White-Collar Deviance: Understanding Corporate Crime and Its Causes, Study notes of Sociology of Deviance

Download White-Collar Deviance: Understanding Corporate Crime and Its Causes and more Study notes Sociology of Deviance in PDF only on Docsity! 1 SOC 3290 Deviance Lecture 28: Business Crime Back in the 1970's, Ford produced a car called the Pinto with a dangerous flaw: if hit from behind, the gas tank would explode. Ford realized this shortly before the car was put into production, and calculated that it would cost more to remedy the problem on each car than it would to pay for the inevitable lawsuits injury and death. They put the car into production and many people suffered unnecessary injury or death. This kind of thing is still going on today (e.g. Chevy pickups; Goodyear tires). In effect, such companies, through their executives, perpetrate white-collar deviance (i.e. deviance carried out by white-collar individuals). This can be divided into: (1) corporate deviance (as above); (2) occupational deviance (carried out as part of an occupation); and (3) governmental deviance. Today we will take a closer look at the first two of these and then try to explain why it is that some people become involved in them. What is White-Collar Deviance? Edwin Sutherland (1939; 1949) first defined white-collar deviance as: (1) occupationally related, carried out during the course of an offender’s white-collar occupation; and (2) characterized by relatively respectable, high status persons. But what distinguishes the commission of white-collar crime from blue-collar or street crime is more than the act itself. It also involves how the act is executed. White-collar offenders are more likely to commit an offense with skill, with sophistication, or, most importantly, with the resources of power, influence or respectability for avoiding detection, prosecution or conviction. Blue collars attempting to commit the same act (e.g. fraud) don’t do so in the same way, and are thus more likely to be arrested, prosecuted or convicted. But, aside from individuals, Sutherland also had in mind the fact that corporations themselves could be engaged in deviance, and that the sociological nature of this behavior renders absurd any attempt to explain this behavior in psychological terms (e.g. GM couldn’t have an “inferiority complex”). So, for our purposes, white-collar deviance refers to both occupational and corporate deviance (we use the term “deviance” rather than “crime” because it is broader, including civil as well as criminal violations). But more importantly, white-collar deviance is unique in that: (1) such deviants tend not to see themselves as such, but maintain a “respectable” self-image - typically through rationalizations (e.g. “borrowing,” “the company can get tax deductions,” “considering how we’re being screwed, everyone cheats on their taxes”) ; (2) their victims often unwittingly cooperate (e.g. not checking up on the facts, not wanting to reveal embarrassing details to the 2 public); and (3) society itself is relatively indifferent (e.g. remaining far more outraged at street crime and crimes of the relatively powerless, which are generally sought out, prosecuted and punished more severely). Corporate Deviance: The first matter we will address today is the first major category of white-collar deviance: corporate deviance. Every day people holding positions of responsibility in the corporate world violate laws. Corporate crime is not uncommon, but, with the exception of well-publicized cases, few people are aware of the extent of such crime. Edwin Sutherland (1949) first brought corporate crime into the academic spotlight, identifying a long list of legal violations among the 70 largest U.S. manufacturing, mining, and mercantile corporations. He found a total of 980 legal decisions made against these companies, averaging 14 per corporation. More recent research has found that these results are not unusual. A 1984 survey found about 2/3 of the Fortune 500 largest industrial companies had been involved in illegal behavior since the mid-1970's. But perhaps the most extensive study of corporate offending, conducted by Clinard and his colleagues in 1979-80, found that at least 60% of the corporations surveyed had at least one federal action brought against them, and, for this group, the average was 4.4 cases. He identified 6 main types of illegal corporate behavior: (1) Administrative violations, such as noncompliance with an order from a court or government agency; (2) Environmental violations such as air/water pollution; (3) Financial violations, such as bribery, tax violations, and accounting malpractices; (4) Labour violations, involving employment discrimination, occupational health and safety hazards, and unfair labour practices; (5) Manufacturing violations, such as violations of consumer product safety laws; (6) Unfair trade practices, involving various abuses of competition such as restraint of trade, price fixing, and false advertizing. In Canada, focusing on violations of the old Combines Act, Goff and Reasons (1978) reported a total of 157 decisions between 1952-72 against the largest 50 Canadian corporations (3 per corporation). All told, such studies demonstrate the wide extent of corporate offending, and reveal that individuals in the middle and upper socio-economic classes - contrary to popular stereotypes, quite frequently engage in illegal behavior. What causes such crime? We cannot look to poverty or individual pathology. Rather, we must look at the context in which such crimes occur: the corporation, along with the internal and external factors affect it and its employees. Beginning with the external factors influencing corporations, we must be aware that any organization both affects, and is affected by its environment. Beginning with a macro perspective, we could first look at the essential features of our capitalist economy with its goals 5 Similarly, differential association theory may also contribute to an explanation at this level. A form of learning theory, it postulates that deviant behavior is learned just like any other form of behavior through differential contact with deviant associates. In a corporate environment, behavior is often a product of cultural norms operating therein. As executives become enmeshed in a corporate or professional subculture, they become exposed to deviant peers and learn illegal behaviors. Where there is exposure to an excess of definitions favorable to crime, and relative isolation from definitions unfavorable to crime, individuals can be socialized to commit deviant acts - particularly so in companies that instill deep loyalty to, and identification with the company. Of course, companies vary in the extent to which they encourage or discourage illegal behavior (e.g. through selective hiring, socialization and promotion of offenders), but those who lack internal cultural restraints to illegal behavior are more likely to have employees exhibiting deviant practices. In tandem with control and differential association theories at the individual level, we must consider how the corporate criminal justifies or rationalizes his or her behavior. Here Sykes and Matza’s “techniques of neutralization” may be applied. These are: 1. Denial of responsibility (“I have no control over it”); 2. Denial of injury (“It’s not harmful, it’s just that proper procedures weren’t followed” ; “The settlement doesn’t mean we’re admitting liability”) 3. Denial of the victim (“No customers were penalized”) 4. Condemnation of the condemners (“It’s a vendetta by regulators”) 5. Appeal to higher loyalties (“Aren’t there more important issues facing the country?”) In the end, a theoretical integration of the external, internal, and individual factors we have discussed is necessary to understand corporate crime. Externally, large firms, operating in heavily regulated industries, experiencing economic strain and environmental uncertainty are more at risk of corporate crime. However, individuals must be exposed to a socialization process whereby they come to identify disproportionately with the company and its goals, learn the illegal behavior, and rationalize their behavior through techniques of neutralization. External strain imposed by competitors, suppliers and regulations interacts with internal strains to meet goals within a particular corporate structure. To the extent that cultural constraints are weak from each direction, corporate offending is more likely to occur. Given these many pressures, how do we control corporate crime? There are already more statutes on the books criminalizing the behavior of corporations than there are laws that criminalize the behaviors of the poor. However, these are generally not enforced as readily, and are often punished as harshly as the crimes of the poor. Indeed, Hagan (1985 and 1989) found, in a study of violators of the Securities Act and the Criminal Code between 1966-83, that offenders in positions of power committed crimes larger in scope than those with less power, but received proportionately less severe sanctions. This was because they were less likely to be charged under the Criminal Code than the Securities Act, which carries lesser sanctions. 6 Similarly, Goff and Reasons (1978), in their study of companies violating the old Combines Act between 1952-73, found that enforcement was concentrated on small and medium sized corporations, “leaving the very largest corporations to engage in their monopolistic practices.” It was suggested that this was because large corporations have the ability to better obscure their illegal practices, and only very recently have governments been taking a more aggressive stance against anti-competitive practices (and fines often pale in the face of corporate earnings in any event). Finally, Snider (1982) compared punishments given corporate offenders and other non- violent property offenders. She found that sentences for traditional types of property crime (e.g. theft, possession of stolen goods, auto theft, and B+E) were considerably higher than those for corporate crimes (e.g. false advertizing, misleading pricing, violations of legislation such as the Hazardous Products Act and the old Combines Investigation Act). This may be due to legal advantages and resources they possess due to their generally more respected position in society. In conclusion, corporate criminals often are spared the stigma of criminalization often imposed on those less privileged, and existing sanctions appear to have little deterrent effect - as these crimes are so interwoven with society’s organizational and cultural context. While sanctions have been suggested ranging from stiffer penalties for companies and executives, negative publicity, nationalization and/or forced breakups of habitual offenders, all are externally imposed after the fact, and face many difficulties (e.g. globalization facilitates moving out of countries with rigid regulatory regimes/ stiff sanctions). It has also been suggested that corporate crime may be dealt with internally before the fact by improving and strengthening firms’ self-regulatory systems by building in public and/or union representation on boards of directors. Of course, such individuals may be corrupted as well, and are not likely to have an influence on the majority of decision makers. Finally, it has been suggested that firms may find an economic advantage in creating a stronger business ethic, as unethical corporate behavior may destroy a company’s reputation in a highly competitive environment, and result in lost customers, protests, and/or government intervention. Interestingly, this message may be catching on - a 1997 survey found that 66% of Canada’s largest corporations now have a code of ethics (90% in the U.S.) All the same, nothing stops one from breaking rules that one writes oneself. Whether any of these responses will be successful in controlling corporate crime remains to be seen. Until the public, corporations and their employees feel that illegal corporate activity is as shameful and despicable as street crime, there will be many problems in dealing with such activities. Occupational Deviance: Compared to offenses committed by corporations, those perpetrated by individual white- collar employees for their own gain are usually less costly to the victims - yet still cost considerably more than the common crimes committed by the lower classes. There are many different forms of occupational deviance, but we will analyze only the most common and costly 7 ones. First, theft by employees from their employers is extremely common and costly. In the 1990's, it accounted for at least 2% of sales, costing an estimated $120 million a year. Both businesses and consumers suffer. Because of employee theft, more than 1000 businesses fold each year, and the remaining ones, though successful, pass the cost of employee theft along to consumers by raising prices. One study suggests about 30% of U.S. employees plan to steal, another 30% sometimes succumb to the temptation, and only 40% are basically honest (Buss, 1993). This is undoubtably the most pervasive and costly form of property deviance of any kind. Most employee thieves are middle-class, apparently solid, respectable citizens who are as outraged as anyone else by common forms of crime (i.e. street crime). Why, then, do they steal? Four explanations have been given. First, it is argued that this has a lot to do with large, impersonal corporations that treat employees like a number, inspiring little loyalty (i.e. people feel that stealing from such abstract entities is like “stealing from nobody”). Secondly, if there is a cultural history of union-management conflict, low pay, feelings of being treated abusively, or lack of promotion, employee theft may represent a way for employees, feeling exploited, to “get back at the company” (i.e. “Informal compensation”). Third, workers may steal if they find their jobs too boring (e.g. motivated by the satisfaction, or challenge, of getting away with it vs. for money alone, as with other counterproductive activities). Fourth, there is the idea that both employers and employees look the other way: employees don’t see it as stealing and employers either play along or fire such employees rather than reporting thefts to authorities. The next form of occupational deviance is embezzlement. Compared to ordinary employee theft which involves taking merchandise, embezzlement involves taking money. Though less common than employee theft, it has been estimated that it costs $27.2 billion in once year, and commercial banks lose about 5 times as much money to embezzlers as they do to armed robbers. Embezzlers range from relatively low level employees (e.g. bank tellers) to top executives (e.g. management accountants). But most embezzlers are in management positions, generally white males, married, with kids, and living in a respectable neighborhood. Basically hardworking, honest people, why do they steal? Donald Cressey (1971) argues that prospective embezzlers go through a three-phase social-psychological process: (1) encountering an unshareable financial problem (e.g. gambling debts); (2) becoming aware of an opportunity to secretly solve the problem, embedded in their position of trust; (3) rationalizing away the criminal nature of embezzlement (e.g. “A temporary loan; I’ll return the money later”). This rationalization clinches their decision, particularly for those in higher positions. The third form of occupational deviance is made up of financial frauds. The most common form here is income tax evasion, particularly by businesspeople and lawyers. This is so