Reducing criminal wrongdoing within business organizations: the practical and political skills of integrity.

Author:Bies, Robert J.
Position::Reducing Corporate Criminality: Evaluating Department of Justice Policy on the Prosecution of Business Organizations and Options for Reform
 
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There is no dispute that criminal wrongdoing occurs in organizations, but there is divergence of viewpoints on how to reduce the occurrence of such wrongdoing. Following the framework of Paine, (1) there is a compliance-based approach and an integrity-based approach to reducing corporate wrongdoing. In essence, the compliance-based approach, motivated by the Organizational Criminal Liability and the 1991 Sentencing Guidelines and the 2004 Amendments, focuses on creating structures and processes that "exercise due diligence in seeking to prevent and detect criminal conduct by its employees and other agents." (2) By contrast, the integrity-based approach focuses on developing an organizational culture that enables and encourages employees to act honorably and responsibly as part of meeting a broader set of social obligations, including the law. (3) Analysis of these different approaches to reducing criminal wrongdoing must include the underlying social dynamics that motivate each approach. Those dynamics are trust and distrust.

As history suggests, trusting the virtue of business and its leaders is probably not a prudent strategy, requiring the need for more vigilance. (4) Such vigilance is the core of the compliance-based approach, and must be institutionalized in structures and processes that act as "checks and balances" to monitor and detect wrongful or unethical behavior. But building trust in business and its leaders is also necessary, as the compliance-based approach is inefficient and incomplete. (5) The building and maintenance of an organizational culture that would enable and encourage people to translate values into action is also needed. (6) This latter method is at the core of the integrity-based approach. (7)

The foundational argument of my analysis has two pillars. First, I will argue that the managing of distrust and suspicions is at the core of the compliance-based approach to reducing corporate wrongdoing, which has focused on accountability strategies. (8) Second, I will argue that the building of trust and relationships is at the core of the integrity-based approach to reducing corporate wrongdoing, which has focused on responsibility strategies. (9) In other words, the key to reducing corporate wrongdoing is to manage distrust and suspicions while at the same time building trust and relationships. I conclude that corporations should adopt the compliance-based approach and the integrity-based approach simultaneously to reduce corporate wrongdoing.

  1. TRUST AND DISTRUST: MANAGING ACCOUNTABILITY AND RESPONSIBILITY

    As human beings, trust is our default position, particularly with respect to business. (10) Yet across the past century, our trust in business has been severely tested, if not shattered, by scandals, financial crises, and abuses by business. (11) But through decisive leadership by some industry titans and corporate leaders, and governmental intervention through regulation and the creation of safeguards to rebuild the confidence in business, one finds trust in business to be a resilient, if not robust, phenomenon. (12)

    This recurring cycle of trust to distrust to trust in business provides historical context to the current state of affairs facing business. It may provide some reassurance to business that trust appears to be a resilient phenomenon. (13) But it also provides a reference point to highlight how the state of affairs facing business today may be different than it was in the past. For it also appears, based on an analysis of several surveys of the public, that distrust is a resilient phenomenon, defining a new business landscape in which it does not fade away but is always present, if not salient. (14) Indeed, one could argue that skepticism towards business, if not distrust, may be a rational response on the part of the public.

    There have been several surveys of the public's trust in business that illuminate the underlying social dynamics of trust and distrust shaping the different approaches to reducing criminal wrongdoing in business organizations. In the next section, I review findings from the study conducted by the Public Agenda and the Kettering Foundation, (15) and four Edelman Trust Barometer surveys (2009, (16) 2010, (17) 2011, (18) 201219). Taken together, the findings from these studies suggest the need for a new framework for analyzing approaches to reducing criminal wrongdoing in business organizations, which I will describe in section B below.

    1. Public Trust in Business: A Review of Survey Data

      Public Agenda and the Kettering Foundation conducted a study that examined how institutions demonstrate that they are responsive and effective as part of an "accountability movement" that has the building of public trust in business as one of its missions. (20) After looking at the findings from this study, discussed below, Matthews posed this provocative and important question: "If this movement is demonstrating true accountability, why, then, ... do institutions suffer from a huge loss of public confidence?" (21) Answers to that question are found in the Kettering Foundation study.

      Several key findings emerge from this study that provide new insights for an analysis of public trust in business, carrying implications for approaches to reducing corporate wrongdoing. First, in focus group discussions with members of the public about corporate accountability, there was a consensus that too many Americans were exhibiting selfish behavior rather than fulfilling their responsibilities to society or to a greater good. (22) For the public, corporate accountability means acting more honorably, focusing on personal responsibility for actions as a key criterion, which is consistent with the integrity-based approach. (23)

      The study also revealed that a perceived lack of fairness was a key concern for the public. (24) For example, there was the perception that more than just a few people had circumvented the rules on the path to prosperity while most were held accountable to those same rules and literally paid the price. (25) This concern about unfairness echoes the refrain of those in the Occupy Wall Street movement. (26)

      Another aspect of fairness valued by the public in the survey was the quality of interpersonal treatment. (27) From the focus group discussions, people made clear that they wanted to be able to reach someone who would actually listen to them and treat their ideas and questions respectfully. (28) Establishing this "human connection" with a company was meaningful to the public, and was an important dimension of accountability. (29) The failure to establish this human connection signalled to people that a company did not respect them or care about them. (30)

      But the corporate vision of accountability was much different than the public's vision. What this research uncovered was that while both agree that rebuilding public confidence in business is an important objective, they approach the issue from very different starting points. Corporations implemented accountability strategies as a primary mechanism to build confidence and trust in business. Accountability strategies included data collection, judging performance on quantitative measures, and assessing progress using benchmarks. These corporate responses fell short of the public's most potent concerns.

      This pattern of data creates what I refer to as the trust paradox. (31) The accountability movement has created a legalistic mindset in its leaders and managers. (32) Increasingly, managerial actions are becoming dominated by a concern for what is legally defensible at the expense of broader social considerations such as trust and fairness. (33) In the context of public trust in business, the paradox is that when corporations rely on accountability strategies to build trust (which is also their primary approach to reducing criminal wrongdoing in business organizations) they actually create distrust in the corporation and its leaders. (34) Accountability strategies do not respond to the concerns of the public, and in fact undermine public trust. According to the Kettering Study, the public wants responsiveness in the form of engagement and fair treatment from business, not just accountability strategies grounded in analytic tools and the reporting of statistics, however meaningful they may be. (35) At a fundamental level, this research suggests that leaders and the public have different definitions of accountability, creating a gap between what business thinks that the public wants in terms of accountability, and what the public actually wants.

      In a review of four Edelman Trust Barometer surveys (2009, 2010, 2011, 2012), I found additional evidence about public trust and distrust of business. (36) Beginning in 2009, just after the global recession, there was a decline of trust in business, but it varied by sector. The Technology sector was most trusted, while the Financial Services sector was the least trusted. (37) As public trust in business fell, calls for more government regulation and control rose from the public. (38) Among the global sample of 25 to 64-year-old informed publics, there was a 3-to-1 margin in favor of government intervention to regulate and exercise greater control over business. (39)

      As was found in the 2009 survey, trust and transparency emerged as key factors influencing assessments of corporate reputation, even more important than financial performance. (40) In the 2010 survey, the five most important factors shaping overall evaluations of corporate reputation in order of importance were: transparent and honest practices; "a company I trust"; high quality products or services; a company treats its employees well; and frequent communication. (41) In essence, trust emerges as a new line of business.

      In 2011, the Edelman Trust Barometer found that while trust increased in all institutions globally (54% to 56%), in the United States there was a decline in the trust that business...

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