it will offer a short sub-conclusion that highlights what toxic elements, referring back to Table 2, were at play at which levels of the culture (as outlined in Table 1above). First, this paper looks at how all three organizations developed their overall goals and strategies, and how this has been implemented in structures, values, and practices. Second, it explores how people in the corporations could respond to these goals and strategies and to what extent there was room for dissent and adaptation. Third, it analyses the extent to which there was illegal behavior and whether this behavior was condoned or disciplined internally. Fourth, it recounts what the companies did after the illegal behavior was discovered and made public, and to what extent they took responsibility or tried to deflect blame. And finally, it looks at how the companies’ messages over the years have compared to their practices in order to find out whether there was cognitive dissonance. After discussing these aspects separately, the final section examines the broader patterns of toxic cultural elements and explores what these patterns mean for attempts at cultural change. 3 Although there is a wealth of available sources, these data do not inform us about the deepest levels of values and practices, since many of the social norms at play are unaware, unconscious, and automated. Such an analysis would require a true ethnography, combined with psychological experimentation, to understand exactly what descriptive, injunctive, and situational norms shaped offending behavior. 22 Adm. Sci. 2018,8,23 3.1. Goals and Strategies BP, VW, and Wells Fargo all started as underdogs with high ambitions. In the early 1990s, BP was struggling as oil prices had declined, many oil reserves in the Middle East had been nationalized by local countries, and the production costs of onshore drilling had hampered profits (Lustgarten 2012; Steffy 2010). At that time, Volkswagen had major difficulties in the U.S. market, where it had been unable to find a successor to the counterculture successes of the Beetle and the Transporter Van in the 1960s. Further, it struggled with the image of being unreliable and requiring frequent repair, had high labor and production costs, and barely broke even financially in 1992 (Ewing 2017). Wells Fargo was a local bank operating largely in California (Colvin 2017). Yet, all three developed grand ambitions as new CEOs came to power. When John Browne became CEO of BP in 1995, he saw that BP could close its gap with the largest petroleum giants by rigorously focusing on divesting on-shore operations with low profits, by cutting costs, and by doing new oil exploration for major off-shore fields (so-called “Elephants”) in areas with higher risk but also higher profits (Lustgarten 2012). When Ferdinand Piëch, grandson of Ferdinand Porsche who had designed the original Beetle for Hitler, took over as CEO of VW, he soon declared that by 2018 the German carmaker should become the largest in the world (Ewing 2017). And when Richard Kovacevich became CEO of Wells Fargo, after it had been acquired by Minneapolis-based Norwest in 1998 that opted to drop its old name, he adopted the “Go for Gr-Eight” motto, seeking to guide the bank to the national and global top by outselling competitors and selling eight products per customer—four times the average rate for banks (Colvin 2017). In each of these cases, high ambitions focused on growth and profit increase, and with risk-prone means to achieve the goals. Wells Fargo had to go where no bank had gone before—to achieve fast growth, and reach the highly ambitious sales target, it had to somehow convince its clients not to buy two of its products (e.g., credit cards, insurance, special accounts), but eight. At BP, the risk came as the new strategy required two opposed interventions: cutting costs and laying off a large part of the engineering expertise on the one hand, and developing new oil exploration in high risk areas that required extra engineering resources (Steffy 2010). At VW, the mission to become number one could only be achieved by becoming competitive in the number one car market, the U.S. When Martin Winterkorn became CEO, he wanted to increase car production from six million to ten million in the next ten years, surpassing both GM and Toyota, which would mean that VW would finally have to succeed in the difficult U.S. car market. To do so, Winterkorn bet on clean diesel and a new diesel engine: the EA 189. The problem was that the company had been unable to develop an engine that was actually economical, practical, and clean and could compete in the U.S. market. VW’s option—to cut the toxic NOx emissions that the higher temperature burning diesel engines produce—came with its own problems of higher price, occupying precious storage space, and requiring more frequent maintenance, which would all prohibit a successful strategy (Ewing 2017). Thus, VW set itself a target that may well have been impossible to achieve. It was not long before the new ambitions and values they represented turned into practices and structures that produced risks of wrongdoing and damages. At BP, this was most evident in cost-saving reforms. After John Browne took the helm, he started to cut costs aggressively, with across-the-board cuts of 25%, first in 1999 and then again in 2004. This affected not just material costs, but also personnel, resulting in forced lay-offs, thus shrinking BP’s pool of engineering talent (Steffy 2010). It was not long until these general cuts started to affect the safety at BP operations. In the years prior to the 2005 Texas City explosion, BP had decided not to replace outdated equipment that later caused the massive accident. BP simply wanted to save on the $150,000 investment that was needed. One employee, as reported by PBS, wrote: “We need to decide if we want to invest $150,000 now to save money later on” (PBS 2010). And a senior manager wrote “that capital expenditure is ‘very tight. Bank the $150,000 in savings right now’” (PBS 2010). It is no wonder that former Secretary of State James Baker, who headed one of the two investigations into the Texas City explosion, concluded that “BP has not adequately 23 Adm. Sci. 2018,8,23 embraced safety as a core value” (Baker et al. 2007). In the 2006 Alaskan spill, the leak occurred in a corroded pipe, “which hadn’t been cleaned in over a decade” (PBS 2010). In Alaska, BP had for years, as a subsequent investigation found, sacrificed proper maintenance for profit. Investigators found that “‘unacceptable’ maintenance backlogs ballooned as BP tried to sustain profits ... even though production was declining” (Lustgarten and Knutson 2010). The investigation clearly concluded that these issues are at the heart of BP’s value system: “There is a disconnect between ... management’s stated commitment to safety and the perception of that commitment” (Lustgarten and Knutson 2010). And preceding the Gulf spill in 2010, BP managers “were shaving maintenance costs with the practice of ‘run to failure,’ under which aging equipment was used as long as possible” (Lustgarten and Knutson 2010). In sum, BP in its day-to-day operations valued profits over anything else, even at the repeated sacrifice of safety and the environment. The overall targets of cost reduction played a crucial role in BP safety issues, as the Chemical Safety and Hazard Investigation Board (CSB) concluded in its 341 page report after the 2005 report in response to the Texas explosion that had killed 15 (U.S. Chemical Safety and Hazard Investigation Board 2007). As a supervisor told lower-level managers who had questioned the 2004 budget cuts and their implications for ensuring operations: “Which bit of 25 percent do you not understand?” ( Steffy 2010, p. 117) . Another manager explained how this forced them towards risky and illegal practices: “The focus on controlling costs was acute at BP, to the point it became a distraction. They just go after it with a ferocity that’s mind-numbing and terrifying. No one’s ever asked to cut corners or take a risk, but often it ends up like that” (Steffy 2010, p. 58). At VW, Winterkorn’s ambitious target, to sell ten million cars and focus on clean diesel, put engineers in a bind. They could develop a clean diesel engine. To do so, they could use technology from Daimler, called BlueTec, that sprayed a chemical substance called urea into the exhaust to help breakdown NOx emissions (Ewing 2017). However, it came with an extra cost of about $350 dollars for each car, and also required installing an extra tank that would take up cargo space and require owners to do frequent refills. The other option was a so-called “lean NOx trap” that separated nitrogen oxide molecules into harmless oxygen and diatomic nitrogen. This technique was cheaper and did not need an extra tank, but it required an exhaust gas recirculation system that produced more carcinogenic fine particle emissions, and also caused the soot filter to wear out faster (Ewing 2017). Considering U.S. law obliged car makers to have emissions control systems effective for the entire lifespan of the vehicle, the soot filter wear was a core problem. Nonetheless, VW’s highly ambitious targets played such a strong role that by late 2007, engine specialists had never seriously considered adjusting them to the engineering realties they faced. Rather than give up on the targets, VW engineers were forced to look for alternative solutions. They not only adopted the lean NOx trap, but also installed the software “defeat device” that would only switch on the emissions control system during emissions testing, so that during normal driving the soot filter would remain intact longer (Ewing 2017). Because of VW’s cost reduction efforts to make as many models as possible share the same parts, the decision to install cheating devices on the EA 189 engine came to affect over ten million cars VW produced and sold. At Wells Fargo, the push for growth through the extremely high sales targets was to be achieved through bank employee incentive systems. The bank’s branches started to set product sales goals for employees to meet. This put tremendous pressure on Wells Fargo bankers to sell more products to their clients. Employees would be under constant scrutiny with daily and monthly “Motivator” reports tracking their sales volumes (Frost 2017). If they failed to meet targets, employees would undergo “coaching sessions.” One employee explained later to National Public Radio (NPR) journalists that these sessions were not there to support the workers but just to pressure them to sell more ( Arnold 2016 ). Another employee explained how, when she failed to meet her target, two managers would lecture her at her desk and then perp-walk her while colleagues were watching. As she explained: “It’s like being called into the principal’s office. Sit down at the large conference table, no windows in this room, 24 Adm. Sci. 2018,8,23 they shut the door, lock the door” (Arnold 2016). After that she was forced to sign a “formal warning” and was warned: “If you don’t meet your solutions you’re not a team player. If you’re bringing down the team then you will be fired and it will be on your permanent record” (Arnold 2016). She was simply afraid to lose her job and fearful not to get another one with the bad state of the economy. This employee said that things got so bad that she vomited under her desk. Another employee compared his Wells Fargo job to “being in an abusive relationship” ( Arnold 2016 ). Things were worst during special sales campaigns, such as the “Jump into January” campaign that sought to start the year with strong sales. During such campaigns, employees were to reach even higher targets than usual, sometimes even up to twenty per customer. In one local branch office, employees were forced to “run the gauntlet” by running past costumed district managers to write their sales numbers on a white board (Frost 2017). It became increasingly clear that employees had started to resort to creating unauthorized or fake accounts in response to these extreme pressures to boost their sales targets and achieve the overall goals set in the company. Yet, for a long time no change was made to the targets themselves or the pressures through which they were implemented. As one report found, Wells Fargo “was hesitant to end the program because (Carrie) Tolstedt (the head of community banking at the time) was ‘scared to death’ that it could hurt sales figures for the entire year” (Frost 2017). And the strategy worked. In 1999, BP, after cutting costs and taking over several competitors, quadrupled in value, and finally caught up with the top oil companies. Its stocks soared, and its CEO, Browne, was dubbed “Sun King” in British newspapers. VW finally became successful in the U.S. market with its clean diesel, and eventually even after the emission scandal was discovered became the largest car company in the world in 2015, three years ahead of the planned schedule (Ewing 2017, p. 187). And Wells Fargo jumped from the ninth most valuable bank in America, to the most valuable one in the world in 2015. Wells Fargo achieved 18 consecutive quarters of over $5 billion in profits—a feat it shares only with Apple (Colvin 2017). In sum, this analysis of how these companies set their targets and responded to challenges in the business environment demonstrates how toxic elements came to exist in these three cases. The most important type of toxic norm, from those discussed in Table 2earlier, is strain (Agnew 1992,2001; Agnew et al. 2009;Simpson and Koper 1997). What we see here is that the companies themselves were under strain of the shareholder’s expectations of growth and revenue formation. New leaders responded to these pressures by setting highly ambitious goals that because of their high risk and low feasibility nature brought the external strain into the company’s operations and ultimately to the employees, which in crucial instances forced them to make or go along with decisions that were damaging, and at worst illegal. These negative responses to strain and its resultant negative influences came at the cultural level of structures (see Table 1), as it was laid down in targets and incentives (cf. Schein 2010), but soon moved deeper into explicit shared values and visible common behavior (see Table 1). 3.2. Management and Employee Responses to Goals and Strategies So why did BP employees, VW employees, and Wells Fargo employees go along with these goals? Why did they not successfully resist or change these goals or the practices they produced, even though they must have seen they were not realistic or risk free? To answer these questions, we must look at the corporate structures in the companies and how they shaped internal communication as well as the way responsibility for targets and work was shared. BP and Wells Fargo have hierarchies that are strikingly different from Volkswagen. VW had a highly centralized structure with strong power vested in the CEO at the top. There was a centralized authority in decision-making that forced decisions to go up the chain of command. As one former manager trainee described it: “VW was like North Korea without the labor camps. You have to obey everyone” (Ewing 2017, p. 93). VW’s CEO played a central and direct role in day-to-day decisions, 25 Adm. Sci. 2018,8,23 with first Piëch, and later his successor Winterkorn, as engineers who micro-managed engineering decisions all the way to the interior color of cars promoted at auto shows. By contrast, Wells Fargo and BP had highly decentralized structures. Under Browne’s leadership, BP established business units that were to operate at autonomous companies within the overall BP structure. Each had its own targets, its own profit reporting, and its own leadership. At some point BP had over 300 such decentralized units. As Steffy argues, this created an unwieldy structure, with each unit leader caring for his own goals without focusing on how these affected the whole (Steffy 2010) . BP also often used sub-contractors and outsourced key aspects of its work, further delegating responsibilities, but now outside of its own employees (Bozeman 2011). Wells Fargo was very similar to BP in that its operation was split amongst business units. Wells Fargo’s CEO Kovacevich nicely illustrated the structure when he called himself a “CEO of CEOs” (Colvin 2017). While the three companies had such different hierarchical structures, in all three there was limited possibility to resist top-down targets and have effective dissent. Comparing the cases reveals that the overall hierarchy itself was not the core issue here, but rather how information flowed across the structure from bottom to top and top to bottom. Clearly, VW’s highly centralized hierarchy meant lower level employees had trouble getting their information heard at higher levels. Thus, at VW it was hard for lower level employees to correct faulty central level decision making and targets. However, BP and Wells Fargo’s decentralized structures did not allow for much better information flow that might have corrected unrealistic budget cuts and sales targets. At BP for instance, in 1999, a group of 77 workers at the Alaskan operations—where later a major spill would occur—wrote a desperate letter to CEO John Browne trying to sway him from the intended cuts as they feared it would further undermine the already appalling safety conditions (Lustgarten 2012). The letter points to the difficulty of communicating critical information upwards: “Anything we say either stays at this level or gets filtered on the way up to a version of ‘can do sir’ ... Our feedback is ignored because it doesn’t support the preordained agenda ... Your frontline management and supervision will continue to cut as long as you direct and sanction it, right up to the precipice of disaster and over” (Lustgarten 2012). John Browne did not reply and instead, a month later, announced another $4 billion budget cut. Five years later, in 2004, the new BP Texas City Refinery Plant manager also tried to get attention from higher executives at the London office. He presented a detailed report entitled “Texas City is Not a Safe Place to Work,” about the horrible safety record at the plant, where over three decades 23 workers had died—one of the worst records in the industry. He also conducted a survey amongst workers that unearthed widespread safety concerns that had long gone unheard and unaddressed. The new manager used the report to ask for a budget increase to upgrade the safety at the plant. The main office denied his request and asked him to focus on the 25% budget cuts he had to meet for 2004, all the while the refinery was making $100 million a month for BP (Steffy 2010, p. 67). Similarly, Wells Fargo senior executives refused to respond to challenges by regional leaders of the bank who had come forward to complain that the sales goals were too high and had become “increasingly untenable” (Frost 2017). What was at play here was not so much the structure itself, but the failure of higher level employees to adequately allow lower level employees to provide input and be heard. Targets were formulated in a top-down fashion and implemented while disregarding critique, regardless of the decentralized structure at Wells Fargo and VW. In all three companies, the composition of the labor force and executive management practices made dissent difficult. At Wells Fargo the high strain of the job resulted in massive staff turnover, reaching up to 41% in one year (Colvin 2017). This left the bank with highly inexperienced employees, less likely to successfully raise concerns over the targets they had to meet. Through its mass lay-offs, BP similarly got rid of a large swatch of its senior engineers, who would have been in the best position to speak out against the safety hazards that were becoming increasingly apparent (Steffy 2010). BP CEO John Browne wanted a bench of followers, which he dubbed his “turtles,” referring to the Ninja Turtle cartoon (Steffy 2010, p. 58). And at VW, CEOs Piëch and later Winterkorn often fired executives they did not like, keeping only those who would agree with them and support their positions ( Ewing 2017 ). 26 Adm. Sci. 2018,8,23 At BP, meanwhile, frequent executive job rotations, which were a standard management practice, incentivized these lower level leaders to focus on short term targets while disregarding the longer term consequences, and thus made them more concerned with meeting the targets set by the company headquarters than enhancing long term safety (Lyall 2010). Dissenting opinions were also suppressed through intimidating management practices. An investigative report following the 2010 Deep Water Horizon Spill found at BP “a pattern of intimidating workers who raised safety or environmental concerns” (Lustgarten and Knutson 2010). At Wells Fargo, as discussed above, daily intimidation practices were used to cajole and publicly shame employees to keep focused on their targets and the overall growth of the bank. Employees at all levels worked on the pressure of constant, sometimes hourly ranking of their sales rates in comparison with peers. When found to be lagging, they risked demotion or dismissal. As one employee recalled: “We were constantly told we would end up working for McDonald’s if we did not make the sales quotas ... we had to stay for what felt like after-school detention, or report to a call session on Saturdays” (Reckard 2013). This clearly did not produce an atmosphere conducive to voicing critical opinions. At VW, intimidation occurred at the highest levels. CEO Winterkorn was known for his Tuesday top executive meetings that included the highest-level officials in charge of major brands like Audi or Seat. At the meetings, with all present, Winterkorn would mercilessly criticize any executive that had failed to meet set targets. Ewing explains the humiliating tactics that Winterkorn used: “Managers who were favorites one week could suddenly fall from grace the next. Sometimes they learned they had been demoted or dismissed not from Winterkorn or a colleague but from reading about it in a German business publication, like Manager Magazine, that had somehow been tipped off” ( Ewing 2017, p. 157 ). Similarly, at Wells Fargo the head of community banking, Tolstedt, an internal board review found, was “insular and defensive and did not like to be challenged or hear negative information. Even senior leaders within the Community Bank were frequently afraid of or discouraged from airing contrary views” (Colvin 2017). Let us here also look at what we can draw out from these three cases about how toxic cultures form. The most important insight here is that in all three cases a strong social norm (injunctive but also in the form of visible common (and probably unaware common) behavior) developed that dissent was not appreciated and that targets had to be met. A strong norm developed in all three companies not to resist or disagree with higher level targets and commands. This norm in and of itself is not directly opposed to the legal norms at play here. It does not support breaking safety standards, creating defeat devices, or fraudulently opening false or unauthorized bank accounts. This social norm here rather obstructs behavior that supports compliance. It makes it harder for employees or executives to come to speak out and resist practices that break the law. As such, it also undermines checks and balances within the company, especially over policies and practices of higher level leaders that come to break the law. In turn, this creates a larger opportunity to break the law (Belknap 1987;Cohen and Felson 1979;Felson 1987; Osgood et al. 1996), and when such rule breaking is allowed to occur without critique, it thus becomes condoned and even normalized (Vaughan 1989,1997). As such employees here operated in an inactive moral climate, where there may have been recognition of unethical and immoral problems, but a very limited space to act on them (cf. Moore and Gino 2013;Scholten and Ellemers 2016). In this context, the social norm against critique and dissent can work in tandem with generating further strain (Agnew 1992,2001;Agnew et al. 2009;Simpson and Koper 1997). Specifically, employees and managers were under pressure due to the strong coercive processes as well as the fierce competition and job insecurity some had. As such, in light of Table 2’s framework to understand toxic organizational norms and processes, our analysis of employee and management participation in goals and targets shows that four toxic processes were at play in the organizational culture: obstruct behavior that supports compliance, strain away from compliance, normalization of deviancy, and creating opportunity to violate the law. Here, in light of Table 1’s outline of the levels and aspects of organizational cultural analysis, we see that these toxic processes developed first at 27 Adm. Sci. 2018,8,23 the level of values, they became reinforced by the structures of hierarchy and incentives, and became deeply embedded as they developed into common practices (cf. Schein 2010). 3.3. Illegal Behavior and Internal Responses By the time the scandals became public, all three companies had already engaged in the damaging and rule breaking behavior for years or even decades. BP had, from the 1990s onwards, developed an appalling safety record at its operations. Its operations were so bad that it had one of the worst safety records in the industry, paying one multimillion dollar fine and settlement after another to the EPA and OSHA, only to be found breaking the same safety standards again (Lustgarten 2012; Mattera 2016 ;Steffy 2010). Even after the major 2005 Texas Refinery explosion that had killed 15 workers and wounded 170, BP’s major safety problems continued. In the three years following the explosion, and after paying $20 million in fines to OSHA, and after being forced to do a $1 billion upgrade to the facilities, another four people were killed at the refinery. And another two were killed in another BP refinery in Washington State. BP thus had five fatalities in two facilities, while there had been a total of nine fatalities in all other 146 non-BP refineries in the U.S. (Steffy 2010, p. 139). For comparison purposes, consider how BP had had 700 OSHA safety violations in three years, whereas Exxon, which after the Valdez disaster completely improved its safety record, had only one (Steffy 2010, p. 150). BP never seriously responded to the concerns of its employees, its lower level managers, or even regulators. Each time, BP would negotiate a settlement or simply pay the fine, and do what was demanded in paying for upgrades or installing safety management. But it would not end its relentless pursuit for higher profits by cutting costs and pursuing high risk high reward exploration and refinery. The norm in BP thus became that safety hazards were part of the job, that deviating from safety norms was normal, and that redress rather than prevention was the way to address them (Lustgarten 2012;Steffy 2010). Volkswagen and Wells Fargo had similarly normalized deviancy. As we saw already, Volkswagen had used defeat devices all the way back to 1973, when it was first caught and ordered to pay a $120,000 fine to the EPA. Then, in 2005, VW had to pay a $1.1 million fine to the EPA for emissions cheating in Mexico. And starting in 1999, the company had installed a device in the software controlling the highly polluting noise control system in its Audi engines that would switch off this system and reduce pollution when it recognized the car was being tested (Ewing 2017). So, when engineers frantically sought to find a solution to make the new VW diesel clean, but also economical and practical, they had models to turn to. In fact, the Audi device served as a direct example for the much more widespread cheating that VW would do with the EA 189 engine. During a meeting where 15 engineers, including the head of VW engine development, met to discuss how to create an economical engine that would pass stringent U.S. emissions tests, the idea of this defeat device was presented and debated. While some pointed out of the risks breaking the law by adopting this device, others stated that this was normal and that many carmakers did so and VW had to do so as well if it were to keep up with competition (Ewing 2017, p. 122). According to Ewing’s analysis of the meeting, most engineers would not see this as “a grave violation of Volkswagen standards. There was plenty of precedent for using shortcuts to cope with inconvenient regulations” (Ewing 2017, p. 123). In all the earlier instances of cheating, VW as a company had turned a blind eye and condoned the behavior that had occurred, paying the fines should they come, without creating clear boundaries that this was unacceptable behavior. And once they had started using the cheat in their diesel engine there was no more stopping. As Ewing explains, “defeat devices which may have begun as a stopgap had become a habit” (Ewing 2017, p. 178). Since adopting the ambitious Going for Gr-eight targets, Wells Fargo learned about more and more instances where its employees had opened fake and unauthorized accounts, from 63 in 2000, to 680 in 2004, to 288 in a single quarter in 2007, to 1469 in a single quarter in 2013 (Colvin 2017). In 2002, it was discovered that a whole Colorado branch had been opening unauthorized and fake accounts simply to reach their sales targets. The bank responded simply by firing individual employees 28 Adm. Sci. 2018,8,23 involved, but not by addressing this as a systemic problem caused by their own targets. Bank leaders were actually positive about the numbers, as it showed them that only 1% of the work force had to be fired for cheating, while they assumed the other 99% were in compliance. As then CEO Stumpf said in an email to another bank leader: “Do you know only around 1% of our people lose their jobs [for] gaming the system, and about 2/3 of those are for gaming the monitoring of the system, i.e., changing phone numbers, etc. Nothing could be further from the truth on forcing products on customers. In any case, right will win and we are right. Did some do things wrong—you bet and that is called life. This is not systemic” (Colvin 2017). While the company would fire employees caught red-handed in defrauding clients or the bank, it turned a blind eye to ongoing practices, never seeking to proactively find out how widespread they were and end them. Neither did Wells Fargo fully make clear that reaching sales targets was less important than compliance. As increasingly more employees started to cheat, a norm developed. As Colvin explains: “The message was clear to everyone in the retail bank: Everyone knew the goals were sheer fantasy for many branches and employees. At some branches not enough customers walked in the door, or area residents were too poor to need more than a few banking products. Bank leaders called overall quotas ‘50/50 plans’ because they figured only half the regions could meet them. Yet no excuses were tolerated. You met the quotas or paid a price” (Colvin 2017). In all three companies, norms thus developed that normalized risky, rule breaking, and damaging practices that would come to shape the values and assumptions of corporate employees and executives. This was not merely a passive process in which the corporations allowed the practices to develop in response to the structures of budget cuts and highly ambitious targets. At times corporations would directly condone these practices. Volkswagen never strongly responded to any of the earlier cases where its engineers had installed defeat devices. At BP for instance, an independent investigation found that the oil company allowed “pencil whipping” and the fabrication of inspection data. One employee said that “BP workers felt pressure to skip key diagnostics, including pressure testing, cleaning of pipelines, and checking for corrosion, in order to cut costs” (Lustgarten and Knutson 2010). A former Wells Fargo assistant vice president and regional private banker has sued the bank claiming that she was fired when she refused “to participate in a scheme to manipulate accounts and sell products that weren’t in customers’ best interest.” She alleged that her superiors were running the scheme (Associated Press 2017). Other employees have come forth complaining that they were fired after trying to report the illegal practices to the ethic’s hotline (Egan 2017). In another case, a former branch manager had found out that bankers had swayed a homeless person to open six bank accounts getting her to pay $39 per month. She explained: “It’s all manipulation. We are taught exactly how to sell multiple accounts” (Reckard 2013). She reported the situation to higher executives but never received any answer (Reckard 2013). Or as another former employee explained: “Training in questionable sales practices was required or you were to be fired” (Colvin 2017). Clearly, at Wells Fargo this was not simply a matter of lower employees breaking Wells Fargo rules. And it was not simply a common practice: It had become something that was endorsed and for which no internal complaints were accepted, let alone seriously acted upon to change the root causes that sustained it. The ongoing illegal behavior and internal responses to it in all three cases offer us further insight into toxic elements in their culture. Again, we will first discuss the types of toxic norms and their processes (drawing on Table 2above) and then look at what level of culture we find these in (drawing on Table 1). A first clear toxic process was that in all three cases the existence of illegal practices formed visible common behavior (a descriptive social norm (cf. Cialdini et al. 2006)) that was directly against the law and thus came to compete and resist with the law (cf. Moore 1973;Heimer 1999). The lack of company responses to such illegal behavior spurred two further negative cultural processes. As illegal behavior could continue unaddressed, the companies normalized deviance ( Vaughan 1989 ,1997) and failed to foster learning processes that could prevent future misconduct (Homsma et al. 2009). As the companies turned a blind eye to the ongoing illegal practices, and never sought to proactively detect and stop them, they also created an opportunity for employees to cut corners at very little risk. As long as it did not create 29 Adm. Sci. 2018,8,23 a major scandal with outside complaints or regulatory investigations, the companies were not proactively seeking to find violators or hold them accountable. And thus, the companies left the henhouse open to the foxes. Or in the terms of the Routine Activities Theory, “committed offenders” had access to “suitable targets” as there were no “capable guardians” ( Cohen and Felson 1979 ). The negative cultural processes here started at the practice level, with visible common behavior, that probably became unaware common behavior, and then moved into the values, especially the injunctive social norms and hidden assumptions, as what people saw converged with what they came to think. 3.4. Responses to Exposure of Scandals So, what happened when the three companies came to face strong public and legal scrutiny when each had its scandals exposed? Organizational responses to crisis offer a clear window into what values a company communicates both outwards and inwards to its own employees at the most critical moments. Crucially, responses to scandals are major organizational moments that can have a strong impact on the organizational culture and the extent to which it is toxic. In all three, the companies deflected blame, defended themselves from liability, and some, most notably VW, even tried to downplay the damages of their actions. By doing so, the companies neutralized their own culpability, thus enabling further rule breaking. The Wells Fargo response to over a decade of fraudulent practices was to blame the individual employees, and not the unrealistic sales targets, lack of response to complaints, and threatening practices that had stimulated these lower level bankers to start cheating. As Frost explains: “It was convenient instead to blame the problem of low quality and unauthorized accounts and other employee misconduct on individual wrongdoers” (Frost 2017). At Wells Fargo, the fragmented corporate structure enabled blame shifting and obstructed taking responsibility for malpractice elsewhere in the company. As Colvin analyses: “For example, the corporate chief risk officer had no authority over the retail bank’s risk officer, who reported only to Tolstedt (who headed community banking). The HR department regarded employee misbehavior as an issue of training, incentive compensation, and performance management. The law department’s employment section focused mainly on litigation risks from firing employees. Each concerned itself with its assigned slice of the issue; no one looked for the root cause or envisioned big-picture consequences” (Colvin 2017). Wells Fargo tried to persist in this strategy even in 2016, after the true scale of the fraudulent behavior became public and the company had to respond to news that it had defrauded millions of U.S. customers. Its first response was to blame individual employees and fire 5300 lower level bankers, without taking responsibility at the top. In a hearing before the Senate Banking Committee on 20 September 2016, CEO Stumpf apologized for not ending the illegal practices earlier and promised that the bank would undergo reform (Corkery 2016). Senators were angry that he did not offer any concrete steps against executives, including himself, and had just shifted blame and punishment to those at the bank’s lower levels. As Senator Elizabeth Warren asked him: “Have you returned one nickel of the money that you earned while this scandal was going on? Have you fired any senior management, the people who actually oversaw this fraud?” After Mr. Stumpf, answered that he had not, Warren retorted: “Your definition of accountability is to push this on your low-level employees. This is gutless leadership.” But Mr. Stumpf persisted stating: “The 5300 (fired employees) were dishonest, and that is not part of our culture. That is not scapegoating” (Corkery 2016). In a statement to National Public Radio inquiries following the hearings, Mr. Stumpf said: “Although the vast majority of our team members do the right thing, every day, on behalf of our customers, these allegations and accusations are very serious. And if any of these things transpired, it ' s distressing and it’s not who Wells Fargo is” (Arnold 2016). Senators also pushed the CEO about whether the bank would seek to claw back the millions of compensations of top executives who had failed to fulfil their duty to stop the scandal. Here they especially focused on Carrie Tolstedt, who had been in charge of community banking where all the issues had happened. She retired at age 56 with a package of tens of millions of dollars, just three 30 Adm. Sci. 2018,8,23 months before the hearing. Mr. Stumpf explained that although Ms. Tolstedt had let the illegal practices go on for three years after they were first discovered in 2013, he did not want to fire her because she performed so well in her other duties (Corkery 2016). BP’s first response to major scandals was to deflect blame. One tactic was to try to place on blame on individual workers, at worst the ones who had been directly hurt in accidents. These were the same workers who had been concerned over the safety of the operations, as years and years of budget cuts had created a very hazardous working environment. And when things then did go wrong, as was likely to happen with the budget cuts, their company would blame them. Workers at the Texas Refinery, which was the site of the deadly 2005 explosion, had been interviewed previously about safety issues. One explained: “Yes I have been hurt and had management punish me and made a fool out of me. Need I say more?” (Steffy 2010, p. 66). Another, who had been hurt because of a mechanical failure: “I was blamed in the end. I was not the root cause” (Steffy 2010, p. 66). And after the 2005 explosion at the Texas refinery facility BP followed a strategy of stonewalling and blame shifting (Smithson and Venette 2013). It first put the refinery on lockdown for eight days, not letting anybody in, claiming that it was too hazardous. Then two months later, it issued its internal investigation report and placed blame squarely on the low level employees who were alleged to have overfilled and overheated the raffinate splitter (Steffy 2010, p. 89). Steffy summarized BP’s response: “Human error-or workers not following rules-meant that BP itself wasn’t to blame” ( Steffy 2010, pp. 89–90 ). Ironically enough, a BP executive had chaired the development of safety guidelines by the Center for Chemical Process Safety that concluded that “errant employees aren’t the root cause of an accident but rather its symptom” (Steffy 2010, p. 90). Five years later, following the Deepwater Horizon spill, BP also sought to deflect blame. Its first tactic was to try to steer out of the scandal, when media during the initial 12 days focused on Transocean, the owner of the rig. Transocean could act as a good shield (Steffy 2010, p. 182). In one of the early statements BP CEO Hayward stated: “We are responsible, not for the accident, but we are responsible for the oil” (Smithson and Venette 2013, p. 402). He said this in spite of Transocean’s reliance for most of its business on BP for most of its business and the big oil company’s major influence in day-to-day operational decisions—decisions that enhanced risks and neglected industry standards, all to expedite the drilling and save costs (Smithson and Venette 2013, p. 402). Therefore at first, BP tried to use its decentralized structure with sub-contractors to defect blame. It had done so earlier. In the 1990s for instance, BP had blamed a sub-contractor, Doyon, when it was found that BP Alaska had been illegally injecting its toxic waste into the ground, even though BP was again directly in charge and Doyon relied for 80% of its income on BP (Lustgarten 2012, p. 61). BP leadership also tried to downplay the role they themselves played in all this. This was most apparent in CEO Hayward’s testimony during the U.S. congressional hearings. He kept on deflecting critical questions about how BP had managed risk. Hayward instead focused on how much money the company had spent on safety (Smithson and Venette 2013, p. 402). Whenever he was pressed about problems, Hayward would insist that the investigation was ongoing and no firm conclusions about the role BP had played in all this could be made yet. When Representative Bart Stupak asked him, “Are you trying to tell me you have not reached a conclusion that BP really cut corners here?” Hayward answered simply: “I think it’s too early to reach conclusions, with respect, Mister Chairman. The investigations are ongoing” (Smithson and Venette 2013, p. 403). When Hayward was asked about BP’s decisions about particular aspects of the operation that had caused the risk, he would explain that he was not involved in the decision making. When pressed on details, he would claim ignorance. For instance, when Representative Michael Burges asked a question about why BP had installed fewer than the recommended number of centralizers that were to ensure the proper flow of cement, Hayward said: “I can’t answer that question, I’m not a cement engineer I’m afraid” ( Smithson and Venette 2013, p. 404 ). But Hayward does have a PhD in geology, 28 years of experience in oil and gas exploration, and had been CEO of BP America for the three years prior. As Smithson and Venette conclude: “The suggestion 31 Adm. Sci. 2018,8,23 cognitive dissonance derived from conflicting corporate messages and practices can be viewed as the ultimate toxic element in a corporate culture—one that can obstruct any attempt to detoxify the culture. 4. Toxic Culture, Some Lessons We have now discussed toxic norms and processes (drawing on Tables 1and 2) in these three cases by looking separately at five relevant business aspects: how goals and targets were established, how employees and managers could participate and dissent from these, what illegal behavior existed and how it was responded to, how the corporations responded to scandals, and what disconnect there was between public messaging and day to day practices. In this section, we analyze what we can learn when we combine these five aspects. A first insight is that much of the toxic culture at BP, VW, and Wells Fargo did not come in the form of norms that were directly opposed to the law. We see that norms that enable rule breaking (by creating opportunity or neutralizing offending), norms that obstruct compliance (through strain and obstructing support), and norms that undermine the authority of either positive social norms or legal norms are highly important. This provides a very different view of what toxic culture is (cf. Moore 1973 ;Heimer 1999;Cialdini et al. 2006;Cialdini and Goldstein 2004;Vaughan 1989,1997; Scholten and Ellemers 2016). It means that assessing toxicity requires identifying the norms that enable rule breaking, obstruct compliance, and delegitimize both the law and the social norms that support it. A second insight is that toxic culture in these three cases was a matter of converging toxic processes. Strain in the market resulted in highly ambitious and risky targets that resulted in strain in the company (cf. Agnew 1992,2001;Agnew et al. 2009;Simpson and Koper 1997). The same strain restricted management and employee input and dissent, which obstructed successful critique of high risk targets and reporting on illegal practices and resulted in both normalizing illegal behavior (cf. Vaughan 1989,1997) and creating more opportunity for rule breaking (cf. Belknap 1987;Cohen and Felson 1979;Felson 1987; Osgood et al. 1996 ). Considering companies did not respond strongly to rule breaking when it did occur, such rule breaking itself became normalized, and organizations never fostered the learning from error that could help to prevent it (Homsma et al. 2009;Scholten and Ellemers 2016). When the corporate wrongdoing ultimately ended in public scandals, political hearings, and legal investigations, the companies deflected blame towards lower employees, sub-contractors, and some executives. However, they rarely took full responsibility by admitting that this was a pervasive corporate issue. With the deflection, the corporations neutralized the company’s culpability (cf. Sykes and Matza 1957 ;Gottschalk and Smith 2011;Maruna and Copes 2005;Minor 1981; Siponen et al. 2012). It was not their fault, they could not help it, they did not know, it was not illegal, and there were no damages. All of these techniques of neutralization: (1) reinforced that norm violation was not an endemic problem that needed to be addressed, and (2) furthered the normalization of deviancy. Ultimately, when companies were forced to state their guilt, address their culture, and change the tone at the top, it was too late. After years of dissonance between the ethical values the corporation had preached and the rule violating practices in their everyday operations, the company had undermined its own norms towards compliance (cf. Keizer et al. 2011). Consequently, employees and executives became less inclined to believe the leadership’s lofty promises to change the culture at the company and to reduce risk and rule breaking. Importantly, this is the ultimate ingredient in a toxic corporate culture, as the cognitive dissonance between values and practices undermines the authority of new leadership and values that support compliance. Figure 1below outlines the convergence of these elements, and where they have occurred in the business processes: in normal business strategy and operations, in responses to rule breaking, and in corporate communications and advertising. 38 Adm. Sci. 2018,8,23 Figure 1. Converging elements of a toxic culture at VW, BP, and Wells Fargo. A third insight, closely related to the first two, is that the toxic cultural processes occurred at all three levels of the corporate culture: structures, values, and practices. Moreover, just as Schein (2010) argued, the three levels of corporate culture interact. For instance, explicit values (e.g., the public deflection of blame) become embedded in practices and structures, that structures (e.g., the high risk and high growth targets) shape values and practices, and that practices (e.g., the condoning of ongoing violations) become embedded in values and hidden assumptions. Although beyond the scope of this paper, it is very likely that what started as conscious and deliberative values and practices became more deeply embedded in hidden assumptions, unaware common practices, and situational norms, and thus more deeply engrained in the culture. A fourth insight is that the culture in these three cases did not become toxic by design or by any singular influence. Toxic culture was not just a matter of one bad CEO, one bad set of incentives, or the tone at the top. Certainly, the fish can rot from the head, but that certainly is not the only way it rots. Indeed, most toxic processes within these companies were not directly against the law. Moreover, the processes interacted, and no one had full knowledge and control over this interaction and what it would cause. And finally, the toxic processes did not just exist in designed structures and formal policies, but also in values and practices that were shared throughout the company. Consequently, while individual blame and responsibility for elements and aspects of the toxic cultural processes can be found and should be assigned (such as the high-risk targets, or the organization of coercive personnel practices that stymied dissent), these are not responsible for the whole culture. Of course, not all toxic cultures are the same. But these three specific cases illustrate how we can assess toxic culture at the level of structures, values, and practices, by identifying norms that run against the law, norms that enable rule-breaking, norms that obstruct compliance, and conflicting messages that undermine the authority of positive and legal norms. 5. Detoxing Corporate Culture Once we learn what toxic corporate cultures are, the next question is what to do about them. In the case of VW, BP, and Wells Fargo, investigators and reporters have concluded that toxic culture was to blame and must be addressed. Naturally, changing a toxic corporate culture is remarkably 39 Adm. Sci. 2018,8,23 difficult. Nonetheless, deriving from the analysis of the three cases, this paper offers some observations about detoxing corporate culture and suggests several possible steps. For any toxic corporate culture, the first step begins with the proper assessment of the toxicity. Such assessment requires a deep analysis of structures, values, and practices that run against the law, that enable rule breaking, that obstruct compliance, and that delegitimize the law and norms supporting it. Unfortunately, common responses to assess corporate culture tend to latch on to singular elements that are thought to signify the culture. Most discussion of cultural change at Wells Fargo focuses on the incentive structures, while forgetting the strained environment and lack of proper venues for dissent they operate in, let alone the condoning, blame shifting, and neutralization of guilt that has taken place in response to public scandal. To assess the toxicity, one’s initial reaction may be to turn to a survey. Certainly, there are several survey tools in academia designed to measure organizational and corporate culture. A widely-cited example of an academic survey measuring corporate culture is the one by Denisen that analyzes four cultural traits: mission, consistency, adaptability, and involvement (Denison 1990). Further, we can turn to Hofstede’s influential work that used surveys worldwide to identify organizational cultures along four dimensions: power distance, uncertainty avoidance, individualism vs collectivism, and masculinity vs femininity (Hofstede 1980,1998;Hofstede et al. 1991,1990). These surveys allow us to understand general traits of organizations that have often been linked to economic performance. However, existing academic surveys or organizational culture have not focused on studying toxic elements in particular. The problem with surveys is that they can only measure what people know and what they are willing to share. As such, surveys only provide access to the conscious values and practices, and not to the hidden assumptions and automatic, unconscious habits. Moreover, once surveys focus on toxic cultural traits, they would necessarily touch on aspects of illegal or wrongful behavior. It is extremely difficult to get people to admit to rule-breaking or immoral values and practices without protection from prosecution. In addition, surveys that ask closed questions do not allow for learning about elements in a culture that the survey designers had not thought of, and thus may overlook vitally important toxic elements in corporate cultures. That is, our insights are limited to what we thought to measure. To assess a company’s toxic culture, then, assessment cannot come solely through a survey. What is needed is a forensic ethnography, as outlined previously in this paper. Here, we have just done a first-level, desk-analysis using available resources from investigative reporting, company reports, and legal investigations. A true forensic ethnography would ask the same questions, but would do so through in-depth, open-response communication with current and former employees and executives involved in both operations and strategy of the company. Ideally, this should be done by investigators with training in qualitative social science research methods and ethnography, such as anthropologists and sociologists. Step 2 is to change toxic structures of the corporation. This is the most straightforward way to start the corporate detox. Structures are the tangible, man-made, and changeable aspects of corporations. Should toxicity be found in such structures, as for instance the Wells Fargo incentives or the BP budget cut targets, then all that needs to be done is change such incentives and targets. This is simpler than it may look. First of all, the targets and incentives exist for a reason. Wells Fargo developed its targets under the strain of its overall performance in the market, and once it achieved growth with the incentives, it became very hard for leadership to let them go. Reformers may need to overcome resistance to change toxic structures, but that may well mean that first, they must address the strain that has caused them. The second issue is that changing the structures will not eradicate negative behavior in and of itself, if such structures have become embedded in the deeper values and practices of the corporation. For instance, in the aftermath of the crisis, Wells Fargo ended its sales targets. Nonetheless, bank employees continued to feel the pressure to grow their sales and employees were still asked how many products they sold to each client and informally pushed to hit a certain target, even though such targets 40 Adm. Sci. 2018,8,23 were no longer part of the official policy (Roberts 2017). Once toxic elements have moved from the structures into the values and practices, eradicating them through policy reform will not be enough. This has vital ramifications for how assessing toxic culture may undermine successful interventions. Most assessments focus on the structures because they are most visible, stimulating responses that sound good, but do not get to the root of the problem. Step 3 is to address top executives. We see that CEOs played an important role in all three cases. They were the ones that had developed the risky targets. They had put strain on their executives to avoid critiquing these targets and to follow them compliantly, which the executives translated downwards. They turned a blind eye to the rule-breaking effects the targets were having. They failed to take disciplinary action against rule breakers. And they failed to take responsibility when the rule breaking became public. By deflecting blame, they neutralized culpability, and when they issued statements of support for the law that were in reality disconnected from the corporate practices and its actual values, they undermined the legitimacy of the law as well as their own legitimacy as the highest, internal leaders for compliance. Consequently, even when the CEOs and top executives were not directly involved in the rule breaking or had adopted policies that directly promoted rule breaking, they played a vital role in the toxic cultural elements that enabled rule breaking and obstructed compliance. It seems natural to call for the replacement and punishment of these highest leaders—this may well be what is needed immediately. Replacement can start, or at least signal, the beginning of a shift in the culture of the firm. Punishment can show that what had happened in the past is wrong and should not happen again. However, while these may be necessary steps, they are not sufficient to change toxic culture and may even backfire. Discharging one CEO and hiring the next one, who enters an organization operating in a strained environment with toxic elements embedded in the values and practices, may inadvertently force the next CEO to adapt to the culture and continue the same problems. A good example is BP. Hayward vowed a turnaround when he succeeded Browne, promising an end to budget cuts and a true pledge to safety. Within a couple of years, however, it became clear that economic concerns forced him back to cost cutting, just like his predecessor. Another challenge is knowing if the potential new CEO has the right values and is truly committed to compliance before taking the position. In this realm, management science may offer some insight on the characteristics of ethical leadership, which provides surveys to help discern the ethical style of the CEO candidates (Brown and Treviño 2006;Brown et al. 2005;Treviño et al. 2003). In practice, however, it is difficult to predict which leaders will be truly committed to compliance and will help solidify a compliance culture in a turnaround process. Of course, addressing CEOs also means assigning accountability and punishment. Doing so could theoretically deter CEOs from allowing their companies to violate the law and cause harm. As we outlined at the outset of this paper, achieving deterrence in practice has proven difficult. But our analysis here shows that one of the unintended consequences of trying to prosecute executives is that it may harm a cultural detox. Trying to make CEOs liable for corporate misconduct, as seems to be so very justified with the impunity following the financial crisis, may result in more blame shifting, legal deflection, and a neutralization of guilt and culpability that only further strengthens the toxic culture. Also, it forces CEOs to continually come forth with public messages that run counter to the values and practices, and thus undermine credibility. Ideally, CEOs that come to clean up toxic cultures would be able to speak honestly and take responsibility. Unfortunately, this works best if they are under less pressure of potential liability and punishment. This has insights for changing the tone at the top (Baggett 2003;Hansen et al. 2009; Schwartz et al. 2005). Analyses of toxic corporate cultures often point to the importance of a good, ethical, and compliant tone at the top. Indeed, such tone is vital, but it also needs to match the values and practices within the organization. When they are opposed, such as when leadership supports compliance while the organization does not actually practice it, the net result will be even more negative because it undermines the authority of the law and the CEO. Change in tone, therefore, must coincide with a true change in values and practices. 41 Adm. Sci. 2018,8,23 Further, the tone is not just about supporting ethics and compliance, but also, and maybe more importantly, about changing the norms that enable rule breaking and obstruct compliance. Here we can think of CEOs that express and initiate real support for worker empowerment and voice, for realistic targets, for honesty and transparency, for long-term over short-term goals. Detoxing the tone at the top must be honest and realistic for it to stimulate any meaningful change. This is especially important for a CEO unfortunate enough to face a long history of cognitive dissonance. Their first order of business is to convince the corporation that they stand by their word and that their expressed values will be matched by action. Step4istoaddress managers and employees. Even when the structures are successfully altered, and there is new leadership with the right matching values and practices, corporations still face lower-level managers and employees whose values and habits may stimulate, enable, or sustain wrongdoing, or even simply obstruct compliance. One way to address this problem is to replace employees with toxic values and practices. However, how does the corporation exactly know who to fire, and who to hire? Of course, those caught breaking the law are clearly candidates for termination. But what about people who have simply not voiced dissent towards unrealistic targets, managers who have pressed their employees to meet these targets, or workers who have grown used to seeing violations around them? None of them may have broken the law, but their values and habits may well continue a toxic culture, and new hires may adopt similar practices and values. In some sectors, for instance in the automobile industry and its diesel emissions violations, rule breaking is more pervasive, as are norms and practices that sustain it (Ogbonna and Harris 2002). In some cases, everyone is involved in rule breaking to some degree. In 2002, Wells Fargo found that in one of its Colorado branches, all employees had been involved in defrauding clients. At first, Wells Fargo decided to fire all employees, but later had to rehire a number of them as it could no longer run its branch (Colvin 2017). A further problem with firing employees and managers is that it creates blame-shifting downwards, deflects responsibility from the company, and neutralizes its overall culpability—precisely the issues that need to be addressed within the toxic culture. Consequently, replacing staff, while clearly necessary for the worst offenders, is not a silver bullet to achieve a cultural turnaround. The key challenge is to change the values and practices of existing employees. This is by far the most challenging step. Management science offers some ideas on how to do so, although it does not specifically focus on toxic cultures that promote rule breaking (Alvesson and Sveningsson 2015;Bass and Avolio 1993;Cameron and Quinn 2006;Harrison and Stokes 1992; Hatch 1993;Hofstede et al. 1990;Jones et al. 2005;Scalzi et al. 2006;Scott et al. 2003;Warren et al. 2014; Schein 2010). One idea is to “unfreeze” organizations first (Schein 2010). This process prepares organizational staff and management to unlearn deeply-engrained practices, values, beliefs, and assumptions. The goal of unfreezing is to help employees overcome their natural resistance to letting go. Unfreezing starts by embedding so-called survival anxiety in the staff by shocking them into realizing that the organization, as well as their own position, are threatened unless there is a fundamental change. Next, Schein (2010) stresses that to change an organizational culture requires creating so-called “psychological safety.” By this, he means that organizations must show their staff that changes are feasible and learnable. Once these first two steps have been successfully deployed, staff are ready to relearn new values and practices. These are major learning processes, as they run counter to what employees have experienced, both consciously and subconsciously. Schein explains that such learning involves a cognitive restructuring of the basic values and assumptions that underlie their behavior. Companies can initiate this cognitive restructuring when they relabel all core organizational concepts, tasks, and job descriptions. To do so, they have to redevelop core evaluation processes and standards, to stress the values of an open culture for worker complaints, and to formulate a long-term vision on sustainable development. This vision should include the long-term costs of unsafe and risky operations, and strive to eliminate any internal inconsistency between the tone at the top and the operations on the ground. 42 Adm. Sci. 2018,8,23 A core aspect of this relearning process is to “de-neutralize” the values that have come to legitimize rule breaking. After years of blame deflection, employees may have learned to see regulations as unfair, or the issues at their company as originating from a few bad apples. They may even deny that the rule breaking resulted in real injury. One option to de-neutralize the company’s employees and managers is through sessions where they meet with victims of the company’s actions. These sessions can be an opportunity for employees to come face-to-face with the injury caused, see the role the company played in the injury, and consider whose interests the law is actually protecting. Wells Fargo bankers, for example, would meet defrauded clients and mistreated former employees; VW engineers and executives would meet affected car owners and people suffering from pollution-related illnesses; and BP staff would meet the victims of its spills and accidents (Braithwaite 2010). In these sessions, honesty, combined with realistic goals, is essential. Anyone who tries to initiate these change-processes may face a lack of credibility and inertia from staff who have heard it all before and who do not believe their leaders after years of corporate cognitive dissonance. Consequently, the final key element in addressing staff is empowerment. Empowerment has two functions. First of all, staff need to be allowed to participate actively in the detoxing process. Only when they have a stake in the cultural overhaul will they come to support and stimulate a successful cultural change (Parker and Gilad 2011;Treviño et al. 2008; Weaver et al. 1999 ;Parker 2002;Hutter 2001). Second, worker empowerment is vital to creating a critical mass in the company that can resist unfeasible targets and overcome intimidation, in order to freely report wrongdoing and offending behavior. Empowerment entails much more than giving workers rights to speak out. As Garry Gray has shown, giving workers rights without giving them the ability to actually speak out may shift more blame on such employees when accidents and rule breaking happen (Gray 2009;Gray and Silbey 2014). Actual empowerment, therefore, must allow for workers to organize independently, to participate in decision making on issues that directly concern their work, and to have strong protections in disputes against superiors. 6. Conclusions Toxic culture is the ultimate challenge when trying to prevent corporate crime and wrongdoing. Talking about toxic culture is easy, but actually analyzing its processes in order to change them is much harder. This paper has shown how toxic culture exists at the levels of structures, values, and practices in corporate organizations. Most crucially, it has shown that toxicity does not exist only when organizations develop norms that go against the law and promote rule breaking. As the cases at BP, Wells Fargo, and Volkswagen demonstrate, toxicity also exists when organizations have norms that enable rule breaking, obstruct compliance, and delegitimize the authority of the law or norms that support it. Toxic cultures at BP, Wells Fargo, and Volkswagen resulted from a convergence of several core processes. Among these processes, this paper identified: the strain on the company and employees; unfeasible and risky targets; obstruction of dissent; the opportunity for rule breaking based on condoning ongoing violations; the normalization of deviance as increasingly more people break rules; deflecting blame away from the company; neutralizing company culpability and legitimizing offending behavior; and delegitimizing the law because of a dissonance between preached values and illegal practices. Many of these processes in of themselves are not illegal, nor do they directly promoting rule breaking, but rather they enable violations and make compliance harder. In these cases, the toxic culture did not develop by some grand design or because of a singular act or actor. While CEOs and high-level executives played a major role in these processes, they did not plan them or fully control them. They instigated some (e.g., targets, blame deflection), while simply letting others develop unaddressed. All this has important implications for how we address deeply embedded corporate wrongdoing. The normal impulse is to seek blame and punishment as high up as possible. The idea is that ending impunity will cure further wrongdoing. Of course, ending impunity is a necessary condition for 43 Adm. Sci. 2018,8,23 successful behavioral change. However, when wrongdoing is endemic in the culture, it indicates that it is not the fault of a singular leader, but part and parcel of the broader organization. The core task becomes to challenge the culture. To detox corporate culture means addressing all of the converging elements. This does include ending impunity of leaders. In fact, simply placing more pressure on top leaders may result in more blame shifting, neutralization, and corporate dissonance. Rather than solely focusing on holding the highest executives liable, detoxing corporate culture must also come with a full overhaul. Detoxing culture begins with a full assessment of toxicity in the structures, values, and practices, as developed in this paper. Subsequently, detoxing must take into account both changes made in the structures along with addressing the values and practices of executives and employees. As a first step to creating meaningful change in the culture, it is important to create a balance between ensuring accountability for those found to have done wrong and creating an open and safe space for all organizational members to truly discuss what happened, why it happened, and what harm it caused. The legal responses to mass corporate wrongdoing have much to learn from the field of transitional justice, particularly its analysis of legal responses to war and mass atrocity and its ideas on how to balance justice (holding perpetrators accountable) and peace (ensuring that warring parties refrain from future conflict) (Bell 2009;Lambourne 2009;Laplante 2008). Detoxing corporate culture, then, may well require the creation of Truth and Reconciliation Commissions. These commissions would allow corporate wrongdoers to confront victims in a safe and open exchange and would focus on unearthing truth and giving insights rather than on punishment and retribution, paralleling post-apartheid South Africa (Wilson 2001). This paper hopes to aid practitioners tasked with detoxing corporate cultures. A better understanding of toxic corporate processes may lead to the development of better ways to reform them; however, it is important to caution against promises of an easy fix. Cultures are notoriously difficult to change, and lofty promises of changed cultural values and practices can generate more corporate dissonance when real change does not occur (Ogbonna and Wilkinson 2003). Therefore, any successful corporate detox must begin with resisting the pressure for a quick fix or a quick turn-around. 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One study found support for a relationship between an egoistic climate and corruption in organizations (Stachowicz-Stanusch and Simha 2013). Another study found that employees who perceived their organizational climate as more ethical were less likely to give gifts or favors in exchange for preferential treatment, whereas the opposite was true for a more egoistic climate (Peterson 2002). We examine whether perceived ethical climate is related to engagement in corruption, in particular bribery, among both public officials and business employees, thereby focusing on both sides of bribery. We propose the following hypothesis: Hypothesis 1 (H1). The more ethical and the less egoistic public and private sector employees perceive their organizational climate to be, the less likely they are to engage in corruption. 1.3. Interplay An important question is whether and how ethical climate is related to individual corruption motives. We propose that corruption is the result of an interplay between individual and organizational factors. Notably, individual motives for corruption and ethical climate are likely to be related, and may, in concert, shape corruption. To date, studies on individual and organizational explanations for corruption have almost exclusively focused on either individual or organizational factors, and have examined the relationship of each factor to corruption independently ( Den Nieuwenboer and Kaptein 2008 ). Studies that simultaneously include organizational and individual factors will enhance our understanding of why employees engage in corruption. For the first time, we aim to systematically investigate how individual and organizational factors are related not only to corruption, but also to each other. In particular, we examine how perceived ethical climate, which is typically considered to be an organizational characteristic (Arnaud 2010; Arnaud and Schminke 2006,2012 ), is related to individual motives for corruption as a specific type of unethical behavior. We define ethical climate as one’s perceptions of how people within an organization typically make ethical decisions in general. As such, ethical climate is likely to affect many ethical and unethical behaviors, including corruption, which is why we propose that the perceived organizational ethical climate may affect individual motives for corruption as a specific form of unethical behavior. Therefore, the perceived general ethical climate of organizations is likely to affect motives for various types of unethical behavior, including corruption of employees, rather than the other way around. More specifically, we hypothesize that perceived ethical climate is related to corruption via individual motives for corruption. In particular, ethical climate may weaken or strengthen the motives for corruption, thereby, increasing or decreasing the likelihood of corruption. We propose that ethical climate particularly influences personal and social norms on corruption. Notably, ethical climate refers to the most commonly used types of moral reasoning within organizations (Victor and Cullen 1988;Arnaud 2010). As such, ethical climate may shape employees’ personal and social norms on corruption. Some scholars indeed have speculated that ethical climate affects (un)ethical behavior through individual factors, particularly ethics-related ones ( Kish-Gephart et al. 2010 ;Treviño et al. 1998;Webb 2012). Specifically, it has been proposed that awareness of moral obligation functions as a mediator and, notably, that an organization’s ethical climate may strengthen or weaken employees’ personal norms, which in turn affect the likelihood of unethical behavior (Wang and Hsieh 2013;Guthrie et al. 2006). Furthermore, there is initial empirical evidence to suggest that ethical climate affects unethical behavior (i.e., employees’ illegal copying of software) through social norms on the behavior (Lin et al. 1999). To date, however, little is known 54 Adm. Sci. 2018,8,4 about the mechanisms through which ethical climate exerts influence on the unethical and, more specifically, corrupt behavior of employees. In short, although it is unclear how ethical climate affects employees’ unethical behavior and corrupt behavior specifically, ethical climate perceptions might especially influence normative motives, such as personal and social norms, which in turn, affect the likelihood of corruption. Hence, we aim to examine whether a more ethical and less egoistic climate elicits stronger personal and social norms to refrain from corruption, which, in turn, decreases the likelihood of corruption. Additionally, we explore whether perceived ethical climate is related to other motives for corruption, in particular, the perceived costs and benefits of corruption and perceived opportunities to engage in and to refrain from corruption, and whether these motives also mediate the relationship between ethical climate and corruption. On the basis of our reasoning above, we hypothesize that: Hypothesis 2 (H2). The more ethical and the less egoistic public and private sector employees perceive their organizational climate to be, in general, the stronger their personal and social norms to refrain from corruption, specifically, in turn resulting in less corruption. 2. Materials and Methods To gain a better insight into the key correlates of corruption, we conducted a large-scale study among a large sample of people who, in all likelihood, were in a position to bribe or to be bribed. That is, public officials and company employees who regularly interacted professionally with employees of the other sector, and who performed corruption-sensitive tasks. Our study was conducted in the Netherlands, which, according to the Corruption Perceptions Index of Transparency International, belongs to the least corrupt nations worldwide (Transprancy International 2016). In line with this, the number of Dutch people who report having had to pay a bribe is low compared to other European countries. 8 Nonetheless, the same survey indicates that more than half of the Dutch respondents think corruption is a widespread phenomenon in their country. Another study revealed that approximately 20% 9 of Dutch public officials reported having engaged in bribery-related behaviour in the past and/or to have an intention to do so in the near future (Gorsira et al. 2016). 2.1. Procedure and Respondents A questionnaire study, preceded by a selection study, was conducted among members of a panel managed by an agency specializing in online research (www.flycatcher.eu 10 ). Prospective participants had to meet the following criteria: they were employed either in the public or private sector; regularly interacted professionally with employees of the other sector (public officials with business employees and vice versa); and performed tasks over which they had discretionary powers. 11 In the selection study, 4318 panel members participated (a 70% response rate). On the basis of the selection criteria, 8http://ec.europa.eu/commfrontoffice/publicopinion/archives/ebs/ebs_397_en.pdf. 9Note that the respondents were selected, among others, on the basis of their discretionary powers. 10 The Flycatcher panel consists of approximately 16,000 members who have agreed to participate regularly in online surveys. On average, panel members receive eight surveys a year and, in exchange for completing the questionnaires, receive a small reward in the form of points, which can be converted into gift vouchers. The Flycatcher panel meets the ISO quality standards for social science research and is used exclusively for research, and not for any other purposes such as sales or direct marketing. Panel members may terminate their membership at any time and cannot select the type of surveys for which they wish to be invited. 11 A similar study was performed in 2013 by Gorsira et al. (2016). Panel members who participated in 2013 and who were still members of the Flycatcher-panel received an invitation to participate again. Of the 202 public officials who took part in 2013, 144 participated in the selection study (3.3%), of whom 73 participated in the main study (13.7%). Of the 200 business employees who took part in 2013, 140 participated in the selection study (3.2%), of whom 78 participated in the main study (14.9%). Hence, in total, 28.9% of the participants in the current study had participated in the 2013 study as well. 55 Adm. Sci. 2018,8,4 842 people received an invitation to participate in the questionnaire study. 12 Participation in the study was voluntary and anonymous. Given the sensitivity of the subject, the introduction stated that a study was being conducted by the Faculty of Law on integrity at work, rather than specifying that it was conducted by the Department of Penal Law and Criminology on corruption. The questions were presented in a randomized order, to counter order effects. To avert missing data, all questions had to be answered. A data quality check was performed on completion time, consistency of answers, and straight lining and, on the basis of this, 26 respondents were excluded due to poor response quality. The final sample, after the data quality check, consisted of 234 public officials and 289 business employees (a 62% response rate). Of the respondents to the questionnaire study, 53% were male. The participants’ age ranged from 21 to 77 years, with a mean age of 44.8 (SD = 11.86). Compared to the general Dutch population, people with a higher level of education and income were overrepresented, which was expected, as the participants were selected on the basis of their discretionary powers, among other criteria. Forty percent of respondents from the public sector interacted professionally with the private sector on a daily basis, 36% at least weekly, and 24% at least monthly. Of the respondents from the private sector, this was 37%, 54%, and 8%, respectively. These contacts were related to matters such as awarding contracts, purchasing goods and services, and enforcement and inspection, among others. On average, the public-sector respondents had been working at their organization for 4.3 years, at their current department for 3.5 years, and in their current function for 3.5 years. Of the private-sector respondents, this was 3.9 years, 3.6 years, and 3.5 years, respectively. Of the public-sector respondents, 22% held a management position and, of the private sector respondents, this was 31%. 2.2. Measures13 All measures were directed at the work context. The items measuring perceived ethical climate were derived from an instrument developed by Arnaud (2010). These items were the same for the public and private sectors. The items measuring motives for corruption and proneness to corruption were measured using a slightly modified version of a questionnaire developed by Gorsira et al. (2016). 14 This questionnaire consisted of two versions, one for the private sector and one for the public sector, the active and passive side of bribery respectively. Below, for each scale, we first provide an exemplary item for the private sector and then for the public sector. Unless otherwise noted, all items were scored on a 7-point scale ranging from strongly disagree (1) to strongly agree (7). Cronbach’s alpha for all measures, as well as the means and standard deviations, are reported separately for the public and private sectors in Table 1. Table 1. Summary statistics, disaggregated for the public sector (n= 234) and the private sector (n= 289). Public Sector Private Sector Variables αMSDαMSD Corruption-proneness 0.90 0.19 0.392 0.93 0.21 0.409 Perceived ethical climate 0.89 5.05 1.071 0.88 4.92 1.062 Personal norms on corruption 0.78 5.64 0.969 0.85 5.56 1.126 Social norms on corruption 0.76 4.87 1.111 0.83 5.70 1.133 Possibility to engage in corruption 0.61 3.22 1.370 0.65 2.66 1.342 Possibility to refrain from corruption 0.69 5.86 0.973 0.63 5.54 1.081 12 The Ethics committee granted permission to conduct the study and, since fully disclosing the purpose of the study upfront could alter responses, waived the need to obtain participants’ written consent. 13 We only elaborate on the measures that are relevant for the current study. 14 The full questionnaire is available from the first author upon request. 56 Adm. Sci. 2018,8,4 Table 1. Cont. Public Sector Private Sector Variables αMSDαMSD Costs of corruption 0.90 4.70 1.118 0.90 4.72 1.233 Benefits of corruption 0.84 2.36 1.070 0.92 2.53 1.304 Social desirability 0.83 5.66 0.937 0.86 5.55 1.016 2.3. Dependent Variable Corruption was operationalized by probing bribery-related intention and behavior, without using the words ‘corruption’ or ‘bribery’. Three items measured bribery-related intentions (“In the foreseeable future, I can imagine that at my work a situation could arise in which I offer/give/promise money, goods or services to a public official in exchange for preferential treatment” (for the private sector); and “In the foreseeable future, I can imagine that at my work a situation could arise in which I ask/accept/expect money, goods or services in exchange for preferential treatment” (for the public sector)) on a scale ranging from 1 ‘not at all’ to 7 ‘to a great extent’. Three similar items measured past bribery-related behavior (“At my work, I have offered/gave/promised money, goods or services to a public official in exchange for preferential treatment” (for the private sector); and “At my work, I have asked/accepted/expected money, goods or services in exchange for preferential treatment” (for the public sector)) on a scale ranging from 1 ‘never’ to 7 ‘often’. The two scales were strongly correlated ( r= 0.71 ,p< 0.001). Therefore, they were combined into one scale measuring corruption-proneness. As the six items formed a reliable scale, mean scores were computed. The average scores across the six items indicated that the respondents from both sectors reported themselves not to be very corruption-prone. As the data were not normally distributed, the scale was dichotomized to a corruption-prone category (consisting of respondents with a score of four or higher on the intention scale, and a score of two or higher on the past behavior scale 15 ) and a non-corruption-prone category. Of the respondents, 19% of public and 21% of private sector respondents were categorized as corruption-prone, while the others were classified as non-corruption-prone. 2.4. Independent Variables Ethical climate of respondents’ own department was measured using a 10-item instrument ( Arnaud 2010 ;Arnaud and Schminke 2006;Arnaud and Schminke 2012), with five items reflecting an egoistic climate (e.g., “In our department, people are mostly out for themselves” and “People around here protect their own interest above other considerations”) and five items reflecting an ethical climate (e.g., “The most important concern is the good of all the people in the department” and “In our department, it is expected that you will always do what is right for society”). After recoding the items relating to egoistic climate, mean scores for the 10 items were computed, which formed an internally reliable scale, where the higher the score, the more the organizational climate was perceived as ethical rather than egoistic. As Table 1indicates, according to both public and private sector respondents, the ethical climate of their respective organizations could be characterized as more ethical than egoistic. Personal norms on corruption were measured by ten items (e.g., “I would feel guilty if I gave a public official money, goods or services in exchange for preferential treatment” (for the private sector); “I would feel guilty if I gave somebody from outside of my organization preferential treatment in exchange for money, goods or services” (for the public sector); and “I think it is over the top to have rules about accepting or offering gifts to public officials” (for both sectors). The 10 items formed 15 We decided that respondents with a score of less than four on the intention scale could not conclusively be regarded as corruption-prone. With regard to self-reported corrupt behavior in the past, however, we reasoned that someone either had or had not engaged in bribery-related behavior; consequently, respondents with a score of two or higher on the behavior scale were classified as corruption-prone. 57 Adm. Sci. 2018,8,4 a reliable scale. Hence, mean scores were computed. The mean scores indicated that respondents from both sectors felt morally obliged to refrain from corruption; hence, on average, respondents experienced strong personal norms on corruption. Social norms on corruption were measured by six items (e.g., “I am convinced that my close colleagues sometimes give money, goods or services to public officials in exchange for preferential treatment”, 16 and “I am convinced that my close colleagues would feel guilty if they gave a public official money, goods or services in exchange for preferential treatment” (for the private sector); and “I am convinced that my close colleagues sometimes give somebody from outside our organization preferential treatment in exchange for money, goods or services”, 17 and “I am convinced that my close colleagues would feel guilty if they gave somebody from outside our organization preferential treatment in exchange for money, goods or services” (for the public sector)). The six items formed a reliable scale. Therefore, mean scores were computed. The mean scores indicated that respondents of both sectors expected their close colleagues to disapprove of and refrain from corruption. Perceived opportunities to engage in corruption were measured by three items (e.g., “There are many occasions during my work where I could bribe public officials” (for the private sector); “There are many occasions during my work where I could be bribed” (for the public sector); and “The rules on bribery at my work are easy to avoid” (for both sectors)). The three-item scale had a satisfactory reliability. Therefore, average scores were calculated, which indicated that, in both sectors, respondents did not perceive many opportunities to engage in corruption. Perceived opportunities to refrain from corruption were measured by five items (e.g., “I am well aware of the rules about giving money, goods or services to public officials (for the private sector); “I am well aware of the rules about accepting money, goods or services of business contacts” (for the public sector); and “It is difficult to comply with bribery rules at my work” 18 (for both sectors)). The five-item scale had a satisfactory reliability. Therefore, mean scores were computed, which indicated that respondents perceived it as easy to refrain from corruption. Costs of corruption were measured by 12 items, measuring the perceived chance of detection (six items; “Imagine that it is discovered that you engaged in bribery. In your opinion, how likely is it that the following persons or agencies would discover this ... e.g., a direct colleague of yours; a supervisor from your organization; an enforcement agency (for both sectors)), and the severity of punishment (six items; “Imagine that it is discovered that you engaged in bribery. In your opinion, how serious would the negative consequences be, if the discovery was made by ... e.g., a direct colleague of yours; a supervisor from your organization; an enforcement agency (for both sectors)). Responses were given on a 7-point scales ranging from 1 ‘not likely at all/not serious at all’ to 7 ‘very likely/very serious’. The twelve items formed a reliable scale and the mean scores were computed, which indicated that respondents from both sectors assessed the costs of engaging in corruption as relatively high. Benefits of corruption were measured by eleven items measuring how likely it is, in the respondents’ perception, that someone would initiate, or go along with, a corrupt exchange (three items; e.g., “How likely do you think it is that you might get preferential treatment from a public official if you would offer him or her money, goods or services” (for the private sector); and “How likely do you think it is that someone from outside your organization would offer you money, goods or services to receive preferential treatment” (for the public sector)), and the benefits this would render (eight items; e.g., “Engaging in bribery would ... lead to financial gain.”; ... make my job more exciting.”; ... lead to fun and pleasure.” (for both sectors)). Responses were given on a 7-point scale ranging from 1 ‘very unlikely/strongly disagree’ to 7 ‘very likely/ strongly agree’. The eleven items formed a reliable scale. Therefore, mean scores were computed. The mean scores indicated that respondents from both sectors perceived the benefits of engaging in corruption as not very high. 16 This item was reversed scored during scale construction. 17 This item was reversed scored during scale construction. 18 This item was reversed scored during scale construction. 58 Adm. Sci. 2018,8,4 2.5. Control Variable Social desirability was measured to control for respondents’ tendencies to deny undesirable beliefs or behavior; a risk of special concern in ethics research (Fukukawa 2002). The Marlowe-Crowne Social Desirability Scale (Crowne and Marlowe 1960) has been widely used to test for the presence of this type of response; however, the items of this scale are rather general (e.g., “I sometimes think when people have a misfortune they only got what they deserved”). Since all items in the current study are directed at people’s working situation, a social desirability scale was used that was specifically directed at a work context (Gorsira et al. 2016). Social desirability was measured by seven items (e.g., “At my work it has happened to me that I ... benefitted from someone else”; “ ... took something (even a pen or a pin) that wasn’t mine”; “ ... did not keep a promise” (for both sectors)). Responses were given on a 7-point scale ranging from 1 ‘never’ to 7 ‘often’. 19 Mean scores were computed, which formed an internally reliable scale, and indicated that the respondents from both sectors responded in a rather socially desirable manner. Independent-samples-t-tests were performed to investigate whether the two sectors differed regarding the average scores on the measures included in this study. The results suggested that public and private sector respondents did not significantly differ with regard to mean scores on: corruption-proneness; perceived ethical climate; personal norms; perceived costs of corruption; perceived benefits of corruption; and social desirability. However, compared to private sector respondents, public sector respondents perceived weaker social norms, which suggests that the public officials in the sample perceived corrupt behavior to be relatively more approved of and more common among their close colleagues compared to private sector respondents (t(521) = 8.42, p< 0.001 ). In addition, public sector respondents perceived more opportunities to engage in corruption ( t(521) = 4.66 ,p< 0.001). Private sector respondents, on the other hand, perceived less opportunities to refrain from corruption than public sector respondents (t(521) = 3.54, p< 0.001). 2.6. Statistical Analyses First, simple correlation coefficients were calculated for the public and private sectors, separately, to explore relationships between the variables included in the study. Next, a series of binary regression analyses were conducted over both sectors to test (a) whether perceived ethical climate explained corruption-proneness; (b) which motives for corruption uniquely explained corruption-proneness; and (c) whether the relationship between perceived ethical climate and corruption-proneness weakened or became statistically non-significant when the motives for corruption were included, the latter testing whether individual motives mediated the relationship between perceived ethical climate and corruption-proneness. Subsequently, for each motive, separately, we tested via bootstrapping ( Zhao et al. 2010 ) which motives functioned as mediators in the relationship between perceived ethical climate and corruption-proneness. Additional analyses were performed to examine whether the same motives functioned as mediators in both the public and private sectors. 3. Results The simple correlation coefficients between perceived ethical climate, individual motives for corruption, and corruption-proneness are displayed separately for the public and private sectors in Table 2. In both sectors, perceived ethical climate was negatively related to corruption. Hence, public and private sector respondents who perceived their organizational climate as more ethical and less egoistic reported to be less prone to corruption. This confirms the first hypothesis. In line with the results from another previous study (Gorsira et al. 2016), motives for corruption were significantly related to public and private sector respondents’ corruption-proneness in the expected direction, except 19 All items were reversed scored during scale construction. 59 Adm. Sci. 2018,8,4 for perceived opportunities to engage in corruption in the public sector, which was not related to self-reported corruption-proneness. Furthermore, the results showed that perceived ethical climate was significantly related to personal and social norms on corruption; the more ethical and less egoistic public and private sector employees perceived their organizational climate to be, the more they felt morally obliged to refrain from corruption and the more they perceived their close colleagues to disapprove of and refrain from corruption. Furthermore, the results indicated that the more ethical and less egoistic public officials and business employees perceived their organizational climate to be, the less opportunities they perceived to engage in corruption; the more opportunities they perceived to refrain from corruption; the higher they assessed the costs of engaging in corruption; and the lower they assessed the benefits of corruption (but this relationship was only statistically significant for private sector respondents). 20 However, Table 2shows that social desirability was significantly related to self-reported proneness to corruption in both sectors, as well as to perceived ethical climate in the private sector. 21 In the subsequent analyses, the influence of social desirability tendencies was, therefore, controlled for. Since the pattern of results appeared to be rather similar in both sectors, in order to enhance statistical power and to provide an overall view, the following analyses were performed over both groups and, thus, sectors, as the sector the respondents were employed in was included as a covariate. Table 2. Simple correlations between corruption-proneness, ethical climate, and the motives for corruption, disaggregated for the public sector (n= 234) and the private sector (n= 289). Corruption-Proneness Ethical Climate Public Sector Private Sector Public Sector Private Sector Ethical climate −0.18 ** −0.26 *** Personal norms on corruption −0.30 *** −0.41 *** 0.34 *** 0.46 *** Social norms on corruption −0.18 ** −0.49 *** 0.57 *** 0.52 *** Possibilities to engage in corruption 0.06 −0.39 *** −0.14 * −0.20 * Possibilities to refrain from corruption −0.23 *** −0.39 *** 0.39 *** 0.34 *** Costs of corruption −0.24 *** −0.22 *** 0.26 *** 0.26 ** Benefits of corruption 0.19 ** −0.34 *** −0.10 −0.22 * Social desirability −0.26 *** −0.35 *** 0.10 0.29 *** Notes: * p< 0.05, ** p< 0.01, *** p< 0.001. The three models that were tested are displayed in Table 3. The first model confirmed the negative relationship between perceived ethical climate and corruption-proneness, when social desirability was controlled for. The second model indicated that, when all the motives for corruption were included into a single model, personal and social norms on corruption and perceived opportunities to refrain from corruption were the only significant predictors of corruption-proneness. This suggests that perceived opportunities to engage in corruption and the perceived costs and benefits of corruption did not significantly explain corruption-proneness when other motives were controlled for. The full model, including both perceived ethical climate and motives for corruption, revealed that the direct effect of perceived ethical climate on corruption-proneness, indeed, weakened and became statistically non-significant when motives for corruption were included in the model as well. Hence, motives for corruption may, indeed, function as mediators in the relationship between perceived ethical climate and 20 We also performed a partial correlation analysis, which showed that, in the private sector, perceived ethical climate, motives for corruption, and corruption-proneness were all still significantly correlated when social desirability was included as a covariate. In the public sector, however, perceived ethical climate was no longer significantly related to perceived opportunities to engage in corruption, while social norms on corruption and the perceived benefits of corruption were no longer significantly related to corruption-proneness when social desirability was controlled for. 21 Correlation analysis showed that social desirability was also related to all motives for corruption (in both sectors). 60 Adm. Sci. 2018,8,4 corruption-proneness (see Figure 1). 22 To test this further and for each motive separately, mediation analyses were performed via bootstrapping (Zhao et al. 2010; with 1000 resamples derived from the full sample). Table 3. Binary logistic regression model of corruption-proneness (corruption-prone = 1, not corruption-prone = 0; n= 523). Model 1 Model 2 Model 3 Factor B Wald B Wald B Wald Sector − 0.028 0.014 − 0.148 0.238 0.203 0.432 Social desirability − 0.710 36.133 *** − 0.442 11.039 ** − 0.448 11.242 *** Perceived ethical climate − 0.438 14.864 *** 0.152 0.888 Personal norms on corruption − 0.429 9.862 ** − 0.456 10.556 ** Social norms on corruption − 0.385 8.644 ** − 0.448 9.294 ** Possibility to engage in corruption 0.114 0.952 0.105 0.791 Possibility to refrain from corruption − 0.320 5.374 * − 0.337 5.841 * Costs of corruption − 0.097 0.595 − 0.111 0.759 Benefits of corruption .238 3.351 0.238 3.317 Overall fit model 1: − 2 Log likelihood = 458.715; Cox and Snel R2= 0.118; Nagelkerke R2= 0.187. Overall fit model 2: − 2 Log likelihood = 393.136; Cox and Snel R2= 0.222; Nagelkerke R2= 0.351. Overall fit model 3: − 2 Log likelihood = 392.233; Cox and Snel R2= 0.223; Nagelkerke R2= 0.353. Notes: * p< 0.05, ** p< 0.01, *** p< 0.001. Individual Motives Corruptionproneness C Perceived Ethical Climate Figure 1. Model of individual motives as mediators of the ethical climate–corruption relationship. Table 4displays the mean indirect effect of motives for corruption (a × b) and the 95% confidence intervals (see Figure 1). Table 4also depicts the aand bcoefficients, as well as the direct effects of perceived ethical climate on corruption-proneness (c) and the 95% confidence intervals, to determine whether full or partial mediation was found. The results suggest that personal norms on corruption mediated the relationship between perceived ethical climate and corruption-proneness, as the 95% confidence interval of the indirect effect excluded zero. Table 4further shows that the 95% confidence interval of the direct effect did include zero, which means that the direct effect of perceived ethical climate on corruption-proneness was no longer statistically significant when personal norms were controlled for. This suggests full cf. indirect-only mediation, referred to by Zhao et al. (2010)asthe “gold standard” (p. 198). The same results were found with regard to social norms on corruption: the indirect effect was significant but the direct effect was not. With regard to the other motives for corruption, Table 4shows that all motives mediated the effect of perceived ethical climate on 22 The pattern of results was similar for both men and women. 61 Adm. Sci. 2018,8,4 corruption-proneness, as the 95% confidence intervals of all indirect effects excluded zero. However, the 95% confidence intervals of the direct effects of perceived opportunities to engage in and to refrain from corruption and the costs and benefits of corruption excluded zero as well, which suggests partial mediation. To establish the type of mediation, Zhao et al. (2010) proposed calculating the product of a × b × c, where if the outcome is positive, this points to complementary mediation, indicating partial mediation. Since all products were positive, the results suggest that perceived opportunities for engaging and refraining from corruption and the perceived costs and benefits of corruption only partially mediated the relationship between perceived ethical climate and corruption-proneness. Table 4. Results of the mediation analyses (n= 523). a × b95% CI of a × ba b c 95% CI of c Personal norms on corruption − 0.226 [ − 0.341, − 0.141] 0.351 − 0.644 − 0.207 [ − 0.462, 0.047] Social norms on corruption − 0.374 [ − 0.534, − 0.219] 0.538 − 0.694 − 0.064 [ − 0.335, 0.207] Possibilities to engage in corruption − 0.051 [ − 0.111, − 0.010] − 0.151 0.334 − 0.402 [ − 0.627, − 0.176] Possibilities to refrain from corruption − 0.190 [ − 0.300, − 0.104] 0.315 − 0.601 − 0.264 [ − 0.508, − 0.019] Costs of corruption − 0.079 [ − 0.152, − 0.030] 0.241 − 0.330 − 0.369 [ − 0.600, − 0.138] Benefits of corruption − 0.051 [ − 0.110, − 0.014] − 0.122 0.413 − 0.408 [ − 0.635, − 0.181] The previous analyses were performed over both groups (while controlling for sector) to enhance statistical power, as well as to provide an overall view on whether, and if so which, individual motives mediated the relationship between perceived ethical climate and employees’ corruption-proneness. To examine whether motives functioned as mediators in both the public and private sectors, the same analyses were conducted for the two sectors, separately. The results showed that personal norms on corruption fully mediated the relationship between perceived ethical climate and corruption-proneness, in both the public and private sectors; the mean indirect effects of personal norms were negative and significant, while the direct effects were not (see Table 5). With regard to social norms on corruption, however, the results indicated that social norms functioned as a mediator in the private but not in the public sector. In the private sector, the indirect effect was significant, whilst the direct effect was not, which indicates that social norms fully mediated the effect of perceived ethical climate on corruption in the private sector. Yet, in the public sector, neither the indirect nor the direct effect was statistically significant. Regarding other motives for corruption, the analyses reveal full (cf. indirect only) mediation effects of perceived opportunities to comply, in both sectors, and of perceived costs of corruption, in the public sector. Further, the results confirmed the partial (cf. complementary) mediation effect of perceived opportunities to engage in corruption and the perceived costs and benefits of corruption in the private sector, but not in the public sector. Table 5. Results of the mediation analyses for the public sector (n= 234) and private sector (n= 289). Public Sector Private Sector a × b95% CI ab c a × b95% CI ab c Personal norms − 0.173 − 0.317, − 0.061 0.287 − 0.601 − 0.221 − 0.268 − 0.431, − 0.135 0.397 − 0.675 − 0.191 Social norms − 0.085 − 0.306, 0.145 0.575 − 0.147 − 0.310 − 0.573 − 0.862, − 0.358 0.513 − 1.118 0.150 Possibilities to violate 0.006 − 0.037, 0.071 − 0.148 − 0.042 − 0.398 * − 0.105 − 0.235, − 0.007 − 0.160 0.654 − 0.455 ** 62 Adm. Sci. 2018,8,4 Table 5. Cont. Public Sector Private Sector a × b95% CI ab c a × b95% CI ab c Possibilities to comply − 0.152 − 0.352, − 0.019 0.347 − 0.438 − 0.254 − 0.201 − 0.358, − 0.087 0.280 − 0.720 − 0.285 Costs of corruption − 0.118 − 0.262, − 0.020 0.254 − 0.462 − 0.275 − 0.055 − 0.142, − 0.008 0.221 − 0.250 − 0.429 ** Benefits of corruption − 0.019 − 0.085, 0.010 − 0.068 0.286 − 0.373 * − 0.081 − 0.183, − 0.014 − 0.168 0.481 − 0.437 ** Notes: * p< 0.05, ** p< 0.01. 4. Discussion The purpose of this study was to examine how the ethical climate of organizations, in concert with individual motives for corruption, affects corruption, and bribery, in particular. The findings revealed a relationship between the perceived ethical climate of both public and private organizations and corruption. The more ethical and less egoistic the organizational climate was perceived to be, the less prone employees were to engage in corruption. Our study, therefore, provides the first empirical evidence for a relationship between ethical climate, a general organizational factor, and a specific type of unethical behavior, that is, corruption. Furthermore, in line with another previous study (Gorsira et al. 2016), the results suggest that personal and social norms on corruption were the most important individual-level predictors of employees’ proneness to corruption. Extending previous research, we examined whether ethical climate appealed to or affected individual motives for corruption, and whether individual motives, in turn, affected whether or not employees engaged in corruption. As expected, the ethical climate–corruption relationship was fully mediated by personal norms on corruption (in both public and private sector organizations) and social norms on corruption (in private sector organizations). Moreover, the relationship between ethical climate and corruption was partially mediated by the other motives for corruption, the perceived costs and benefits, and perceived opportunities to engage in, and to refrain from, corruption. Hence, the perceived ethical climate seemed to be particularly linked to corruption through personal and social norms on corruption. This suggests that public officials and business employees who perceive their organizational climate as more egoistic (i.e., who perceive that self-interest is the dominant consideration within their organization in deciding what constitutes right behavior) feel less morally obliged to refrain from corruption, which in turn increases their proneness to corruption. In addition, private sector employees who perceived their organizational climate as more egoistic believed that corruption was more approved of and more common among their immediate co-workers, which, in turn, appeared to make them more corruption-prone. These results suggest that individual motives for engaging in corruption are the mechanisms through which a general organizational factor, ethical climate, impacts corrupt conduct. Interestingly, normative motives seemed to mediate the relationship between ethical climate and corruption in both the public and private sectors, which implies that normative motives account for the relationship between ethical climate and engagement in both active and passive bribery. This study followed a correlational design, which means that causal inferences are difficult to draw ( Andvig et al. 2001 ;Tavits 2010). Notably, although it is, theoretically, more plausible that general ethical climate affects individual motives for corruption as a specific type of unethical behavior, which in turn influence proneness to corruption, our study does not allow for firm conclusions about causality. Therefore, we cannot rule out that personal and social norms on corruption affect perceptions of an organization’s ethical climate, or that a third variable, for instance past corrupt behavior, affects both ethical climate perceptions and individual corruption motives. Longitudinal and experimental studies are necessary to test the causal ordering more thoroughly. Yet, a recent 63 administrative sciences Article Contextualizing Corruption: A Cross-Disciplinary Approach to Studying Corruption in Organizations Kanti Pertiwi 1,2 1Department of Management, Universitas Indonesia, Jawa Barat 16424, Indonesia; [email protected] or [email protected] 2Department of Management & Marketing, The University of Melbourne, Parkville VIC 3010, Australia Received: 27 December 2017; Accepted: 6 April 2018; Published: 10 April 2018 Abstract: This paper aims to establish how organization and management research, an extensive field that has contributed a great deal to research on corruption, could apply insights from other disciplines in order to advance the understanding of corruption, often considered as a form of unethical behavior in organizations. It offers an analysis of important contributions of corruption research, taking a ‘rationalist perspective’, and highlights the central tensions and debates within this vast body of literatures. It then shows how these debates can be addressed by applying insights from corruption studies, adopting anthropological lens. The paper thus proposes a cross-disciplinary approach, which focuses on studying corruption by looking at what it means to individuals implicated by the phenomenon while engaging in social relations and situated in different contexts. It also offers an alternative approach to the study of corruption amidst claims that anti-corruption efforts have failed to achieve desirable results. Keywords: organizational corruption; business ethics; management; governance 1. Introduction ‘Corruption’ has largely been construed as an undesirable and destructive aspect of social life. There are deeply rooted notions about ‘corruption’ as ‘decay’ or ‘impurity’ (Hindess 2012). Consequently, throughout modern Western history, corruption has been deemed to be the enemy of humanity. Many social institutions such as governments, educational and religious foundations, as well as the media, articulately condemn corruption as malignant and align their policies with such a disposition. These policies often include various anti-corruption measures as well as good governance principles, codes and the alike, which are all produced with the aim of abolishing corruption. Yet ‘corruption’ has made its entrance into the lives of people in different societies and cultures. ‘Anti-corruption’ arguably entered the scene of international development in the late 1990s in what Naim (1997) called the ‘corruption eruption’. There was an overwhelming call, locally and globally at that time, for the eradication of corruption. This call was led by international development agencies, particularly the World Bank (Koechlin 2013). This growing emphasis on the negative effects of corruption led to significant efforts within the research community to unpack the complexities of corruption and identify the ways through which it might be completely eradicated from human interactions. A quick research on the Web of Science portal reveals that there was a significant increase in the number of studies on corruption, starting with 1125 articles in the year 2000 but increasing to 18,604 academic articles published by end of year 2017. Scholars in the field of management and organization, like other social scientists, took great interest in examining corruption. Their efforts were prompted by the surge of various scandals involving various business or government organizations around the globe. Management and organization studies mostly considered corruption as organization misbehaviour (Ackroyd and Thompson 1999), a type of crime (Aguilera and Vadera 2008), the dark Adm. Sci. 2018,8, 12; doi:10.3390/admsci8020012 www.mdpi.com/journal/admsci 70 Adm. Sci. 2018,8,12 side of organizations (Linstead et al. 2014). They also viewed corruption in rationalistic terms in that they perceived corruption as the result of rational agents exercising their rational thinking so as to maximize individual gains. However, this perspective detached the individual from his or her social relations and circumstances. Moreover, it also viewed corruption as an ‘objective’ fact of life and sought to uncover its true causes and consequences (Sonenshein 2007;Martin and Parmar 2012). A deeper examination of the works of management and organization scholars reveals that there are still debates in the literature pertaining to corruption which need to be addressed. These debates concern whether corrupt behavior should be considered mindful or ‘mindless’, the extent to which social dimensions influence individuals engaging in corruption and whether ethical issues associated with corruption are ‘given’ and objectively identifiable or are constructed by individuals in specific social contexts. My analysis of these debates suggests the need for research to look at how corruption is interpreted by actors engaging in social relations and situated in a particular context. It is useful to view these debates by applying insights from anthropological studies on corruption because this approach highlights the need to study corruption using a cross-disciplinary approach outlined in this paper. This paper is organized as follows: First, it will review some important works on corruption which I label as ‘rationalist approaches’; approaches which are often adopted in various fields, including in the area of management and organization. This covers a vast body of literature that has contributed significantly to our understanding of corruption from organization and behavioral perspectives. Second, the paper will then present the three central debates within this particular literature. Third, in addressing these debates, the paper will draw insights from anthropological and related studies to suggest a cross-disciplinary approach to researching corruption. To conclude, it will highlight potential contributions of such an approach. 2. Review of Literature 2.1. Unpacking Corruption: Rationalist Approaches One dominant approach to studying corruption might be termed ‘rationalist’. This includes theory and research that takes both a macro and a micro perspective. The macro (i.e., country-level) view has been adopted by many scholars in law, economics and politics, looking at corruption and its effects on a host of variables such as a country’s political processes, economic performance and other measures of development. The micro perspective has been adopted, in particular, by management and organization scholars who discuss corruption as a type of unethical behavior which may be analyzed at individual and organization levels. Both perspectives tend to assume that corruption is in and of itself inherently harmful to society. They also regard it as behaviourally dysfunctional. Central to these rationalist views is the assumption that corrupt individuals are rational actors seeking to maximize their gains. I will describe each of these perspectives and the findings that have been generated from these assumptions. ‘Rationalist’ research maintains that corruption is in and of itself inherently harmful or dysfunctional to society and many scholars describe it in negative terms (Torsello and Venard 2016) as a generic ‘social problem’. They commonly argue that corruption hurts economic growth and retards development. Adopting the World Bank’s definition of corruption as the ‘abuse of public office power for private gain’, they adopt the public-private dichotomy that underpins much of the mainstream corruption research. These scholars assume that there is a similar division in markedly different societies with contrasting cultures between what is considered as public and private goods. Meanwhile other studies have shown that these important factors, rather than being universal, are historically determined and locally specific (Rothstein and Torsello 2014). The rationalist perspective further maintains that corruption is detrimental to investment, productivity (Lambsdorff 2003) and, therefore, a country’s economic growth rate (Mauro 1995). It has been argued that its effects are weaker in the less developed nations, possibly because the scale and type of corruption found there is considered ‘more predictable’ when corrupt governments 71 Adm. Sci. 2018,8,12 behave as expected by those seeking favors. Hence there is less negative impact on investment ( Campos et al. 1999 ). Other rationalists contend that corruption leads to the unfair allocation of resources and a poor quality of infrastructure (Klitgaard 1988). At the same time, they speculate that this hinders a firm’s growth because paying bribes increases costs but does not always guarantee an increase in profits (Fisman and Svensson 2007). Other research has found that corruption is inversely linked to the degree of democracy. Countries which have fully democratized have lower levels of corruption than those only partially democratized because of the lack of competition between political actors (Montinola and Jackman 2002). These authors contend that in fully democratized countries, officials or politicians have lower incentives to engage in bribe-taking because they can be replaced rather easily by their constituents through democratic processes. Countries which are considered more democratic have lighter regulation for entry for start-up firms thus lower levels of corruption (Djankov et al. 2002) due to the assumption that more democratic governments face more pressures to not create burdensome regulations. Finally, when looking at the quality of democratic institutions, which is the extent to which there is competition and openness in the electoral systems, Bhattacharyya and Hodler (2010) maintain that corruption is higher in cases where the quality of democratically controlled institutions is below a certain threshold. They argue that it is inversely lower where these institutions are stronger because they are effective barriers to a government’s and politicians’ rent-seeking activities. There are some counter-arguments to this negative view of corruption. For example, Lui (1985) proposes that bribery ‘greased the wheels’ of the economy, therefore benefitting governments. Meon and Weill (2010) also argue that corruption is beneficial in a weakly governed country, particularly where governments are considered ineffective and prone to producing burdensome regulations. Corruption, this argument runs, helps economic growth in these countries but can prove costly in others which do not suffer weak governance. Similarly, a recent study by Huang (2016) which looks at 13 countries in the Asia Pacific using data from 1997–2013 challenges the conventional wisdom that corruption is bad for economic growth. The author contends that corruption plays a positive role in stimulating growth in South Korea while it has had an adverse effect on growth levels in China, suggesting there is not a universally linear relationship between the two variables. Some researchers stress that corruption can be seen as either ‘dysfunctional’ or ‘functional’, depending on the institutional settings. This points to the importance of considering the corresponding political and economic systems as well as the cultural and legal environments (Girling 1997; dela Rama and Rowley 2017 ). A related body of literature discusses ‘state capture’—how businesses capture the state by making private payments in order to influence laws, rules, decrees or regulations. ‘State capture’—or corruption—is beneficial for the captor firms’ performance but detrimental for the rest of the economy (Hellman et al. 2003;Rijkers et al. 2017). Recent work supports this view by questioning the extent to which corruption harms as opposed to benefits a firm’s competitive position. Instead of viewing corruption as inherently destructive, the corporate political strategy literature suggests that corruption benefits corporations by way of developing political ties and exploiting regulatory processes (Galang 2012;Nguyen et al. 2016). For example, some studies have looked at how former politicians or cabinet members are recruited as board members, suggesting that firms are increasingly aware of the benefits of having political ties to influence policy and regulations (Hillman 2005;Lester et al. 2008;Zheng et al. 2015). As mentioned, rationalist scholars adopting a macro view also believe that corruptors are rational actors in that corruption results from a rationally calculated cost and benefit analysis on the part of the party committing it. As long as the benefit of corruption exceeds the costs, corruption continues. Thus some scholars argue that business-government corruption can be eliminated by increasing competition between firms within markets as this will increase the cost of paying bribes (Ades and Di Tella 1999) although evidence from post-communist countries suggests otherwise (Diaby and Sylwester 2015). In a similar vein, others suggest that government wages must be increased—so that bribe-payers 72 Adm. Sci. 2018,8,12 would have to increase their offerings if they are to compete with legitimate earnings (Van Rijckeghem and Weder 2001;An and Kweon 2017). Overall, despite their contribution, the works cited above have received much criticism. For instance, the rational economic view of corruption has been deemed ‘too narrow and too narrowly technical’ (Hindess 2012). Moreover, these studies assume that corruption is universally harmful or dysfunctional (Harrison 2006). They also assume that corrupt individuals are rational actors. Therefore, to control corruption, conditions must be created in which the costs of engaging in corruption exceed the benefits. As a result, these views tend to ignore the complexities of norms and cognitions ( Misangyi et al. 2008 ), which is the focus of management and organization scholars whose work I discuss next. 2.2. Rationalist Works in Organization and Management Studies on Corruption The management and organization literature discusses corruption or unethical behavior both at individual and organization levels. Corruption has been studied as a particular form of unethical behavior, which harms the organization and the society as a whole (Cleveland et al. 2009; Rose-Ackerman and Palifka 2016). Many of these studies are built upon the assumption that corruption occurs due to some kind of moral deficiency located within self-interested individuals (Bracking 2007; Gyekye 2015). Researchers interested in unpacking corrupt behavior employ a variety of methods, including experiments, interviews of different kinds, and narrative analysis. In so doing, various explanations have emerged either focusing on the idea that corruption arises because of ‘bad apples’ such as corrupt individuals, or because of ‘bad barrels’ as in certain types of organizations which encourage corruption. Extending the ‘bad barrels’ argument, scholars highlighted the importance of understanding the ‘bad larder’ (Gonin et al. 2012) or the context of the organization and its influence on corruption. I will begin by summarizing the findings from this body of literature under the metaphors of ‘bad apples’, ‘bad barrels’ and ‘bad larders’. I then identify three emerging debates emanating from these discussions. Finally, I conclude that it is necessary to view corruption through a different lens to properly address the issues raised through these debates. The ‘bad apples’ argument stresses that unethical behaviors in organizations are due to the personal characteristics of differing individuals (Brass et al. 1998). In other words, some people are just born ‘bad’ or raised to be ‘bad’ and they are unable to stop themselves doing bad things ( Fleming and Zyglidopoulos 2009 ). For example, individuals are more likely to engage in corrupt behavior when they are ambitious (Jackall 1988) or have a stronger external locus of control—the tendency to assign responsibility for a situation to something beyond the control of the individual (e.g., Reiss and Mitra 1998). Others maintain that those who have a relativistic morality (that is situation-dependent) as opposed to idealistic (universal morality) (e.g., Elias 2002); or have low empathy with others’ situation (Detert et al. 2008) are more prone to corruption than those who do not. Other findings suggest that better ethical decisions are made by females compared to males, by older people compared to younger people (O’Fallon and Butterfield 2005), and by people who are more religiously committed compared to those who are not (Singhapakdi et al. 2000). Initially, it was also argued that women appear to be less tolerant of corruption than men, especially in Western culture (Alatas et al. 2009) while a more recent study found that women’s representation in government reduces corruption (Esarey and Schwindt-Bayer 2017). More recently, using the organization identification perspective, Vadera and Pratt (2013) argue that individuals who over-identify—have a sense of strong attachment to the organization—are more likely to commit corrupt acts with the intention of benefitting the organization. Others observe that people from a certain cultural milieu, such as India, are more tolerant of corruption than others, such as people from Australia, while in the case of Singapore and Indonesia, people are found to be more and less tolerant than expected, respectively ( Cameron et al. 2009 ). Still others suggest that lower levels of perception of corruption are found in more individualistic compared to collectivist countries (Jha and Panda 2017). 73 Adm. Sci. 2018,8,12 While the ‘bad apples’ argument draws attention to the role of individual attributes, the ‘bad barrels’ argument highlights features of the organization in facilitating corruption. These arguments complement and, at the same time, challenge the previous ‘bad apples’ argument. In the first instance, they question the ability of individuals to escape from corruption as well as the role of cognition and ethical reasoning in deciding the agent’s responses. Second, they acknowledge the possibility that even ‘good apples’ might engage in corruption and develop ‘mental strategies’ to cope with the possible dissonance felt after committing a questionable act (Fleming and Zyglidopoulos 2009). This might, for example, involve producing an account which helps one to feel better about acting corruptly. Instead of viewing corruptors as individuals having perfect agency, the proponents of the ‘bad barrel’ argument suggest that corruption occurs due to factors within the organization, including the organization’s ethical climate, culture and leadership. Ethical climate is the collective organizational normative structure (Victor and Cullen 1988) which influences ethical decision making. An egoistic climate, for example, correlates positively with unethical behavior (Peterson 2002), and more specifically corruption (Gorsira et al. 2018), while a positive ethical climate has a positive influence on ethical behavior (O’Fallon and Butterfield 2005) through collective empathy—that is caring about others likely to be affected by the behavior, and a sense of a collective efficacy—the belief that the behavior will have the desired effect (Arnaud and Schminke 2012). An ethical culture can also reduce unethical behavior (Schaubroeck et al. 2012). Culture refers to formal (e.g., reward systems, ethics training programs) and informal systems such as peer behavior and identity-building stories (Schaubroeck et al. 2012). Through practising ethical leadership, a set of traits that will promote the development of a shared understanding of what constitutes an ethical culture, unethical behavior such as corruption can be reduced. This is consistent with the findings that when an organization’s leaders are perceived to be ethically positive, there are lower reports of counterproductive employee behavior (Mayer et al. 2009). One of the ways to promote the shared understanding is to tell powerful stories about ethics which others can replicate, or through delivering formal speeches in order to communicate organization’s expectations (Schaubroeck et al. 2012). In contrast, when leaders downplay the negative consequences of misconducts, or in other words they become morally disengaged, employees’ ethical behaviour is negatively affected (Bonner et al. 2016). The extension of the ‘barrel’ allegory is the ‘bad larder’ (Gonin et al. 2012), which refers to factors outside the organization, such as the industry culture or climate, network relationships, the role of government and societal norms or values. This argument stresses that corruption often occurs due to certain inter-firm practices such as gift-giving (Verhezen 2009), or networking activities between business and government that can potentially turn into corruption (La Porta et al. 1999). Densely connected subgroups—referred to as cliques (Doreian 1971)—are able to develop and sustain distinct subgroup cultures and norms which support corruption (Brass et al. 1998). Furthermore, cliques operate under advance mechanisms in which a dense network of relationships between individuals and organizations facilitate illegal activities covered by legal ones such as using one’s expertise and professional knowledge to mask illegal deals and decisions (Jancsics and Javor 2012). Similarly, in the field of political sociology, it was argued that the presence and persistence of informal ties referred to as ‘cliques’ are associated with potential misconduct or procedural irregularities (Oziera´nski and King 2016). Focusing more on relationships, scholars argue that relationships lead to corruption when there is a felt obligation to reciprocate others’ treatment (Palmer 2008). Moreover, language becomes an important facilitator in helping individuals understand interactions in reciprocal relations; naming a gift as a ‘bribe’ signals higher expectation for reciprocity (Lambsdorff and Frank 2010). Other scholars have studied the role of government whereby more intrusive regulations (Treisman 2007) and more ties to government agents increase the likelihood of firms opting to bribe because these ties assist managers in undermining rules regarding questionable practices (Collins et al. 2009). Looking at the influence of social norms on corruption, two norms are particularly relevant: reciprocity and a high 74 Adm. Sci. 2018,8,12 achievement orientation. The former makes firms’ managers more tolerant to exchanging favors which may have ethical implications (McCarthy et al. 2012), while the latter makes an organization become more prone to bribery (Martin et al. 2007). Integrating ‘bad apples, bad barrels, and bad larders’, some scholars argue that corruption or unethical behavior is a result of an individual’s deliberation which, in turn, is an outcome of his or her responses to situational factors (Trevino 1986). This explains why moral cognition does not always end in moral action, as certain situations may influence an individual’s final decision. Drawing from Kohlberg (1969) and others, Trevino proposed the ‘person-situation’ model in which an individual’s evaluation of right or wrong is moderated by individual moderators such as the strength of their ego, independence in the field and locus of control, as well as the situational moderators arising out of their cultural and job-related context. Ego strength refers to how strongly a person follows his or her convictions and rejects impulses. Field dependence refers to the degree of reliance on external referents to guide decision-making, and locus of control refers to the general belief of individuals about whether they have control over life events or whether things happen beyond their control (Trevino 1986). Situational moderators include whether the organization has a clear position about right and wrong and which behavior will be rewarded and which will be punished (O’Fallon and Butterfield 2005;Lehnert et al. 2015). In addition, other external pressures such as the pressure to make decisions concerning competitive positions under time constraints, also influence behavior. Similarly, Jones (1991) argues for an issue-contingent model which regards unethical behavior as issue-dependent. Like Trevino, Jones’ model contends that decision making is partly determined by social learning within the organization (Loe et al. 2000;MacDougall et al. 2015). An individual’s engagement in (un)ethical behavior is partly influenced by the intensity of the issue in that an issue which is morally more intense will lead to more ethical decisions. Hunt and Vitell’s (1986) theory of marketing ethics offers a similar perspective by including not only individual variables but also the environment which consists of organizational, industry, and cultural norms. They argue that norms determined by social consensus or demonstrated by leaders influence individuals’ ethical judgment. The idea that decent people can engage in corruption if they are caught up in a difficult situation or environment can be explained by the concept of rationalization—the ‘mental strategy’ that individuals develop to cope with any dissonance they might experience in engaging in corruption, which in turn assists in making corruption seem ‘normal’— in other words, normalizes corruption (Ashforth and Anand 2003;Lennerfors 2017). The rationalist literature speaks of corrupt individuals as having a psychological mechanism that allows them to neutralize any negative feelings that result from engaging in corrupt acts. It involves the effort to construct a narrative which justifies an act that would originally be questionable ( Fleming and Zyglidopoulos 2009 ). In his analysis of the accounts of Abramoff, an American lobbyist charged for a wide range of corrupt actions, Gray (2013) discusses several techniques that are used around lobbying activities, namely indirect gifting—giving congressmen money through “fundraisers”, revolving doors—which involves the circulation of congressmen to lobbying posts, and devising a situation that supports rationalization on the part of the officials. Rationalization or neutralization strategies (Gray 2013) may seem to emphasize the idea of agency. However, authors in this stream assert that individuals rationalize not in isolation, but in relation to their social settings. Scholars have identified several rationalization strategies (Ashforth and Anand 2003), which includes softening the immorality of their act by using euphemisms or metaphors such as “fighting in a war” to justify questionable actions (Campbell and Göritz 2014). Empirical research supports the idea that euphemisms are used to make corruption more acceptable (Znoj 2007) by putting the blame on others (a strategy called ‘denial of responsibility’). This can involve, for example, actors who make corrupt payments labelling these as extortion which had to be paid. Actors may also deny causing any injury by engaging in narratives such as “no one is affected” or “it’s a small payment, just for expediency”. 75 Adm. Sci. 2018,8,12 Ethical distance (Zyglidopoulos and Fleming 2008)—which refers to the distance between one’s act and its consequences—is useful in explaining systemic corruption—the kind of corruption that is said to be common in non-Western societies (Breit and Vaara 2014). Researchers argue for two types of distance: Temporal and structural. In each type, an accompanying rationalization may be activated. In temporal distance, individuals perceive that corrupt acts have no immediate effect because no penalty has ever beset the individual or the organization using in it, therefore engaging in corruption is not so perplexing. The rationalization that may be triggered in this case is, for example, the denial of injury—“it does not hurt anybody”. In structural distance, individuals are insulated from the sense of moral obligation of corruption because they see their role in it as a small part of a larger whole. Within the organization, the individuals perceive that moral obligation is distributed amongst the individuals involved, which means the more people involved the easier it is to escape any moral burden. In collective systemic corruption, individuals perceive their practice as no different to others’ so it reduces the dissonance that may surface. In this case, the rationalization that is being triggered is, for example, “everybody’s doing it”. 3. Emerging Debates in Management and Organizational Corruption Research This review has so far shown how corruption is understood using different concepts and approaches within the ‘rationalist’ literature. I will now focus on three key debates emanating from the above discussion. The first debate considers whether ethical behavior (or unethical behavior such as corruption) is mindful or mindless, the second examines whether unethical decision makers are discrete individuals or embedded in a social context, and the third explores whether ethical issues such as corruption are objective or constructed. Each will be discussed in turn, starting with an explanation of the debate, followed by relevant theories and empirical support, and concluding with a discussion of how these debates point to the value of bringing in anthropological approaches in studying corruption. 3.1. (Un)ethical Behavior: Mindless or Mindful The first debate questions the assumptions of the rationalistic approach to corruption and considers whether corruption should be assumed to be a mindful act or whether scholars should consider the possibility that corrupt behavior flows from mindlessness. Mindfulness or heedfulness (Weick and Roberts 1993) refers to the state of being careful, critical, purposeful, attentive and vigilant, akin to the condition required in being rational or using reason: The individual has intent, is putting in effort, and able control the process (Bargh 1994). Mindlessness is characterized as non-conscious processing of repetitive behavior (Ashforth and Fried 1988; Smith-Crowe and Warren 2014 ), representing “a failure to see, to taken note of, to be attentive to” (Weick and Roberts 1993, p. 61) what is going on. Similarly, intuition is used in describing the psychological process that occurs “quickly, effortlessly, and automatically, such that the outcome but not the process is accessible to consciousness” (Haidt 2001, p. 818). When individuals act mindlessly, they act “with little or no real problem solving or even conscious awareness” (Ashforth and Anand 2003, p. 14), therefore the corrupt act is not an outcome of moral reasoning, a process which is intentional and effortful (Langer and Moldoveanu 2000). Mindlessness can occur due to social influence and organizational structures (Palmer 2008). Social influence includes the authorization of corruption by leaders, the socialization of corruption itself or an escalation of commitment, in which organization members engage in corruption to reduce dissonance over past decisions which subsequently appear to lack merit (Palmer 2008;Staw 1976). For example, instead of trying to rectify a decision that is later found to be defective, organization members increase their commitment towards the decision in question, simply because they want to avoid continued dissonance (Palmer 2008). Social influence processes such as general consensus puts pressure on individuals to believe that their decisions are meritorious, while organizational structures limit individual capacity to make the right call concerning ethical issues. Organizational structures refer to how tasks are distributed across 76 Adm. Sci. 2018,8,12 different parts of the organization as well as the routines developed to guide these tasks. For example, the recall division at Pinto (the car company which failed to recall faulty products in the 1990s) was separated from its safety test division in such a way that the company’s information flow was badly managed, which subsequently impaired decision making. In other words, corruption is enacted mindlessly because people experience pressures from their superiors or peers, or because people are ‘locked’ in within certain organizational rules, scripts and schemas which make them ‘fail’ to deliberate and choose a different course of action (Palmer 2008). Rather than seeing corrupt acts as the outcome of deliberate ‘mindful’ reasoning, some scholars argue it is more likely to be the result of mindlessness (Sonenshein 2007). Social psychological research notes that “moral reasoning is rarely the direct cause of ethical judgment” (Haidt 2001, p. 815). Individuals’ ethical or moral judgment is instead derived from a quick evaluation or intuition, which in turn is influenced by social and cultural factors (Haidt 2001). Scholars question whether rationalization precedes corrupt behavior, as opposed to occurring after the act and there appears to be no relationship between rationalization strategies and the desire or the intention to act corruptly ( Rabl and Kuhlmann 2009 ). If mindlessness really prevails and rationalizations only occur after the fact, implications exist for the way scholars study corruption. Furthermore, Palmer’s (2008) thick descriptions of corruption narratives and detailed information of actors’ thought and emotions, show that there may be alternative explanations of corruption as a result of mindless as opposed to mindful processing. 3.2. Ethical Behavior: Atomistic or Embedded The second debate promotes the idea of exploring the notion of the ‘barrel’ or ‘larder’ more deeply. It highlights that, instead of treating corruption in isolation from its context, scholars should give more attention to social aspects of corruption as well as to how social relations influence the meanings of corrupt practices (Misangyi et al. 2008). Business ethics researchers in particular tend to overlook the effect of social factors in ethical decision making (Bartlett 2003). Therefore, researchers argue that factors such as business culture, industry characteristics or societal norms demand greater consideration. For instance, unethical practice is influenced by a weak business culture which tends to lead to non-transparent practices and strong potentially corrupt connections between business and politicians) (Vaiman et al. 2011). A market that is characterized by concentrated ownership of firms in the hands of a number of wealthy families similarly encourages rent-seeking behaviors between businessmen and the government (Fogel 2006). Others suggest that high scores in the cultural dimension of power distance (the extent to which people accept an unequal distribution of power) and masculinity (the extent to which people stress materialism and wealth) correlate with corruption (Getz and Volkema 2001). The above assertions seem to have only scratched the surface of what other scholars refer to as social context. These other scholars suggest that explanations for corruption lie beyond culture or structure and that they are intrinsically bound up with the meanings and identities of people and their practices (Misangyi et al. 2008). These meanings and identities are reproduced in ongoing social relations (Sewell 1992), shaped by interactions between social actors who continuously interpret, carry out and enact them (Zilber 2002). They are also the “way(s) of how a particular social world work” (Jackall 1988, p. 112). In other words, the meanings and identities are the ‘driving forces’ for behavior and they have rarely been explored by corruption researchers. Seeing corruption as embedded in meanings and identities is particularly important in the case of systemic or institutionalized corruption (Misangyi et al. 2008), where corruption is widespread and treated as legitimate or no longer questioned. Misangyi and colleagues (Misangyi et al. 2008) argue that in systemic corruption, corrupt practices are interpreted differently by individuals. Therefore, to change an already corrupt system one needs to change the meanings assigned to the practices within that system. 77 Adm. Sci. 2018,8,12 3.3. Ethical Issues: Objective or Constructed The third debate in the literature questions the claims of rationalist researchers that corruption is objectively identifiable and takes the idea of meaning even further to suggest that (un)ethical or deviant behavior (such as corruption) is socially constructed. Scholars have acknowledged the importance of decision makers’ perceptions in deciding to engage in particular actions. For instance, individuals’ perception of uncertainty within their environment will have an impact on internal and external networking activities (Sawyerr 1993) which may include ethically questionable practices such as gratuity and bribery (Mele 2009). Similarly, managers’ perceptions of financial constraints and of competition intensity in a market influence firms’ decision to bribe (Martin et al. 2007). This shows that it is important to account for how firms interpret or perceive their environment. Aside from arguing that interpretation of decision-making variables varies, some scholars have also acknowledged the importance of actors’ perceptions in determining whether the behavior under study constitutes ‘misbehavior’, ‘deviance’ or indeed ‘corruption’. Scholars who argue for this view make largely objectivist assumptions—that individuals interpret their environment in a similar manner and that they are uncovering cues from their environment as opposed to actively constructing their own situations or problems. Martin and Parmar (2012) further contend that interpretation works in a more complex way than what is described in rationalist studies. Rationalist corruption studies rarely problematize the possibility of a more varied interpretation of the proxies for ‘cultural practices’, ‘financial constraints’, ‘competition’ and ‘government intervention’ in their survey items. On the other hand, few corruption studies are convinced that individuals are not passive but active interpretive actors, acknowledging the varied interpretations of human problems and conditions by individuals (Weick 1979;Berger and Luckman [ 1967 ] 1971). Sonenshein (2007), for example, questions the rationalist models described above and contends that individuals construct ethical issues in a much more nuanced way, producing “more idiosyncratic interpretations” (Sonenshein 2007, p. 1029), often with very limited information, and make ethical judgments intuitively as opposed to rationally, with less deliberation than scholars have generally believed. Consistent with Haidt (2001), he argues that moral reasoning is used only after decisions are made, partly to help individuals justify the decisions or to explain for the rapid processing beyond their awareness that occurs prior to facing the decisions’ outcomes. In constructing issues, people draw on: (1) Social anchors (communicating with other individuals) to interpret the moral intensity of an issue, and (2) their understanding of others’ interpretation of an issue by forming a mental model. These two mechanisms highlight that issue construction is not only individual but also social. Moreover, issues are to be understood in a much more nuanced way, as opposed to being treated as binaries, i.e., ‘triggering ethical dilemma’ or ‘not triggering ethical dilemma’. Individuals do not merely react to stimuli, they construct meanings (Boland and Tenkasi 1995). This idea that individual construction or interpretation varies is supported by Turgeman-Goldschmidt (2008) who studied the life experiences of a group of computer hackers and illustrated how individuals assigned meanings to practices which did not correspond with the ‘unethical’ or ‘deviant’ label used in rationalist research. Commonly perceived as a specific type of computer-related deviance, hackers in their study actively constructed a positive identity for themselves by arguing that, for example, they were creating a ‘better world’ by ‘not letting companies like Microsoft control the market’, or perceiving themselves as a ‘guardian of the state’ by invading computer systems of the state’s enemy. Similarly, Walton (2013b) has found that instead of seeing practices of wantok—an informal exchange between people from the same clan or family often 78 Adm. Sci. 2018,8,12 associated with nepotism as destructive, people in Papua New Guinea see them as “social protection mechanisms” (Walton 2013b, p. 187), because they help pull people out of poverty.1 These findings suggest that what outsiders label as ‘unethical’, ‘deviant’ or ‘corrupt’ may not be understood as such by the individuals concerned. This is why scholars have called on researchers to “study the interpretive processes” (Sonenshein 2007, p. 1026) through which individuals interpret or construct (un)ethical behavior such as corruption because of the multifarious and contested nature of the behavior. Apart from the construction of issues surrounding corruption, the notion of ‘ethics’—generally understood as individual’s evaluation of good and bad—is also problematic because, similar to corruption, it has often been construed as objective as opposed to subjective and situated in a particular place and time. Recent scholarship argues that in order to understand ethics or morality, one needs to look at how issues pertaining to ethics or morality are constructed in social interactions of everyday life (Tileaga 2012). In summary, some management and organization scholars have called for a more nuanced way of understanding the environment as part of the process of issue construction (Sonenshein 2007). Issue construction, further referred to as interpretation (Sonenshein 2007), is the process by which individuals create their own meaning by using stories or narratives as social events unfold (Boland and Tenkasi 1995). Because individuals construct an issue based on their expectation (what they expect to see) and motivations (what they want to see). Sonenshein (2007, p. 1026) suggested that researchers “study the interpretive processes that construct ethical issues out of social stimuli in the environment”. The last debate emanating from the literature in particular suggests that ‘dysfunctional behavior’ such as corruption has multiple meanings as it is socially constructed. Consequently, corruption needs to be studied in a way that can recognize and explore its social and varied construction. In this regard, I have drawn from anthropological research (Haller and Shore 2005;Torsello and Venard 2016) to study corruption which emphasizes its social, multifarious and contextualized meanings, an approach I now explain in more detail. 4. Anthropological Approaches to Corruption In addition to the dominant rationalist approach to studying corruption, there is a growing and diverse body of research which looks at corruption based on a different set of assumptions. I use the term ‘anthropological’ approach to describe this work, although it is by no means a clear-cut body of literature and encompasses studies in fields covering not only anthropology but also sociology, human geography, discourse and human ethics. The anthropology and sociology literature overlap in terms of their treatment of corruption as a social construction. However, further engagement with both literatures shows that they are often different in terms of the focus of their analysis and their theoretical orientation when analyzing corruption. For example, sociologists tend to be more interested in the ‘causes and processes’ (Hodgkinson 1997, p. 21), the structural elements (institutions, organizations and policy) or the macro-societal context and different scenarios of corruption (Numerato 2009), whereas anthropologists are less so. Instead, they tend to focus more on the meaning-making, also linguistic aspects of experiences of corruption, to which this paper draws attention, among others. As a result, there are more empirical materials from the anthropology literature that speak directly to the mainstream organizational literature, compared to the sociology literature. On the other hand, the field of anthropology itself is vast and can often be classified into two: Cultural and organizational anthropology, which are also different in regards to their level of analysis. 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This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (http://creativecommons.org/licenses/by/4.0/). 88 administrative sciences Article Organising the Monies of Corporate Financial Crimes via Organisational Structures: Ostensible Legitimacy, Effective Anonymity, and Third-Party Facilitation Nicholas Lord 1,*, Karin van Wingerde 2and Liz Campbell 3 1Centre for Criminology and Criminal Justice, University of Manchester, Manchester M13 9PL, UK 2Erasmus School of Law, Erasmus University Rotterdam, 3000 DR Rotterdam, The Netherlands; [email protected] 3School of Law, Durham University, Durham DH1 3LE, UK; [email protected] *Correspondence: [email protected] Received: 9 April 2018; Accepted: 17 May 2018; Published: 19 May 2018 Abstract: This article analyses how the monies generated for, and from, corporate financial crimes are controlled, concealed, and converted through the use of organisational structures in the form of otherwise legitimate corporate entities and arrangements that serve as vehicles for the management of illicit finances. Unlike the illicit markets and associated ‘organised crime groups’ and ‘criminal enterprises’ that are the normal focus of money laundering studies, corporate financial crimes involve ostensibly legitimate businesses operating within licit, transnational markets. Within these scenarios, we see corporations as primary offenders, as agents, and as facilitators of the administration of illicit finances. In all cases, organisational structures provide opportunities for managing illicit finances that individuals alone cannot access, but which require some element of third-party collaboration. In this article, we draw on data generated from our Partnership for Conflict, Crime, and Security Research (PaCCS)-funded project on the misuse of corporate structures and entities to manage illicit finances to make a methodological and substantive addition to the literature in this area. We analyse two cases from our research—corporate bribery in international business and corporate tax fraud—before discussing three main findings: (1) the ostensible legitimacy created through abuse of otherwise lawful business arrangements; (2) the effective anonymity and insulation afforded through such misuse; and (3) the necessity for facilitation by third-party professionals operating within a stratified market. The analysis improves our understanding of how and why business offenders misuse what are otherwise legitimate business structures, arrangements, and practices in their criminal enterprise. Keywords: corporate financial crimes; organisational crime; corporate bribery; corporate tax fraud; corporate vehicles; money laundering; illicit finance; proceeds of crime 1. Introduction While it has long been recognised that corporate financial crimes generate financial advantages that substantially exceed those of other serious crimes, such as counterfeiting, illicit drugs, prostitution, and gambling (McGurrin and Friedrichs 2010), research on corporate crimes has mainly focused on their nature and size, their explanations or determinants, their harms and victims, or their regulation and enforcement (for an overview see (Levi and Lord 2017)). The specific issue of how the financial aspects of corporate crimes, in terms of both operational costs and profits generated, are managed remains under-theorised. This is even more apparent as law enforcement authorities in many countries have adopted a ‘follow-the-money’ approach in the supervision and enforcement of corporate financial crimes (Nelen 2008;Kruisbergen 2017;Kruisbergen et al. 2016) alongside an increasing focus on the financial organisations (e.g., banks) and professionals (e.g., lawyers, accountants) that enable Adm. Sci. 2018,8, 17; doi:10.3390/admsci8020017 www.mdpi.com/journal/admsci 89 Adm. Sci. 2018,8,17 and facilitate such crimes (Middleton and Levi 2015). In this article, we seek to better understand the intersections of organisations and corporate financial crimes with particular focus on the use of otherwise legitimate organisational structures as a means of controlling illicit finances. Furthermore, we explore the theoretical benefits that can be gained by approaching these issues from an integrated criminological and organisational studies perspective. The misuse of organisational structures and entities in this way notably came to prominence in the 2016 leak of 11.5 million files at the centre of the Panama Papers scandal, though it has been on the international policy agenda since the start of the 21st Century (OECD 2001). This is not to imply that organisational structures have not been misused historically, but the foregrounding of the issue by the OECD in 2001 was the driver of subsequent policy and scientific agendas. The Panama Papers provided insights into the flows of (illicit) monies through the global financial system and the extensive concealment of legally, unethically, and illegally generated wealth. The spotlight in the case of the Panama Papers fell on Mossack Fonseca, a law firm and company service provider (CSP) based in Panama that specialises in creating offshore companies in jurisdictions such as the British Virgin Islands and the Bahamas to act as conduits for the movement of finances. In 2017, the Paradise Papers leak reaffirmed how such financial arrangements endure transnationally, with the CSP Appleby being scrutinised for its role in facilitating the control of questionable wealth. The implication raised in the Panama and Paradise Papers is that these legal structures are being misused and abused for illicit and illegitimate purposes, such as the evasion and avoidance of tax by wealthy individuals, the concealment of corrupt funds by public officials, and other criminal behaviours, such as money laundering. With the above in mind, this article analyses how the monies generated for, and from, corporate financial crimes are controlled, concealed, and converted via organisational structures. These organisational structures take many forms, and we focus here on what are termed ‘corporate vehicles’, which are otherwise legitimate corporate structures and arrangements that facilitate illicit money management. Unlike the illicit markets and associated ‘organised crime groups’ and ‘criminal enterprises’ that are the normal focus of money laundering studies, corporate financial crimes involve ostensibly legitimate businesses operating within licit, transnational markets. Within these scenarios, the corporate entity can be the primary offender, an agent of the crime, and/or a facilitator of the management of illicit finances. We focus here on the opportunities presented by these organisational structures in the management of illicit finances that individuals alone cannot access but which require some form of third-party assistance and/or collaboration. This article is structured as follows. First, we explain what we mean by organisational structures and vehicles, and elaborate on their significance to organisational studies before going on to concretise the intersections of ‘corporate crime’ and the misuse of otherwise legitimate organisations and organisational structures in corporate financial crimes. Second, we expand on our methodology. Methodologically, there has been no other attempt (that we are aware of) to integrate the identification and assessment of existing empirical materials on the misuse of corporate vehicles using a Rapid Evidence Assessment with insights gained through interview data and case study analysis. Third, we present two case studies from the research—corporate bribery in international business and corporate tax fraud—to ground the nature of the research phenomenon. We use these cases to demonstrate how the findings here are not limited to the idiosyncrasies of specific corporate financial crime types (e.g., corruption and fraud) or specific jurisdictions (e.g., the U.K. and the Netherlands) but have broader global relevance. For instance, corporate financial crimes can differ in terms of their inherent and central processes but all can misuse legitimate organisations to their advantage. Fourth, we analyse three main findings: (1) the ostensible legitimacy created through the misuse of otherwise legitimate business arrangements; (2) the effective anonymity and insulation afforded through such misuse; and (3) the necessary role of third-party professionals that operate within a stratified market. In terms of our substantive contribution to the literature, while the misuse of corporate vehicles has been discussed in the context of organised crime and corruption, it has not been sufficiently analysed in relation to corporate and white-collar crimes and we begin to address this gap 90 Adm. Sci. 2018,8,17 here. Finally, we conclude by arguing that this analysis improves our understanding of how business offenders misuse what are otherwise legitimate business structures, arrangements, and practices in their criminal enterprise. 2. Corporate Financial Crimes and Organisational Structures Conceptually, the focus in this article is on what has been traditionally referred to as ‘corporate crime’. That is, those offences, whether criminal, civil, or administrative, that are undertaken by corporate officials (variously dispersed, but representative of the corporate entity) or the corporate entity itself (Clinard and Yeager 1980) or otherwise articulated as offences ‘for a firm by the firm or its agents in the conduct of its business’ (Hartung 1950, p. 25). That otherwise ‘respectable’ organisations and corporations are regularly implicated in criminal behaviours is not new; major scandals, such as the LIBOR rigging involving financial institutions including Barclays and UBS, or accounting frauds as with Tesco Plc, or the facilitation of money laundering as with HSBC and Deutsche Bank, give us insight into how the corporation and its environment can be conducive to an array of illicit behaviours for corporate and individual gain at the expense of public and private actors. Empirical evidence has reinforced the widespread, pervasive, and extensive nature of corporate crimes (Sutherland 1983; Clinard and Yeager 1980;Braithwaite 1985;Tombs and Whyte 2015). It has long been recognised that corporate crimes are also ‘organised’, both formally and informally (Sutherland 1983, pp. 229–30), and are incentivised and made possible through otherwise legitimate business structures (Levi and Lord 2017). It is this latter point that is of most importance here given our interest in the organisation of the finances of corporate crimes through organisational structures. For instance, it is necessary to understand how corporate offenders confront problems, such as managing the finances for, and from, their criminal behaviours, and the legitimate business structures that shape how, why, and under which conditions they are able to do this over time and place (Edwards and Levi 2008;Lord and Levi 2017). An interesting and important feature of these crimes is that the business offenders have legitimate access to the offending environment (i.e., the organisation and its structures), have spatial separation from likely victims (e.g., market investors), and involve criminal behaviours that appear common and routine within occupational practice providing a superficial appearance of legitimacy and straightforward concealment (Benson and Simpson 2018). Thus, the organisation, or corporation, in addition to providing opportunities and conducive environments for offending behaviours, can be (a) a primary offender, (b) an agent, weapon, conduit, tool, or location for offending, and (c) a facilitator of third party criminality. (Of course, the organisation can also be the victim as well the ‘cure’ for its own ailments (see Meerts 2018, in this Special Issue)). The misuse of legitimate organisational structures, and corporate vehicles specifically, has received more academic attention in relation to the concept of ‘organised crime’ (Ruggiero 2017a) as opposed to corporate and white-collar crimes. For instance, it has been evidenced that organised crime groups may use corporate vehicles to launder illegal profits (e.g., from the drugs trade), to generate income (e.g., boiler room frauds), to avoid personal liability (e.g., as in bankruptcy frauds), or to legitimise other activities (e.g., using a business as a ‘front’ for illicit market trade) (see Van de Bunt et al. 2007). Additionally, cases of ‘blackwashing’ or ‘reverse money laundering’, where legally acquired assets are used to fund criminal activities, have also been analysed (see for example Zabyelina 2015). Money laundering, tax evasion, and bribery in which we see the misuse of ‘corporate vehicles’ are typically phenomena that transcend the categorical distinctions between corporate and organised crime (see also Ruggiero 2017b). Corporate and organised criminals adopt similar techniques and structures to commit their crimes. At the same time, however, the distinction between the two may inform different institutional responses. Ruggiero (2017a) therefore argues to analyse similarities and differences between the techniques used in corporate and organised crimes. Analysing and comparing the misuse of corporate vehicles in ‘organised crime’ and ‘corporate crime’ is a worthy subject for inquiry, and an issue we explore as part of our Partnership for Conflict, Crime and Security Research (PaCCS) project. 91 Adm. Sci. 2018,8,17 However, our focus here is on the opportunities presented by organisational structures in the context of corporate crimes that individuals alone would not be able to realise. These structures enable individuals to manage, conceal, and transfer their illicit finances. This phenomenon, with particular focus on corporate financial crimes, necessitates an analysis of how legitimate business practices and structures facilitate these criminal behaviours by employees internal to and representative of corporations that engage in financial crime in ‘glocal’, often deterritorialised, markets over time. These organisational structures take many forms (e.g., limited companies, foundations, charities, partnerships) and we focus here specifically on what have been termed ‘corporate vehicles’ as one organisational form. 3. Methodology and Data The findings are based on data generated as part of a broader comparative project funded by the PaCCS investigating the use of corporate structures in the organisation of serious and organised crimes, including corporate financial crimes. The research is being undertaken in the U.K. and the Netherlands. While the focus is often on offshore financial centres, mainland U.K. and the Netherlands also provide secrecy: the creation of such structures are not the sole prerogative of overseas territories. We used a mixture of methods to generate data and insights into understanding how, why, and under which conditions those involved in corporate financial crimes misuse corporate vehicles for the concealment, conversion, and control of illicit finance. First, we undertook a Rapid Evidence Assessment (REA) of the available academic literature. Our REA took place between June 2017 and August 2017 and involved an overview of existing scholarship on the topic of ‘corporate vehicles and illicit finance’. The purpose of the REA was to develop a ‘state of the art’ synthesis of the academic literature in the context of an array of ‘serious crimes’, covering both white-collar and corporate crimes but also behaviours more commonly associated with organised crime, such as money laundering and corruption. Table 1provides an overview of the REA focus, key primary and alternative concepts, and databases searched. Key words included a mixture of analytical concepts and crime types. Three databases engines were utilised: ProQuest, Scopus, and Web of Science. Table 1. The Rapid Evidence Assessment (REA). Topic Statement The Misuse of Corporate Vehicles in the Organisation of Serious Crimes Time Period Not restricted Geographical Scope Global (English speaking) Primary Concepts ‘corporate vehicle’, ‘(offshore) trust’, ‘limited company’, ‘(offshore) foundation’, ‘listed company’, ‘(offshore) partnership’, ‘shell-company’, ‘shell firm’ Secondary Concepts ‘illicit finance’, ‘serious crime’, ‘white-collar crime’, ‘crime proceeds/proceeds of crime’, ‘dirty money’, ‘money laundering’, ‘fraud’, ‘criminal enterprise’, ‘organised crime’, ‘corporate crime’, ‘financial crime’, ‘tax evasion’, ‘offshore’ Databases searched - ProQuest (44 Databases: see website) - SCOPUS - Web of Science Primary and secondary inclusion criteria were then applied to the search query hits. Table 2provides an overview of the search queries and hits in addition to the sources that met the inclusion criteria. The search included only peer-reviewed journal articles that had ‘full text’ availability and that were written in English. There was no date range restriction. All hits were then manually examined to determine their relevance to the topic statement. As a consequence, many hits from the search queries were omitted. This resulted in a total of 132 relevant academic publications following the application of the primary inclusions criteria. The application of the secondary criteria involved a further manual sift of the hits to identify only those publications based on empirical research and of direct relevance to 92 Adm. Sci. 2018,8,17 the REA question. These stringent criteria narrowed the number of relevant hits substantially to 21 articles with an empirical underpinning of relevance for our research question. Table 2. REA Search Hits Following Primary and Secondary Inclusion Criteria. Primary Concept Query Secondary Concepts Primary Inclusion Criteria Secondary Inclusion Criteria “corporate vehicle” AND (“illicit finance” OR “serious crime” OR “white-collar crime” OR “white collar crime” OR “crime proceeds” OR “proceeds of crime” OR “dirty money” OR “money laundering” OR “fraud” OR “criminal enterprise” OR “organised crime” OR “organized crime” OR “corporate crime” OR "financial crime” OR “tax evasion” OR “offshore”) 28 7 “trust” N/A N/A “offshore trust” 13 1 "limited company" 14 3 “foundation” N/A N/A “offshore foundation” 0 0 “listed company” 20 1 “partnership” N/A N/A “offshore partnership” 4 0 “shell company” 47 9 “shell firm” 6 0 132 21 N/A = not applicable. The texts of all publications were imported into NVivo. 1 All texts were then read by each of the investigators and analysed in terms of their methodological quality and rigour and the relevance of the empirical findings for answering our research question. Second, semi-structured interviews were conducted with 35 actors from law enforcement, public authorities, financial institutions, non/inter-governmental organisations, professional services, and academia primarily in the Netherlands and the U.K. This included an expert group meeting with 11 key actors from enforcement authorities, professional services (law firms), and academia in July 2017. The interviews and expert group meeting were designed to understand when and why the use of corporate vehicles might be problematic, the definitional and legal landscape surrounding corporate vehicles, the nature and organisation of the misuse of corporate vehicles for financial gain, and regulation and enforcement of the misuse of corporate vehicles and possible obstacles inhibiting successful enforcement. All interviews lasted on average an hour and were thereafter transcribed. All interviews were analysed using NVivo. The interviews were analysed iteratively, meaning that there were constant shifts between the data and the literature and regular meetings were held to discuss and interpret the data. Our analysis below (see ‘Discussion’) is directly informed by the literature identified in our REA and our interview data. We arrange our discussion around three prominent themes that emerged during the analysis of the literature and during our interviews, and draw on these sources to build our conceptual and theoretical insights into the nature and purpose of misuse. In this sense, we triangulate our data to corroborate our core findings. We do not include all literature identified as part of the REA as some was not directly relevant to the organisational aspects of corporate crimes but was concerned with ‘organised crime’. Our analysis does not include direct quotes from our interviews but is arranged to discuss core themes in a more integrated, narrative style. 1NVivo is analysis software designed for managing qualitative data but can also be utilised in the coding of literature. 93 Adm. Sci. 2018,8,17 4. Case Studies Corporate financial crimes take many forms. In order to concretise the nature of how organisational structures can be misused, we present two cases from our analysis concerned with corporate bribery in international business (i.e., corruption in commerce) and corporate tax fraud (i.e., intentional dishonesty at the expense of public funds). These cases were selected to provide an illustrative account of how organisational structures can be misused in corporate financial crimes. In these terms, the cases are not necessarily representative of all cases we encountered but are useful as heuristics to stimulate further investigation. First, we discuss the BAE Systems bribery case. We used open sources in our description and analysis of the case; specifically, court documents and media reports. The second case was derived from the Dutch Organised Crime Monitor, an ongoing systematic analysis of closed large-scale police investigation into organised crime in the Netherlands. It has existed since 1996 and aims to gain insight into the nature of organised crime in the Netherlands and its developments and to use this knowledge to optimise the prevention and fight against organised crime. 2 We chose a case of corporate tax fraud that illustrates how these corporate structures are being misused. 4.1. Corporate Bribery in International Business When organisations, and corporations in particular, are implicated in bribery in international business, it means those actors operating within the organisation (i.e., employees or senior managers), or on behalf of the organisation (e.g., intermediaries, subsidiaries, or agents), have engaged in an illicit relation of exchange with a foreign public official (or their agent), either as instigator or on request, to win or maintain a business advantage for their organisation (Lord 2014a;Lord and Doig 2014). Bribery in business is a core focus of international conventions such as the OECD Anti-Bribery Convention 1997 and the UN Convention against Corruption, with such behaviours now constructed as universal social bads, particularly in those countries with large shares of world exports (i.e., key players in international commerce, though some remain absent, such as China and India) (Lord 2014b,2015). Consequently, enforcement and regulation domestically is a priority concern for nation states seeking to communicate an image of active enforcement of such criminality (and perhaps normative superiority) to those international moral entrepreneurs, such as Transparency International, that scrutinise how they respond to their corporations that bribe. The misuse of ‘corporate vehicles’ is common in, and at the centre of, the organisation of many cases of corporate bribery and related finances. The Case of BAE Systems In 2010, BAE Systems (BAES), the U.K.’s largest arms manufacturer, agreed to pay criminal fines in the U.S. 3 ($400 million) and U.K. 4 (£0.5 million) to settle charges related to failures in accounting and bookkeeping but in connection to allegations of bribing foreign public officials in Saudi Arabia, Tanzania, the Czech Republic, and Hungary to win or maintain arms contracts. In the case of Saudi Arabia, bribes totalling over £6 billion were allegedly paid to Saudi officials as part of a series of defence contracts signed between the U.K. and Saudi Arabian governments. In 1985, the initial al-Yamamah I arms deal (al-Yamamah II was signed in 1988) involved the provision of defence equipment, such as Tornado and Hawk aircraft, in exchange for up to 600,000 barrels of oil a day. The deal was worth around £43 billion. However, finances for the bribes were created by inflating prices to enable ‘kickbacks’ to be paid which covered extravagant expenses, such as yachts, sports cars, a private jet, and cash payments. The finances for these inducements were organised through shell 2 The second author had access to these cases through a previous commissioned study in anticipation of legislative changes in the Netherlands with regard to the supervision and control of corporate vehicles (Van de Bunt et al. 2007). 3https://www.justice.gov/opa/pr/bae-systems-plc-pleads-guilty-and-ordered-pay-400-million-criminal-fine. 4https://www.caat.org.uk/resources/companies/bae-systems/r-v-bae-sentencing-remarks.pdf. 94 Adm. Sci. 2018,8,17 companies located in offshore locations and bank accounts in more secretive jurisdictions. For instance, according to court documents, BAES made a series of substantial payments to shell companies and third-party intermediaries that were not sufficiently scrutinised but were used to conceal the use of ‘marketing advisors’ and the provision of ‘support services’: BAES contracted with and paid certain advisors through various offshore shell companies beneficially owned by BAES. BAES also encouraged certain advisors to establish their own offshore shell companies to receive payments from BAES while disguising the origins and recipients of these payments. (DoJ 2010, para. 8) Figure 1provides a visualisation of these organisational arrangements. In one such instance, BAES established a shell company called Red Diamond Trading International Ltd. in the British Virgin Islands (BVI) in order to: (i) conceal its marketing advisor relationships (identity and payments); (ii) create obstacles for investigating authorities; (iii) to circumvent laws prohibiting such relationships; and (iv) to assist advisors in avoiding tax liabilities for payments from BAES. Through Red Diamond, BAES made payments of more than £135 million despite being aware the funds would be used to influence contract decisions in foreign governments. In another instance, in one 20-month period, BAES paid over £8 million to a front company called Robert Lee International (RLI) created by BAES to entertain top Saudi officials 5 with payments transferred via intermediary-owned bank accounts in Switzerland. Payments were also concealed through other front companies created by BAES.6 Figure 1. Corporate vehicles (CVs) and BAE Systems Bribery Scandal. 5https://www.theguardian.com/world/2003/sep/11/bae.freedomofinformation. 6https://www.theguardian.com/baefiles/page/0,,2095840,00.html. 95 Adm. Sci. 2018,8,17 The Specific Role of Banks and Financial Institutions Banks and financial institutions have a necessary role in enabling these illicit arrangements and as Ruggiero (2017a) notices offer a number of disconnects between the act committed and the beneficiaries of the crime. First, for illicit finances to be transferred via corporate vehicles, bank accounts need to be established. Second, banks also provide the infrastructure to allow monies to be transferred across the accounts of individual entities and for transactions to take place. Thus, banks and financial institutions are essentially the entry points to the financial system. Without banks and the financial system, the management of illicit finance cannot function. Given this central role, they are required to implement strict anti-money laundering requirements in relation to the ‘onboarding’ of new corporate and individual clients and the monitoring of suspicious transactions. In terms of ‘onboarding’, our research has indicated that corresponding due diligence and client checks can be time-consuming and pervasive, in some cases up to eight months because of extensive checks, which in turn create pressures for financial institutions. Banks face internal and economic pressures not to lose clients and this is exacerbated when clients threaten to move to other providers where difficult questions are in some way circumvented. For instance, one concern for established financial institutions is the emergence of ‘Challenger Banks’ that promise clients to undertake due diligence processes much quicker but in doing so allow for more risk. While it is unclear whether or not there will be less oversight and more blind spots within challenger banks, it can be expected that it will be difficult for challenger banks to find the balance. However, as they tend to be innovative, they may find solutions to the ‘problem’. As a consequence, there are cases whereby financial institutions, such as banks, are ‘far too willing to do business with anonymous companies’ (Global Witness 2013, p. 7). Banks are required to implement sufficient internal systems to identify and then report suspicious transactions and money laundering, but risk-based approaches to anti-money laundering are not consistent across the banking sector. Furthermore, ‘the identification of “suspiciousness” by professionals and others with a legal responsibility to combat money laundering is often a judgment that the people and/or transactions are “out of place” for the sort of account they have and the people they purport to be’ (Levi 2015, p. 10). We must question how, in cases such as BAES and Jansen BV, those involved are able to conceal their illicit behaviours from others. 6. Conclusions Our core argument in this article is that organisational structures, and corporate vehicles in particular, provide opportunities to individuals involved in corporate financial crimes to enjoy and be insulated by an ostensible legitimacy and effective anonymity for the criminal behaviours and the criminal actors, respectively. Without the use of these organisational structures, individual actors would not be able to access such concealment opportunities in the course of their criminal behaviours. For instance, corporate vehicles can be used to launder illegal profits. In the case of Jansen BV, a structure was created whereby Jansen retained anonymous control over the money generated through the tax fraud. The structure was aimed at misuse, since the corporate veil legitimised investing money from tax fraud into legitimate assets. However, corporate vehicles can be used to legitimise other activities. This is not primarily aimed at financial gain and includes situations in which the natural person does not hide behind the corporate veil, but rather uses it to disguise illegitimate activities. For example, in the case of BAES we see how corporate vehicles are created to provide an appearance of transactional legitimacy in the concealment of finances used for bribery. In both scenarios, these arrangements have been used to avoid personal liability. In the BAES case, for example, agents and advisors hid behind corporate vehicles constructed for illicit purposes with any commissions attached to bank accounts in the name of the corporate entity but under the control of those individual actors. Of course, organisational structures can facilitate corporate crimes in more ways than organising finance. For example, in his research on the Madoff scandal, Van de Bunt (2010) shows that Madoff used the organisational structure of his firm to create isolation and to conceal the fraud from non-complicit employees. Madoff’s Ponzi scheme originated from a separate department which was 102 Adm. Sci. 2018,8,17 located on a separate floor. Thus, large and complex organisations may provide cover for corporate crimes through the division of tasks, decentralisation of decision-making, and specialisation of work. This stresses the importance of research into how corporate crimes are organised and facilitated through complex business structures. These arrangements are able to endure and withstand intervention as enforcement asymmetries, obstacles to cross-border information exchange, and cultures of corporate non-compliance globally create barriers to regulatory responses (Sharman 2010a, p. 138). For instance, our project’s Expert Group Meeting attended by informed actors from public authorities, amongst other key organisations, identified tensions between (political and economic) openness to foreign investments/investors and the prevention of crime. Governments must seek to protect national economic interests whilst also communicating an image of enforcing strict international standards. Furthermore, the issue of information exchange and actually receiving relevant information from offshore jurisdictions was highlighted as a primary obstacle, demonstrating notable imbalances in enforcement structures and capabilities across jurisdictions. By integrating criminological insights into the dynamics of the financial aspects of corporate financial crimes with an appreciation of the significance of the study of organisations and their features and associated practices, we have been able to gain theoretical insights into how and why the organisational form can provide opportunities for crimes that individuals alone cannot access. However, we recognise the need for further empirical research in this area to illuminate the connections between the location of individual and corporate criminality within an organisation and their place within more enduring financial arrangements and systems. Author Contributions: All authors contributed to the design of the research, data collection and analysis and co-wrote the article. All authors read and approved the final manuscript. Funding: This research was funded by the Partnership for Conflict, Crime and Security Research (PaCCS) grant number [ES/P001386/1]. 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The role that organisations themselves play in the investigation and settlement of their internal norm violations is, however, much less researched. An emphasis on the role of the state downplays the importance of such actions. This research paper, based on qualitative data from the Netherlands, highlights the role of the organisation as the principal actor in corporate investigations and corporate settlements. The legal constraints upon and day-to-day activities of corporate investigators are considered and the consequences of the distance between public law enforcement actors and corporate security are reflected upon. The paper arrives at the conclusion that the limited insight into the measures taken by organisations in response to internal norm violation can be considered problematic from a democratic, rule-of-law point of view. The freedom of action enjoyed by organisations within the private legal sphere makes oversight and control quite challenging. Keywords: corporate investigations; corporate settlements; internal norm violations; private justice 1. Introduction In a case of theft and fencing of company property, multiple reactions were chosen against the people involved. There have been two reports to the police and two civil actions. In addition, assets were seized through civil measures, settlement agreements were used for the repayment of damages, twelve employees lost their job and eight employees received an official warning. [Case study 11—Meerts 2018] It is not uncommon for instances of corporate and white-collar crime to be settled without the interference of criminal court (see for example Beckers 2017). Organisations tend to take their own measures—either with or without a criminal prosecution or settlement. These ‘corporate settlement measures’ are often based on corporate investigations, conducted by specialised investigators (Meerts 2018) . With corporate settlement measures are meant those “solutions to norm violations, which may be derived from public law (criminal law), private law (contract law, tort or labour regulations) or internal regulations (of specific organisations)” (Meerts 2018, p. 22). This definition of corporate settlement is quite broad and contains both measures that are completely internal to the organisation (such as the official warnings in the case cited above) and measures that are external to the organisation (such as the criminal cases against the two employees in the case cited above). Although the criminal case itself is not a corporate settlement measure—the decision whether or not to prosecute lies with the prosecution office, not with the organisation—the decision to officially report to law enforcement authorities is. Reporting to law enforcement authorities is one of the options available to an organisation faced with internal crime. The aim of this paper is to examine corporate security as an avenue of control exercised by organisations over their employees. The corporate security sector is under-researched: not much is Adm. Sci. 2018,8, 25; doi:10.3390/admsci8030025 www.mdpi.com/journal/admsci 106 Adm. Sci. 2018,8,25 known about the day-to-day activities of corporate investigators. This is an important gap in our knowledge, especially when we take into account the large and growing involvement of private parties in responding to undesirable behaviour (Walby and Lippert 2014). The paper thus aims to fill the gap in our empirical knowledge about corporate investigations, and to place this in the context of a recurring debate: that of public/private bifurcation (see Section 2for more on this). The corporate security sector is defined here as a highly specialised market for corporate investigation services. 1 Although corporate investigators may be involved in additional activities (such as pre-employment screenings and drafting and implementing integrity codes), the investigative activities of corporate investigators are the focal point of this paper. 2 Investigative activities are mainly constituted by forensic accountancy, (private) investigations more generally, IT investigations, asset tracing, and (assistance with) settlement and prevention tactics (Williams 2005;Meerts 2013). Clients of corporate security may be both commercial and (semi-)public organisations.3This last category of organisations is an important source of clients for corporate investigators: in the Netherlands, the 25 largest municipalities have, over the last five years, ordered the investigation of more than 1900 internal norm violations. 4 In this research the following groups are considered to be part of the corporate security sector: private investigation firms, in-house security departments, forensic accountants and forensic (departments of) legal firms.5 This paper considers the role of corporate investigations in the identification and settlement of internal norm violations within organisations. The fact that the norm violation is internal to the organisation is important, since it provides the organisation with more possibilities to act upon the behaviour than when there is only external involvement. ‘Norm violation’ is a broad-scope concept, which may be used for all types of employee behaviour deemed problematic by an organisation. This ‘problematic behaviour’ may concern (alleged) criminal behaviour such as fraud, but it may just as well be about behaviour that is considered undesirable from the point of view of owners and managers of organisations, for example behaviour that is non-compliant to internal regulations (Richards 2008). All kinds of undesirable behaviour may be investigated by corporate investigators (see also below); however, many incidents that are investigated by corporate investigators have an economic background (theft, fraud, favouritism in the granting of contracts, and the like) (Williams 2006a).6 As a result of the employment relationship between the organisation and the person who is the subject of investigation, corporate investigators have extensive access to information. Although corporate security actors do not possess the formal powers of investigation enjoyed by law enforcement, their possibilities of investigation are extensive: through the (property) rights of the organisation as an employer, they are able to use much information about employees (for example by accessing internal systems). Additionally, the professional backgrounds of corporate investigators makes them adept in investigating open source data and in using investigative tactics (such as interviewing involved persons 7 ). After investigations are concluded, corporate investigators may assist organisations 1 Corporate security is a term that is often used in a much wider sense. In such a definition, all security-related activities of (mostly) in-house security are within the scope. Investigations are then part of corporate security but so are surveillance and other activities relating to physical security. In this paper, the focus is on investigations. 2 Corporate investigators may also be involved in compliance functions. Although compliance may involve investigations, the main aim of compliance is prevention: measures and procedures are put in place to ensure compliance to rules. Corporate investigations, by contrast, focus on the situation in which prevention has failed and norm violations have occurred. 3 In the case of an in-house corporate security department, the ‘client’ and investigator are part of the same organisation: for example the organisation’s management. 4 See NRC 28-02-2018 (https://www.nrc.nl/nieuws/2018/02/28/meer-onderzoek-naar-integriteit-door-gemeenten- a1594055). 5 Forensic accountants and forensic legal investigators (lawyers) differ from regular accountants and lawyers with regard to their main activity. Regular accountants audit the financial administration of an organisation as part of their legally defined task, and regular lawyers are hired to represent their client in legal procedures. Forensic accountants and forensic legal investigators, by contrast, are hired to investigate as a result of a suspicion of a norm violation. 6 This is not to say that corporate investigations are only conducted with regard to matters of economic crime. Other categories of behaviour which are often investigated internally include, for example, privacy violations and data leaks. 7 An ‘involved person’ or ‘subject’ is what in the context of a criminal justice procedure would be called a ‘suspect’. However, because corporate investigators lack formal powers of investigation and the formal procedural guarantees available in 107 Adm. Sci. 2018,8,25 in finding a solution, either by ‘going public’ (reporting to law enforcement) or ‘staying private’ (for example settling the incident as a labour dispute). One of the characteristics of corporate investigations and ‘corporate justice’ is the emphasis on confidentiality. This, together with the view held by organisations and corporate investigators that the criminal justice system is inefficient and in most cases will not provide a suitable solution, means that most white-collar crimes that have been investigated by corporate investigators never reach the criminal justice system. It follows that the knowledge of the state about such internal investigations is fairly limited. The above considerations culminate in the following research question: What is the role of corporate investigators in the investigation and settlement of norm violations within organisations? To answer this question, we need to examine (1) the legal frameworks within which corporate investigators operate (sub-question 1), (2) the investigative methods corporate investigators may use (sub-question 2) and (3) the settlements that are possible as a response to the corporate investigations (sub-question 3). These questions are answered with the help of empirical material collected in the context of this research. The theoretical framework that provides the context for the discussion of the empirical findings is discussed in the next section of this paper. This is followed by the explication of the research methods that have been used to collect data. Section 4examines the legal frameworks within which corporate security actors operate (sub-question 1), followed by Sections 5and 6, which discuss the activities of organisations and corporate investigators in this context (sub-question 2 and 3). The paper is concluded by a discussion of some ethical issues and governance limitations of current practices in corporate security. It is concluded that the market for corporate investigations can be seen in the framework of a private/public demarcation: corporate investigators operate quite independently from the criminal justice system. While this situation has its advantages, it is argued that from a democratic, rule-of-law point of view it may be considered problematic. 2. The Theoretical Framework—Public/Private or Private/Public? Traditionally, governments are tasked with the prevention and repression of crime (Van de Bunt and van Swaaningen 2005). The monopoly over legitimate use of force is commonly seen as the essential tool for governance by states (Weber 1946). 8 However, it is now widely recognised that from a historical perspective this situation is rather new (Garland 2001). This realisation has gained much academic attention under the banner of the shift from ‘government’ to ‘governance’ (see for example Lea and Stenson 2007). State actors, private actors and non-governmental organisations are now commonly seen as governing (global) society (see for example Willetts 2011). When it comes to the governance of criminal behaviour, however, the scientific community still seems mostly concerned with state action against crime (Hoogenboom 2007). Over the years, a wide range of publications has emerged, focusing on regulatory agencies (see for example Mascini and van Erp 2014), civilians (see for example Van Steden 2009) and private security professionals (see for example South 1988). Security provision is no longer seen as being the sole responsibility of law enforcement agencies: even within the context of the state, regulatory agencies, special investigative units within ministries and the input of local government are all seen as contributing to the provision of security (Van de Bunt and van Swaaningen 2005). Academic attention for the contribution of private actors usually does not focus on the investigation of norm violations by the organisation within which the norm violation occurred. Rather, the preventative function of private security is researched. In this context, public/private relationships a criminal justice procedure are not present in corporate investigations and settlements, criminal justice terminology is avoided here (see also Meerts 2018). 8With this is meant not just the actual use of force but police powers in general. 108 Adm. Sci. 2018,8,25 are often conceptualised along the lines of a private sector complementing a dominant state. 9 In this line of reasoning, concepts such as privatisation and responsibilisation are used to indicate that the state involves private parties, either by privatising some of its activities, or by mobilising private actors to get involved in the provision of security (Garland 2001). Relations between the public sector and private security are, then, mostly conceptualised in the context of private parties’ utility within the state agenda through cooperation (Hoogenboom and Muller 2002;Hoogenboom 2009;Dorn and Levi 2009; Cools et al. 2010). A popular theory in this line of reasoning is the junior partner thesis, first introduced by Kakalik and Wildhorn. According to this theory, public actors may use private security actors as a junior partner to advance the goals of the state (Hoogenboom 1988). In this view, private actors fill the void that was created by the inability of law enforcement actors to meet security demands. Private actors are considered to be complementary to public actors and to focus on preventative action. An alternative perspective on public/private relations in this field may be derived from the work of James Williams, who sees the corporate investigations market as a commodification of internal norm violations, through the marketing of a professional service which is directly responsive to organisations’ needs (Williams 2005; see also Meerts 2016). Corporate investigators provide organisations with the means to investigate and settle a norm violation without involving public law enforcement (Meerts 2018) . Instead of thinking in terms of public/private relations, with private security serving as a subsidiary to the state, we should, therefore, take the private sector as our point of departure. This research takes this last approach: the activities of corporate investigators are examined as an independent professional activity, not as a subsidiary of the state. Such an approach sensitises us to the context in which corporate investigators work and opens up a field of research, in which corporate investigations and settlements are considered as distinct and separated from criminal justice investigations and solutions. Insofar as it becomes necessary to bring the state back into the analysis, this may invoke what Dorn and Levi (2009) once referred to as private/public relations, reflecting the leading role of providers of private justice. The empirical data is considered along the lines of the private/public model, in which the state is seen as a supplement to the efforts of the private sector, instead of the other way around (such as is the case in junior partner theory). This does not imply a normative judgement at the onset, either in favour or critical of the corporate security market—although the need for such judgement may present itself once such analysis is done. 3. Methodology The research question posed in the introduction of this paper is answered based on qualitative data gathered between October 2012 and March 2016. 10 The main source of information for the research consists of 59 semi-structured interviews that have been conducted among corporate investigators, clients and law enforcement professionals. This type of interview can be defined as an expert interview (Baarda et al. 1996). One advantage of an expert interview is that respondents are generally well-informed and, as a result, the interview should provide rich information. Additionally, the interview process may be more efficient. A challenge might be that experts, and especially those in management and higher positions, are often pressed for time and difficult to reach because they are shielded by administrative staff. However, the use of gatekeepers mitigated these issues in this research. Respondents were approached through gatekeepers and snowball sampling, making use of previous contacts and previous research by the author. For each group of respondents, a slightly modified topic list was used, so as to take full advantage of the knowledge of the respondent. However, to ensure that the research question and sub-questions can be answered, the following topics were part of every interview: professional background of the respondent; types of cases in which corporate investigators are involved; reasons for corporate investigations/settlements; process 9 This can also be discerned in the literature on the compliance functions of corporate security (see for example Verhage 2015). 10 This research was funded by a NWO (Netherlands Organisation for Scientific Research) Research talent grant. 109 Adm. Sci. 2018,8,25 of the investigations; process of settlements; regulation; public/private relations; and general opinion regarding the existence of corporate security. At the conclusion of each interview the question was posed whether the respondent felt any important subject had been neglected and whether he or she had suggestions for prospective respondents. The purpose of this is to minimise the possibility that important subjects and respondents are ignored. Interviews had an average duration of one hour and eleven minutes, with outliers of 23 min (the shortest interview) and two hours and fifteen minutes (the longest interview). All interviews were conducted face-to-face. The majority of the interviews was with a single person, however, four were conducted with two respondents at a time. When possible, the interviews were recorded to be transcribed verbatim at a later point in time. Some respondents did not consent to being tape-recorded, in these cases extensive notes were taken. The minority of respondents in this research was female (10), the rest were male (49). Most respondents fall into the age group 40 to 60 years old and have substantial (more than 5 years) work experience in the field of financial crime (this is not the case for the clients, who have, however, substantial work experience with regard to corporate settlements). Most of the professional activities of respondents were conducted in the Randstad, which consists of the four largest Dutch cities (Amsterdam, Rotterdam, The Hague and Utrecht) and their surrounding areas. The activities are not limited to this geographical space, though, as respondents execute their work all over the Netherlands (and abroad). Respondents had a high average education level (academic education), with the exception of police respondents, who generally had a lower education level (being trained within the police organisation itself). Table 1provides an overview of the respondents of this research. Respondents are found among three main groups of professionals: corporate investigators (33), law enforcement professionals (16), and clients (10). Within these groups we can further differentiate. Within the group of corporate investigators, ten respondents work for private investigation firms, eighteen for an in-house security department, five for a forensic accounting department and three for a forensic (department of a) legal firm. As can be derived from Table 1, the forensic legal investigators had a double role, as respondents were investigators in some cases and clients in other cases. 11 The corporate investigators who have been respondents for this research were employed within 22 different organisations. The law enforcement professionals who participated in this research worked for the police (eight), the prosecution office (five) and the investigative department of the Dutch revenue authority, FIOD (three). All law enforcement respondents had a background in financial crime. Clients, finally, were HR personnel (one), labour lawyers within the organisation (four), external lawyers (three) or general management (two). All clients interviewed in this research were employed by a different organisation (ten). These numbers show that respondent groups are not represented to the same extent in this research. The decision was made to focus on corporate investigators for two reasons. First, this group is most important for the research question since the activities of corporate investigators are central to it. Secondly, the wide variety of backgrounds among corporate investigators made it necessary to include more corporate investigators in the research than other respondents. 11 These respondents were approached and interviewed as clients. For this reason, they are counted in this category (which is why the numbers of investigators do not add up to 33). The fact that these respondents switched between the roles of investigator and client in different cases has provided useful insights to this research. At the time of interviewing, the Dutch corporate security sector did not contain many legal investigators, which is why so few legal investigators have been interviewed. Only during the research did this group emerge from the other interviews. 110 Adm. Sci. 2018,8,25 Table 1. Overview of interviews. Number of interviews 59 Average duration interviews 1h11min Gender Number of people Number of organisations Male Female Corporate investigators 33 22 31 2 Private security firms 10 7 8 2 In-house security 18 12 18 0 Forensic accountants 5 3 5 0 Legal investigators 3 * 3 * 3 0 Law enforcement professionals 16 10 i11 5 Police 8 6 7 1 Prosecution 5 3 1 4 FIOD 3 1 3 0 Clients 10 10 7 3 HR, labour lawyers, management 7 7 4 3 Clients/legal investigators 3 * 3 * 3 0 * These are the same respondents/organisations. They are only ‘counted’ in this table as clients; i There were three law enforcement organisations involved in this research (police, the prosecution office and FIOD), but respondents were part of 10 different parts of these organisations. Respondents indicate that corporate investigators are used to investigate a wide variety of norm violations (both criminal and non-criminal). Many of these have a financial component such as fraud, theft, corruption or embezzlement. 12 Corporate investigators are, however, also enlisted to investigate norm violations that provide no direct financial gain, such as data leakage, breach of privacy, breach of trust, sexual harassment and unauthorised ancillary activities. The norm violations that are investigated by corporate investigators range from small (petty theft or the leakage of minor information) to substantial (millions of euros in fraud). The corporate investigators included in this research work for a wide variety of clients. In addition to (semi-)public organisations (including charities, municipalities and schools), clients may be active in all economic sectors (for example: the financial sector, telecommunications or logistics). Respondents do indicate, however, that most of their clients are medium to large-scale organisations, which respondents attribute to the costs of investigations. All data 13 gathered are treated with utmost confidentiality and have been anonymised to ensure that no information can be traced back to any respondent or his or her employer. No parts of this research were covert and informed consent has been attained at every step (Laenen and O’Gorman 2016) . The paper should not be regarded as generalising to the Netherlands as a whole; the statements made are indicative of the respondents in the research (who, however, do suggest that their statements are more generally applicable). 4. Legal Frameworks and Supervision over the Corporate Security Sector To gain insight into the corporate investigations industry, it is important to start with an examination of the legal frameworks within which the market operates, as specified in sub-question 1 of this research. Respondents indicate that the state has very little insight into what happens in the corporate security sector. One of the reasons for this is the highly fragmented nature of the sector. Multiple actors, all with their own regulations and processes of control, combine to form a ‘corporate security sector’ which is used by organisations to react to norm violations. The most prominent of these 12 For interesting work on corruption and corruption studies, see inter alia Pertiwi (2018) and Gorsira et al. (2018). 13 This research was part of a larger project, in the context of which the additional research methods of observation and the use of case studies were used. Because the information gathered through these methods is not used in this paper, they are not explicated here. However, information about the observations and case studies can be found in (Meerts 2018). 111 Adm. Sci. 2018,8,25 A report to public law enforcement is made when it serves a purpose for corporate investigators and organisations. When this is not the case, corporate investigations and settlements largely remain in the private legal sphere. We may, then, conclude that the short answer to the research question is that the role of corporate investigators in the investigation and settlement of norm violations within organisations is substantial and that it exceeds involvement by state agencies. In theoretical terms, the private/public demarcation identified by Williams (2005) can be found in the context of the investigation of norm violations within Dutch organisations. As a consequence, little is known about the way in which organisations deal with internal norm violations (Meerts 2018). While this has the advantage for the state that the criminal justice system is not flooded by cases it is not very well equipped to deal with, a negative consequence is limited public control over the ways in which organisations deal with internal norm violations. As mentioned in this paper, in the Dutch case there is a permit system available for corporate investigators, however, this is only applicable to private investigation firms. This means that most investigators are not caught by the ‘regulatory gaze’ of the state (White 2014.). In light of the question of how to frame public/private relations in the field of corporate security, it would be interesting to explore whether and how legal frameworks, roles and activities of corporate investigators may differ between countries. The UK, for example, does not have a permit system for private investigators (see for example Meerts 2018). Interestingly, minor fieldwork conducted in the UK in the context of this research suggests that the way in which investigations are done, and the issues that may be identified (for example with regard to private/public cooperation), are broadly similar in the UK and the Netherlands. Interesting work in specific national jurisdictions by for example Williams (2005, Canada), Gill (2013, UK) and Gottschalk (2015, Norway) seems to point in the same general direction. However, more (specifically comparative) research is necessary on this topic. This relative invisibility, together with other characteristics of the sector, make comprehensive control over, or even insight in, the way organisations deal with internal norm violations very challenging (Williams 2006b). Much is left to the individual investigator and the client organisation. Seen from the perspective of the values of democracy and the rule-of-law, this is problematic. Corporate investigations may have considerable impact on the lives of employees. In addition, there is a marked power imbalance between the organisation and the person who is subjected to the investigations. Even when no rules are broken by investigators or organisations that hire them, the involved person may be pressured into a disadvantageous situation; at the very least he may be upset. In principle corporate investigations have a ‘downwards gaze’. Since the organisation determines the assignment, most investigations are focused on individuals (lower-level management and employees) instead of on the organisation itself (Williams 2014). 20 The legal person of the organisation is often part of the investigations only as context, and faulty processes may be identified in order to be corrected. However, blame is hardly ever put on the organisation, although there are many examples of organisations acting as a perpetrator or facilitator (see Gorsira et al. 2018;Van Rooij and Adam 2018; Lord et al. 2018). In this way, corporate investigations have an inherent bias towards ‘rotten apples’. The barrel is taken into account but often not held accountable. Funding: The research underlying this paper was funded by a grant from the Netherlands Organisation for Scientific Research (NWO). Acknowledgments: I would like to thank the anonymous respondents who participated in this research, as well as Nicholas Dorn, an anonymous reviewer and the editors of this special issue for their helpful comments on earlier drafts of this paper. Conflicts of Interest: The author declares no conflicts of interest. 20 Respondents stress their independence within the limits of the assignment, however the way an assignment is delineated by the client has much impact on the investigations. 118 [Document text truncated for crawler view.]