Negative organizational dynamics as enabler of white-collar crime

Introduction

Policing white-collar crime continues to be a critical issue for law enforcement all over the world. Organizational dynamics provides an interesting perspective on white-collar crime. Negative organizational dynamics can enable white-collar crime and make deviant behavior more convenient for offenders (Leap, 2007; Zahra et al., 2007). Ever since Edwin Sutherland (1939) coined the term white-collar crime, researchers in the field have emphasized the value of preventing and detecting financial crime by executives and other members of the elite in society (Piquero and Benson, 2004). White-collar crime is here defined as financial crime committed by members of the elite during the course of their occupation where they have legitimate access to resources based on position and trust. The typical profile of a white-collar criminal includes someone with high social status, considerable influence, and access to resources (Blickle et al., 2006; Dearden, 2016; Füss and Hecker, 2008). White-collar crime is committed during the course of an occupation where the offender can carry out and conceal the offense among legal activities within the organizational context (Arnulf and Gottschalk, 2013). A white-collar offender is someone with respectability and high social status who commits financial crime during the course of his or her occupation (Leasure and Zhang, 2017).

The theory of convenience attempts to integrate various theoretical explanations for the occurrence of white-collar crime from sociology, psychology, management, organizational behavior, criminology, and other related fields to shed light on different perspectives of convenience. Convenience is a relative concept concerned with efficiency in time and effort as well as reduction in pain and solutions to problems (Engdahl, 2015; Gottschalk, 2017). Convenience orientation refers to a person’s general preference for maneuvers characterized by the avoidance of pain and savings in time and effort. A convenience-oriented person is one who seeks to accomplish a task in the shortest time with the least expenditure of human energy. A convenience-oriented individual is not necessarily bad or lazy. On the contrary, they can be seen as smart and rational in spending time and effort where it matters most for the individual or the organization (Sundström and Radon, 2015).

In this article, we discuss negative organizational dynamics in terms increased crime convenience by application of institutional theory (Pillay and Kluvers, 2014), social disorganization theory (Shadnam and Lawrence, 2011), slippery slope theory (Arjoon, 2008), neutralization theory (Sykes and Matza, 1957), and differential association theory (Hoffmann, 2002).

Convenience theory

Theory is a necessary part of research in organization sciences (Ashkanasy, 2016), and convenience theory emphasizes the organizational opportunity to commit and conceal white-collar crime. A theory is a systematic, interrelated set of concepts that explain a body of data. In convenience theory, three main concepts explain the occurrence of white-collar crime: financial motive, organizational opportunity, and personal willingness. These are all interrelated as organizational opportunity interacts with financial motive and personal willingness. Interactions between motive, opportunity, and willingness determine the extent of convenience perceived by a potential white-collar crime offender.

Theory is a way of imposing conceptual order on the empirical complexity of the phenomenal world. Convenience theory offers a conceptual order on financial crime by members of the elite in society who certainly do not need to commit crime for their own survival. Theory offers a statement of relations between concepts within a set of boundary assumptions and constraints. Convenience theory makes assumptions about human behavior, such individuals’ motives and desires as well as individuals’ behaviors within organizational contexts. A theory reflects the magnitude of a discipline’s knowledge base. Convenience theory reflects and builds on a knowledge base from criminology, psychology, management, strategy, and many other disciplines.

Theory does more than abstracting and organizing knowledge. It also signals the values upon which that knowledge is built (Suddaby, 2014). In white-collar crime research, a number of values are at stake. For example, not all are equal in the law. Some are simply too powerful to jail (Pontell et al., 2014). Ever since Sutherland (1939) coined the term white-collar crime, researchers in the field have emphasized the value of preventing and detecting elite crime. Therefore, an important value signaled by convenience theory is that white-collar crime is just as bad as—and maybe even much worse than—traditional street crime including rape, murder and theft, since offenders’ motives are found in their choice of convenience with no regard to harm and victims. This signal from white-collar crime research remains controversial. It seems that many consider white-collar criminals as individuals who were unlucky, who made an unintentional mistake, who took a short cut in a stressful job situation, and who should not be considered crooks. According to Leap (2007), white-collar crime imposes a degree of physical and emotional trauma on its victims that may far exceed that inflicted by street criminals.

Developing theory is not easy and never completed. Theory development is defined by Weick (1989) as disciplined imagination, where a theory is an ordered set of assertions about a generic behavior or structure assumed to hold throughout a significantly broad range of specific instances. The generic behavior in white-collar crime can be found in the abuse of power, influence and trust by offenders, and the generic structure is visible in the organizational context among convicted offenders.

The theory of convenience suggests that white-collar crime is committed if financial crime is an attractive alternative to other actions in times of crisis or possibility. Embezzlement, corruption, fraud, and other forms of financial crime can emerge as the most favorable option from a convenience perspective.

Convenience can be found in three dimensions. In the economical dimension, the motive is the avoidance of crises or the exploration and exploitation of possibilities. The motive is not always greed. In the organizational dimension, there is opportunity to commit and conceal financial crime. The offender has legitimate access to the resources needed to the commit crime. In the behavioral dimension, individuals demonstrate a willingness for deviant performance. For example, offenders apply neutralization techniques to rationalize their own actions.

Empirical evidence of convenience theory can be found in several court cases in Norway in recent years. Evidence can also be found in the autobiographies of some convicted offenders, as well as in private internal investigation reports written by fraud examiners.

Convenience theory implies that the prevention of white-collar crime is a matter of reduced convenience. Companies and other organizations need to introduce efficient prevention mechanisms rather than window-dressing routines such as compliance and ethical guidelines. Convenience reduction strategies include reduced access to the resources required to commit crime and an increased perceived detection risk. Detection risk is concerned with the likelihood of detection as well as the consequences afterwards. More internal and external audits may increase subjective, but not necessarily objective detection probability. Some individuals may simply think they are too good to get caught, and audits are just a formality without consequences, thus not influencing their subjectively perceived detection risk. Even when detected, some individuals are simply too big to fail and too powerful to jail (Pontell et al., 2014).

Organizational opportunity

Organizational opportunity is a distinct characteristic of white-collar crime that varies with the persons involved in the crime (Michel, 2008). An opportunity is attractive as a way to respond to needs (Bucy et al., 2008). It is the organizational dimension that gives white-collar criminals the opportunity to commit economic crime and hide it within seemingly legal activities in the business. White-collar crime is an offense based on specialized access.

The opportunity perspective holds that opportunity is a fundamental cause of crime. The perspective assumes that individuals make choices to engage or not engage in crime based on the availability and attractiveness of criminal opportunities. Situational crime prevention theory seeks to identify the factors that influence the distribution and attractiveness of criminal opportunities, and then to suggest ways in which the attractiveness might be reduced. The theory predicts that reducing the attractiveness of criminal opportunities will lead to reductions in crime (Ceccato and Benson, 2016).

Aguilera and Vadera (2008: 434) describe a criminal opportunity as “the presence of a favorable combination of circumstances that renders a possible course of action relevant”. Opportunities for crime occur when individuals and groups can engage in illegal and unethical behavior and expect, with a certain level of confidence (Haines, 2014), that they will avoid detection and punishment. Opportunity to commit white-collar crime can be found at the community level, the business level, and the individual level. At the community level, control regimes might be absent, and entire industries may be available for financial crime. An example here could be the construction industry, where one can find instances of both cartels and undeclared work. Another example could be tax collection authorities that are unable to trace and control accounting figures from businesses, thereby opening up the opportunity for tax evasion with minimal risk of detection and punishment.

Huisman and Erp (2013) argue that a criminal opportunity has the following five characteristics: (a) the effort required to carry out the offense; (b) the perceived risks of detection; (c) the rewards to be gained from the offense; (d) the situational conditions that may encourage criminal action; and (e) the excuse and neutralization of the offense.

At the business level, as well as the individual and community levels, ethics and rules can be absent, while economic crime is a straightforward business practice. An example here is subsidy fraud, where ferry companies report lower traffic numbers to ensure greater government transfers. Another example is internal invoice fraud, where the accounting department does not have an overview of who can approve what invoices.

At the individual level, greed can dominate, where the business does not have any relevant reaction to economic crime. An example here might be law firms in which partners abuse money in client accounts. Another example is corruption, where the bribed person receives money from the briber, without anybody noticing on either side.

Benson and Simpson (2015) argue that the organizational opportunity to commit white-collar crime can manifest itself through the following three characteristics: (a) the offender has lawful and legitimate access to the premises and systems where crime is committed; (b) the offender is geographically separated from his victim; and (c) criminal acts appear to be legitimate business. However, in cases of embezzlement the offender is not geographically separate from his victim, since the offender and victim are employed by the same organization.

This is very different from street crime such as violence and burglary, where the offender has no legal access, the offender is at the same place as the victim, and the offense does not appear to be legal. A fundamental difference between white-collar crime and street crime is that while white-collar criminals conceal their crime but do not hide themselves, whereas street criminals do not conceal their crime but hide themselves. Street crime is easily detected, although street criminals are not always easy to find. White-collar crime is rarely detected, but white-collar criminals are easy to find.

White-collar crime does not take place privately; it takes place on the job. The organization is the venue for the crime. McKenndall and Wagner (1997) describe opportunity by the context and environmental conditions that facilitate rather than prevent the carrying out of criminal activities. For example, in the case of corruption, both the briber and the bribed are linked to a job context. Bribers typically use company money to pay, whereas the bribed receive the money personally because their organization is attractive to the bribing company.

The organizational dimension through work represents the offender’s scope for crime. By virtue of employment, ownership, position, relations and knowledge, offenders can explore and exploit their association with the organization to commit financial crime. As a sales executive, the person can pay bribes, and as the procurement executive, the person can receive bribes. As a finance executive, the person may safely commit embezzlement by fixing accounting figures, and as a chief accountant, the person can manipulate accounting to enable tax evasion. As a chief executive, the person can sign fake contracts or order fraudulent appraisals that enable bank fraud by asking the bank to finance future income to be expected from contract partners and sale of real estate. There are ample opportunities for economic crime by executives and others linked to enterprises, for example, administrative managers, attorneys, auditors, bank managers, board members, boat dealers, car dealers, concert organizers, council employees, management consultants, district managers, entrepreneurs, investors, mayors, medical doctors, Members of Parliament, nursery owners, property developers, real estate agents, shipbrokers, stockbrokers and surveyors.

Opportunities for white-collar crime occur through the three characteristics described by Benson and Simpson (2015). Opportunities are greatest for top executives and other members of the elite in society. In relation to convenience theory, the three characteristics make it comfortable, easy and convenient to commit financial crime to solve a problem or answer to a challenge. It may be relatively simple and thus convenient for white-collar elite members to hide their criminal activities within the stream of legal activities, and thus give the crime an outer semblance of credibility in a respectable business (Pickett and Pickett, 2002).

It is sometimes stated that opportunity makes a thief. If the availability of legal opportunities to solve problems and exploit possibilities deteriorates, while illegal opportunities flourish and are considered convenient, then white-collar individuals will become less law-abiding. If fraud, theft, manipulation, and corruption are easily docked in the enterprise, while law-abiding alternatives are invisible or hard to implement, then opportunity makes an offender.

Organizational opportunity for economic crime depends on intellectual and social capital that is available to the potential white-collar criminal. Intellectual capital is knowledge in terms of understanding, insight, reflection, ability, and skill. Social capital is relationships in hierarchical and transactional exchanges. Social capital is the sum of actual and potential resources available for white-collar individuals by virtue of their positions in formal and informal hierarchies, networks, and matrices (Adler and Kwon, 2002). Formal as well as informal power means influence over resources that can be used for crime.

White-collar offenders are often not acting alone when committing financial crime (Gottschalk, 2017). They may exploit social capital by cooperating with people internally as well as externally. If there is internal crime cooperation, it may be more convenient for each individual to participate. An environment in which crime is accepted strengthens the organizational opportunity. If there is external crime cooperation, then it may again be more convenient for each individual to participate. External actors, who submit fake invoices or receive bribes, form a relationship with the internal actor(s) by entering into a code of silence.

The organizational dimension of white-collar offenses is particularly evident when crime is committed on behalf of the business. A distinction is often made between white-collar criminals who commit financial crime for personal gain and those who do it for their employer (Trahan, 2011). The first is labeled occupational crime, and the second is labeled corporate crime. Examples of corporate crime include the manipulation of financial figures for tax evasion and unjustified government subsidies, bribery to obtain contracts, false loan applications to obtain credit in banks, and money laundering in tax havens to recruit securities clients. The organizational anchoring of crime is evident in corporate offenses as crime takes place within and to the benefit of the business (Bradshaw, 2015).

Within the opportunity perspective on white-collar crime, we find routine activity theory that focuses on situations of crime. The premise of routine activity theory is that crime is relatively unaffected by social causes such as poverty, inequality, and unemployment. The theory stipulates three necessary conditions for crime; a likely offender, a suitable target, and the absence of a capable guardian, coming together in time and space (Felson and Boba, 2017). The existence or absence of a likely guardian represents an inhibitor or facilitator for crime. The premise of routine activity theory is that crime is to a minor extent affected by social causes such as poverty, inequality, and unemployment. Motivated offenders are individuals who are not only capable of committing criminal activity, but are willing to do so. Suitable targets can be something that are seen by offenders as particularly attractive.

Organizational dynamics

As described above, organizational opportunity for white-collar crime is at the core of convenience theory. When the perspective of organizational dynamics is introduced to the perspective of opportunity as described below, new insights emerge concerning the convenience orientation by members of the elite when committing financial crime.

As argued by Ashkanasy et al. (2017), organizations are intrinsically human entities. Processes that drive human thought and behavior also drive organizations. If deviant behavior is preferred by some and accepted by others, then deviance may drive an organization. When a leader implicitly or explicitly defines misconduct and crime as acceptable, followers will tend to do the same. In the organizational setting, there is no organizational or corporate crime that is not driven by human thought and behavior.

The opportunity perspective is thus more than just an organization lacking control over its members. There are dynamics among members where some prefer convenient solutions to problems and challenges even when the solutions imply breaking the law. The organization is a community of practice where individuals merge into groups and departments to complete tasks and reach goals in ways that establish themselves over time through dynamic interactions among organizational members.

In their organizational dynamics article to understand the causes and effects of top management fraud, Zahra et al. (2007: 128) emphasize organization-level pressures:

Without stockholder monitoring, some executives may act opportunistically and enrich themselves while foregoing stockholder-desired, long-term value creating activities for their firms.

Whereas the theory of institutional collapse is concerned with breakdown caused in interaction with external forces (Shadnam and Lawrence, 2011), the theory of social disorganization is concerned with collapse caused only by internal forces. Social disorganization leads to the breakdown of conventional social norms. The gradual erosion of conventional relationships weakens the organization and makes it unable to satisfy the needs of its members. The organization gradually loses the ability to control the behavior of its members. There is no functional authority over potential white-collar criminals in the organization (Wood and Alleyne, 2010). As a consequence of social disorganization, organizational opportunity to commit white-collar crime increases (Hoffmann, 2002; Swart and Kinnie, 2003).

Slippery slope theory is a third theoretical perspective on organizational dynamics as an enabler of white-collar crime. Slippery slope theory means that a person slides over time from legal to illegal activities. Arjoon (2008: 78) explains slippery slope in the following way:

As commonsense experience tells us, it is the small infractions that can lead to the larger ones. An organization that overlooks the small infractions of its employees creates a culture of acceptance that may lead to its own demise. This phenomenon is captured by the metaphor of the slippery slope. Many unethical acts occur without the conscience awareness of the person who engaged in the misconduct. Specifically, unethical behavior is most likely to follow the path of a slippery slope, defined as a gradual decline in which no one event makes one aware that he or she is acting unethically. The majority of unethical behaviors are unintentional and ordinary, thus affecting everyone and providing support for unethical behavior when people unconsciously lower the bar over time through small changes in their ethical behavior.

The slippery slope theory is in contrast to individual theories such as the standard economic model of rational choice theory as described in the economic dimension. Moral behavior is shaped by psychological and organizational processes, where individuals are motivated to view themselves in a positive way that corresponds with their moral values. Individuals tend to rationalize minor unethical acts so that they derive some benefit without being forced to negatively update their self-concept. For example, a minor transgression such as taking a pen home from the office may seem permissible, whereas taking money out of the company cash drawer may more clearly be thought of as stealing (Welsh et al., 2014).

Murphy and Dacin (2011) break down the slippery slope to fraud into three distinct paths ending in different conclusions: (a) I am unlikely to commit fraud again; (b) I will likely continue committing fraud; and (c) I commit (or continue committing) fraud while upholding my moral values.

A fourth theoretical perspective on organizational dynamics as an enabler of white-collar crime is neutralization theory (Sykes and Matza, 1957). For example, in religious organizations, there is evidence that misconduct and crime can be rationalized by higher loyalties. When the Catholic Church in Norway was found to have a long list of individuals who were not members of the church, they refused to pay back subsidies received from government. Tjørholm (2016: 12), a professor of religion at a university in Norway, argues that in some situations, the Catholic Church seems to decouple itself from the common moral and social obligations:

The indictment against Oslo Catholic Diocese was recently announced. The chief financial officer is accused of serious fraud, with a maximum possible sentence of six years. On the part of Oslo Catholic Diocese, the allegation involves a fine of one million Norwegian kroner. Bishop Bernt Eidsvig avoided indictment because adequate evidence of guilt does not exist. Management in Oslo Catholic Diocese has undoubtedly adopted reprehensible methods when members were registered as a basis for allocation of state subsidies.

Discussion

Negative organizational dynamics can be explained by institutional theory, social disorganization theory, slippery slope theory, neutralization theory, and differential association theory among others. Institutional collapse causes a negative spiral; social disorganization causes loss of overview; slippery slope causes ignorance; neutralization causes rationalization; while differential association causes crime identity. Dynamics are created by feedback loops that reinforce deviant behaviors.

Persons at the pinnacle of a corporate hierarchy (or just about any hierarchy, for that matter) who have considerable authority, are not often challenged, insist upon results, and are accustomed to getting their way. Therefore, various forms of dishonest and illegal behavior that members of the elite are engaged in seem to be convenient for offenders. They believe that they can ignore the various reservations they would have if they were lower in the power structure, and if they were expected to demonstrate leadership and achieve ethical results. Greed, self-importance, immunity from criticism, getting one’s way, and fear of falling all contribute to the convenience of white-collar crime in the organizational setting. An offender is in a position of pointing to the importance of one’s place in an organizational hierarchy, one’s ability to cover one’s tracks, blame others, or insist on deniability, and the pressure to achieve results. White-collar criminals tend to engage in various rhetorical strategies to make it sound to their subordinates as though they have done nothing wrong.

“That’s how they taught us to do it.” This is a phrase illustrating learned deviance and inadequate deterrence. Leasure and Zhang (2017) studied reports of Wells Fargo and Morgan Stanley being engaged in widespread fraudulent sales practices in the retail banking industry. They found that the underlying deviance had been taught by senior management, and that new employees were taught these fraudulent practices. Furthermore, they found that ethics and compliance practices and policies were largely ineffective in curtailing such conduct. Wells Fargo was fined $185 million for fraudulently opening accounts. Wells Fargo opened as many as two million fake accounts in an effort to meet wildly unrealistic sales goals.

When introducing routine activity theory, Cohen and Felson (1979) concentrated upon the circumstances in which offenders carry out predatory criminal acts. Most criminal acts require convergence in space and time of: (a) likely offenders; (b) suitable targets; and (c) the absence of capable guardians against crime. The lack of any of these elements is sufficient to prevent the successful completion of a crime. Although guardianship is implicit in everyday life, it is usually invisible due to the absence of violations and is therefore easy to overlook. Guardians are not only protective tools, weapons and skills, but also mental models in the minds of potential offenders that stimulate self-control to avoid criminal acts.

When compared with convenience theory, routine activity theory’s conditions do not cover all three dimensions. Likely offenders can be found in the behavioral dimension, whereas both suitable targets and an absence of capable guardians can be found in the organizational dimension. Whereas routine activity theory defines conditions for crime to occur, convenience theory defines situations where crime occurs. White-collar crime occurs only when there is a financial motive in the economical dimension.

Those who are similar to the typical white-collar offender may be less likely to be concerned with white-collar offending than those who are not similar. Dearden (2017) found it is reasonable to assume that for individuals who see themselves as being in some way similar to white-collar criminals, their in-group status may mitigate their perceptions of white-collar crime. Their behavior is accepted by others.

When white-collar offenders commit occupational crime, they may be attracted by the strong sense of superiority in having beaten the system without detection. They may blame the lack of controls for their own wrongdoings. They feel no attachment to the organization and no obligation to their employer. Rather, they enjoy the lack of socialization and lack of accountability to explore and exploit the organization for personal gain. Their deviance passes unnoticed and their behavior is accepted by others (Kang and Thosuwanchot, 2017).

Based on this article, there are several avenues for future research. An attractive avenue would be to conduct a longitudinal study of a business or public organization in terms of the organizational deterioration caused by negative organizational dynamics. Such a case study could illustrate impacts on the occurrence of white-collar crime from various theoretical perspectives. Another avenue for future research could be to build a model of factors influencing the magnitude of white-collar crime in causal relationships and feedback loops that represent negative organizational dynamics. A third avenue could be a cross-sectional analysis of a sample of companies where CEOs have been convicted of white-collar crime.

Conclusion

This article is a theory piece that ties together multiple ideas in a new perspective. It has illustrated that organizational dynamics can provide an interesting perspective on white-collar crime. White-collar crime was described in terms of convenience theory, where crime is a convenient option when there is a financial motive, organizational opportunity, and behavioral willingness. Negative organizational dynamics can strengthen the financial motive and increase behavioral willingness, in addition to improving the organizational opportunity. For example, the willingness in the behavioral dimension of convenience theory increases as individuals notice that misconduct and crime are no longer considered an abuse of position and power.