Organizational Wrongdoing as the “Foundational” Grand Challenge: Consequences and Impact: Volume 85

Organizational wrongdoing is still very much prevalent in today’s society. Traditional and social media are full of examples of organizations engaging in unethical or illegal behavior. While it is difficult – if not impossible – to establish whether the ever-increasing number of reported cases of wrongdoing is due to an actual increase in the phenomenon (objectivist view of wrongdoing) or to more attention being paid to it (social-constructivist view of wrongdoing), the fact remains that organizational wrongdoing seems to have become the norm rather than an exception in our everyday life. This is concerning, as organizational wrongdoing tends to undermine trust in fundamental institutions, such as the Market, the State, Religion, and Law, and may lead to them being replaced by other – sometimes less desirable – institutions or create an “institutional void.” Because of its potential impact on established institutions, organizational wrongdoing deserves to be closely monitored and further examined. This volume of Research in the Sociology of Organizations is an attempt to draw attention to the theoretical and empirical relevance of the topic, consolidate and extend the knowledge accumulated in this area of research, and highlight potential direction for future research. The volume focuses in particular on the variegated consequences and impact of organizational wrongdoing.

We investigate how firms’ responses to misconduct change when the institutional environment becomes more stringent. Organizational theory offers conflicting perspectives on whether new legislation will increase or decrease pressure on firms to take remedial action following misconduct. The dominant perspective posits that new legislation increases expectations of firm behavior, amplifying pressure on them to take remedial action after misconduct. A more recent perspective, however, suggests that the mere necessity to meet more stringent regulatory requirements certifies firms as legitimate to relevant audiences. This certification effect buffers firms, reducing the pressure for them to take remedial action after misconduct. Using a temporary, largely arbitrary exemption from a key provision of the Sarbanes-Oxley Act, we show that firms that were not required to meet all the regulatory standards of good governance it required became 45% more likely to replace their CEOs following the announcement of an earnings restatement after Sarbanes-Oxley. On the other hand, those that were required to meet all of Sarbanes-Oxley’s provisions became 26% less likely to replace their CEOs following a restatement announcement. Ironically, CEOs at firms with a legislative mandate intended to increase accountability for corporate misconduct shoulder less blame than do CEOs at firms without such legislative demands.

Despite growing interest in misconduct spillovers – where unimplicated bystanders’ stock prices, reputations, resources, and opportunities are positively or negatively affected by others’ misconduct – theory about spillovers’ antecedents has largely focused on industry or product similarity, and has used the same characteristics to argue for both positive and negative spillovers. Furthermore, limited research has considered both positive and negative spillovers together, instead focusing on one kind of spillover or the other in isolation, thereby creating a lack of theoretical integration within the literature. In this chapter, we draw on attribution theory and expectancy violations theory to explain when and how misconduct incurs positive and negative spillovers. We argue that a spillover’s valence depends on the locus of attributions made by stakeholders, where the misconduct’s causes are attributed to the perpetrator alone (i.e., an isolated attribution) – resulting in positive spillovers – or the misconduct’s causes are perceived as indicative of a systemic problem shared among a broader set of organizations (i.e., a systemic attribution), leading to negative spillovers. We further suggest that the misconduct’s nature and misconduct prevalence within a perpetrator and among other firms influences stakeholders’ attributions, and ultimately the spillover’s valence. Our theory contributes to the organizational misconduct literature by providing a unifying theoretical framework to understand both positive and negative spillovers.

Misconduct allegations have been found to not only affect the alleged firm but also other, unalleged firms in form of reputational and financial spillover effects. It has remained unexplored, however, how the number of prior allegations against other firms matters for an individual firm currently facing an allegation. Building on behavioral decision theory, we argue that the relationship between allegation prevalence among other firms and investor reaction to a focal allegation is inverted U-shaped. The inverted U-shaped effect is theorized to emerge from the combination of two effects: In the absence of prior allegations against other firms, investors fail to anticipate the focal allegation, and hence react particularly negatively (“anticipation effect”). In the case of many prior allegations against other firms, investors also react particularly negatively because investors perceive the focal allegation as more warranted (“evaluation effect”). The multi-industry, empirical analysis of 8,802 misconduct allegations against US firms between 2007 and 2017 provides support for our predicted, inverted U-shaped effect. Our study complements recent misconduct research on spillover effects by highlighting that not only a current allegation against an individual firm can “contaminate” other, unalleged firms but that also prior allegations against other firms can “contaminate” investor reaction to a focal allegation against an individual firm.

When reporting wrongdoing internally, whistleblowers are confronted with the dilemma of weighing up their loyalty toward the organization (e.g., ethical standards) and their co-workers (e.g., the social norm of not snitching on peers). However, the role played by peers in the whistleblowing decision process and in the aftermath has rarely been addressed in existing reviews. We therefore perform a systematic review that identifies seven thematic clusters of peer factors, offering researchers an informative overview of (a) the peer factors that have been examined to influence the whistleblowing decision, and (b) the extent to which the whistleblower experiences adverse consequences from peers in the aftermath of whistleblowing. As peer factors seem to be important to explain and predict internal whistleblowing, researchers are encouraged to address in future works the research gaps our review unraveled.

Researchers and practitioners recognize whistleblowers and the media as disparate control agents to uncover fraud and corruption in and by organizations. However, whistleblowing is mainly studied in relation to individual and organizational antecedents. Social norms and in particular the media as a form of social norm influence or norm conveyer on whistleblowing are largely unexplored. In this paper, I study the influence of perceived critical media coverage (i.e., whether media are perceived as criticizing fraud and corruption) on whistleblowing intentions (WBI) on fraud and corruption. I draw on norm activation theory to develop a moderation-mediation model of whistleblowing to highlight how the media can convey social norms influencing WBI. Using a cross-national survey of employees from China, Germany, and Russia (n = 1,159), I hypothesize and find that media directly influence employee attitudes toward fraud and corruption as well as the likelihood to whistle blow. Critical media coverage also reduces the influence of descriptive norms by co-worker misconduct on attitudes and the negative influence of fear of retaliation on WBI. This paper is the first to highlight the importance of critical mass media on whistleblowing decisions. My findings suggest that the media influence potential whistleblowers in a way that can be described along the lines of “I report if they report.”

Whistleblowing plays a crucial role in revealing organizational misconduct and systemic corruption in industry and government. This paper investigates changing practices of whistleblower activism, with particular reference to the role of solidarity and the increased role of support networks. Many modern whistleblower disclosures have revealed gaping flaws in the system of global governance related to a range of important social and economic issues, such as tax evasion, global mass surveillance, the use of torture and illegal wars of aggression. All these forms of systemic corruption are reliant on the use of secrecy havens to conceal the abuse from public scrutiny and democratic oversight. Counter-hegemonic social movements that oppose forms of systemic corruption can find important allies in those whistleblowers, who leak vital information about misconduct and corruption to the public. In this paper, we argue that there is a clear relationship of mutual support between whistleblowing and activist social movements, both in the process of whistleblowing and in furthering the campaigns of the social movements themselves. We theorize this, unpacking the processes and dynamics underlying the relationship, and offering a framework for analysis. The paper concludes with a discussion of the changing role of whistleblower activism and support networks in undertaking social reform and counter-hegemonic practice.

Organizational wrongdoing researchers often look to past cases to empirically develop and support theoretical understanding. Their research is therefore conducted at a temporal distance to focal events and frequently relies on retrospective accounts and surviving documentary evidence. These methodological circumstances define historical research practice, and we demonstrate in this paper the valuable insights that historical approaches can provide organizational wrongdoing research. Specifically, we draw on a range of practices from history and the social sciences to introduce four historically informed approaches: narrative history, analytically structured history, historical process study, short-term process study. We differentiate these based on their particular affordances and treatment of two key methodological considerations: historical evidence and temporality. We demonstrate the specific value these approaches represent to organizational wrongdoing research with several exemplars showing how they have been used in related fields of research.