Contagion in Organizational Crime and Compliance

Posted: 28 Aug 2020

See all articles by Todd Haugh

Todd Haugh

Indiana University - Kelley School of Business

Date Written: August 25, 2020

Abstract

In recent months, the world has faced a centenary event: the global coronavirus pandemic. As the virus spread, it triggered an international health crisis that has infected upwards of 20 million people and killed more than 750,000. In the U.S. alone, over 167,000 people have died, and another 30,000 are expected to by September. This is against the backdrop of 311 million citizens ordered to stay at home for weeks and an economic recession that has put almost 21 million out of work at a cost of $1.5 trillion. That life has been irrevocably changed from what it was just months ago is evident. How exactly society emerges from this crisis is less clear. We can be assured, however, that the impact will be profound and lasting.

Behavioral science tells us we are hardwired to focus on the negative aspects of events, and this crisis is no different. It would be unreasonable not to given so much loss, uncertainty, and disruption. Yet there have been positives. Neighbors have delivered food to those more vulnerable, donations have poured in to support struggling small business owners, and people have volunteered in droves. We have also innovated. For example, Ford remade their assembly lines to produce thousands of ventilators per day, and the medical industry has created testing kits able to diagnose infection in as little as five minutes. All of which demonstrates that moments of distress and upheaval can provide opportunities—to reorient, to see intractable problems anew, and to consider fresh solutions.

This Article sets out to do that in the context of organizational crime and compliance, specifically by using lessons from the public health response to the pandemic. How public health officials consider and address the coronavirus offers a new model that can be applied to unethical behavior and organizational criminality.

Indeed, few would argue that organizational crime is a persistent and complex problem in need of new perspectives. Current estimates put the aggregate cost of corporate wrongdoing somewhere between $500 billion and $1.6 trillion per year. The traditional response to corporate scandals has been to criminalize more conduct and ratchet up penalties, yet this has not resulted in less wrongdoing. Companies are now under increasing pressure to self-police their employees through organizational compliance programs. Unfortunately, for a host of reasons, such efforts also seem to be failing. Enter public health. Although bringing these two areas together may sound incongruous, public health-related research aimed at changing decision making and behavior in times of contagious outbreaks is directly relatable (and can be proactively applied) to white collar offending and organizational compliance. Put simply, we can use the medical and social science being employed to fight the spread of the coronavirus to make our organizations healthier from an ethical standpoint.

In support of this thesis, the Article proceeds in three parts. Part I begins by explaining the traditional assumptions underlying organizational crime and compliance; that is, wrongdoing within companies can be deterred through imposing costs on rational decision-makers. Despite its intuitive appeal and wide adoption, this assumption has proven faulty. The field of behavioral ethics, and its recognition that ethicality is bounded, provides a more fulsome understanding of organizational crime and compliance. Part I explores this evolution and the current state of behavioral ethics research, which provides a better theoretical grounding for understanding organizational wrongdoing.

Part II draws on this behavioral theory to make the connection between public health and organizational compliance. Public health efforts to control a contagion are an exercise in compliance, writ large. Here we see how public health and organizational compliance are joined through behavioral science and how it may be used to better understand and influence individual decision making and behavior. At the same time, the importance, prevalence, and innerworkings of social networks become apparent. Beginning with an overview of network theory and its conceptual landscape, the discussion moves to how social networks operate in the context of complex behavioral contagions—from the refusal to wear a mask during a pandemic to committing financial crime in a Fortune 500 company.

In Part III, the focus shifts from the theoretical to the practical, exploring how these insights can make employees and their companies healthier from an ethical standpoint. The traditional tools of compliance, often considered the front lines in lessoning corporate crime, are compared to new behavioral compliance strategies informed by recent public health efforts. A “life cycle” approach is employed that considers how wrongdoing enters and moves through an organization, from initial hiring to identifying and monitoring ethical influencers. This part culminates in a discussion of how “sensor networks” used to preemptively slow the spread of disease can actually predict wrongdoing in organizations—where it will occur and how much damage it will do. The article concludes with a call for corporate crime and compliance to internalize the lessons of public health, which offers the best path toward lessoning organizational crime and making our society more ethical.

Keywords: compliance, behavioral ethics, contagion, network theory, social network, behavioral compliance, white collar crime, corporate crime, organizational wrongdoing, public health

Suggested Citation

Haugh, Todd, Contagion in Organizational Crime and Compliance (August 25, 2020). Available at SSRN: https://ssrn.com/abstract=3680864

Todd Haugh (Contact Author)

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Bloomington, IN 47405
United States

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