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Organizational Crime: Why Good People Do Bad Things

March 6, 2007

Training employees to better understand why good people do bad things could be more effective in curbing organizational wrongdoing than ethics training and legal reforms, according to research by management professors at UC Davis.

Donald Palmer and Michael Maher, both professors at the Graduate School of Management, say the most popular measures aimed at reducing corporate and white-collar crime are of limited value.

They say those conventional approaches assume that people are mindful of their actions -- predisposed to do wrong or making decisions in advance with cost-benefit calculations or assessments of what the norm is in their environment.

"Much wrongdoing is the result of mindless, mundane processes -- rules, hierarchy, standard procedures and social influence processes," says Palmer, who teaches a course on the causes of corporate and white-collar crime.

"We mindlessly assume those processes are correct," he said. "If we were to question those processes on a frequent basis, nothing would get done."

Palmer, who studies organizational behavior and corporate governance, and Maher, who studies financial fraud and auditing, maintain a growing database of corporate crime.

"Most of these cases we look at are ordinary people doing ordinary things," said Maher, who once quit a job because he was asked to "push the envelope" on valuing a piece of property. "If you keep pushing the speed limit, each increment isn't much, but it adds up. And it is material."

The professors recently published "Developing the Process Model of Collective Corruption" in the Journal of Management Inquiry. Palmer gives the topic longer treatment as a chapter in the forthcoming annual "Research in Organizational Behavior."

The authors say that routine factors that can lead to a wrongful course of action can include organizational structures, the division of labor and responsibilities, informal power relationships among departments, incomplete information, protocols, professional norms and even technology.

The two articles discuss such scandals as The Ford Motor Company's Pinto, American Home Products' Fen-Phen, B.F. Goodrich's brake fraud case and the fixing of two television game shows. The joint article also discusses several insider-trading scandals on Wall Street in the 1980s, depicted in James Stewart's book "Den of Thieves."

"At a minimum, it seems wise to devote attention to educating management students and managers about the processes through which otherwise law-abiding, ethical and socially responsible organizational participants can slip into wrongdoing," Palmer wrote.

"At the maximum," he added, "it seems wise to consider ways in which organizational participants might become aware of the operation of those processes in their lives and develop skills for blunting their effects."

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