Thursday, May 14, 2015

Explaining the Duality of Corporate Wrongdoers

My post from last week posed the question of why corporate executives do what they do.  Why do they commit unethical and illegal acts?  If you ask almost anyone this, the answer comes back the same: corporate executives are greedy.  That’s why they lie, cheat, and steal.  Follow that up with the question of what should be done about it, and most people say that more law and more prison time is the solution

I’ve never bought into that thinking (as to the cause or the fix).  Sure, some of us are greedy.  And some small percentage of us are looking to break the law to advance our own interests at every opportunity.  But I’ve seen too many good people do bad things, and vice versa, to think that the cause of illegal corporate behavior (or almost any behavior) is somehow an inherently binary condition—good or bad, right or wrong, greedy or selfless.  The reality is that many of us are both good and bad at the same time.  But how does that actually work?  How can someone like Rajat Gupta, the former managing director of Goldman Sachs, spend his time chairing three international humanitarian organizations and positively impacting “humanity writ large” (can you say that?), while also passing boardroom secrets to his billionaire hedge fund pal, Raj Rajaratnam

Criminological and behavioral ethics theories help explain this duality.  In the 1960’s, a criminologist named Donald Cressey conducted a study of hundreds of convicted embezzlers.  Cressey determined that three key elements are necessary for violations of trust—the essence of almost all white-collar crime—to occur: (1) an individual possesses a “nonshareable problem,” i.e., a problem the individual feels cannot be solved by revealing it to others; (2) the individual believes the problem can be solved in secret by violating a trust, which is usually tied to their employment; and (3) the individual “verbalizes” the relationship between the nonshareable problem and the illegal solution in “language that lets him look on trust violation as something other than trust violation.”  Put another way, the individual uses words and phrases during an internal dialogue that makes the behavior acceptable in his mind, such as by telling himself he is “borrowing” the embezzled money and will pay it back.  Cressey believed that these verbalizations—what we commonly call rationalizations—were “the crux of the problem” of white collar crime, because they allowed an offender to keep his perception of himself as an honest citizen intact while acting in a criminal manner.  This, in essence, is the psychological mechanism that allows good people to do bad things.

Importantly, Cressey (and others after him) found that rationalizations were not simply after-the-fact excuses offenders used to lessen their culpability upon being caught.  Instead, rationalizations were “vocabularies of motive,” words and phrases that existed as group definitions labeling deviant behavior as appropriate, rather than excuses invented by the offender “on the spur of the moment.”  In other words, offender rationalizations are drawn from larger society and put into use prior to the commission of criminal acts.  This insight—that offenders rationalize their unethical or criminal conduct before they act, which then allows their conduct to proceed—is considered a key insight into white collar criminal behavior and has greatly influenced criminologists and behavioral ethicists alike.

In the next post, I will set out some of the most common rationalizations used by white collar offenders.  And we’ll see that these rationalizations are present in many, if not most, of today’s headline-grabbing cases of corporate wrongdoing.

Corporate Governance, Ethics, White Collar Crime | Permalink


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