Reducing corporate criminality: the role of values.

Author:Tyler, Tom R.
Position:Reducing Corporate Criminality: Evaluating Department of Justice Policy on the Prosecution of Business Organizations and Options for Reform
 
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  1. INTRODUCTION

    Can businesses effectively regulate the behavior of their employees, and if so, what strategies should they use to best achieve that goal? Recent corporate scandals have evoked a heightened concern among members of the public, government officials, and business leaders about both whether businesses can regulate the conduct of their employees, and how to effectively secure employee adherence with corporate rules and policies. White collar crime is again on the public agenda.

    White collar crime is crime committed by employees in for-profit companies to benefit either their companies or themselves. White collar crime has two principal characteristics. First, white collar criminals are typically well educated, employed, middle class and, at least historically, white males. Second, the crimes they commit tend to be nonviolent and to focus on monetary gain. The crimes involved are not emotionally driven, such as assault or rape, nor do they involve physical harm. Instead, they are efforts by individuals to achieve economic rewards outside the framework of the law.

    Business-related criminal behavior is a key regulatory issue because if corporations are unable to effectively manage the lawfulness of their conduct, the government has a reason to heighten external legal regulation.

    What can be done to minimize the likelihood of unlawful behavior in the world of for-profit organizations and corporate regulation? In this analysis, I argue for the importance of values, in particular legitimacy, as a central feature of the law, particularly in relation to the regulation of business. I focus on why legitimacy is often undermined and, conversely, how it can be more effectively maintained. First, legitimacy is important for internal regulation, as businesses with ethical cultures that are legitimate to employees are less likely to engage in wrongdoing. Second, legitimacy is also important for external regulation because it is central to people's willingness to obey the law, and follow the policies and practices imposed on for-profit organizations by legal authorities.

    This article will address the advantages of legitimacy as the central element in a regulatory strategy. I argue that legitimacy is a better strategy than the command and control approach widely used today, but that it is difficult to implement because the approaches to governing and exercising legal authority that most effectively build and maintain legitimacy run counter to the intuitions and preferences of many people in positions of authority.

  2. IS LEGITIMACY A DESIRABLE FRAMEWORK FOR LAW?

    The central question in discussions about regulation is whether governance via legitimacy is a desirable and effective approach. And if governance by legitimacy is a desirable approach, then why is it so hard to achieve? In particular, why do societies keep moving toward the use or threat of force, particularly during times of crisis? Why, for example, did the United States respond to the events of September 11, 2001 with widespread repressive policies toward suspect groups, in particular the members of the American Muslim community? (1) And why did the British respond in similar ways to the same problem in the United Kingdom? (2) Similarly, why is the orientation of law and legal authorities toward corporations and their leaders in the wake of recent issues of malfeasance one of threat and potential sanctioning? While they involve different issues, these two government responses are similar in that both involve a reaction to wrongdoing that is framed in terms of the threat of punishment and directed at a suspect group. I will argue that there are several reasons related to the nature of the psychology associated with legal authority and its implementation.

    1. Legitimacy

      First, it is important to define legitimacy, and we can do so only through a discussion of power. Power is the ability to shape others' gains and losses either by using threats or coercion to deter undesired behavior, or by promising rewards to promote desired behavior. A core aspect of social dynamics, therefore, is that power provides a means to shape behavior with the consequence that "the strong do what they can and the weak suffer what they must." (3) The argument that behavior in social settings is linked to the ability to reward and punish is also influential in political science, sociology, and economics, as well as in law, public policy, and management.

      It is equally important, however, that under some circumstances, people are also influenced by others because they believe that the decisions made and rules enacted by others are in some way "right" or "proper" and ought to be followed. (4) In other words, people "relate to the powerful as moral agents as well as self-interested actors; they are cooperative and obedient on grounds of legitimacy as well as reasons of prudence and advantage." (5) Legitimacy is the belief that those in power deserve to rule and make decisions influencing the lives of everyone, (6) and the perception that they "ought to be obeyed." (7) In work settings, legitimacy refers to the judgment that "the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions." (8)

      While legitimacy and power or coercion can be distinguished conceptually, in reality they often co-exist. Companies have both norms about what is right or proper and penalties and rewards for rule-breaking and rule-following. Hence, it is seldom the case that only one of these mechanisms exists within an organizational setting. What is crucial is the balance between them.

      It may not be necessary for legal authorities to have legitimacy to achieve compliance, but it is nonetheless important. While some argue that it is impossible to maintain social order using only power and others suggest that it is possible but more difficult, it is generally agreed that legal authorities benefit from having legitimacy and that they find governance easier and more effective when there is a widespread feeling that they are entitled to define and enforce rules of conduct. (9) This is equally true of managerial authorities.

      Seeking to gain influence over others based solely on the possession of power requires enormous expenditures of resources to create a credible system of surveillance through which authorities monitor public behavior to punish rule violators. In addition, resources must be available to provide incentives for desired behavior such as cooperation and rewarding people for acting in ways that benefit the authorities and the community. Recent empirical research suggests that these strategies of governance and management can be successful. For example, recent research suggests that deterrence strategies can shape crime related behavior, (10) but that the magnitude of that deterring influence is usually small if not non-existent. (11) The use of power, particularly coercive power, thus requires a large expenditure of resources to obtain modest and limited amounts of influence over others. (12)

      This is not to say, of course, that deterrence is irrelevant. We do not know how much illegal behavior would occur if companies believed that they could commit fraud or engage in other forms of illegal behavior with no risk of being caught and punished. Conversely, sanctions are often ineffective because society does not put sufficient resources into surveillance and enforcement to make the risks of rule-breaking credible. (13) If sufficient resources were allocated to that purpose, sanctions might more strongly influence behavior. (14)

      In a review of the literature on American drug use, for example, a study of existing research found that only approximately five percent of the variance in drug use can be explained by individual judgments of the likelihood of being caught and punished by the police and courts. (15) This conclusion is typical of the findings of studies of compliance with the law--deterrence is found to have, at best, a small influence on people's behavior. (16)

      More general reviews of deterrence research conclude that the relationship between risk judgments and crime is "modest to negligible" (17) and that the "perceived certainty [of punishment] plays virtually no role in explaining deviant/ criminal conduct." (18) According to Piquero, Paternoster, Pogarsky, and Laughran, a review of the literature results in "some studies finding that punishment weakens compliance, some finding that sanctions have no effect on compliance, and some finding that the effect of sanctions depends on moderating factors." (19) Even studies on the most severe form of punishment--the death penalty--suggest that the argument that capital punishment deters crime "still lacks clear proof' because studies have failed to produce compelling evidence that executions influence the rate of crime. (20)

      Studies on punishment suggest that it is not only an ineffective deterrent for society at large, but it is also minimally, if at all, effective in deterring the future criminal conduct of those being punished. Widespread punishment for minor crimes does not generally lower the rate of subsequent criminal behavior, as models of specific deterrence would predict. (21) Similarly, studies of more severe punishment like imprisonment report that more severe punishments are unrelated to lower rates of future criminality. (22) In fact, studies of juveniles suggest that incarceration actually increases the likelihood of later criminality. (23)

      While the previously mentioned studies refer to the effectiveness of deterrence and sanctioning generally, studies specifically focused on white collar crime yield similar results. (24) Braithwaite and Makkai studied compliance among nursing home executives and concluded that there were no significant deterrence effects; in other words, whether the law was followed was not related to perceptions of the...

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